-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WZ/RNGyk7r5PCchGwfWaDQ/JRDrPSYpYvKHrD22FVYgbi+F1VSAWU0Iqvc6pweNt Ci9PiLhoCYNfhLnGpsARig== 0000719271-99-000006.txt : 19990316 0000719271-99-000006.hdr.sgml : 19990316 ACCESSION NUMBER: 0000719271-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSFINANCIAL HOLDINGS INC CENTRAL INDEX KEY: 0000719271 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 460278762 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12070 FILM NUMBER: 99564953 BUSINESS ADDRESS: STREET 1: 8245 NIEMAN ROAD, STE 100 STREET 2: SUITE 100 CITY: LENEXA STATE: KS ZIP: 66214 BUSINESS PHONE: 9138590055 MAIL ADDRESS: STREET 1: 8245 NIEMAN ROAD STREET 2: SUITE 100 CITY: LENEXA STATE: KS ZIP: 66214 FORMER COMPANY: FORMER CONFORMED NAME: ANUHCO INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CARRIERS INC DATE OF NAME CHANGE: 19910812 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Year Ended December 31, 1998 Commission File Number - 0-12321 TRANSFINANCIAL HOLDINGS, INC. State of Incorporation - Delaware IRS Employer Identification No. - 46-0278762 8245 Nieman Road, Suite 100, Lenexa, Kansas 66214 Telephone Number - (913) 859-0055 Securities Registered Pursuant to Section 12(b) of the Act Name of Each Exchange Title of Each Class on Which Registered TransFinancial Holdings, Inc. Common Stock, American Stock Exchange par value $0.01 per share, 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock held by non-affiliates of TransFinancial Holdings, Inc. as of March 12, 1999, was $13,862,000 based on the last sale price on the American Stock Exchange on that date. The number of outstanding shares of the registrant's common stock as of March 12, 1999 was 3,932,372 shares. DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III, Items 10, 11, 12 and 13 of this Report are incorporated by reference from the registrant's definitive proxy statement for the 1999 annual meeting of shareholders. FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report on Form 10-K which are not statements of historical fact constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. 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. These statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward Looking Statements" for additional information and factors to be considered concerning forward-looking statements. PART I ITEM 1. BUSINESS. TransFinancial Holdings, Inc. ("TransFinancial" or the "Company"), is headquartered in Lenexa, Kansas, and is a Delaware holding company formed in April, 1976. TransFinancial operates in three industry segments; transportation, through, its subsidiary Crouse Cartage Company ("Crouse"); financial services, primarily through its insurance premium finance subsidiary, Universal Premium Acceptance Corporation ("UPAC"); and industrial technology, through its subsidiary, Presis, L.L.C. ("Presis"). TransFinancial acquired Crouse on September 1, 1991. UPAC was acquired on March 29, 1996 and merged operations with Agency Premium Resource, Inc. ("APR") which was acquired May 31, 1995. TransFinancial acquired its interest in Presis effective July 31, 1997. Financial information about the Company's operating industry segments is presented in Note 1 of Notes to Consolidated Financial Statements. TRANSPORTATION Crouse, headquartered in Carroll Iowa, is a regional motor common carrier of general commodities in less-than-truckload ("LTL") quantities in 15 states in the north central and midwest portion of the United States. In 1998, Crouse entered into a strategic partnership arrangement with a southeastern regional LTL carrier that enables Crouse to offer its customers service in 7 southeastern states. Crouse also offers motor common carrier service for truckload quantities of general and perishable commodities throughout the 48 contiguous United States. LTL shipments are defined as shipments weighing less than 10,000 pounds. LTL carriers are referred to as regional, inter-regional or national motor carriers, based upon length of haul. Carriers with average lengths of haul less than 500 miles are referred to as regional carriers. Carriers with average lengths of haul between 500 and 1,000 miles are referred to as inter-regional carriers. National carriers generally operate coast-to-coast and have average lengths of haul that exceed 1,000 miles. In the motor carrier business, revenue is a function of volume and pricing and is frequently described in relation to weight. Crouse tracks revenue per hundredweight (pounds divided by 100) as a measure of pricing or rate trends. In addition to pricing, the average revenue per hundredweight is also a function of the weight per shipment, length of haul and commodity mix. LTL carriers can improve profitability by increasing lane and terminal density. Increased lane density lowers unit operating costs. Increased terminal density, by increasing the amount of freight handled at a given terminal location, improves utilization of fixed assets. LTL shipments must be handled rapidly and carefully in several coordinated stages. Local drivers operating from Crouse's network of 68 service locations pick up shipments from customers. The freight is transported to a terminal, loaded into intercity trailers, carried by linehaul drivers to the terminal which services the delivery area, transferred to trucks or trailers and then delivered to the consignee by local drivers. Much of Crouse's LTL freight is handled and/or transferred through one of three centrally located "break bulk" terminals between the origin and destination service areas. LTL operations require substantial equipment capabilities and an extensive network of terminal facilities. Accordingly, LTL operations, compared to truckload shipments and operations, command higher rates per hundredweight shipped and have tended historically to be less vulnerable to competition from other forms of transportation such as railroads. Crouse's concentrated and efficient operations typically allow it to provide next day service (delivery on the day after pickup) for much of the LTL freight it handles. The following table sets forth certain financial and operating data with respect to Crouse:
1998(4) 1997 1996 1995(3) 1994(3) Revenue (000's).................................. $ 144,592 $ 126,062 $ 107,502 $ 95,152 $ 95,772 Operating Income (000's)......................... 2,865 3,136 2,915 3,970 6,017 Operating Ratio (1).............................. 98.0% 97.5% 97.3% 95.8% 93.7% Number of shipments (000's) - Less-than-truckload ........................... 1,150 1,076 952 742 744 Truckload ............................... 39 31 27 32 33 Revenue per hundredweight - Less-than-truckload ........................... $ 9.32 $ 9.25 $ 8.84 $ 9.25 $ 9.38 Truckload ............................... 2.36 2.09 2.04 2.30 2.19 Tonnage (000's) - Less-than-truckload ........................... 638 570 503 402 398 Truckload ............................... 545 495 461 451 479 Intercity miles operated (000's)................. 60,848 51,952 44,523 39,424 36,720 At year-end, number of - Terminals (2) ............................... 68 66 55 54 53 Tractors and trucks ........................... 684 631 585 527 504 Trailers ...................................... 1,501 1,417 1,194 1,004 948 Employees ............................... 1,338 1,287 1,113 945 965 Notes: (1) Operating ratio is the percent of operating expenses to operating revenue. (2) Includes owned, leased, agent and other operating locations. (3) Effective in 1996 the Company prospectively changed its classification of certain shipments, related tonnage and revenues between less-than-truckload and truckload which affects the comparability of this data with 1994 through 1995 information. (4) 1998 operating income excludes certain charges totaling $1,544,000 relating to events surrounding the hostile takeover of Crouse's parent.
SEASONALITY Crouse's quarterly operating results, as well as those of the motor carrier industry in general, fluctuate with the seasonal changes in tonnage levels and with changes in weather-related operating conditions. Tonnage levels are generally highest from August through October. A smaller peak also generally occurs in April through June. Inclement weather conditions during the winter months adversely affect the number of freight shipments and increase operating costs. Historically, Crouse has achieved its best operating results in the second and third quarters when adverse weather conditions do not affect its operations and seasonal peaks occur in the freight shipped via public transportation. INSURANCE AND SAFETY Crouse is self-insured for the first $100,000 of losses per occurrence with respect to public liability, property damage, workers' compensation, cargo loss or damage, fire, general liability and other risks. In addition, Crouse maintains excess liability coverage for risks over and above the self-insured retention limits. In the opinion of management, all claims pending against Crouse are adequately reserved under Crouse's self-insurance program, or are fully covered by outside insurance.* Because most risks are largely self-insured, Crouse's insurance costs are primarily a function of the success of its safety programs and less subject to increases in insurance premiums. Crouse conducts a comprehensive safety program to meet its specific needs. COMPETITION The motor carrier industry is highly competitive and fragmented. Crouse competes on the basis of both price and service with other regional LTL motor common carriers and, to a lesser degree, with contract and private carriage. Such competition has resulted in a proliferation of discount programs among competing carriers. Crouse negotiates rate discounts on an account by account basis, taking into consideration the cost of services relative to the net revenue to be obtained, the competing carriers and the need for freight in specific traffic lanes. For freight moving over greater distances, Crouse must compete with national and large inter-regional carriers and, to a lesser extent, with truckload carriers, railroads and overnight delivery companies. REGULATION The interstate operations of Crouse are subject to regulation by the Department of Transportation ("DOT") and a panel within the DOT, the Surface Transportation Board ("STB"). Motor carriers are required to register with the DOT. Registration is granted by the DOT upon showing safety, fitness, financial responsibility and willingness to abide by DOT regulations. The trucking industry remains subject to the possibility of regulatory and legislative changes that can influence operating practices and the demands for and the costs of providing services to shippers. Interstate motor carrier operations are subject to safety requirements prescribed by DOT, while such matters as the weight and dimensions of equipment are also subject to Federal and state regulations. Professional truck drivers must be licensed to operate commercial vehicles in compliance with the DOT regulations, and are subject to strict drug testing standards. These requirements increase the safety standards for conducting operations, but add administrative costs and have affected the availability of qualified, safety conscious drivers throughout the trucking industry. Crouse is subject to state public utility commissions and similar state regulatory agencies with respect to safety and financial responsibility in its intrastate operations. Crouse is also subject to safety regulations of the states in which it operates, as well as regulations governing the weight and dimensions of equipment. Crouse's operations are also subject to various federal, state and local environmental laws and regulations governing the transportation, storage, presence, use, disposal and handling of hazardous materials and the maintenance of underground fuel storage tanks. Management does not know of any existing condition that would cause compliance with applicable environmental regulations to have a material effect on the Company's financial condition or results of operations.* In the event that the Company should fail to comply with applicable laws and regulations, the Company could be subject to substantial liability.* For a discussion of facilities used by Crouse which maintain underground fuel storage tanks, see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition." EMPLOYEES At December 31, 1998, Crouse employed 1,338 persons, of whom 1,068 were drivers, mechanics, dockworkers or terminal office clerks. The remaining employees were engaged in managerial, sales and administrative functions. Approximately 80% of Crouse employees, including primarily drivers, dockworkers and mechanics, are represented by the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America ("Teamsters Union") or other local unions. Crouse and the Teamsters Union are parties to the National Master Freight Agreement ("NMFA") which expires on March 31, 2003. Crouse achieved ratification in 1998 of new five-year pacts with the International Brotherhood of Teamsters or other local unions covering substantially all of its union employees. The new contracts generally provide for all of the terms of the NMFA 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 the union local representing the remaining employees. There can be, however, no assurance that Crouse's remaining union employees will ratify a new contract 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.* As an employer signatory to the NMFA, Crouse must contribute to certain pension plans established for the benefit of employees belonging to the Teamsters Union. Amendments to the Employee Retirement Income Security Act of 1974 ("ERISA") pursuant to the Multiemployer Pension Plan Amendments Act of 1980 (the "MPPA Act") substantially expanded the potential liabilities of employers who participate in such plans. Under ERISA, as amended by the MPPA Act, an employer who contributes to a multiemployer pension plan and the members of such employer's controlled group may be jointly and severally liable for their proportionate share of the plan's unfunded liabilities in the event the employer ceases to have an obligation to contribute to the plan or substantially reduces its contributions to the plan (i.e., in the event of plan termination or withdrawal by Crouse from the multiemployer plans). Although Crouse has no current information regarding its potential liability under ERISA in such an event, management believes that such liability would be material.* Under provisions of the former NMFA, Crouse maintained a profit sharing program for all employees from 1988 through September 1998 ("Profit Sharing"). Profit Sharing was structured to allow all Crouse employees to ratably share 50% of Crouse's income before income taxes (excluding extraordinary items and gains and losses on the sale of assets) in return for a 15% reduction in wages. The profit sharing program was not extended in the new contract ratified in 1998. The new contract includes a separate wage reduction provision that specifies wage rates below those provided in the NMFA. FINANCIAL SERVICES UPAC, headquartered in Lenexa, Kansas, is engaged in the business of financing the payment of insurance premiums. UPAC offers financing of insurance premiums primarily to commercial purchasers of property and casualty insurance who wish to pay their insurance premiums on an installment basis. Whereas some insurance carriers require advance payment of a full year's premium, UPAC allows the insured to spread the payment of the insurance premium over time. UPAC finances insurance premiums without assuming the risk of claims loss borne by insurance carriers. When insureds buy an insurance policy from an independent insurance agent or broker who offers financing through UPAC, the insureds generally pay a down payment of 20% to 25% of the total premium and sign a premium finance agreement for the balance, which is generally payable in installments over the following nine months. Under the terms of UPAC's standard form of financing contract, UPAC is given the power to cancel the insurance policies if there is a default in the payment on the finance contracts and to collect the unearned portion of the premiums from the insurance carrier. The down payments are usually set at a level determined, in the event of cancellation of a policy, such that the unearned premiums returned by insurance carriers are expected to be sufficient to cover the loan balances plus interest and other charges due to UPAC. UPAC currently does business with more than 3,200 insurance agencies or brokers, the largest of which referred approximately 3% of the total premiums financed by UPAC in 1998. The following table sets forth certain financial and operating data with respect to UPAC since the entry into this segment by TransFinancial in May 1995: 1998 1997 1996 1995 Premiums financed (000's) $ 160,773 $ 122,981 $ 120,355 $37,852 Number of premium finance contracts 49,789 48,818 46,968 7,214 Average amount of contracts $ 3,229 $ 2,519 $ 2,562 $ 5,247 UPAC had 55 employees at December 31, 1998. REGULATION UPAC's operations are governed by state statutes, and regulations promulgated thereunder, which provide for the licensing, administration and supervision of premium finance companies. Such statutes and regulations impose significant restrictions on the operation of UPAC's business. The Federal Truth in Lending statute also governs a portion of the format of UPAC's premium finance agreements. UPAC currently operates as an insurance premium finance company in the 48 contiguous states under state licenses it holds or under foreign corporation qualification in states that do not require licensing of insurance premium finance companies. UPAC generally must renew its licenses annually. UPAC is also subject to periodic examinations and investigations by state regulators. The licensing agency for insurance premium finance companies is generally the banking department or the insurance department of the applicable state. State statutes and regulations impose minimum capital requirements, govern the form and content of financing agreements and limit the interest and service charges UPAC may impose. State statutes also prescribe notice periods prior to the cancellation of policies for non-payment, limit delinquency and collection charges and govern the procedure for cancellation of policies and collection of unearned premiums. In the event of cancellation, after deducting all interest, service and late charges due it, UPAC must, under applicable state laws, refund the surplus unearned premium, if any, to the insureds. Changes in the regulation of UPAC's activities, such as increased rate regulation, could have an adverse effect on its operations. The statutes do not provide for automatic adjustments in the rates a premium finance company may charge. Consequently, during periods of high prevailing interest rates on institutional indebtedness and fixed statutory ceilings on rates UPAC may charge its insureds, UPAC's ability to operate profitably could be adversely affected.* COMPETITION UPAC encounters intense competition from numerous other firms, including insurance carriers offering installment payment plans, finance companies affiliated with insurance carriers, independent insurance brokers who offer premium finance services, banks and other lending institutions. Many of UPAC's competitors are larger and have greater financial and other resources and are better known to insurance agents and brokers than UPAC. In addition, there are few, if any, barriers to entry in the event other firms, particularly insurance carriers and their affiliates, seek to compete in this market. The market for premium finance companies is two-tiered. The first tier is that of large, national premium finance companies owned by large insurance companies, banks, or commercial finance companies. This group is composed of a small number companies that, on a combined basis, finance in excess of 80% of the total market. The second tier, which includes UPAC, is highly fragmented and is composed of numerous smaller local, regional and national premium finance companies, which finance the remainder of the total market. Competition to provide premium financing to insureds is based primarily on interest rates, level of service to the agents and insureds, and flexibility of terms for down payment and number of payments. Management believes that its commitment to technology and account service distinguishes it from its first tier competitors and that its cost of funds allows it to compete favorably with second tier competitors.* INDUSTRIAL TECHNOLOGY In July 1997, the Company acquired a controlling interest in Presis and subsequently purchased the minority interests from the former owners in 1998. Presis is a start-up business involved in developing technical advances in dry particle processing. Presis has working prototypes that it is utilizing for research and testing which will require further engineering before being placed in commercial operation. In the event the process is successfully developed, Presis expects to market its process to companies processing pigments used in the production of inks, paints and coatings.* Competition in the particle processing field is primarily with manufacturers of machinery using various milling processes (including three-roll mills, media mills, air jet mills and hammer mills). Many of the manufacturers of such machinery used in competing processes are more established and have substantially greater resources than Presis. DISCONTINUED OPERATION American Freight System, Inc. ("AFS") is treated as a discontinued operation of TransFinancial. The primary obligation of AFS is to administer the provisions of a Joint Plan of Reorganization ("Joint Plan"). As of December 31, 1994, all unsecured creditors were paid an amount equal to 130% of their allowed claims, which was the maximum distribution provided under the Joint Plan. In 1992 through 1994 TransFinancial received distributions in accordance with the Joint Plan of $36 million. In addition, AFS paid dividends of $25.0 million, $6.8 million $8.5 million and $9.2 million to TransFinancial on December 28, 1994, July 5, 1995, July 11, 1996 and April 30, 1998. AFS had minimal remaining undistributed net assets as of December 31, 1998. The closure of the bankruptcy estate is anticipated to occur in 1999.* ITEM 2. PROPERTIES. TransFinancial's, UPAC's and Presis' corporate offices are located in approximately 16,000 square feet of a 24,000 square foot office building owned by the Company at 8245 Nieman Road, Lenexa, Kansas 66214. The remainder of the space is leased to third-party tenants. In connection with its operations, Crouse operates a fleet of tractors and trailers and maintains a network of terminals to support the intercity movement of freight. Crouse owns most of its fleet. In 1998 Crouse entered into a long- term operating lease for certain tractors and trailers. Crouse also leases some equipment from owner-operators to supplement the owned and leased equipment and to provide flexibility in meeting seasonal and cyclical business fluctuations. As of December 31, 1998, Crouse owned 484 tractors and leased 200 tractors under a long-term operating lease. During 1998, Crouse leased 284 tractors and 34 flatbed trailers from owner-operators. On December 31, 1998, it also owned 319 temperature controlled trailers, 1,053 volume vans (including 470 53-foot van trailers), and 29 flatbed trailers. Crouse also leased 100 53-foot van trailers under a long-term operating lease. The table below sets forth the number of Crouse operating locations at year-end for the last five years: 1998 1997 1996 1995 1994 Owned terminals......... 28 28 27 26 26 Leased terminals........ 16 14 8 8 8 Agency terminals........ 24 24 20 20 19 Total............. 68 66 55 54 53 The above operating locations include; break bulk facilities in Des Moines, Iowa, Davenport, Iowa and Indianapolis, Indiana; and terminals in Crouse's principal markets, Chicago, Illinois, Milwaukee, Wisconsin, Minneapolis, Minnesota, Kansas City, Missouri, Omaha, Nebraska, St. Louis, Missouri, Cleveland, Ohio, Cincinnati, Ohio and Columbus, Ohio. ITEM 3. LEGAL PROCEEDINGS. TransFinancial's subsidiaries are parties to routine litigation primarily involving claims for personal injury and property damage incurred in the transportation of freight. TransFinancial and its subsidiaries maintain insurance programs and accrue for expected losses in amounts designed to cover liability resulting from personal injury and property damage 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.* ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the security holders during the fourth quarter of 1998. Included herein, pursuant to General Instruction G, is the information regarding executive officers of the Company required by Item 401 of Regulation S-K, as of March 12, 1999. EXECUTIVE OFFICERS OF THE COMPANY Name Age Position Timothy P. O'Neil 42 President, Chief Executive Officer, and Director David D. Taggart 54 Executive Vice President and Director Kurt W. Huffman 40 Executive Vice President Mark A. Foltz 40 Vice President, Finance and Corporate Secretary Timothy P. O'Neil, a member of the Company's Board since August 1995, has been President and Chief Executive Officer since May 1995. From October 1989 through May 1995, Mr. O'Neil served in various positions with the Company, including, Senior Vice President, Vice President, Treasurer and Director of Finance. From March 1997 through October 1998, he also served as President and Chief Executive Officer of UPAC. Mr. O'Neil has been President, Chief Executive Officer, Chief Financial Officer and Treasurer of AFS since July 1991. David D. Taggart, a member of the Board since July 1998, has been Executive Vice President of TransFinancial since April 1998. From August 1997 to April 1998 he served as Vice President of TransFinancial. He has also served as Chairman and Chief Executive Officer of Crouse since January 1997. Mr. Taggart joined Crouse in October 1995 as Executive Vice President. Prior to his service at Crouse, he served as President and Chief Executive Officer of G.I. Trucking, a regional LTL carrier based in LaMirada, California, from 1991 to 1995. Kurt W. Huffman has been Executive Vice President of TransFinancial since August 1998, President and Chief Executive Officer of Presis since March 1998 and President and Chief Executive Officer of UPAC since October 1998. From August 1997 to March 1998 he served as Executive Vice President of Presis. Prior to joining the Company in a management capacity in June 1997, Mr. Huffman served as Chief Information Officer of Laidlaw Transit Services, Overland Park, Kansas, a publicly-held provider of school and municipal bus services, from May 1993 to February 1998. Prior to his service with Laidlaw, he was a senior manager with the international accounting firm of Arthur Andersen LLP. Mark A. Foltz has been Vice President, Finance since June 1997 and Treasurer and Corporate Secretary of TransFinancial since May 1996. He was employed with TransFinancial as Director of Finance in July 1995 and also served as Assistant Treasurer and Assistant Secretary from August 1995 to May 1996. Mr. Foltz served in various financial positions, most recently as Assistant Vice President - Finance, with Mark VII, Inc., a publicly-held transportation company, headquartered in Memphis, Tennessee, from October 1987 to June 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. (A) MARKET INFORMATION. TransFinancial's Common Stock is traded on the American Stock Exchange under the symbol TFH. Prior to July 2, 1997, the Common Stock traded under the symbol ANU. The following table shows the sales price information for each quarterly period of 1998 and 1997. 1998 High Low Fourth Quarter....................... $ 6 1/2 $4 1/8 Third Quarter........................ 9 1/2 5 13/16 Second Quarter....................... 9 5/8 8 7/8 First Quarter........................ 10 1/2 8 7/8 1997 High Low Fourth Quarter....................... $10 1/4 $8 5/8 Third Quarter........................ 10 1/8 8 7/8 Second Quarter....................... 9 1/16 7 1/2 First Quarter........................ 8 7 3/8 (B) HOLDERS. Number of Holders of Record Title of Class at December 31, 1998 Common Stock, par value $0.01 per share 1,158 (C) DIVIDENDS. No cash dividends were paid during 1998 or 1997 on TransFinancial's Common Stock. TransFinancial currently intends to retain earnings to finance expansion and does not anticipate paying cash dividends on its Common Stock in the near future.* TransFinancial's future policy with respect to the payment of cash dividends will depend on several factors including, among others, acquisitions, earnings, capital requirements, financial conditions and operating results. See Note 4 of Notes to Consolidated Financial Statements for a discussion of restrictions on the ability of TransFinancial's subsidiaries to pay dividends to TransFinancial and the ability of TransFinancial to pay cash dividends. ITEM 6. SELECTED FINANCIAL DATA.
1998 1997 1996 1995 1994 (In Thousands, Except Per Share Data) Operating Revenue........................... $ 151,701 $ 133,223 $113,693 $ 96,847 $ 95,772 Income (Loss) from Continuing Operations............................. $ (2,027) $ 1,100 $ 852 $ 2,810 $ 5,495 Income from Discontinued Operations............................. $ -- $ -- $ -- $ 3,576 $ 54,845 Net Income (Loss)........................... $ (2,027) $ 1,100 $ 852 $ 6,386 $ 60,340 Basic Earnings (Loss) per Share - Continuing Operations.................. $ (0.39) $ 0.18 $ 0.13 $ 0.38 $ 0.73 Discontinued Operations................ -- -- -- 0.48 7.27 Total.................................. $ (0.39) $ 0.18 $ 0.13 $ 0.86 $ 8.00 Diluted Earnings (Loss) per Share - Continuing Operations.................. $ (0.39) $ 0.18 $ 0.12 $ 0.37 $ 0.72 Discontinued Operations................ -- -- -- 0.48 7.21 Total.................................. $ (0.39) $ 0.18 $ 0.12 $ 0.85 $ 7.93 Total Assets................................ $ 77,763 $ 89,755 $ 86,812 $ 88,426 $ 85,399 Long-Term Debt.............................. $ 9,700 $ -- $ -- $ -- $ -- Cash Dividends per Common Share........................... $ -- $ -- $ -- $ -- $ --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS TransFinancial operates in three distinct industries; transportation, through its subsidiary, Crouse; insurance premium finance, through its subsidiary, UPAC; and industrial technology, through its subsidiary, Presis. In June 1998, TJS Partners, LP ("TJS"), a shareholder of the Company, announced its intent to acquire an additional 23% of the Company's outstanding common stock held by one family (the "Crouse family"), obtain control of the Company's board of directors and study possible actions such as the liquidation or sale of part or all of the Company's businesses or assets. The board of directors determined that the hostile takeover attempt was not in the best interest of the Company and its shareholders and agreed to repurchase the shares held by TJS and the Crouse family. The failed takeover attempt, together with other events, led TransFinancial to record after-tax charges totaling $2.9 million. These charges included costs related to management and personnel changes, asset and liability valuation adjustments and transaction costs and other expenses related to the takeover attempt. See Notes 1 and 5 of Notes to Consolidated Financial Statements. Transportation OPERATING REVENUE - The changes in transportation operating revenue are summarized in the following table (in thousands): 1998 1997 vs. vs. 1997 1996 Increase (decrease) from: Increases in LTL tonnage.................. $ 12,615 $11,792 Increase in LTL revenue per hundredweight....................... 892 4,934 Increases in truckload revenues........... 5,023 1,834 Net increase............................ $ 18,530 $18,560 Less-than-truckload ("LTL") operating revenues rose 12.8% and 18.8% in 1998 and 1997, in comparison to the preceding years. LTL tonnage rose 12.0% and 13.3% in 1998 and 1997, as compared to 1997 and 1996. The substantial increases in LTL tonnage in 1998 and 1997 were due to increased freight volumes with existing and new customers resulting primarily from expansion of the Company's markets. Additionally, 1997 LTL revenues, tons and shipments temporarily increased during the Teamsters' strike against UPS, as Crouse met customers' needs for small parcel shipments. Crouse's LTL revenue yield rose 0.9% in 1998 as compared to 1997. The effects of a softening agricultural economy, a slowing in the growth of LTL tons and an increase in competitive pressures on freight rates, were substantially offset by additional, high yield freight handled as a result of Crouse's partnership with a southeastern regional carrier which was initiated in the third quarter of 1998. Crouse's LTL revenue yield improved approximately 4.8% in 1997 compared to 1996. This improvement in revenue yield was the result of Crouse's ability to sustain a significant portion of a general rate increase placed in effect on January 1, 1997, negotiated rate increases on certain shipping contracts and fuel surcharges. Revenue per hundredweight in 1997 also benefited temporarily from a decrease in average weight per shipment, which was, in part due to the additional volume of small parcel shipments handled. Smaller shipments typically yield more revenue per hundredweight. Crouse's average revenue per hundredweight in 1997 also was positively impacted when the Company stopped hauling freight for certain customers who would not agree to increases in rates to levels providing adequate compensation for services provided and costs incurred. Truckload operating revenue rose 24.3% and 9.7% in 1998 and 1997, primarily as a result of 26.3% and 13.9% increases in numbers of shipments. Truckload revenues and tons benefited principally from strong volumes in the Company's refrigerated division as the volume of meat hauled continued to be strong. Revenue per shipment declined 2.0% and 4.2% in 1998 and 1997 compared to 1997 and 1996 as a result of decreases in average weight per shipment. OPERATING EXPENSES - A comparative summary of transportation operating expenses as a percent of transportation operating revenue follows: Percent of Operating Revenue 1998(1) 1997 1996 Salaries, wages & employee benefits..... 56.8% 56.8% 55.9% Operating supplies and expenses......... 12.5 12.5 13.2 Operating taxes and licenses............ 2.6 2.6 2.7 Insurance and claims.................... 1.8 2.3 1.9 Depreciation and amortization........... 2.3 3.1 2.7 Purchased transportation and rents...... 22.0 20.2 20.9 Total operating expenses............. 98.0% 97.5% 97.3% (1) Additionally, in connection with the failed takeover attempt by certain shareholders, an in-depth evaluation was performed on each of the Company's business enterprises utilizing both internal and external resources. As a result of this process the Company effected certain changes in its management team and corporate structure, and recorded valuation adjustments to certain assets and liabilities. The following charges relative to the Company's transportation business are not reflected in the percentages above: $494,000 in Salaries, Wages and Employee Benefits; $450,000 in Operating Supplies and Expenses; and $600,000 in Insurance and Claims. Crouse's operating expenses as a percentage of operating revenue, or operating ratio, excluding the charges discussed above, were 98.0% for 1998 compared to 97.5% for 1997. The increase in operating ratio was primarily the result of operating costs associated with the Company's substantial investments in market expansion; the replacement and modernization of its fleet, and the development of management information systems. The operating costs of these investments will continue to impact Crouse's operating ratio into 1999. The Company also believes that its labor productivity and operating efficiency were adversely impacted during 1998 by employee and management attention to issues relating to the union negotiations and attempted hostile takeover and possible liquidation of the Company. With the favorable resolution of these issues and renewed focus on operating performance, the Company believes the unfavorable trend in operating ratios can be reversed in 1999.* Crouse's operating expenses were positively impacted by approximately $756,000 in 1998 as a result of a change in accounting estimate of the remaining useful lives of certain revenue equipment. Crouse's operating ratio for 1997 rose slightly to 97.5% compared to 97.3% for 1996. The fixed costs related to Crouse's investment in expanding its market throughout Ohio, Michigan and Kentucky exceeded revenues generated in these new markets. Insurance and claims expenses were increased as Crouse incurred unusually high claims costs due to an increase in the number and severity of accidents and cargo damage occurring in 1997. Salaries and wages were adversely impacted as Crouse operating and administrative personnel devoted significant man-hours, primarily on an overtime basis, in training and making the transition to Crouse's new computer system, which was in service January 1, 1998. Crouse also incurred incrementally greater variable costs due to the different freight handling characteristics of the small parcel shipments moved during the strike against UPS as compared to the freight Crouse typically handles. Financial Services As a result of the in-depth evaluation of the Company's business enterprises, changes in its management team and adjustments to certain assets and liabilities discussed previously, UPAC recorded charges relative to its financial services business in 1998. These charges include $392,000 relative to management and personnel costs and $683,000 of charges related to adjustments in asset values, including $333,000 of additional depreciation related to the change in estimated useful life for purchased software (See Note 1 of Notes to Consolidated Financial Statements). In 1998, UPAC reported operating income, excluding the charges discussed above, of $422,000 on net financial services revenue of $7.0 million and total insurance premiums financed of $160.8 million. A slight decrease in net financial services revenue in 1998 was primarily due to an increase in the percentage of finance receivables sold and a decrease in gains realized on sale of receivables pursuant to the securitization agreement resulting from a lower average yield on contracts originated in 1998. Operating income, excluding the charges discussed above, was slightly higher due to reduced operating expenses in 1998, principally provisions for credit losses. The increase in total insurance premiums financed in 1998 was the result of the acquisition of Oxford Premium Finance, Inc. on May 29, 1998 and increased volumes financed with existing and new agents. In 1997, UPAC generated operating income of $396,000 on net financial services revenue of $7.1 million from total insurance premiums financed of $123.0 million. In 1996, UPAC financed $120.4 million of insurance premiums and generated net financial services revenue of $6.1 million and an operating loss of $685,000. The increase in premiums financed and net financial services revenue was primarily the result of the acquisition of UPAC effective March 29, 1996. The improvement in operating income in 1997 from the operating loss incurred in 1996 was primarily the result of the integration of the operations of UPAC in Lenexa, Kansas that eliminated substantial duplicate administrative costs incurred in 1996. Also positively impacting operating income in 1997 was the improved cost of funds under the Company's new receivable securitization agreement effective December 31, 1996, and an increase in gain recognized on receivables sold under the new securitization agreement. Operating income in 1997 was adversely impacted by unusually high levels of credit losses during the year, primarily as a result of apparently falsified financings by insurance agents. Industrial Technology As a result of the in-depth evaluation of the Company's business enterprises, changes in its management team and adjustments to certain assets and liabilities discussed previously, Presis, the Company's start-up industrial technology business, recorded charges related to its industrial technology investment in 1998. These charges include $244,000 related to management and consulting contracts and $525,000 resulting from the adjustment of the carrying value of certain equipment and intangibles to fair value (See Note 1 of Notes to Consolidated Financial Statements). In 1998, Presis incurred operating expenses, excluding the charges discussed above, of $700,000, primarily in salaries, wages and employee benefits as compared to operating expenses of $295,000 during the partial year of 1997. In its initial phase Presis has focused on continued research and testing of its technology. The Company expects this operation to incur operating losses in 1999 at or below its current expenditure levels of $100,000 per quarter as it continues to pursue the research, testing and commercialization of its technology.* Other In connection with the failed takeover attempt, the Company incurred $500,000 in transaction costs and expenses that are included in general corporate expenses in 1998. Additionally, general corporate charges of $700,000 were recorded principally to reflect certain excess costs incurred to remove contaminated soil from a site formerly owned by the Company. A lawsuit has been filed against the environmental engineering firm that performed the initial cleanup to recover such excess costs. The Company has not recorded the benefit of potential recovery pursuant to this lawsuit and none can be assured. As a result of the Company's use of funds for the Crouse market expansion and new computer system, the UPAC acquisition and stock repurchases, interest earnings on invested funds were substantially lower in 1998 and 1997 than in the preceding years. Interest income is expected to continue to decline as the Company invests its cash and short-term investments in its operations.* Interest expense increased in 1998 due to borrowings on long-term debt incurred to repurchase stock (See Note 4 of Notes to Consolidated Financial Statements). TransFinancial's effective income tax provision (benefit) rates for 1998, 1997 and 1996 were (29%), 58% and 51%. The effective income tax rate for 1998 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 1998, as compared to the impact of these items on pre-tax income in 1997. The increase in the effective rate in 1997 was the result of the greater significance of non-deductible amortization of intangibles relative to reduced pre-tax income. Also, in 1997 the Company provided additional income tax reserves for tax adjustments resulting from an examination of the Company's income tax returns. This examination was concluded in 1998 with no additional tax provision required. 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 1999 at or below its current expenditure levels of $100,000 per quarter. Forward-Looking Statements Certain statements contained in this Annual Report on Form 10-K 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-K. 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 interest rates 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 Item 1 and under "Financial Condition" below regarding the adequacy of reserves and insurance with respect to claims against Crouse, such statements are subject to a number of risks and uncertainties, including without limitation the difficulty of predicting the actual number and severity of future accidents and damage claims. With respect to statements in Item 3 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 final resolution of ongoing claims and litigation. 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. With respect to statements in "Financial Condition" regarding the adequacy of the allowances for credit losses, such statements are subject to a number of risks and uncertainties including, without limitation: greater than expected defaults by customers, fraud by insurance agents and general economic conditions. 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 December 31, 1998 with approximately $3.3 million in cash and investments. The Company's current ratio was 2.3 to 1.0 and its ratio of total liabilities to tangible net worth was 0.7 to 1.0. In addition to utilizing cash and investment reserves, a substantial amount of the Company's cash is generated by operating activities. Cash generated from operating activities decreased in 1997 from 1996, due primarily to a temporary increase in freight accounts receivable resulting from a lag in billing and collections during Crouse's transition to its new computer system. Substantially all of these delinquent receivables were collected in 1998 resulting in the improvement in cash generated from operating activities in that period. Investing Activities - The continuing winddown of its discontinued operation, AFS, has been a source of cash to the Company's operation as AFS has distributed $6.3 million and $8.5 million in cash dividends in 1998 and 1996. AFS had minimal remaining undistributed net assets as of December 31, 1998. The principal use of cash has been the acquisitions of Oxford for approximately $4.2 million in 1998 and UPAC for approximately $12.0 million in 1996. In addition, Crouse expended $13.1 million, $9.6 million and $4.0 million in 1998, 1997 and 1996, to replace and expand its fleet of tractors and trailers and to acquire new terminals. 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, as well as, from the date of the acquisition of UPAC through December 30, 1996, secured borrowings against UPAC's receivables. The current securitization agreement that matures December 31, 2001 currently provides for the sale of a maximum of $85 million of eligible receivables. As of December 31, 1998, $61.6 million of such receivables had been securitized (See Note 4 of Notes to Consolidated Financial Statements). Financing Activities - From March 31, 1996 to December 31, 1996, UPAC's receivables were financed by secured borrowings under a $30 million revolving credit agreement. The balance outstanding under this agreement at December 30, 1996, $22.5 million, was repaid from the proceeds of the initial sale of receivables under UPAC's new receivable securitization agreement on December 31, 1996 described above. Effective January 5, 1998, Crouse entered into a new Secured Loan Agreement that provides for a working capital line of credit of $4.5 million at the bank's prime rate and an equipment line of credit of $4.5 million accruing interest, at Crouse's option at either a variable rate equal to the bank's prime rate, or a fixed rate at 200 basis points over the Federal Home Loan Bank Rate then existing. Crouse's revenue equipment and bank deposit balances are pledged as collateral for both lines. In 1996 through 1998, Crouse has utilized this and previous agreements only on a limited basis for short-term operational needs. No borrowings were outstanding on the lines at December 31, 1998. In the third quarter of 1995, the Company initiated a program to repurchase up to 10% of its outstanding shares of common stock. During the second quarter of 1996, the Company completed this initial repurchase program and expanded the number of shares authorized to be repurchased by an additional 10% of its then outstanding shares. The second program was completed in the fourth quarter of 1997. During 1997 and 1996, the Company repurchased 257,099 and 768,600 shares, at a total cost of $8.7 million. Additionally, during the fourth quarter of 1996, the Company repurchased 28,541 shares of common stock at a cost of $237,000 pursuant to an "Odd Lot Tender Offer" to holders of less than 100 shares. On June 26, 1997, the shareholders of the Company approved a 1-for-100 reverse stock split followed by a 100-for-1 forward stock split. These stock splits were effected on July 1, 1997. The result of this transaction was the cancellation of approximately 107,000 shares of common stock held by holders of fewer than 100 shares at the then current market price of $8.89 per share. Pursuant to a definitive stock purchase agreement resolving the hostile takeover attempt, the Company repurchased 2,115,422 shares of its common stock held by the Crouse family, including 881,550 shares registered in the name of TJS Partners, LP, all at a price of $9.125 per share, effective August 14, 1998. The Company paid and expensed $350,000 of legal and other expenses incurred by the Crouse family in connection with the takeover attempt. See Note 5 of Notes to Consolidated Financial Statements. The Company funded the stock repurchase out of available cash and short-term investments, the proceeds from the sale and leaseback of approximately $4.2 million of revenue equipment and the proceeds from a $10.0 million secured loan from one of the Company's existing bank lenders as described below. 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. The Loan bears interest at the bank's prime rate, 7.75% at December 31, 1998. 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. At December 31, 1998 current maturities of long-term debt were $300,000, with the remaining $9,700,000 due in 2000 (See Note 4 of Notes to Consolidated Financial Statements). The Company believes available cash and investments, cash generated from operations and funds available under the receivables securitization agreement and Secured Loan Agreement will be sufficient to fund operations and other cash needs for 1999.* As of December 31, 1998, Crouse owned or leased 44 parcels of real property which are utilized in its operations. Six of these facilities maintain underground fuel storage tanks. These fuel systems were replaced with new tanks equipped with corrosion protection and automatic tank monitoring equipment. Any contamination detected during the tank replacement process at these sites was remediated at the same time. The cost of replacing and upgrading tanks and remediating contamination, if any was detected, was not material to the financial position of the Company. The Company is not currently under any requirement to incur mandated expenditures to remediate previously contaminated sites and does not anticipate any material costs for other infrequent or non- recurring clean-up expenditures.* Crouse retains a $100,000 per occurrence self-insured exposure, or deductible, on its workers' compensation, general and automobile liability, bodily injury and property damage and cargo damage insurance coverages. The Company maintains reserves for the estimated cost of the self-insured portion of claims based on management's evaluation of the nature and severity of individual claims and the Company's past claims experience. Based upon management's evaluation of the nature and severity of individual claims and the Company's past claims experience, management believes accrued reserves are adequate for its self-insured exposures as of December 31, 1998.* The amount of the allowance for credit losses is based on periodic (not less than quarterly) evaluations of the portfolios based on historical loss experience, detail account by account agings of the portfolios and management's evaluation of specific accounts. Management believes the allowances for credit losses are adequate to provide for potential losses.* See Note 1 of Notes to Consolidated Financial Statements - Summary of Significant Accounting Policies - Allowance for Credit Losses. Crouse has achieved ratification of new five-year pacts with the International Brotherhood of Teamsters or other local unions covering substantially all of its union employees. The new contracts generally 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 the union local representing the remaining employees. There can be, however, no assurance that Crouse's remaining union employees will ratify a new contract 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.* 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 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 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 substantially 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 in the second quarter of 1999.* The Contingency Planning Phase will begin in the first quarter of 1999 and be completed in the third quarter of 1999.* Transportation non-IT assets With regard to the Transportation non-IT assets section, the Inventory Phase is 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 first quarter of 1999.* The Testing Phase is ongoing as corrective actions are completed. This phase is anticipated to be complete in the second quarter of 1999.* The Contingency Planning Phase will begin in the first quarter of 1999 and 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 is expected to be completed in the first quarter of 1999.* The Contingency Planning Phase will begin in the first quarter of 1999 and 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 $80,000 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk is interest rate risk. Changes in short- term interest rates can affect: (a) the amount of the Company's interest expense on its variable interest rate debt and (b) the amount of the discount on finance accounts receivables sold by UPAC under its receivable securitization agreement. The Company has not obtained any financial instruments for trading purposes. The Company's long-term, variable interest rate debt was $10,000,000 as of December 31, 1998, with $300,000 maturing in 1999 and the remaining $9,700,000 maturing in 2000. In addition, Crouse has a variable rate credit facility through which it may borrow $4.5 million for working capital purposes and $4.5 million for equipment purposes. Crouse has utilized this line on a limited basis for short-term working capital needs, however, no borrowings were outstanding under this credit facility as of December 31, 1998. UPAC sells undivided interests in its insurance premium finance accounts receivables on an ongoing basis under a receivables securitization agreement. The receivables sold are fixed rate notes and typically have a term of nine months. An undivided interest in the pool of receivables is sold at a discount rate based on the average rate on 28 - 35 day commercial paper over the term of the notes. Consequently, with respect to insurance premium finance receivables sold by UPAC under the securitization agreement, changes in the rate on 28 - 35 day commercial paper during the term of such receivables will affect the amount to be received by UPAC in the sale of receivables under the securitization agreement. The Company recognizes a gain on sale of receivables that represents the excess of the sale proceeds over the net carrying value of the receivables. Included in the gain recognized are the estimated effects of prepayments, recourse provisions and the discount rate in effect at the time of sale. As of December 31, 1998, UPAC had a total finance accounts receivable portfolio of $76.5 million, including $61.6 million that had been sold under the securitization agreement. UPAC closely monitors interest rates and the extent of its interest rate exposure resulting from its insurance premium finance activities and the sale of insurance premium finance receivables. UPAC does not currently use derivatives, such as interest rate swaps, to manage its interest rate risk and does not engage in any other hedging activities. The estimated impact of a hypothetical 100 basis point (one percent) change in short-term interest rates on the Company's interest expense on its variable interest rate debt and on UPAC's gain on sale of insurance premium finance receivables is approximately $292,000. This hypothetical short-term interest rate change impact is based on existing business and economic conditions and assumes that UPAC would pass the increase in interest rates on to its customers in new finance contracts generated after the increase.* ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of TransFinancial Holdings, Inc.: In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 14 (a)(1) and (2) herein present fairly, in all material respects, the financial position of TransFinancial Holdings, Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP Kansas City, Missouri February 3, 1999, except for Note 10, as to which the date is February 18, 1999. TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 1998 1997 (In Thousands) ASSETS Current Assets Cash and cash equivalents.................................................. $ 3,256 $ 4,778 Short-term investments..................................................... -- 3,543 Freight accounts receivable, less allowance for credit losses of $387 and $464........................................ 13,351 14,909 Finance accounts receivable, less allowance for credit losses of $566 and $499........................................ 12,584 14,016 Current deferred income taxes.............................................. 2,548 1 Other current assets....................................................... 2,401 1,831 AFS net assets (Note 8).................................................... -- 7,993 Total current assets.................................................. 34,140 47,071 Operating Property, at Cost Revenue equipment.......................................................... 31,969 32,275 Land....................................................................... 3,681 3,585 Structures and improvements................................................ 11,130 10,506 Other operating property................................................... 10,500 9,624 57,280 55,990 Less accumulated depreciation.............................................. (24,122) (22,969) Net operating property................................................ 33,158 33,021 Intangibles, net of accumulated amortization................................... 9,777 9,243 Other Assets .................................................................. 688 420 $ 77,763 $ 89,755 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Cash overdrafts............................................................ $ 1,976 $ 754 Accounts payable........................................................... 3,093 2,855 Current maturities of long-term debt....................................... 300 -- Line of credit payable..................................................... -- 2,500 Accrued payroll and fringes................................................ 6,068 5,956 Claims and insurance accruals.............................................. 283 566 Other accrued expenses..................................................... 3,402 2,374 Total current liabilities............................................. 15,122 15,005 Deferred Income Taxes.......................................................... 1,867 2,265 Long-Term Debt (Note 4)........................................................ 9,700 -- Contingencies and Commitments (Note 7)......................................... -- -- Shareholders' Equity (Notes 2, 5 and 10) Preferred stock $0.01 par value, authorized 1,000,000 shares, none outstanding.................................... -- -- Common stock $0.01 par value, authorized 13,000,000 shares, issued 7,593,592 and 7,509,622 shares...................................................... 76 75 Paid-in capital............................................................ 6,090 5,581 Retained earnings.......................................................... 77,367 79,394 Treasury stock, 3,661,220 and 1,481,935 shares, at cost.................................................................. (32,459) (12,565) Total shareholders' equity............................................ 51,074 72,485 $ 77,763 $ 89,755 The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 1998 1997 1996 (In Thousands, Except Per Share Amounts) Operating Revenue Transportation........................................... $ 144,592 $ 126,062 $ 107,502 Financial services and other, net........................ 7,109 7,161 6,191 Total operating revenue............................. 151,701 133,223 113,693 Operating Expenses Salaries, wages and employee benefits.................... 87,503 74,622 63,165 Operating supplies and expenses.......................... 23,144 19,141 17,297 Provision for credit losses.............................. 827 950 892 Operating taxes and licenses............................. 3,722 3,324 2,978 Insurance and claims..................................... 3,324 3,051 2,224 Depreciation and amortization............................ 6,286 4,758 3,702 Purchased transportation and rents....................... 29,916 25,441 22,589 Total operating expenses............................ 154,722 131,287 112,847 Operating Income (Loss)...................................... (3,021) 1,936 846 Nonoperating Income (Expense) Interest income.......................................... 301 645 1,141 Interest expense......................................... (311) (34) (27) Gain on sale of operating property, net.................. 164 56 78 Other, net............................................... 1 22 (299) Total nonoperating income (expense)................. 155 689 893 Income (Loss) Before Income Taxes............................ (2,866) 2,625 1,739 Income Tax Provision (Benefit)(Note 6)....................... (839) 1,525 887 Net Income (Loss)............................................ $ (2,027) $ 1,100 $ 852 Basic Average Shares Outstanding............................. 5,249 6,214 6,780 Basic Earnings (Loss) Per Share.............................. $ (0.39) $ 0.18 $ 0.13 Diluted Average Share Outstanding............................ 5,263 $ 6,266 $ 6,820 Diluted Earnings (Loss) Per Share............................ $ (0.39) $ 0.18 $ 0.12 The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1998 1997 1996 (In Thousands) Cash Flows From Operating Activities- Net income (loss)........................................ $ (2,027) $ 1,100 $ 852 Adjustments to reconcile net income (loss) to net cash generated by operating activities- Depreciation and amortization....................... 6,286 4,758 3,702 Provision for credit losses......................... 1,220 1,070 1,012 Deferred tax provision.............................. (2,644) 1,679 336 Other............................................... (100) 24 194 Net increase (decrease) from change in working capital items affecting operating activities- Freight accounts receivable..................... 1,165 (5,796) (1,401) Accrued payroll and fringes..................... 112 423 330 Other........................................... 749 (649) 1,860 4,761 2,609 6,885 Cash Flows From Investing Activities- Proceeds from discontinued operations.................... 6,345 -- 8,500 Purchase of operating property........................... (9,102) (13,660) (10,953) Sale of operating property............................... 4,639 704 803 Purchase of finance subsidiaries, net of cash acquired................................ (4,178) -- (11,979) Origination of finance accounts receivables......................................... (162,329) (125,391) (120,989) Sale of finance accounts receivables..................... 128,136 84,974 61,289 Collection of owned finance accounts receivables......................................... 37,804 40,005 82,836 Purchase of short-term investments....................... (2,998) (10,411) (35,823) Maturities of short-term investments..................... 6,541 16,825 53,232 Other .................................................. (368) (466) (1,051) 4,490 (7,420) 25,865 Cash Flows From Financing Activities- Borrowings on long-term debt............................. 10,000 -- -- Borrowings (repayments) on line of credit agreements, net..................................... (2,500) 2,500 (23,775) Cash overdrafts.......................................... 1,101 754 -- Payments to acquire treasury stock....................... (19,303) (2,277) (6,656) Payment for fractional shares from reverse stock split................................. (96) (459) -- Other .................................................. 25 50 85 (10,773) 568 (30,346) Net Increase (Decrease) in Cash and Cash Equivalents......................................... (1,522) (4,243) 2,404 Cash and Cash Equivalents: Beginning of Period...................................... 4,778 9,021 6,617 End of Period............................................ $ 3,256 $ 4,778 $ 9,021 Cash Paid During the Period for- Interest ................................................ $ 196 $ 16 $ 1,109 Income Tax............................................... $ 383 $ 106 $ 332
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Supplemental Schedule of Noncash Investing Activities: In 1998, the Company acquired all of the capital stock of Oxford for approximately $4,178,000. In conjunction with the acquisition, liabilities were assumed as follows (See Note 9): 1998 Fair value of assets acquired............................ $22,338 Cash paid for capital stock and acquisition expenses....... (4,178) Intangibles.............................................. 1,876 Liabilities assumed...................................... $20,036 In 1996, the Company acquired all of the capital stock of UPAC for approximately $11,979,000. In conjunction with the acquisition, liabilities were assumed as follows (See Note 9): 1996 Fair value of assets acquired............................ $30,587 Cash paid for capital stock and acquisition expenses..... (11,979) Intangibles.............................................. 6,617 Liabilities assumed...................................... $25,225 The accompanying notes to consolidated financial statements are an integral part of these statements. TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Total Share- Common Paid-In Retained Treasury holders' Stock Capital Earnings Stock Equity (In Thousands) Balance at Dec. 31, 1995...............$ 76 $ 5,357 $ 78,390 $ (3,543) $ 80,280 Net income............................. -- -- 852 -- 852 Issuance of shares under Incentive Stock Plan............... -- 172 -- (87) 85 Purchase of 797,141 shares of common stock.................... -- -- -- (6,656) (6,656) Balance at Dec. 31, 1996............... 76 5,529 79,242 (10,286) 74,561 Net income............................. -- -- 1,100 -- 1,100 Fractional shares cancelled in reverse stock split (1) -- (948) -- (949) Issuance of shares under Incentive Stock Plan............... -- 52 -- (2) 50 Purchase of 257,099 shares of common stock.................... -- -- -- (2,277) (2,277) Balance at Dec. 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 Dec. 31, 1998...............$ 76 $ 6,090 $ 77,367 $ (32,459) $ 51,074 The accompanying notes to consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include TransFinancial Holdings, Inc. and its subsidiary companies ("the Company" or "TransFinancial"). TransFinancial's principal holdings include Crouse Cartage Company ("Crouse"), Universal Premium Acceptance Corporation and its subsidiaries, Oxford Premium Finance, Inc. ("Oxford") and UPAC of California, Inc. (together "UPAC"), Presis, L.L.C. ("Presis") and American Freight System, Inc. ("AFS"). The operating results of UPAC and Oxford are included from March 31, 1996 and May 29, 1998, the dates of their respective acquisitions (See Note 9). The Company's proportionate interest in Presis is included from July 31, 1997, the date of the Company's initial investment. AFS has been accounted for as a discontinued operation since 1991 with only net assets reflected in the consolidated financial statements (See Note 8). All significant intercompany accounts and transactions have been eliminated in consolidation. Segment Information - The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." The adoption of this statement did not require significant changes in the way the Company's segments were disclosed. TransFinancial operates in three industry segments, transportation, financial services and industrial technology. Through Crouse, the Company operates as a regional less-than-truckload motor carrier primarily serving the north central and midwest portion of the United States. A substantial portion of Crouse's business is concentrated in the states of Iowa, Illinois, Minnesota, Missouri and Wisconsin. TransFinancial also operates as an insurance premium finance company through UPAC. The Company provides short-term secured financing for commercial and personal insurance premiums through insurance agencies throughout the United States. About half of the insurance premiums financed by UPAC are placed through insurance agencies in Illinois, California, Missouri and Florida. Presis is a startup company that involves advances in dry particle processing. Information regarding the Company's industry segments for the years ended December 31, 1998, 1997 and 1996 is as follows (in thousands):
Operating Depreciation Operating Income and Capital Total Revenues (Loss)(1) Amortization Additions Assets Transportation 1998 $ 144,592 $ 1,321 $ 4,456 $ 8,754 $ 47,874 1997 126,062 3,136 3,912 13,104 47,076 1996 107,502 2,915 3,001 9,556 33,633 Financial Services 1998 6,972 (653) 1,172 233 24,859 1997 7,078 396 770 143 24,360 1996 6,138 (685) 678 441 26,791 Industrial Technology 1998 -- (1,469) 610 104 185 1997 -- (295) 31 239 640 1996 -- -- -- -- -- Total Segments 1998 151,564 (801) 6,238 9,091 72,918 1997 133,140 3,237 4,713 13,486 72,076 1996 113,640 2,230 3,679 9,997 60,424 Corporate and Other 1998 137 (2,220) 48 11 4,845 1997 83 (1,301) 45 174 17,679 1996 53 (1,384) 23 956 26,388 Consolidated 1998 151,701 (3,021) 6,286 9,102 77,763 1997 133,223 1,936 4,758 13,660 89,755 1996 113,693 846 3,702 10,953 86,812 (1) See Note 5 - Common Stock and Earnings Per Share - Stock Repurchases.
Depreciation and Maintenance - Depreciation is computed using the straight-line method and the following useful lives: Revenue Equipment - Tractors............................. 5 - 7 years Trailers............................. 7 - 10 years Structures and Improvements............. 19 - 39 years Other Operating Property................ 2 - 10 years As of January 1, 1998, the Company prospectively increased the estimated remaining useful lives of certain revenue equipment to reflect the Company's actual utilization of such equipment. This change decreased depreciation and increased operating income by approximately $756,000 for 1998. Net income was increased by approximately $454,000, or $0.09 per share, for 1998. 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 increased amortization expense in 1998 by $333,000 and decreased net income by approximately $200,000, or $0.04 per share. Upon sale or retirement of operating property, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in non-operating income. The Company expenses costs related to repairs and overhauls of equipment as incurred. Recognition of Revenues - Transportation operating revenues, and related direct expenses, are recognized when freight is delivered. Other operating expenses are recognized as incurred. Finance charges on premium finance receivables that are not sold pursuant to the Company's securitization agreement are recognized when earned under applicable state regulations using methods that approximate the interest method. Recognition of earned finance charges on delinquent accounts is suspended when it is determined that collectibility of principal and interest is not probable. Interest on delinquent accounts is recognized when collected. Gains on sale of receivables under the securitization agreement are recorded when the receivables are sold (See Note 4). Late fees and other ancillary fees are recognized when chargeable. Uncollectible accounts are generally charged off after one year, unless there is specific assurance of collection through return of unearned premiums from the insurance carrier. Recoveries of charged off accounts are recognized when collected. The Company applies a control-oriented, financial-components approach to financial-asset-transfer transactions, such as the Company's securitization of finance accounts receivables, whereby the Company (1) recognizes the financial and servicing assets it controls and the liabilities it has incurred, (2) removes financial assets from the balance sheet when control has been surrendered, and (3) removes liabilities from the balance sheet once they are extinguished. Such transfers result in the recognition of a net gain or loss. Control is considered to have been surrendered only if (i) the transferred assets have been isolated from the transferor and its creditors, even in bankruptcy or other receivership (ii) the transferee has the right to pledge or exchange the transferred assets, or, is a qualifying special-purpose entity (as defined) and the holders of beneficial interests in that entity have the right to pledge or exchange those interests; and (iii) the transferor does not maintain effective control over the transferred assets through an agreement which both entitles and obligates it to repurchase or redeem those assets prior to maturity, or through an agreement which both entitles and obligates it to repurchase or redeem those assets if they were not readily obtainable elsewhere. If any of these conditions are not met, the Company accounts for the transfer as a secured borrowing. The Company retains the servicing on finance receivables sold under its securitization agreement. A servicing asset or liability is recognized for the fair value based on an analysis of discounted cash flows that includes estimates of servicing fees, servicing costs, projected ancillary servicing revenue and projected prepayment rates. The Company has not recorded a net servicing asset as the amount is not material to its financial position or results of operations. Allowance for Credit Losses - The allowances for credit losses are maintained at amounts considered adequate to provide for potential losses. The amount of each allowance for credit losses is based on periodic (not less than quarterly) evaluations of the portfolios based on historical loss experience, detail account by account agings of the portfolios and management's evaluation of specific accounts. The following is an analysis of changes in the allowance for credit losses on finance accounts receivable for 1998 and 1997 (in thousands): 1998 1997 Balance, beginning of year................ $ 499 $ 769 Allowance acquired with Oxford............ 343 -- Provision for credit losses............... 827 950 Charge-offs, net of recoveries of $196 and $257 ............................... (1,103) (1,220) Balance, at the end of year............... $ 566 $ 499 Income Taxes - The Company accounts for income taxes in accordance with the liability method. Deferred income taxes are determined based upon the difference between the book and the tax basis of the Company's assets and liabilities. Deferred taxes are provided at the enacted tax rates expected to be in effect when these differences reverse. Cash Equivalents - The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company maintains cash and cash equivalents with various major financial institutions. At times such amounts may exceed the F.D.I.C. limits. The Company believes that no significant concentration of credit risk exists with respect to cash and cash equivalents. Short-Term Investments - The Company's short-term investments generally are held in U. S. Treasury securities, government agency securities or municipal bonds of the highest rating. These investments are classified as held to maturity securities and are recorded at amortized cost which approximates market value. Disclosures about Fair Value of Financial Instruments - The following methods and assumptions are used to estimate the fair value of each class of financial instruments: a. Cash Equivalents and Short-Term Investments. The carrying amount approximates fair value because of the short maturity of these instruments. b. Finance Accounts Receivable. The carrying amount approximates fair value because of the short maturity of these instruments. c. Long-Term Debt - The carrying amount approximates fair value as the debt bears interest at a variable market rate. Pervasiveness of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Reclassifications - Certain amounts in the accompanying consolidated statements of income in prior periods have been reclassified to conform with the current period's presentations. Accounting for the Impairment of Long-Lived Assets - The Company periodically reviews its long-lived assets and associated intangible assets and has identified no events or changes in circumstances which indicate that the carrying amount of these assets may not be recoverable, except as described below. When impairment is indicated, any impairment loss is measured by the excess of carrying values over fair values. The Company currently has no material assets to be disposed of. An evaluation of certain equipment and intangible assets of the Company's industrial technology operation resulted in the determination that these assets were impaired. The impaired assets were written down by $525,000 effective September 30, 1998. Fair value was based on estimated discounted future cash flows to be generated by these assets and management's estimate of the value realizable from sale of the assets. This writedown is included in "Depreciation and Amortization" in the Consolidated Statements of Income. Intangible Assets and Accumulated Amortization - Intangible assets, consisting primarily of goodwill and intangibles recorded in connection with the acquisition of insurance premium finance companies, totaled $11,322,000 at December 31, 1998. These intangibles assets are generally being amortized on the straight-line basis over 15 - 25 years. The accumulated amortization of intangible assets as of December 31, 1998 was $1,545,000. 2. EMPLOYEE BENEFIT PLANS Multiemployer Plans Crouse participates in multiemployer pension plans which provide defined benefits to substantially all of the drivers, dockworkers, mechanics and terminal office clerks who are members of a union. Crouse contributed $6,931,000, $5,762,000 and $4,596,000 to the multiemployer pension plans for 1998, 1997 and 1996. The Multiemployer Pension Plan Amendments Act of 1980 established a continuing liability to such union-sponsored pension plans for an allocated share of each plan's unfunded vested benefits upon substantial or total withdrawal by participating employers or upon termination of the pension plans. Although Crouse has no current information regarding its potential liability under ERISA in the event it wholly or partially ceases to have an obligation to contribute or substantially reduces its contributions to the multiemployer plans to which it currently contributes, management believes that such liability would be material. Crouse also contributed $8,342,000, $7,161,000 and $5,904,000, to multiemployer health and welfare plans for 1998, 1997 and 1996. Non-Union Pension Plan Crouse has a defined contribution pension plan ("the Non-Union Plan") providing for a mandatory Company contribution of 5% of annual earned compensation of the non-union employees. Additional discretionary contributions may be made by the Board of Directors of Crouse depending upon the profitability of Crouse. Any discretionary funds contributed to the Non-Union Plan will be invested 100% in TransFinancial Common Stock. Pension expense, exclusive of the multiemployer pension plans, was $357,000, $131,000 and $420,000 for the years 1998, 1997 and 1996. The accompanying consolidated balance sheets include accrued pension contributions of $95,000 and $70,000 as of December 31, 1998 and 1997. Profit Sharing In September 1988, the employees of Crouse approved the establishment of a profit sharing plan ("the Plan"). The Plan was structured to allow all employees (union and non-union) to ratably share 50% of Crouse's income before income taxes (excluding extraordinary items and gains or losses on the sale of assets) in return for a 15% reduction in their wages. The Plan calls for profit sharing distributions to be made on a quarterly basis. The Plan was recertified in 1991 and 1994, and continued in effect through October 3, 1998, when a replacement Collective Bargaining Agreement was reached between the parties. The Plan was not renewed under the new Collective Bargaining Agreement effective October 4, 1998. A separate wage reduction provision was substituted in its place. The accompanying consolidated balance sheets include a profit sharing accrual of $276,000 for 1997. The accompanying consolidated statements of income include profit sharing expense of $2,013,000, $3,088,000, $2,833,000 for 1998, 1997 and 1996. 401(k) Plan Effective January 1, 1990, Crouse established a salary deferral program under Section 401(k) of the Internal Revenue Code. To date, participant contributions to the 401(k) plan have not been matched with Company contributions. All employees of Crouse are eligible to participate in the 401(k) plan after they attain age 21 and complete one year of qualifying employment. UPAC Plans Effective June 1, 1995, the Company established a 401(k) Savings Plan and a Money Purchase Pension Plan, both of which are defined contribution plans. Employees of UPAC and TransFinancial are eligible to participate in the plans after they attain age 21 and complete one year of employment. Participants in the 401(k) Savings Plan may defer up to 13% of annual compensation. The Company matches 50% of the first 10% deferred by each employee. Company contributions vest after five years. Company matching contributions in 1998, 1997 and 1996 were $63,000, $48,000 and $27,000. Under the Money Purchase Pension Plan, the Company contributes 7% of each eligible employee's annual compensation plus 5.7% of any compensation in excess of the Social Security wage base. Company contributions in 1998, 1997 and 1996 were $108,000, $112,000 and $66,000. Stock Option Plans A Long-Term Incentive Plan adopted in 1998 ("1998 Plan") provides that options for shares of TransFinancial Common Stock be granted to directors, and that options and other shares may be granted to officers and key employees. All such option grants are at or above fair market value at the date of grant. Options granted generally become exercisable ratably over two to five years and remain exercisable for ten years from the date of grant. Initially, 600,000 shares were reserved for issuance pursuant to the 1998 Plan. As of December 31, 1998, 590,000 shares were available for grant pursuant to the 1998 Plan. An Incentive Stock Plan was adopted in 1992 ("1992 Plan") which provides that options for shares of TransFinancial Common Stock shall be granted to directors, and may be granted to officers and key employees at fair market value of the stock at the time such options are granted. Initially, 500,000 shares of TransFinancial common stock were reserved for issuance pursuant to the 1992 Plan. As of December 31, 1998, options for 48,630 shares were available for grant pursuant to the 1992 Plan. These options generally become exercisable ratably over two to five years and remain exercisable for ten years from the date of grant. In each of 1995 and 1996 the Company granted non-qualified options to acquire 10,000 shares of common stock to an officer of UPAC pursuant to an employment agreement. These options become exercisable in 1998 and 1999 and expire in 2005 and 2006. The Company follows Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of each of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. SFAS No. 123 "Accounting for Stock-Based Compensation," requires the use of option valuation models to estimate the fair value of stock options granted and recognize that estimated fair value as compensation expense. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its stock options under the fair value method of SFAS No.123. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1998, 1997 and 1996: risk-free interest rates of 5.5%, 6.1% and 6.1%; expected life of options of 4.4 years, 4.9 years and 4.5 years; and a volatility factor of the expected market price of the Company's common stock of .20. The preceding assumptions used as inputs to the option valuation model are highly subjective in nature. Changes in the subjective input assumptions can materially affect the fair value estimates; thus, in management's opinion, the estimated fair values presented do not necessarily represent a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's unaudited pro forma information follows (in thousands, except for per share amounts): 1998 1997 1996 Pro forma net income (loss).............. $(2,234) $ 949 $ 743 Pro forma basic earnings (loss) per share $ (0.43) $0.15 $ 0.11 The following table is a summary of data regarding stock options granted during the three years ended December 31, 1998:
1998 1997 1996 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price Options outstanding at beginning of year............. 350,650 $7.47 263,200 $7.17 198,200 $6.43 Granted........................... 131,050 $9.03 118,250 $7.99 106,500 $7.96 Forfeited......................... (44,580) $9.13 (19,900) $8.09 (18,000) $6.85 Exercised......................... (83,970) $6.07 (10,900) $4.84 (23,500) $4.73 Options outstanding at end of year....................... 353,150 $8.17 350,650 $7.47 263,200 $7.17 Options exercisable at end of year....................... 114,180 $7.49 119,000 $6.38 91,650 $5.62 Estimated weighted average fair value per share of options granted during the year....................... $ 2.12 $ 2.00 $ 2.00 The per share exercise prices of options outstanding as of December 31, 1998, ranged from $2.41 to $9.79 per share. The weighted average remaining contractual life of those options was 7.7 years.
The following table summarizes information concerning outstanding and exercisable options as of December 31, 1998.
Weighted Average Weighted Weighted Number of Remaining Average Number of Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices Options Life Price Options Price $0.00-$2.50 4,150 1.9 $2.41 4,150 $2.41 $2.50-$5.50 17,050 4.2 $4.90 15,300 $4.85 $5.50-$8.00 156,300 7.6 $7.68 51,780 $7.64 $8.00-$10.00 175,650 8.2 $9.05 42,950 $8.73 353,150 114,180
3. INSURANCE COVERAGE Claims and insurance accruals reflect accrued insurance premiums and the estimated cost of incurred claims for cargo loss and damage, bodily injury and property damage and workers' compensation not covered by insurance. The Company estimates reserves required for the self-insured portion of claims based on management's evaluation of the nature and severity of individual claims and the Company's past claims experience. The Company regularly assesses and adjusts estimated reserves based on continued development of information regarding claims through the ultimate claims settlement. Adjustments to estimated reserves are recorded in the period in which additional information becomes known. Workers' compensation expense is included in "Salaries, wages and employee benefits" in the accompanying consolidated statements of income. The Company's public liability and property damage, cargo and workers' compensation premiums are subject to retrospective adjustments based on actual incurred losses. The actual adjustments normally are not known for at least one year; however, based upon a review of the preliminary compilation of losses incurred through December 31, 1998, management does not believe any material adjustment will be made to the premiums paid or accrued at that date. 4. FINANCING AGREEMENTS Securitization of Receivables In December, 1996, the Company, UPAC and APR Funding Corporation (wholly- owned subsidiary of UPAC) 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. In 1998, this agreement was amended to extend through December 2001, to expand the facility capacity, and to increase the percent of finance receivables eligible under the agreement. The maximum allowable amount of receivables to be sold under the agreement is $85.0 million. The purchaser permits principal collections to be reinvested in new financing agreements. UPAC had securitized receivables of $61.6 million and $34.5 million at December 31, 1998 and 1997. 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 proceeds from the initial securitization of the receivables were used to purchase previous securitized receivables under the prior agreement and to pay off the secured note payable under UPAC's former secured credit agreement. Among other things, the terms of the agreement require UPAC to maintain a minimum tangible net worth of $5.0 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. The terms of the agreement also require the Company to maintain a minimum tangible net worth of $40.0 million. The Company was in compliance with all such provisions at December 31, 1998. The terms of the securitization agreement require UPAC to maintain a reserve at specified levels which serves as collateral. At December 31, 1998, approximately $6.9 million of owned finance receivables served as collateral under the reserve provision. Long-Term Debt 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. The Loan bears interest at the bank's prime rate, 7.75% at December 31, 1998. 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. At December 31, 1998 current maturities of long-term debt were $300,000, with the remaining $9,700,000 due in 2000. The terms of the Loan require the Company to maintain a minimum tangible net worth of $40 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 financial institution. In connection with the closing of the Loan the Company represented to the bank that it would take all measures reasonably necessary to make its computer hardware and software compliant with the year 2000. The Company was in compliance with all such provisions at December 31, 1998. The proceeds of the Loan were used to repurchase shares of the Company's common stock (See Note 5). Secured Loan Agreement Effective January 5, 1998, Crouse's former revolving credit agreement was terminated and replaced with a five year Secured Loan Agreement which provides for a $4.5 million working capital line of credit loan ("Working Capital Line") and a $4.5 million equipment line of credit loan ("Equipment Line"). Interest on the Working Capital Line accrues at a floating rate equal to the bank's prime rate, 7.75% at December 31, 1998. Interest on the Equipment Line accrues, at Crouse's option, at either a floating rate equal to the bank's prime rate or a fixed rate equal to the Federal Home Loan Bank Rate plus 200 basis points at the time of each advance. The Secured Loan Agreement is collateralized by Crouse's revenue equipment and specified bank deposit balances. No borrowings were outstanding under the Working Capital Line or Equipment Line as of December 31, 1998. The terms of the Secured Loan Agreement require Crouse to maintain tangible net worth of $24.0 million, increasing by $1.0 million per year beginning in 1998, and contain restrictions on the payment of dividends, incurring debt or liens, or change in majority ownership of Crouse. The terms of the agreement also permit the bank to accelerate the due date of borrowings if there is a material adverse change in the financial condition of Crouse. Crouse was in compliance with all such provisions at December 31, 1998. 5. COMMON STOCK AND EARNINGS PER SHARE Stock Repurchases In June 1998, TJS Partners, LP ("TJS"), a shareholder of the Company, announced its intent to acquire an additional 23% of the Company's outstanding common stock held by one family (the "Crouse family"), obtain control of the Company's board of directors and study possible actions such as the liquidation or sale of part or all of the Company's businesses or assets. The board of directors determined that the hostile takeover attempt was not in the best interest of the Company and its shareholders and agreed to repurchase the shares held by TJS and the Crouse family. The failed attempt at a hostile takeover of the Company, together with other events, led the Company to record charges for management and personnel restructuring, asset and liability valuation adjustments, and transaction costs and other expenses related to the takeover attempt. Pursuant to a definitive stock purchase agreement resolving the hostile takeover attempt, the Company repurchased 2,115,422 shares of its common stock held by the Crouse family, including 881,550 shares registered in the name of TJS Partners, LP, all at a price of $9.125 per share, effective August 14, 1998. In addition, the Company paid and expensed $350,000 of legal and other costs incurred by the Crouse family in connection with the takeover attempt. The Company funded the payment out of available cash and short-term investments, the proceeds from the sale and leaseback of approximately $4.2 million of revenue equipment and the proceeds from the $10.0 million secured loan from one of the Company's existing bank lenders. On June 26, 1995, the Company adopted a program to repurchase up to 10% of its outstanding shares of common stock. During the second quarter of 1996, the Company completed this initial repurchase program and expanded the number of shares authorized to be repurchased by an additional 10% of its then outstanding shares. The second program was completed in the fourth quarter of 1997. During 1997 and 1996, the Company repurchased 257,099 and 768,600 shares of common stock at a cost of $2.3 million and $6.4 million, respectively. Additionally, during the fourth quarter of 1996, the Company made an "Odd Lot Tender Offer" to holders of less than 100 shares of TransFinancial Common Stock. Pursuant to this offer the Company repurchased 28,541 shares at a cost of $237,000. On June 26, 1997, the shareholders of the Company approved a 1-for-100 reverse stock split followed by a 100-for-1 forward stock split. These stock splits were effected on July 2, 1997. The result of this transaction was the cancellation of approximately 107,000 shares of common stock held by holders of fewer than 100 shares, at the then current market price of $8.89 per share. Earnings Per Share Because of the Company's simple capital structure, income (loss) available to common shareholders is the same for the basic and diluted earnings per share computations. Such amounts were $(2,027,000), $1,100,000 and $852,000 for 1998, 1997 and 1996. Following is a reconciliation of basic weighted average common shares outstanding, weighted average common shares outstanding adjusted for the dilutive effects of outstanding stock options, and basic and diluted earnings per share for each of the periods presented (in thousands, except per share amounts).
1998 1997 1996 Per Share Per Share Per Share Shares Amounts Shares Amounts Shares Amounts Basic earnings (loss) per share............................ 5,249 $ (0.39) 6,214 $ 0.18 6,780 $ 0.13 Plus incremental shares from assumed conversion of stock options........................ 14 52 40 Diluted earnings (loss) per share............................ 5,263 $ (0.39) 6,266 $ 0.18 6,820 $ 0.12
Options to purchase 216,150 shares of common stock at an average exercise price of $8.85 per share were outstanding at December 31, 1998, but were not included in the computation of diluted earnings per share because the options' average exercise price was greater than the average market price of the common shares. These options remain outstanding and expire through 2008. 6. INCOME TAXES Deferred tax assets (liabilities) attributable to continuing operations are comprised of the following at December 31:
1998 1997 (In Thousands) Current Deferred Tax Assets (Liabilities): Employee benefits..................................... $ 951 $ (401) Financial services revenue............................ (295) (205) Claims accruals and other............................. 1,276 421 Allowance for credit losses........................... 616 186 Current deferred tax assets, net................. $ 2,548 $ 1 Deferred Tax Assets (Liabilities): Operating property, principally due to differences in depreciation............... $ (3,780) $ (3,367) Amortization of intangibles........................... (179) (245) Net operating loss carryforwards...................... 1,054 693 Alternative minimum tax and other credits.......................................... 1,038 654 Deferred tax liabilities, net.................... $ (1,867) $ (2,265)
At December 31, 1998, the Company had approximately $3.4 million of net operating loss carryforwards which were available for Federal income tax purposes, including $0.7 million which were recorded in the AFS Net Assets, which expire in 2018. At December 31, 1998 and 1997, the Company had $1,038,000 and $654,000 of alternative minimum tax and other credit carryforwards available which do not expire. Net Deferred Tax Assets of $27,000 and $1,396,000 were recorded as a portion of the AFS Net Assets as of December 31, 1998 and 1997. The Internal Revenue Service ("IRS") has examined the Company's 1994 through 1996 tax returns. In April 1998, the Company and the IRS settled all issues for tax years 1994 through 1996 within the tax reserves that the Company made provision for in 1997. The following is a reconciliation of the Federal statutory income tax rate to the effective income tax provision (benefit) rate for continuing operations:
1998 1997 1996 Federal statutory income tax rate................ (35.0)% 35.0% 35.0% State income tax rate, net....................... (3.8) 5.9 6.7 Amortization of non-deductible acquisition intangibles...................... 3.0 2.3 6.3 Non-deductible meals and entertainment................................ 3.2 2.4 2.8 Adjustments to prior years' tax liabilities.................................. - 12.9 - Other............................................ 3.5 (0.4) 0.2 Effective income tax rate........................ (29.1)% 58.1% 51.0%
The components of the income tax provision (benefit), attributable to continuing operations, consisted of the following:
1998 1997 (In thousands) Current Deferred Total Current Deferred Total Federal................... $ 1,444 $ (2,115) $ (671) $ (145) $1,434 $ 1,289 State..................... 361 (529) (168) (9) 245 236 Total................ $ 1,805 $ (2,644) $ (839) $ (154) $1,679 $ 1,525
7. CONTINGENCIES AND COMMITMENTS The Company is party to certain 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. Payments are made to tractor owner-operators under various short-term lease agreements for the use of revenue equipment. These lease payments, which totaled $16,836,000, $14,351,000 and $13,179,000 for 1998, 1997 and 1996, are primarily based on miles traveled or on a percent of revenue generated through the use of the equipment. In 1998, Crouse entered into a long-term operating lease 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 $319,000 in 1998. Minimum future rentals for operating leases are as follows: 1999 - $1,629,000; 2000 - $1,630,000; 2001 - $1,630,000; 2002 - $1,630,000; 2003 - $1,381,000; and thereafter - $494,000. Additionally, Crouse has limited contingent rental obligations of $568,000 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 Crouse to maintain tangible net worth of $26.0 million, increasing by $1.0 million per year beginning in 1999. Crouse was in compliance with this covenant at December 31, 1998. 8. AFS NET ASSETS On June 10, 1991, the Joint Plan of Reorganization ("Joint Plan") was confirmed by the Bankruptcy Court resulting in the formal discharge of AFS and its affiliates from Chapter 11 Bankruptcy proceedings. As of December 31, 1994 all unsecured creditors were paid an amount equal to 130% of their allowed claims, which was the maximum distribution provided under the Joint Plan. TransFinancial received distributions in accordance with the Joint Plan of $36 million. In addition, AFS paid dividends of $6.8 million, $8.5 million, and $9.2 million to TransFinancial on July 5, 1995, July 11, 1996 and April 30, 1998. 9. ACQUISITION OF PREMIUM FINANCE SUBSIDIARIES On May 29, 1998, TransFinancial through UPAC, its insurance premium finance subsidiary, completed the acquisition of all of the issued and outstanding stock of 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, UPAC recorded goodwill of $1.9 million, which will be amortized on the straight-line basis over 15 years. On March 29, 1996, TransFinancial completed the acquisition of all of the issued and outstanding stock of UPAC. UPAC offers short-term collateralized financing of commercial and personal insurance premiums through approved insurance agencies in over 30 states throughout the United States. At March 31, 1996, UPAC had outstanding net finance receivables of approximately $30 million. This transaction was accounted for as a purchase. The Company utilized a portion of its available cash and short-term investments to consummate the purchase at a price of approximately $12.0 million. The terms of the acquisition and the purchase price resulted from negotiations between TransFinancial and William H. Kopman, the former sole shareholder of UPAC. In connection with the purchase of UPAC, the Company has recorded goodwill of $6.6 million, which is being amortized on the straight-line basis over 25 years. In addition to the Stock Purchase Agreement by which the Company acquired all of the UPAC stock, TransFinancial entered into a consulting agreement with Mr. Kopman. Under the consulting agreement, the Company was entitled to consult with Mr. Kopman on industry developments as well as UPAC operations through December 31, 1998. In addition to retaining the services of Mr. Kopman under a consulting agreement, certain existing executive management personnel of UPAC have been retained under multi-year employment agreements. The unaudited pro forma operating results of TransFinancial for the years ended December 31, 1998 and 1997, assuming the acquisitions occurred as of the beginning of each of the respective periods, are as follows. For the year ended December 31, 1998, pro forma operating revenue was $152.2 million, pro forma net loss was $1,994,000, and pro forma basic loss per share was $.38. For the year ended December 31, 1997, pro forma operating revenue was $134.3 million, pro forma net income was $1,139,000 and pro forma basic earnings per share was $.18. The pro forma results of operations are not necessarily indicative of the actual results that would have been obtained had the acquisition been made at the beginning of the respective periods, or of results that may occur in the future. 10. SHAREHOLDER RIGHTS PLAN On February 18, 1999, the Board of Directors authorized the amendment of the previously adopted Shareholder Rights Plan by which the Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right for each outstanding share of TransFinancial Common Stock. Under the Shareholder Rights Plan, Rights were issued on July 27, 1998 to shareholders of record as of that date and will expire in ten years, unless earlier redeemed or exchanged by the Company. The distribution of Rights was not taxable to the Company or its shareholders. The Rights become exercisable only if a person or entity is an "Acquiring Person" (as defined in the Plan) or announces a tender offer, the consummation of which would result in any person or group becoming an "Acquiring Person." Each Right initially entitles the holder to purchase one one-hundredth of a newly issued share of Series A Preferred Stock of the Company at an exercise price of $50.00. If, however, a person or group becomes an "Acquiring Person", each Right will entitle its holder, other than an Acquiring Person and its affiliates, to purchase, at the Right's then current exercise price, a number of shares of the Company's common stock having a market value of twice the Right's exercise price. In addition, if after a person or group becomes an Acquiring Person, the Company is acquired in a merger or other business combination transaction, or sells 50% or more of its assets or earning power, each Right will entitle its holder, other than an Acquiring Person and its affiliates, to purchase, at the Right's then current exercise price, a number of shares of the acquiring company's common stock having a market value at the time of twice the Right's exercise price. Under the Shareholder Rights Plan, an "Acquiring Person" is any person or entity which, together with any affiliates or associates, beneficially owns 15% or more of the shares of Common Stock of the Company then outstanding. The Shareholder Rights Plan contains a number of exclusions from the definition of Acquiring Person. The Shareholders Rights Plan will not apply to a Qualifying Offer, which is a cash tender offer to all shareholders satisfying certain conditions set forth in the Plan. The Company's Board of Directors may redeem the Rights at any time prior to a person or entity becoming an Acquiring Person. TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL INFORMATION DECEMBER 31, 1998 AND 1997 SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED): TransFinancial's quarterly operating results from Crouse, as well as those of the motor carrier industry in general, fluctuate with the seasonal changes in tonnage levels and with changes in weather related operating conditions. Inclement weather conditions during the winter months may adversely affect freight shipments and increase operating costs. Historically, TransFinancial has achieved its best operating results in the second and third quarters when adverse weather conditions have a lesser effect on operating efficiency. The following table sets forth selected unaudited financial information for each quarter of 1998 and 1997 (in thousands, except per share amounts).
1998 First Second Third Fourth Total Revenue................................... $ 37,003 $ 37,036 $ 39,614 $ 38,048 $ 151,701 Operating Income (Loss)................... 300 266 (4,031) 444 (3,021) Nonoperating Income (Expense)............. 51 131 174 (201) 155 Net Income (Loss)......................... 161 176 (2,474) 110 (2,027) Basic and Diluted Earnings (Loss) per Share...................... 0.03 0.03 (0.50) 0.03 (0.39) 1997 First Second Third Fourth Total Revenue................................... $ 31,057 $ 32,513 $ 35,100 $ 34,553 $ 133,223 Operating Income (Loss)................... 935 1,065 866 (930) 1,936 Nonoperating Income (Expense)............. 215 215 181 78 689 Net Income (Loss)......................... 632 704 569 (805) 1,100 Basic and Diluted Earnings (Loss) per Share...................... 0.10 0.11 0.09 (0.13) 0.18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3), the information required by this Item 10 is hereby incorporated by reference from the TransFinancial Holdings, Inc. Proxy Statement for the 1999 Annual Meeting of Shareholders, which the Registrant will file pursuant to Regulation 14A. (See Item 4, included elsewhere herein, for a listing of Executive Officers of the Registrant). ITEM 11. EXECUTIVE COMPENSATION Pursuant to General Instruction G(3), the information required by this Item 11 is hereby incorporated by reference from the TransFinancial Holdings, Inc. Proxy Statement for the 1999 Annual Meeting of Shareholders, which the Registrant will file pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to General Instruction G(3), the information required by this Item 12 is hereby incorporated by reference from the TransFinancial Holdings, Inc. Proxy Statement for the 1999 Annual Meeting of Shareholders, which the Registrant will file pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G(3), the information required by this Item 13 is hereby incorporated by reference from the TransFinancial Holdings, Inc. Proxy Statement for the 1999 Annual Meeting of Shareholders, which the Registrant will file pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements Included in Item 8, Part II of this Report - Consolidated Balance Sheets at December 31, 1998 and 1997 Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Supplemental Financial Information (Unaudited) - Summary of Quarterly Financial Information for 1998 and 1997 (a)2. Financial Statement Schedules Included in Item 14, Part IV of this Report - Financial Statement Schedules for the three years ended December 31, 1998: Schedule II - Valuation and Qualifying Accounts Other financial statement schedules are omitted either because of the absence of the conditions under which they are required or because the required information is contained in the consolidated financial statements or notes thereto. (a)3. Exhibits The following exhibits have been filed as part of this report in response to Item 14(c) of Form 10-K. The management contracts or compensatory plans or arrangements required to be filed at exhibits to this form pursuant Item 14(c) are contained in Exhibits 10(a), 10(b), 10(d), and 10(h). Exhibit No. Exhibit Description 2(a) Fifth Amended Joint Plan of Reorganization of the Registrant and others and Registrant's Disclosure Statement relating to the Fifth Amended Joint Plan of Reorganization. Filed as Exhibit 28(a) and 28(b) to the Registrant's Form 8-K dated March 21, 1991. 2(b) United States Bankruptcy Court order confirming the Fifth Amended Joint Plan of Reorganization of the Registrant and others. Filed as Exhibit 28(c) to Registrant's Form 8-K dated June 11, 1991. 3(a) 1998 Restated Certificate of Incorporation of the Registrant. Filed as Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 3(b) Restated By-Laws of the Registrant. Filed as Exhibit 3(b) to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. 4(a) Specimen Certificate of the Common Stock, $.01 par value, of the Registrant. Filed as Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 4(b) Certificate of Designations of Series A Preferred Stock, dated July 15, 1998. Filed as Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 4(c) First Amended and Restated Rights Agreement, between TransFinancial Holdings, Inc. and UMB Bank, N.A., dated March 4, 1999. Filed as Exhibit 1 to Registrant's Current Report on Form 8-K dated March 5, 1999. 10(a) Form of Indemnification Agreement with Directors and Executive Officers. Filed as Exhibit 10(k) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986. 10(b) Registrant's 1992 Incentive Stock Plan. Filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. 10(c) Stock Purchase Agreement by and between Universal Premium Acceptance Corporation and Oxford Bank and Trust Company, dated April 29, 1998. Filed as Exhibit 2(a) to Registrant's Current Report on Form 8-K, dated May 29, 1998. 10(d)* Registrant's 1998 Long-Term Incentive Plan. 10(e) Stock Purchase Agreement by and between Anuhco, Inc. and William H. Kopman, dated December 18, 1995. Filed as Exhibit 2(a) to Registrant's Current Report on Form 8-K, dated March 29, 1996. 10(f) First Amendment to Stock Purchase Agreement by and between Anuhco, Inc. and William H. Kopman, dated March 7, 1996. Filed as Exhibit 2(b) to Registrant's Current Report on Form 8-K dated March 29, 1996. 10(g) Second Amendment to Stock Purchase Agreement by and between Anuhco, Inc. and William H. Kopman, dated March 29, 1996. Filed as Exhibit 2(c) to Registrant's Current Report on Form 8-K dated March 29, 1996. 10(h) Consulting Agreement by and between William H. Kopman and Anuhco, Inc., dated March 29, 1996. Filed as Exhibit 10(a) to Registrant's Current Report on Form 8-K, dated March 29, 1996. 10(i) Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, Anuhco, Inc., EagleFunding Capital Corporation, The First National Bank of Boston, dated December 31, 1996. Filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. 10(j) Amendment No. 4 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated May 29, 1998. Filed as Exhibit 10(a) to Registrant's Current Report on Form 8-K, dated May 29, 1998. 10(k) Amendment No. 5 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated August 25, 1998. Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter filed September 30, 1998. 10(l) Amendment No. 6 to Receivables Purchase Agreement by and among APR Funding Corporation, Universal Premium Acceptance Corporation, TransFinancial Holdings, Inc., EagleFunding Capital Corporation and BankBoston, N.A., dated September 11, 1998. Filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. 10(m) Secured Loan Agreement by and between Bankers Trust Company of Des Moines, Iowa and Crouse Cartage Company, dated January 5, 1998. 10(n) Stock Purchase Agreement, dated August 14, 1998, by and between TransFinancial Holdings, Inc. and certain members of the Crouse family. Filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 10(o) Secured Loan Agreement by and between Bankers Trust of Des Moines, Iowa, TransFinancial Holdings, Inc., and Crouse Cartage Company, dated September 29, 1998. Filed as Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. 21* List of all subsidiaries of TransFinancial Holdings, Inc. the state of incorporation of each such subsidiary, and the names under which such subsidiaries do business. 23* Consent of Independent Accountant. 27* Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1998. *Filed herewith.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Additions Balance at Charged Charged Balance Beginning to to Other Deduc- at End Description of Year Expense Accounts tions(1) of Year (In Thousands) Allowance for credit losses accounts (deducted from freight accounts receivable) Year Ended December 31 - 1998............................... $ 464 $ 393 $ -- $ (470) $ 387 1997............................... 419 120 -- (75) 464 1996............................... 409 120 -- (110) 419 Allowance for credit losses (deducted from finance accounts receivable) Year Ended December 31 - 1998............................... $ 499 $ 827 $ 343(3) $ (1,103) $ 566 1997............................... 769 950 -- (1,220) 499 1996............................... 351 892 510(2) (984) 769 (1)Deduction for purposes for which reserve was created. (2)Allowance established as of March 29, 1996, the date of acquisition of Universal Premium Acceptance Corporation and UPAC of California, Inc. (3)Allowance established as of May 29, 1998, the date of acquisition of Oxford Premium Finance, Inc.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: March 15, 1999 By /s/Timothy P. O'Neil Timothy P. O'Neil, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/Timothy P. O'Neil President and Chief Executive Officer Timothy P. O'Neil /s/Mark A. Foltz Vice President, Finance and Secretary Mark A. Foltz (Principal Accounting Officer) /s/William D. Cox /s/Timothy P. O'Neil William D. Cox, Chairman Timothy P. O'Neil, Director of the Board of Directors /s/J. Richard Devlin /s/ Clark D. Stewart J. Richard Devlin, Director Clark D. Stewart, Director /s/ Harold C. Hill /s/David D. Taggart Harold C. Hill, Jr., Director David D. Taggart, Director /s/Roy R. Laborde Roy R. Laborde, Vice Chairman of the Board of Directors March 15, 1999 Date of all signatures TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES EXHIBIT INDEX Exhibit No. Exhibit Description 10(d) Registrant's 1998 Long-Term Incentive Plan. 21 List of all Subsidiaries of TransFinancial Holdings, Inc. 23 Consent of Independent Accountant. 27 Financial Data Schedule. EX-10 2 TRANSFINANCIAL HOLDINGS, INC. 1998 LONG-TERM INCENTIVE PLAN 1. PURPOSE. The purpose of the TransFinancial Holdings, Inc. 1998 Long-Term Incentive Plan (the "Plan") is to further the earnings of TransFinancial Holdings, Inc. ("TransFinancial") and its subsidiaries (collectively the "Company") by: (a) assisting the Company in attracting, retaining and motivating officers, directors, employees and consultants of high caliber and potential and (b) providing for the award of long-term incentives to such officers, directors, employees and consultants. The Plan is not intended to be a Plan that is subject to the Employee Retirement Income Security Act of 1974, as amended. Certain capitalized terms used herein are defined in paragraph 16 below. 2. ADMINISTRATION. (a) Committee. The Plan shall be administered by a committee (the "Committee") consisting of two or more members of the Board of Directors of TransFinancial (the "Board"). The members of the Committee shall be appointed by and may be changed from time to time in the discretion of the Board. The Board may, in its sole discretion, bifurcate the powers of the Committee among one or more separate committees, or retain all powers and duties of the Committee in a single committee; provided, however, that except as otherwise determined by the Board, (i) if a Committee is authorized to grant Awards or make determinations with respect to a Reporting Person, each member of such Committee shall be a "non-employee director" within the meaning of Rule 16b- 3 under the 1934 Act, or any successor rule of similar import, and (ii) if a Committee is authorized to grant Awards or make determinations with respect to a Covered Employee, each member of such Committee shall be an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. (b) Authority. The Committee shall have full and final power and authority to administer and interpret the Plan. In addition to such general power and authority, and subject to the provisions of the Plan, the Committee shall have full and final authority in its discretion to: (i) determine the eligible persons to whom Awards shall be made under the Plan, (ii) determine the type or types of Awards to be granted to each Participant hereunder, (iii) determine the time or times when Awards shall be granted, (iv) determine the terms and conditions of Awards and the terms and conditions of any agreement evidencing an Award, (v) authorize the issuance of Shares pursuant to Awards granted under the Plan, (vi) interpret, construe and administer the Plan and any instrument or agreement relating to or evidencing an Award under the Plan, (vii) establish, amend, suspend or waive rules and guidelines relating to the Plan and Awards hereunder, (viii) correct any defect, supply any omission and reconcile any inconsistency in the Plan and (ix) make any other determination or take any other action that it deems necessary or desirable for administration of the Plan or any Award hereunder. Decisions of the Committee shall be final, binding and conclusive on all persons, including the Company and any Participant. The Committee may hold meetings and otherwise take action in the manner permitted under the applicable provisions of the Restated Certificate of Incorporation and By-laws of the Company, resolutions of the Board and applicable law, as amended from time to time. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award under the Plan. (c) Delegation of Authority. To the extent permitted by applicable law, the Committee may delegate to one or more executive officers of the Company the power to make Awards to Participants who are not Reporting Persons or Covered Employees and to make all determinations under the Plan with respect to such Participants, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion. (d) Power and Authority of the Board of Directors. Notwithstanding anything to the contrary contained herein, the Board of Directors may at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan. 3. STOCK SUBJECT TO THE PLAN. (a) Amount. The aggregate number of Shares which may be the subject of or related to Awards under the Plan shall be 600,000 Shares, subject, however, to adjustment as provided in subparagraph (b) hereof. Such Shares may be authorized and unissued Shares or treasury Shares. If for any reason any Award expires or lapses or is terminated, forfeited or canceled, any Shares subject to such Award, to the extent of such expiration, lapse, termination, forfeiture or cancellation, shall again be available for award under the Plan. Notwithstanding the provisions of this subparagraph (a), no Shares shall again be subject to Awards if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code. (b) Adjustment. In the event that the Committee determines that any dividend or distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, merger, consolidation, reorganization, spin-off or split-up, reverse stock split, combination or exchange of Shares or other transaction affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in such manner as it may deem equitable and without the consent of any affected Participant, adjust the number and kind of securities which may be issued under the Plan, the number and kind of securities subject to outstanding Awards and the exercise price of each outstanding stock option granted under the Plan, and may make such other changes in outstanding Awards as it deems equitable in its sole discretion. Fractional Shares resulting from any such adjustments shall be eliminated. No adjustment or action under this subparagraph (b) shall be authorized to the extent that such adjustment or action would cause the Plan or any outstanding Incentive Stock Option to violate Section 422 of the Code or would cause any Performance-Based Award to fail to qualify as "qualified performance-based compensation" under Section 162(m) of the Code and the regulations promulgated thereunder. (c) Limit on Individual Grants. Subject to adjustment as provided in subparagraph (b) hereof, (i) the maximum number of Shares subject to stock options which may be granted in the aggregate under the Plan in any calendar year to any Participant shall be 50,000 Shares, (ii) the maximum number of Shares underlying stock appreciation rights which may be granted in the aggregate under the Plan in any calendar year to any Participant shall be 50,000 Shares and (iii) the maximum number of Shares subject to restricted stock awards, performance share awards and other stock-based awards which may be granted under the Plan in any calendar year to any Participant shall be 50,000 Shares. In addition, the maximum amount of compensation payable in respect of performance unit awards, cash in addition to an Award under paragraph 13 hereof and dividend equivalents under paragraph 15(c) hereof that may be paid in the aggregate under the Plan in any calendar year to any Participant shall be $1,000,000. In all events, determinations under this subparagraph shall be made in a manner that is consistent with Section 162(m) of the Code and the regulations promulgated thereunder. (d) Limit on Certain Types of Awards. The maximum number of Shares which may be issued in the aggregate with respect to restricted stock awards under paragraph 8 hereof, performance share awards under paragraph 9 hereof and other stock-based awards payable in Shares pursuant to paragraph 10 hereof shall be 100,000 Shares, subject to adjustment as provided in subparagraph (b) hereof, provided that Shares awarded pursuant to any such Award shall not, to the extent such Award expires or lapses or is terminated, surrendered, forfeited, cancelled, exercised or settled in a manner that results in fewer Shares outstanding than were awarded pursuant to such Award, be counted against the maximum number of Shares which may be issued pursuant to this subparagraph 3(d). 4. ELIGIBILITY TO RECEIVE AWARDS. All officers, directors, key employees and consultants of the Company are eligible to be Participants in the Plan. As used herein, key employees are employees determined by the Committee to be capable of contributing significantly to the profitability and success of the Company. Incentive Stock Options (as defined below) may be granted only to persons eligible to receive such options under the Code. 5. FORM OF AWARDS. Subject to the provisions of the Plan, Awards may be made from time to time by the Committee in the form of stock options to purchase Shares, stock appreciation rights, restricted stock, performance shares, performance units, other stock-based awards as provided herein or any combination of the above. Stock options may be options which are intended to qualify as incentive stock options within the meaning of Section 422 of the Code or any successor provision ("Incentive Stock Options") or options which are not intended to so qualify ("Nonqualified Stock Options"). 6. STOCK OPTIONS. (a) Award. Subject to the provisions of the Plan, the Committee shall determine the terms and conditions of each stock option granted by the Committee, which may include without limitation: (i) the type of option (Incentive Stock Option or Nonqualified Stock Option), (ii) the number of Shares subject to the option, (iii) the time or times at which and/or the conditions upon which the option shall become exercisable in whole or in part, (iv) the term of the option, provided that the term of an option shall not be greater than ten (10) years, and (v) the exercise price per Share, provided that the exercise price per Share shall not be less than the fair market value of a Share on the date of grant, as determined by the Committee (subject to subsequent adjustment as provided in paragraph 3(b) hereof). The Committee, in its discretion, may provide for circumstances under which the option shall become immediately exercisable, in whole or in part, and, notwithstanding the foregoing, may accelerate the exercisability of any option, in whole or in part, at any time. A stock option granted under this Plan shall be an Incentive Stock Option only if the stock option is designated as an Incentive Stock Option in the Award Agreement. (b) Payment for Shares. The Committee shall determine the form of payment of the purchase price of the Shares with respect to which an option is exercised, which may include without limitation (i) cash (which may include personal checks, certified checks, cashier's checks or money orders), (ii) Shares at fair market value, (iii) the optionee's written request to the Company to reduce the number of Shares otherwise issuable to the optionee upon the exercise of the option by a number of Shares having a fair market value equal to such purchase price, (iv) a payment commitment of a financial institution or brokerage firm in connection with the "cashless exercise" of an option, (v) any other lawful consideration, including, without limitation, an Award or a note or other commitment satisfactory to the Committee or (vi) a combination of any of the foregoing. (c) Incentive Stock Options. In the case of an Incentive Stock Option, each Award shall contain such other terms, conditions and provisions as the Committee determines to be necessary or desirable in order to qualify such option as an Incentive Stock Option within the meaning of Section 422 of the Code or any successor provision. (d) Formula Options. The Committee shall not have any discretion pursuant to this paragraph 6 with respect to Formula Options granted pursuant to paragraph 11 hereof. 7. STOCK APPRECIATION RIGHTS. (a) Award. Stock Appreciation Rights ("SARs") may be granted by the Committee either in connection with a previously or contemporaneously granted stock option or independently of a stock option. Subject to the provisions of the Plan, the Committee shall determine the terms and conditions of each SAR. SARs shall entitle the grantee, subject to such terms and conditions as may be determined by the Committee, to receive upon exercise thereof all or a portion of the excess of (i) the fair market value at the time of exercise, as determined by the Committee, of a specified number of Shares with respect to which the SAR is exercised, over (ii) a specified price which shall not be less than 100 percent of the fair market value of the Shares at the time the SAR is granted, or, if the SAR is granted in connection with a previously or contemporaneously issued stock option, not less than the exercise price of the Shares subject to the option. (b) SARs Related to Stock Options. If an SAR is granted in relation to a stock option, unless otherwise determined by the Committee, (i) the SAR shall be exercisable only at such times, and by such persons, as the related option is exercisable, (ii) the grantee's right to exercise the related option shall be canceled if and to the extent that the Shares subject to the option are used to calculate the amount to be received upon the exercise of the related SAR and (iii) the grantee's right to exercise the related SAR shall be canceled if and to the extent that the Shares subject to the SAR are purchased upon the exercise of the related option, provided that an SAR granted with respect to less than the full number of Shares covered by a related option shall not be reduced until the related option has been exercised or has terminated with respect to the number of Shares not covered by the SAR. (c) Other Terms. Each SAR shall have such other terms and conditions as the Committee shall determine in its sole discretion, provided that the term of an SAR shall not be greater than ten (10) years. The Committee may, in its discretion, provide in the Award circumstances under which the SARs shall become immediately exercisable, in whole or in part, and may, notwithstanding the foregoing, accelerate the exercisability of any SAR, in whole or in part, at any time. Upon exercise of an SAR, payment shall be made in cash, Shares at fair market value on the date of exercise, other Awards, other property or any combination thereof, as the Committee may determine. 8. RESTRICTED STOCK AWARDS. (a) Award. Restricted stock awards under the Plan shall consist of Shares free of any purchase price or for such purchase price as may be established by the Committee, subject to forfeiture, and subject to such other terms and conditions (including attainment of performance objectives) as may be determined by the Committee. (b) Restriction Period. Restrictions shall be imposed for such period or periods as may be determined by the Committee. The Committee shall determine the terms and conditions upon which any restrictions upon restricted stock awarded under the Plan shall expire, lapse, or be removed. The Committee, in its discretion, may provide in the Award circumstances under which the restricted stock shall become immediately transferable and nonforfeitable, or under which the restricted stock shall be forfeited, and, notwithstanding the foregoing, may accelerate the expiration of the restriction period imposed on any restricted stock at any time. (c) Restrictions Upon Transfer. Restricted stock and the right to vote such restricted stock and to receive dividends thereon, may not be sold, assigned, transferred, exchanged, pledged, hypothecated, or otherwise encumbered during the restriction period applicable to such Shares, except to the extent determined by the Committee. Notwithstanding the foregoing, and except as otherwise provided in the Plan or determined by the Committee, the grantee of the restricted stock shall have all of the other rights of a stockholder, including, but not limited to, the right to receive dividends and the right to vote such Shares. The Committee, in its discretion, may provide that any dividends or distributions paid with respect to Shares subject to the unvested portion of a restricted stock award will be subject to the same restrictions as the Shares to which such dividends or distributions relate. (d) Registration. Any restricted stock issued hereunder may be evidenced in such manner as the Committee in its sole discretion may deem appropriate, including without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any certificate or certificates are to be issued, the Committee, in its sole discretion, shall determine when the certificate or certificates shall be delivered to the grantee, may provide for the holding of such certificate or certificates in escrow or in custody by the Company or its designee pending their delivery to the grantee, and may provide for any appropriate legend to be borne by the certificate or certificates. 9. PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance unit and performance share awards under the Plan shall entitle grantees to future payments based upon the achievement of pre-established performance objectives. Subject to the provisions of the Plan, the Committee shall determine the terms and conditions applicable to each performance unit or performance share award, which may include without limitation the following: (a) one or more performance periods, (b) the initial value of each performance unit subject to a performance unit award or the number of Shares subject to a performance share award, (c) performance targets to be achieved during each applicable performance period and (d) the terms of payment of performance unit and performance share awards. Performance targets established by the Committee may relate to financial and nonfinancial performance goals, may relate to corporate, division, unit, individual or other performance and may be established in terms of growth in gross revenue, earnings per share, ratios of earnings to equity or assets, or such other measures or standards as may be determined by the Committee in its discretion. Multiple targets may be used and may have the same or different weighting, and they may relate to absolute performance or relative performance. At any time prior to payment of a performance unit or performance share award, the Committee may adjust previously established performance targets or other terms and conditions to reflect unforeseen events, including without limitation, changes in laws, regulations or accounting practices, mergers, acquisitions or divestitures or other extraordinary, unusual or non-recurring items or events. Payment on performance unit and performance share awards may be made in cash, Shares, other Awards, other property or any combination thereof, as the Committee may determine. 10. OTHER STOCK-BASED AWARDS. The Committee may grant to Participants, either alone or in addition to other Awards granted under the Plan, awards which are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to Shares (including, without limitation, securities or other instruments convertible into Shares). Subject to the terms of the Plan, the Committee shall determine the terms and conditions of such Awards. Such Awards may be paid in Shares, cash, other Awards, other property or any combination thereof, as the Committee may determine. Such Awards may be issued for no cash consideration, for such minimum consideration as may be required by applicable law or for such other consideration as the Committee may determine. The form or forms of consideration payable for Shares or other securities delivered pursuant to a purchase right granted under this paragraph may include any form of consideration specified in paragraph 6(b) hereof. The Committee may establish certain performance criteria that may relate in whole or in part to receipt of Awards hereunder. The provisions of this paragraph 10 notwithstanding, any stock option to purchase Shares, SAR, restricted stock award or performance share award granted under this Plan must comply with the provisions of this Plan applicable to such Award. 11. NON-EMPLOYEE DIRECTORS' OPTIONS. (a) Grant of Nonqualified Stock Options. On the first stock trading day after each annual meeting of shareholders of TransFinancial commencing with the year 1998, each person who is serving as a director of TransFinancial and is not an employee of the Company on such day ("Non-Employee Director") shall automatically receive a grant of a Nonqualified Stock Option to purchase 2,000 Shares (a "Formula Option"). (b) Option Price. The option exercise price to be paid by each such Non-Employee Director for each Share purchased upon the exercise of such Formula Option shall be one hundred percent (100%) of the fair market value of the Shares on the date the option is granted. Fair market value for purposes of this paragraph 11 shall be deemed to be the closing price of the Shares on the American Stock Exchange as of the date the Formula Option is granted, as reported in the Midwest Edition of the Wall Street Journal, provided that if the Shares are not then listed on the American Stock Exchange, fair market value shall be the Closing Price (as defined in paragraph 16) on such date. (c) Vesting Schedule. Each Formula Option shall become exercisable with respect to one-half of the Shares subject to such option on the last day of the tenth full calendar month following the date of grant and shall become exercisable in full on the last day of the twenty-second full calendar month following the date of grant; provided that, notwithstanding the foregoing, the Formula Option shall become exercisable in full upon (i) the occurrence of a Change of Control (as defined in the form of Directors Stock Option Agreement attached hereto as Exhibit I) during the Non-Employee Director's service as a director of TransFinancial, provided the Formula Option has been outstanding for at least one hundred eighty (180) days at the time of such occurrence, (ii) termination of the Non-Employee Director's service as a director of TransFinancial concurrently with a Change of Control, provided the Formula Option has been outstanding for at least one hundred eighty (180) days at the time of such termination, or (iii) termination of the Non-Employee Director's service as a director of TransFinancial due to the Non-Employee Director's (A) death, (B) permanent and total disability, or (C) retirement at the end of a term of office, after completing five (5) years of service as a director ("Retirement"). (d) Term of Option. Each Formula Option shall expire on the tenth anniversary of the date of grant, subject to earlier termination as provided in this subparagraph. In the event that a Non-Employee Director's service as a director of TransFinancial terminates for any reason, the Non-Employee Director (or in the event of death the Non-Employee Director's Beneficiary) shall have the right to exercise the Formula Option, to the extent the Formula Option was exercisable at the time of such termination, at any time within one hundred eighty (180) days after the date of termination of service, provided that in no event may the Formula Option be exercised after the tenth anniversary of the date of grant. Upon the earlier of the tenth anniversary of the date of grant or the end of such 180 day period, the Formula Option shall expire. (e) Payment for Shares. The option exercise price of the Shares with respect to which a Formula Option is exercised shall be payable in full at the time of exercise in (i) cash (which may include personal checks, certified checks, cashier's checks or money orders), (ii) Shares at fair market value or (iii) a combination of the foregoing. The fair market value of any Shares used to pay any part of the exercise price shall be their fair market value, as determined pursuant to subparagraph (b) hereof, on the date the Formula Option is exercised. In lieu of delivering Shares, the optionee may provide an affidavit regarding ownership of such Shares and receive the number of Shares otherwise issuable to the optionee upon the exercise of the Formula Option, less a number of Shares having a fair market value equal to such purchase price, determined as provided in this subparagraph. (f) Other Terms and Conditions. Each Formula Option granted to a Non-Employee Director shall be subject to all of the other terms and conditions set forth in the form of Directors Stock Option Agreement attached hereto as Exhibit I. (g) Additional Awards. Nothing in this paragraph 11 shall be deemed to prevent the Committee from granting Awards to any Non-Employee Director in addition to Formula Options. (h) Committee Discretion. The Committee may exercise discretion with respect to Formula Options only to the extent that the exercise of such discretion shall not cause the provisions of this Plan applicable to Formula Options to fail to qualify as a "formula plan" within the meaning of Rule 16b-3 under the 1934 Act. 12. PERFORMANCE-BASED AWARDS. (a) Applicability. Awards granted and other compensation payable under the Plan which are intended to qualify as Performance-Based Awards shall be subject to the provisions of this paragraph 12. In the event of any conflict between the provisions of this paragraph 12 and any other provisions of this Plan, the provisions of this paragraph 12 shall prevail. (b) Performance Goals. The specific performance goals for the Performance-Based Awards granted under paragraphs 8, 9, 10, 13 and 15(c) hereof shall be one or more Stockholder-Approved Performance Goals, as selected by the Committee in its sole discretion. To the extent required under Section 162(m) of the Code and the regulations promulgated thereunder, the Committee shall (i) establish in the applicable Award Agreement the specific performance targets relative to the Stockholder-Approved Performance Goals which must be attained before compensation under the Performance-Based Award becomes payable, (ii) provide in the applicable Award Agreement the method for computing the amount of compensation payable to the Participant if the target or targets are attained, and (iii) at the end of the relevant performance period and prior to any payment of compensation, certify whether the applicable target or targets were achieved and whether any other material terms were in fact satisfied. The specific targets and the method for computing compensation shall be established within the time period permitted under Section 162(m) of the Code and the regulations promulgated thereunder. The Committee may reserve the right in any Award Agreement covering a Performance-Based Award to reduce the amount payable at a given level of performance. The Committee shall be precluded from increasing the amount of compensation payable that would otherwise be due upon attainment of a performance goal contained in a Performance-Based Award, to the extent required under Section 162(m) of the Code and the regulations promulgated thereunder for Performance-Based Awards to qualify as "qualified performance- based compensation" under Section 162(m) of the Code. (c) Modification of Performance Goals. Except where a modification would cause a Performance-Based Award to no longer qualify as "qualified performance-based compensation" within the meaning of Section 162(m) of the Code, the Committee may in its discretion modify any performance goal or target relating to a Performance-Based Award, in whole or in part, as the Committee deems appropriate and equitable, subject to the provisions of paragraph 15(i) hereof. (d) Discretion; Compliance. Notwithstanding any other provision of this Plan to the contrary, neither the Board nor the Committee shall be entitled to exercise any discretion otherwise authorized under this Plan with respect to any Performance-Based Award or with respect to the amendment or modification of any provision of this Plan without stockholder approval, if the ability to exercise such discretion (as opposed to the exercise of such discretion) would cause any Performance-Based Award to fail to qualify as "qualified performance- based compensation" under Section 162(m) of the Code. Notwithstanding any other provision of this Plan to the contrary, the Plan shall be deemed to include such additional limitations or requirements set forth in Section 162(m) of the Code and the regulations and rulings promulgated thereunder which are required to be included in the Plan in order for Performance-Based Awards to qualify as "qualified performance-based compensation" under Section 162(m) of the Code, and this Plan shall be deemed amended to the extent necessary to conform to such limitations and requirements from time to time. 13. LOANS AND SUPPLEMENTAL CASH PAYMENTS. The Committee in its sole discretion to further the purpose of the Plan may provide for cash payments to individuals in addition to an Award, or loans to individuals in connection with all or any part of an Award. Supplemental cash payments shall be subject to such terms and conditions as shall be prescribed by the Committee, provided that in no event shall the amount of payment exceed: (a) In the case of an option, the excess of the fair market value of a Share on the date of exercise over the option price multiplied by the number of Shares for which such option is exercised, or (b) In the case of an SAR, performance unit, performance share, restricted stock or other stock-based award, the value of the Shares and other consideration issued in payment of such Award. Any loan shall be evidenced by a written loan agreement or other instrument in such form and containing such terms and conditions (including, without limitation, provisions for interest, payment schedules, collateral, forgiveness or acceleration) as the Committee may prescribe from time to time. 14. GENERAL RESTRICTIONS. Each Award under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the Shares subject or related thereto upon any securities exchange or under any state or federal law, or (ii) the consent or approval of any regulatory body, or (iii) an agreement by the recipient of an Award with respect to the disposition of Shares in order to satisfy the requirements of federal or state securities laws, or (iv) the satisfaction of withholding tax or other withholding liabilities is necessary or desirable as a condition of or in connection with the granting of such Award or the issuance or purchase of Shares thereunder, such Award shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval, agreement, or withholding shall have been effected or obtained. Any such restriction affecting an Award shall not extend the time within which the Award may be exercised; and none of the Company, its directors or officers or the Committee shall have any obligation or liability to the grantee or to a Beneficiary with respect to any Shares with respect to which an Award shall lapse or with respect to which the grant, issuance or purchase of Shares shall not be effected, because of any such restriction. 15. GENERAL PROVISIONS APPLICABLE TO AWARDS. (a) Award Agreements. Each Award under the Plan shall be evidenced by a written agreement entered into by and between TransFinancial and the Participant ("Award Agreement"), containing such terms and conditions not inconsistent with the provisions of the Plan as the Committee in its sole discretion deems necessary or advisable, except as provided in paragraph 11 with respect to Formula Options. Each Participant to whom an Award has been granted shall agree that such Award shall be subject to all of the terms and conditions of the Plan and the terms and provisions of the applicable Award Agreement. A Participant shall have no rights with respect to any Award unless the Participant shall have executed and delivered to the Company a copy of the Award Agreement with respect to such Award. (b) Committee Discretion. Each type of Award may be made alone, in addition to or in relation to any other Award. Multiple Awards, multiple forms of Awards, or combinations thereof may be evidenced by a single Award Agreement or multiple Award Agreements, as determined by the Committee, except with respect to Formula Options under paragraph 11 hereof. Successive Awards may be granted to the same Participant whether or not any Awards previously granted to such Participant remain outstanding. The Committee's determinations under the Plan need not be uniform and may be made selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. No person shall have any claim or right to be granted an Award under the Plan. (c) Dividends. In the discretion of the Committee, any Award under the Plan may provide the Participant with dividends or dividend equivalents payable in cash or property, currently or deferred, with or without interest, except with respect to Formula Options under paragraph 11 hereof. Dividend equivalents granted with respect to a stock option which is a Performance-Based Award may not be made contingent upon exercise of the stock option, to the extent prohibited by Section 162(m) of the Code and the regulations promulgated thereunder with respect to qualified performance-based compensation. (d) Termination of Employment or Consulting Arrangement. Except with respect to Formula Options under paragraph 11 hereof, the Committee shall determine the effect, if any, on an Award of the disability, death, retirement or other termination of employment or services of a Participant and the extent to which, and the period during which, the Participant or the Participant's legal representative, guardian or Beneficiary may receive payment of an Award or exercise rights thereunder. (e) Change of Control. Except with respect to Formula Options under paragraph 11 hereof and subject to the terms and conditions of the Plan, the Committee may include such provisions in the terms of an Award or Award Agreement relating to a change of control of the Company (as defined by the Committee) as the Committee determines in its discretion. Such provisions may include, without limitation, provisions which: (i) provide for the acceleration of any time period relating to the exercise, realization, payment or term of the Award, (ii) provide for payment to the Participant of cash or other property with a fair market value, as determined by the Committee, equal to the amount that would have been received upon the exercise or payment of the Award had the Award been exercised or paid upon the change in control, (iii) adjust the terms of the Award in a manner necessary to reflect the change in control or (iv) require that the Award be assumed, or new rights substituted therefor, by another entity. (f) Transferability. Except with respect to Formula Options under paragraph 11 hereof, in the discretion of the Committee, any Award may be made transferable upon such terms and conditions and to such extent as the Committee determines, provided that Incentive Stock Options may be transferable only to the extent permitted by the Code. Except with respect to Formula Options under paragraph 11 hereof, the Committee may in its discretion waive any restriction on transferability, provided that Incentive Stock Options may be transferable only to the extent permitted by the Code. Unless the Committee determines otherwise, a Participant's rights and interest under any Award or any Award Agreement may not be assigned or transferred in whole or in part, voluntarily or involuntarily, including by operation of law, except by will, by the laws and descent and distribution or pursuant to an effective Beneficiary designation. (g) Withholding. (i) Prior to the issuance or transfer of Shares or other property under the Plan, the recipient shall remit to the Company an amount sufficient to satisfy any Federal, state or local withholding tax requirements. The recipient may satisfy the withholding requirement in whole or in part by delivering Shares or electing to have the Company withhold Shares having a value equal to the amount required to be withheld. The value of such Shares shall be the fair market value, as determined by the Committee, of the stock on the date that the amount of tax to be withheld is determined (the Tax Date). Such Election must be made prior to the Tax Date, must comply with all applicable securities law and other legal requirements, as interpreted by the Committee, and may not be made unless approved by the Committee, in its discretion. (ii) Whenever payments to a Participant in respect of an Award under the Plan are to be made in cash, such payments shall be net of the amount necessary to satisfy any Federal, state or local withholding tax requirements. (h) Deferred or Installment Payments. The Committee may provide that the issuance of Shares or the payment or transfer of cash or property upon the settlement of Awards may be made in a single payment or transfer or in installments, and may authorize the deferral of, or permit a Participant to elect to defer, any such issuance, payment or transfer, all in accordance with such rules, requirements, conditions and procedures as may be established by the Committee. The Committee may also provide that any such installment or any such deferred issuance, payment or transfer shall include the payment or crediting of dividend equivalents, interest or earnings on deferred amounts. The provisions of this subparagraph (h) shall not apply to Formula Options under paragraph 11 hereof. (i) Amendment of Awards. Subject to the terms and conditions of the Plan and any Award Agreement, the Committee will have the authority under the Plan to amend or modify the terms of any outstanding Award (including the applicable Award Agreement) in any manner, prospectively or retroactively, including, without limitation, the authority to modify the number of shares or other terms and conditions of an Award, extend the term of an Award, accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Award, convert an Incentive Stock Option to a Nonqualified Stock Option, accept the surrender of any outstanding Award and authorize the grant of new Awards in substitution for surrendered Awards; provided, however, that the amended or modified terms are permitted by the Plan as then in effect and provided, further, that if such amendment or modification, taking into account any related action, materially and adversely affects a Participant's rights under an Award or an Award Agreement, such Participant shall have consented to such amendment or modification. Nothing in this subparagraph shall be deemed to limit the Committee's authority to amend or modify any outstanding Award pursuant to paragraph 3(b) of the Plan. The Committee may not amend any outstanding Award or Award Agreement relating to a Formula Option to the extent that such amendment would cause the provisions of this Plan applicable to Formula Options and the provisions of the Award or Award Agreement to fail to qualify as a "formula plan" within the meaning of Rule 16b-3 under the 1934 Act. (j) Limitation on Amendment of Awards. Notwithstanding subparagraph (i) hereof, unless approved by the shareholders of TransFinancial in accordance with Delaware law, (i) the Committee shall not amend or modify the terms of any outstanding Award relating to any stock option or SAR (including the applicable Award Agreement) to reduce the exercise price per Share and (ii) no stock option or SAR shall be cancelled and replaced with any Award or Awards having a lower exercise price. Nothing in this subparagraph shall be deemed to limit the Committee's authority to amend or modify any outstanding Award pursuant to paragraph 3(b) hereof. 16. CERTAIN DEFINITIONS (a) "1934 Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor law. (b) "Award" means any award of stock options to purchase Shares, stock appreciation rights, performance units, performance shares, restricted stock, other stock-based awards as provided herein or any combination of the above granted under the Plan. (c) "Beneficiary" means the person or persons designated in writing by the grantee of an Award as the grantee's Beneficiary with respect to such Award; or, in the absence of an effective designation or if the designated person or persons predecease the grantee, the grantee's Beneficiary shall be the grantee's estate or the person or persons who acquire by bequest or inheritance the grantee's rights in respect of an Award. In order to be effective, a grantee's designation of a Beneficiary must be on file with the Committee before the grantee's death, but any such designation may be revoked and a new designation substituted therefor at any time before the grantee's death. (d) "Closing Price" as of a particular day with respect to any securities shall be the last sale price of such securities on the national securities exchange on which such securities are listed and principally traded or, if such securities are not listed on any national securities exchange, as reported by NASDAQ, or, if not so reported by NASDAQ, the average of the closing bid and asked quotations for such securities as reported by the National Quotations Bureau Incorporated or similar organization selected by the Committee, or, if on any such date such securities are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such securities selected by the Committee. (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor law. (f) "Covered Employee" means a "covered employee" for a particular taxable year of the Company within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder or any Participant who the Committee believes will be such a covered employee for a particular taxable year of the Company, and who the Committee believes will have remuneration in excess of $1,000,000 for such taxable year, as provided in Section 162(m) of the Code. (g) "Participant" means any person selected to receive an Award pursuant to the Plan. (h) "Performance-Based Awards" means Awards and other compensation payable under the Plan which the Committee from time to time determines are intended to qualify as "qualified performance-based compensation" under Section 162(m) of the Code. (i) "Reporting Person" means any person subject to Section 16 of the 1934 Act, or any successor rule. (j) "Shares" means shares of Common Stock, $.01 par value per share, of TransFinancial as constituted on the effective date of the Plan, and any other shares into which such Common Stock shall thereafter be changed by reason of any transaction described in paragraph 3(b) hereof. (k) "Stockholder-Approved Performance Goals" means the measurable performance objective or objectives established pursuant to this Plan for Participants who have received grants of Performance-Based Awards described in paragraph 12(b) hereof. To the extent permitted under Section 162(m) of the Code and the regulations promulgated thereunder, Stockholder-Approved Performance Goals may be described in terms of objectives related to the performance of the Participant, TransFinancial, any subsidiary, or any division, unit, department, region or function within TransFinancial or any subsidiary in which the Participant is employed. Stockholder-Approved Performance Goals may be made relative to the performance of other companies. To the extent permitted under Section 162(m) of the Code and the regulations promulgated thereunder, Stockholder-Approved Performance Goals applicable to any Performance-Based Award shall be based on specified levels of or changes in one or more of the following criteria: (i) cash flow, which may include net cash flow from operations, or net cash flow from operations, financing and investing activities, (ii) earnings per share, (iii) pre-tax income, (iv) net income, (v) return on sales, (vi) return on equity, (vii) return on assets, (viii) return on capital, (ix) return on investment, (x) revenue growth, (xi) market share, (xii) retained earnings, (xiii) improved gross margins, (xiv) operating expense ratios, (xv) earnings before interest, taxes, depreciation and amortization, (xvi) costs, (xvii) cost reductions or savings, (xviii) debt reduction, (xix) selling, general and administrative expenses and (xx) total return to shareholders (share appreciation plus dividends). 17. MISCELLANEOUS. (a) Rights of a Stockholder. Except as otherwise provided in paragraph 8 hereof and subject to the provisions of the applicable Award Agreement, the recipient of any Award under the Plan shall have no rights as a stockholder with respect thereto unless and until certificates for Shares are issued to such Participant, and the issuance of Shares shall confer no retroactive right to dividends. (b) Rights to Terminate Employment. Nothing in the Plan or in any Award Agreement shall confer upon any person the right to continue in the employment of the Company or affect any right which the Company may have to terminate the employment of such person. (c) Amendment and Termination of Plan. The Board may terminate, amend, modify or suspend the Plan at any time, subject to such stockholder approval as the Board determines to be necessary or desirable to comply with any tax, regulatory or other requirement, provided that (i) in no event shall the provisions relating to the timing, amount and exercise price of Formula Options provided for in paragraph 11 of the Plan be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, (ii) subject to paragraph 3(b) hereof, the Board may not, unless such amendment is approved by the shareholders of TransFinancial in accordance with Delaware law, amend the Plan to (A) increase the number of Shares available for the grant of Awards under the Plan pursuant to paragraph 3(a) hereof, (B) increase the maximum individual limits on Awards set forth in paragraph 3(c) hereof, (C) increase the maximum number of Shares which may be subject to restricted stock awards, performance share awards and other stock-based awards pursuant to paragraph 3(d) hereof, (D) decrease the minimum per Share exercise price of stock options or the minimum per Share specified price for SARs under the Plan, (E) increase the maximum term of stock options or SARs under the Plan or (F) change or modify the provisions of paragraph 15(j) hereof. If any such termination, modification, amendment or suspension of the Plan shall materially and adversely affect the rights of any grantee or Beneficiary under an Award previously granted, the consent of such grantee or Beneficiary shall be required, provided that it shall be conclusively presumed that any adjustment pursuant to paragraph 3(b) hereof does not materially and adversely affect any such right. (d) Effect on Other Plans; Nature of Payments. Nothing contained in this Plan shall prevent the Company from adopting other or additional compensation arrangements or other benefit or incentive plans or shall affect any Participant's eligibility to participate in any other such arrangement or plan. Each grant of an Award and each issuance of Shares hereunder shall be in consideration of services performed for the Company by the Participant receiving the Award. Each such grant and issuance shall constitute a special incentive payment to the Participant receiving the Award and shall not be taken into account in computing the amount of salary or compensation of the Participant for the purposes of determining any pension, retirement, death or other benefits under (i) any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company or (ii) any agreement between the Company and the Participant, except as such plan or agreement shall otherwise expressly provide. (e) Effective Date and Duration of Plan. The Plan shall become effective when adopted by the Board, provided that the Plan is approved by the shareholders of TransFinancial in accordance with Delaware law before the first anniversary of the date the Plan is adopted by the Board, and provided, further, that no payment on any Award shall be made unless and until such stockholder approval is obtained. Unless it is sooner terminated in accordance with subparagraph (c) hereof, the Plan shall remain in effect until all Awards under the Plan have been satisfied or have expired or otherwise terminated, but no Incentive Stock Option shall be granted more than ten years after the earlier of the date the Plan is adopted by the Board or is approved by the shareholders of TransFinancial. (f) Unfunded Plan. The Plan shall be unfunded, except to the extent otherwise provided in accordance with paragraph 8 hereof. Neither the Company nor any affiliate shall be required to segregate any assets that may be represented by Awards, and neither the Company nor any affiliate shall be deemed to be a trustee of any amounts to be paid under any Award. Any liability of the Company or any affiliate to pay any grantee or Beneficiary with respect to an Award shall be based solely upon any contractual obligations created pursuant to the provisions of the Plan, and no such obligations will be deemed to be secured by a pledge of or encumbrance on any property of the Company or an affiliate. (g) Governing Law. The Plan shall be governed by, and shall be construed, enforced and administered in accordance with, the laws of the State of Delaware, except to the extent that such laws may be superseded by any Federal law. Exhibit I Form of Directors Stock Option Agreement [Date] [Name of Optionee] [Address of Optionee] Dear [Optionee]: This Agreement is entered into pursuant to the TransFinancial Holdings, Inc. 1998 Long-Term Incentive Plan ("Plan"), a copy of which has been furnished to you. This Agreement is subject to all of the terms and provisions of the Plan, which are incorporated by reference. In the event of a conflict between this Agreement and the Plan, the provisions of the Plan shall govern. 1. GRANT OF NONQUALIFIED STOCK OPTION. TransFinancial Holdings, Inc. ("TransFinancial") hereby grants to you a Nonqualified Stock Option ("Option") to purchase from TransFinancial all or any part of an aggregate of Two Thousand (2,000) shares of common stock, $.01 par value per share, of TransFinancial ("Shares") at the option exercise price specified below ("Option Price"), subject to the terms and conditions of the Plan and this Agreement. 2. OPTION PRICE. The Option Price shall be Dollars ($ ) per Share, such Option Price being the fair market value of the Shares on the date hereof pursuant to the Plan, equal to the closing price of the Shares on the American Stock Exchange on , the first stock trading day following the annual meeting of the shareholders of TransFinancial, as reported by The Wall Street Journal on . 3. EXERCISE OF OPTION. a. Subject to all of the other terms and conditions set forth herein, the Option may be exercised in respect of 1,000 Shares on and after and may be exercised in respect of all of the Shares subject to the Option on and after . b. Notwithstanding the provisions of subparagraph (a) hereof, the Option shall become exercisable in full upon (i) the occurrence of a Change of Control (as hereinafter defined) during your service as a director of TransFinancial, provided the Option has been outstanding for at least One Hundred Eighty (180) days at the time of such occurrence, (ii) termination of your service as a director of TransFinancial concurrently with a Change of Control, provided the Option has been outstanding for at least One Hundred Eighty (180) days at the time of such termination, or (iii) termination of your service as a director of TransFinancial due to your (A) death, (B) permanent and total disability, or (C) retirement at the end of a term of office, after completing five (5) years of service as a director ("Retirement"). c. Subject to all of the other terms and conditions set forth herein, you shall have the right to exercise the Option in whole or in part from time to time, provided that you may not exercise the Option with respect to a fractional share or with respect to fewer than ten (10) Shares (or such lesser number remaining unexercised). Except as otherwise provided herein, this Option may not be exercised unless you are then a director of TransFinancial. 4. TERM OF OPTION. a. The Option shall expire at the close of business on (the "Expiration Date"), subject to earlier termination as provided in this Paragraph 4. In no event may the Option be exercised after the Expiration Date. b. If your service as a director of TransFinancial terminates for any reason, you (or in the event of death your Beneficiary under the Plan) shall have the right to exercise the Option, to the extent the Option was exercisable at the time of such termination, at any time within One Hundred Eighty (180) days after the date of termination of service, provided that in no event may the Option be exercised after the Expiration Date. Upon the earlier of the Expiration Date or the end of such 180 day period, the Option shall expire. 5. METHOD OF EXERCISE OF OPTION. The Option may be exercised by delivering to the Corporate Secretary of TransFinancial written notice of exercise and payment of the Option Price. The written notice of exercise shall: a. State the election to exercise the Option (or any part thereof), the number of Shares in respect of which the Option is being exercised, the person in whose name the stock certificate or certificates for such Shares is to be registered, his or her address and Social Security Number (or, if more than one, the names, addresses, and Social Security Numbers of such persons); and b. Be signed by the person or persons entitled to exercise the Option, and, if the Option is being exercised by any person or persons other than you, it shall be accompanied by proof satisfactory to counsel for TransFinancial of the right of such person or persons to exercise the Option. 6. PAYMENT OF OPTION PRICE. a. Payment of Option Price shall be made in (i) cash (which may include personal checks, certified checks, cashier's checks or money orders), (ii) Shares owned by you for at least six months prior to the time of exercise at fair market value or (iii) a combination of the foregoing. The fair market value of any Shares used to pay any part of the exercise price shall be their fair market value, as determined below. No fractional Shares shall be accepted by TransFinancial, and if payment is to be made only in Shares, the Shares shall be rounded to the next lowest whole number of Shares, and you shall pay the amount equal to the fractional Share in cash or by check. In lieu of delivering Shares, you may provide an affidavit regarding ownership of such Shares and receive the number of Shares otherwise issuable to the you upon the exercise of the Option, less a number of Shares having a fair market value equal to such purchase price, as determined below. b. Fair market value for purposes of this paragraph 6 shall be deemed to be the closing price of the Shares on the American Stock Exchange as of the date the Option is exercised, as reported in the Midwest Edition of the Wall Street Journal. 7. ISSUANCE OF SHARES. Upon the exercise of the Option in whole or in part and upon satisfaction of the other terms and conditions of this Agreement and of the Plan, TransFinancial will cause to be issued certificates for Shares purchased pursuant to the Option. Shares to be issued to you shall be fully paid and nonassessable, and will be either authorized and previously unissued Shares or Shares held in the treasury of TransFinancial. It is understood that you shall not have any of the rights of a shareholder with respect to such Shares until such Shares are actually issued and registered in your name. 8. DEFINITION OF CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred if (a) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the "1934 Act"]), other than a trustee or other fiduciary holding securities under an employee benefit plan of TransFinancial, and other than a corporation owned directly or indirectly by the shareholders of TransFinancial in substantially the same proportions as their ownership of stock of TransFinancial, shall have become, according to a public announcement or filing, the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of TransFinancial representing thirty percent (30%) or more of the combined voting power of TransFinancial's then outstanding voting securities; (b) a majority of the members of the Board of Directors of TransFinancial (the "Board") ceases to consist of Continuing Directors ("Continuing Directors" means (i) individuals who were members of the Board on the date of grant of the Option or (ii) individuals who subsequently become members of the Board if such individuals' elections or nominations for election by TransFinancial's shareholders were recommended or approved by a majority of the then Continuing Directors); (c) the shareholders of TransFinancial approve a merger or consolidation of TransFinancial with any other entity, other than a merger or consolidation which would result in the voting securities of TransFinancial outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the surviving entity's parent) at least seventy percent (70%) of the combined voting power represented by voting securities of TransFinancial, such surviving entity or such parent, as the case may be, outstanding immediately after such merger or consolidation, or (d) the shareholders of TransFinancial approve a plan of complete liquidation of TransFinancial or an agreement for the sale or disposition by TransFinancial of all or substantially all of TransFinancial's assets, except a sale or disposition to any entity wholly-owned, directly or indirectly, by TransFinancial. As used in this Paragraph 8, the parent of the surviving entity shall mean an entity which owns, directly or indirectly, one hundred percent (100%) of the outstanding voting securities of the surviving entity. 9. NONTRANSFERABILITY OF OPTION. The Option may not be transferred by you other than by will or by the laws of descent and distribution and may be exercised during your lifetime only by you. 10. WAIVER OF OPTION. By entering into this Agreement, you hereby waive any right which you may have to receive an annual grant under the 1992 Incentive Stock Plan of TransFinancial of a "Directors Option" (as defined in that plan) for the year . 11. NOTICES. Each notice relating to this Agreement shall be in writing and delivered in person or by certified mail. Each notice shall be deemed to have been given on the date it is received. Each notice to TransFinancial shall be addressed to it at its principal office, at 8245 Nieman Road, Suite 100, Lenexa, Kansas 66214, attention of the Corporate Secretary. Each notice to you or other person or persons then entitled to exercise the Option shall be addressed to you or such other person or persons at your address set forth in the heading of this Agreement. Anyone to whom a notice may be given under this Agreement may designate a new address by notice to that effect. 12. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit of, and be binding upon, the respective heirs, executors, administrators, distributees and successors of the parties hereto, except as otherwise specifically provided herein. 13. RESOLUTION OF DISPUTES. Any dispute or disagreement which should arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement or the Plan will be determined by the Committee of the Board of Directors of TransFinancial administering the Plan or this Agreement. Any determination made hereunder or under the Plan shall be final, binding and conclusive for all purposes. 14. CONTINUATION AS DIRECTOR. Nothing in this Agreement or the Plan shall confer upon you the right to continue as a director of TransFinancial or any of its subsidiaries, or affect any right which TransFinancial or any of its subsidiaries may have to terminate your service as a director. 15. MARKET RISKS. It is expressly understood and agreed that you assume all risks incident to any change in the market value of the Shares subject to this Option after the exercise of this Option in whole or in part. 16. GOVERNING LAW, ETC. This Agreement shall be construed and its provisions enforced and administered in accordance with the laws of the State of Delaware except to the extent that such laws may be superseded by any Federal law. This Agreement may not be modified orally. Please acknowledge your acceptance of this agreement by executing both copies; retaining one copy for your files and returning the second copy to the Corporate Secretary in Lenexa, Kansas. Very truly yours, President ACCEPTED AND AGREED TO this day of , . EX-27 3
5 This schedule contains summary financial information extracted from the TransFinancial Holdings, Inc. consolidated statement of income for the year ended December 31, 1998 and consolidated balance sheet as of December 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000719271 TRANSFINANCIAL HOLDINGS, INC. 1000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 3256 0 26888 953 0 34140 57280 24122 77763 15122 9700 0 0 76 50998 77763 0 151701 0 154722 0 0 311 (2866) (839) (2027) 0 0 0 (2027) (.39) (.39)
EX-21 4 Exhibit 21 TRANSFINANCIAL HOLDINGS, INC. LISTING OF SUBSIDIARIES Subsidiaries of TransFinancial Holdings, Inc. State of Incorporation TFH Logistics & Transportation Services, Inc. Kansas Crouse Cartage Company Iowa Phoenix Computer Services, Inc. Kansas American Freight System, Inc. (d/b/a AFS, Inc.) Delaware Agency Premium Resource, Inc. Kansas TFH Properties, Inc. Kansas Universal Premium Acceptance Corporation Missouri Subsidiaries of Universal Premium Acceptance Corporation APR Funding Corporation Delaware Oxford Premium Finance, Inc. Illinois UPAC of California, Inc. California TransFinancial Acceptance, Inc. Kansas Presis, L.L.C. Kansas (All companies do business under same name unless otherwise indicated). EX-23 5 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference into the Company's previously filed Registration Statements on Form S-8 for the Anuhco, Inc. 1992 Incentive Stock Plan, File No. 33-51494, the Stock Option Agreement by and between Anuhco, Inc. and C. Ted McCarter, effective May 31, 1995, File No. 33-62553, and the TransFinancial Holdings, Inc. 1998 Long-Term Incentive Plan, File No. 333-66803, of our report dated February 3, 1999, except for Note 10, as to which the date is February 18, 1999, on our audit of the consolidated financial statements and financial statement schedule of TransFinancial Holdings, Inc. (formerly Anuhco, Inc.) as of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997, and 1996,, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP SEC/Consent Independent Acct Kansas City, Missouri March 15, 1999 -----END PRIVACY-ENHANCED MESSAGE-----