10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-12070 TRANSFINANCIAL HOLDINGS, INC. (Exact name of Registrant as specified in its charter) Delaware 46-0278762 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 8245 Nieman Road, Suite 100 Lenexa, Kansas 66214 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (913) 859-0055 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( ) No (X) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at June 16, 2000 Common stock, $0.01 par value 3,278,291 Shares PART I. FINANCIAL INFORMATION Item 1. Financial Statements TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, (In thousands, except per share amounts) (Unaudited)
2000 1999 Operating Revenues.......................................................... $ 38,868 $ 39,857 Operating Expenses.......................................................... 42,014 39,854 Operating Income (Loss)..................................................... (3,146) 3 Nonoperating Income (Expense) Interest income.......................................................... 6 20 Interest expense......................................................... (436) (256) Other.................................................................... -- 25 Total nonoperating income (expense).................................. (430) (211) Income (Loss) Before Income Taxes........................................... (3,576) (208) Income Tax Provision (Benefit).............................................. 23 (36) Net Income (Loss)........................................................... $ (3,599) $ (172) Basic and Diluted Earnings (Loss) Per Share................................. $ (1.10) $ (0.04) Basic Average Shares Outstanding............................................ 3,277 3,837 Diluted Average Shares Outstanding.......................................... 3,278 3,839 The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
MARCH 31, DECEMBER 31, 2000 1999 ASSETS (Unaudited) Current Assets: Cash and cash equivalents................................................ $ 112 $ 1,076 Freight accounts receivable, less allowance for credit losses of $228 and $203................................... 15,807 14,373 Finance accounts receivable, less allowance for credit losses of $909 and $870................................... 18,032 15,305 Other current assets..................................................... 4,593 3,579 Total current assets................................................. 38,544 34,333 Operating Property, at Cost: Revenue equipment........................................................ 31,231 31,415 Land..................................................................... 3,402 3,402 Structures and improvements.............................................. 12,175 11,336 Other operating property................................................. 11,173 11,289 57,981 57,442 Less accumulated depreciation........................................ (26,123) (25,400) Net operating property........................................... 31,858 32,042 Intangibles, net of accumulated amortization................................ 8,855 9,005 Other Assets................................................................ 1,307 1,513 $ 80,564 $ 76,893 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Cash overdrafts.......................................................... $ 5,526 $ 2,673 Line of credit borrowings................................................ 4,500 3,659 Accounts payable......................................................... 6,393 5,312 Current maturities of long-term debt (Note 4)............................ 14,500 14,800 Accrued payroll and fringes.............................................. 7,812 5,006 Claims and insurance accruals............................................ 1,494 1,361 Other accrued expenses................................................... 3,393 3,686 Total current liabilities............................................ 43,618 36,497 Contingencies and Commitments (Note 6)...................................... -- -- Shareholders' Equity (Note 5) Preferred stock with $0.01 par value, authorized 1,000,000 shares, none outstanding..................................................... -- -- Common stock with $0.01 par value, authorized 13,000,000 shares, issued 7,623,091 and 7,597,931 shares................................ 76 76 Paid-in capital.......................................................... 6,253 6,104 Retained earnings........................................................ 65,684 69,283 Treasury stock 4,345,561 shares, at cost................................. (35,067) (35,067) Total shareholders' equity........................................... 36,946 40,396 $ 80,564 $ 76,893 The accompanying notes to condensed consolidated balance sheets are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, (In thousands) (Unaudited)
2000 1999 Cash Flows From Operating Activities Net loss............................................................ $ (3,599) $ (172) Adjustments to reconcile net loss to cash used in operating activities Depreciation and amortization..................................... 1,259 1,285 Provision for credit losses....................................... 282 256 Deferred income tax benefit....................................... (37) (53) Other............................................................. 86 (23) Net increase (decrease) from change in other working capital items affecting operating activities........... 1,398 (1,409) (611) (116) Cash Flows From Investing Activities Purchase of operating property, net................................. (940) (623) Origination of finance accounts receivable.......................... (52,111) (48,388) Sale of finance accounts receivable................................. 37,530 36,682 Collection of owned finance accounts receivable..................... 11,633 10,171 Other............................................................... 135 (10) (3,753) (2,168) Cash Flows From Financing Activities Cash overdrafts..................................................... 2,853 (1,976) Borrowings on long-term debt........................................ -- 5,000 Repayments on long-term debt........................................ (300) -- Payments to acquire treasury stock.................................. -- (2,387) Borrowing on line of credit agreements, net......................... 841 -- Other............................................................... 6 (5) 3,400 632 Net Decrease in Cash and Cash Equivalents............................. (964) (1,652) Cash and Cash Equivalents at beginning of period...................... 1,076 3,256 Cash and Cash Equivalents at end of period............................ $ 112 $ 1,604 Cash Paid During the Period for Interest............................................................ $ 436 $ 253 Income taxes........................................................ $ 15 $ 28 The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (In thousands)(Unaudited)
Total Share Common Paid-In Retained Treasury holders' Stock Capital Earnings Stock Equity Balance at December 31, 1998.................. $ 76 $ 6,090 $ 77,367 $(32,459) $ 51,074 Net loss...................................... -- -- (8,084) -- (8,084) Issuance of shares under incentive plans...... -- 14 -- (5) 9 Purchase of 683,241 shares of common stock.... -- -- -- (2,603) (2,603) Balance at December 31, 1999.................. 76 6,104 69,283 (35,067) 40,396 Net loss...................................... -- -- (3,599) -- (3,599) Issuance of shares under incentive plans...... -- 6 -- -- 6 Issuance of shares under deferred compensation arrangements................... -- 143 -- -- 143 Balance at March 31, 2000..................... $ 76 $ 6,253 $ 65,684 $(35,067) $ 36,946 The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
TRANSFINANCIAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES The unaudited condensed consolidated financial statements include TransFinancial Holdings, Inc. ("TransFinancial") and all of its subsidiary companies (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments necessary to fairly present the results of operations have been made. Pursuant to SEC rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements unless significant changes have taken place since the end of the most recent fiscal year. TransFinancial believes that the disclosures contained herein, when read in conjunction with the financial statements and notes included in TransFinancial's Annual Report on Form 10-K, filed with the SEC on July 7, 2000, are adequate to make the information presented not misleading. It is suggested, therefore, that these statements be read in conjunction with the statements and notes included in the aforementioned report on Form 10-K. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced operating losses in the first quarter of 2000 and for the years 1999 and 1998 and significantly reduced cash flows from operating activities in 1999 and 2000. In addition, the Company has violated certain covenants in its financing agreements. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is ultimately dependent on its ability to refinance its outstanding debt with new lenders and make changes in its operations to allow it to operate profitably and sustain positive operating cash flows. Effective May 26, 2000, UPAC entered into a new receivable securitization agreement (See Note 4). Management is in the process of negotiating a new $30 million credit facility for TFH L&T that, if closed, would enable it to repay its working capital line of credit and term loan and provide additional liquidity. The Company has also effected changes in its operations intended to bring operating expenses in line with operating revenue levels and to increase the levels of revenues. Management believes that it will be successful in closing on the new credit facility and that the operational changes should result in improved operating results. However, there can be no assurance that the new credit facility will be successfully closed or that the operational changes will result in improved financial performance. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. SEGMENT REPORTING The Company operates in two business segments: transportation and financial services. Other items are shown in the table below for purposes of reconciling to consolidated amounts (in thousands).
First Quarter Operating Operating Total RevenuesIncome (Loss) Assets Transportation 2000 $ 37,019 $ (3,126) $ 50,011 1999 37,857 (10) 48,208 Financial Services 2000 1,839 218 28,621 1999 1,969 290 24,964 Total Segments 2000 38,858 (2,908) 78,632 1999 39,826 280 73,172 General Corporate and Other 2000 10 (238) 1,932 1999 31 (277) 5,701 Consolidated 2000 38,868 (3,146) 80,564 1999 39,857 3 78,873
3. PROPOSED MERGER On October 19, 1999, the Company executed a definitive agreement pursuant to which COLA Acquisitions, Inc. ("COLA"), a company newly formed by three TransFinancial directors, would acquire all of the Company stock not owned by such directors for $6.03 in cash. Effective February 18, 2000, COLA notified the Company that its bank financing necessary to consummate the proposed merger had been withdrawn. The receipt of financing by COLA was a condition to the consummation of the merger. As a result, the Merger Agreement was terminated. 4. FINANCING AGREEMENTS SECURITIZATION OF RECEIVABLES TransFinancial, UPAC and APR Funding Corporation (a wholly-owned subsidiary) have entered into a securitization agreement with a financial institution whereby undivided interests in a designated pool of accounts receivable can be sold on an ongoing basis. The purchaser permits principal collections to be reinvested in new financing agreements. The Company had securitized receivables of $63.4 million and $61.3 million at March 31, 2000 and 1999. The cash flows from the sale of receivables are reported as investing activities in the accompanying consolidated statement of cash flows. The securitized receivables are reflected as sold in the accompanying balance sheet. The terms of the agreement required UPAC to maintain a minimum book net worth of $20.0 million and contained restrictions on the payment of dividends by UPAC to TransFinancial without prior consent of the financial institution. The terms of the agreement also required the Company to maintain a minimum consolidated tangible net worth of $35 million and a minimum ratio of consolidated EBITDA to interest and securitization fees of 1.5 to 1.0. The Company was not in compliance with such financial covenants at March 31, 2000. The terms of the securitization agreement also required that UPAC maintain a default reserve at specified levels that serves as additional collateral. At March 31, 2000, approximately $7.2 million of owned finance receivables served as collateral under the default reserve provision. Effective May 26, 2000, the securitization agreement was assigned to and assumed by a new purchaser. UPAC and APR Funding Corporation amended the securitization agreement with the new purchaser increasing the maximum allowable amount of receivables to be sold under the new agreement to $80.0 million, extending the term of the agreement by five years with annual liquidity renewals and amending certain financial covenants. As a result of certain call provisions in the amended agreement, the receivables transferred under the agreement after the date of the amendment will not be reflected as sold in future balance sheets. The funds advanced under the amended agreement will be accounted for as secured borrowings. Among other things, the terms of the agreement require UPAC to maintain a minimum tangible net worth of $10.0 million, contain restrictions on the payment of dividends by UPAC to TransFinancial without prior consent of the financial institution and require UPAC to report any material adverse changes in its financial condition. SECURED LOAN AGREEMENTS In January 1998, Crouse Cartage Company entered into a three-year secured loan agreement with a commercial bank that provides for a $4.5 million working capital line of credit loan ("Working Capital Line"). The following table summarizes activity under the Working Capital Line in the first quarter ended March 31, 2000 and 1999 (in thousands, except percentages): First Quarter 2000 1999 Balance outstanding at end of period $4,500 $ -- Average amount outstanding.......... $4,421 $ 927 Maximum month end balance outstanding $4,500 $2,414 Interest rate at end of period...... 8.75% 7.50% Weighted average interest rate...... 8.50% 7.75% In September 1998, the Company entered into a two-year secured loan agreement with the same commercial bank which enabled the Company to borrow $10.0 million (the "Loan"), secured by freight accounts receivable and a second lien on revenue equipment. In March 1999, the Loan was amended and restated to increase the borrowing to $15.0 million. The proceeds of the Loan were used to repurchase shares of the Company's common stock and fund operations. The Loan bears interest at 25 basis points below the bank's prime rate. The interest rate was 8.75% at March 31, 2000. The terms of the Loan provide for monthly payments of interest only through September 30, 1999, with monthly principal payments thereafter of $100,000 plus interest through maturity on September 30, 2000, when the balance outstanding becomes due. At March 31, 2000, the outstanding balance of $14.5 million was classified as current maturities of long-term debt. The terms of the Working Capital Line require TFH Logistics & Transportation Services, Inc. ("TFH L&T") to maintain a minimum consolidated tangible net worth of $27 million. The terms of the Loan required the Company to maintain a minimum consolidated tangible net worth of $35 million, a ratio of current assets to current liabilities of 1.25 to 1.00, a ratio of total liabilities to tangible net worth of 1.0 to 1.0, and contain restrictions on the payment of dividends without prior consent of the Lender. The Company and TFH L&T were not in compliance with such financial covenants at March 31, 2000. 5. STOCK REPURCHASE In the first quarter of 1999, the Board of Directors authorized the repurchase of 1,030,000 shares of the Company's common stock. In 1999, a total of 683,241 shares had been repurchased at a cost of approximately $2.6 million. 6. CONTINGENCIES AND COMMITMENTS Crouse has been named as a defendant in two lawsuits arising out of a motor vehicle accident. The first suit was instituted on June 16, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Kimberly Idalski, Personal Representative of the Estate of Lori Cothran, Deceased against Crouse. The second suit was instituted on August 17, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf of Kaleb Cothran, an infant child against Crouse. The suits allege that Crouse negligently caused the death of Lori Cothran in a motor vehicle accident involving a Crouse driver. The first suit seeks damages in excess of $50,000,000, plus costs, interest and attorney fees. The second suit seeks damages in excess of $100,000,000, plus costs, interest and attorney fees. The claims against Crouse are currently under investigation. Based on the information presently known to the Company, management does not believe these suits will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. The Company and its directors have been named as defendants in a lawsuit filed on January 12, 2000 in the Chancery Court in New Castle County, Delaware. The suit seeks declaratory, injunctive and other relief relating to the proposed management buyout of the Company. The suit alleges that the directors of the Company failed to seek bidders for the Company's subsidiary, Crouse, failed to seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the Company, imposed arbitrary time constraints on those making offers and favored a management buyout group's proposal. The suit seeks certification as a class action complaint. The proposed management buyout was terminated on February 18, 2000 and the Company has filed for dismissal of the suit. The Company believes this suit will not have a material adverse effect on the financial condition, liquidity or results of operations of the Company. The Company is also party to certain other claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such claims and litigation will not materially affect the Company's results of operations, cash flows or financial position. In 1998 and 1999, TFH L&T entered into a long-term operating leases for new and used tractors and new trailers. Lease terms are five years for tractors and seven years for trailers. Rental expense relating to these leases was $640,000 and $14,000 for the three months ended March 31, 2000 and 1999. Minimum future rentals for operating leases are as follows: remaining nine months of 2000 - $1,799,000; 2001 - $2,399,000; 2002 - $2,399,000; 2003 - $1,961,000; 2004 - $862,000; 2005 - $791,000; and thereafter - $501,000. Additionally, TFH L&T has limited contingent rental obligations of $1,019,000 if the fair market value of such equipment at the end of the lease term is less than certain residual values. Such lease also requires TFH L&T to maintain tangible net worth of $26.0 million, increasing by $1.0 million per year beginning in 1999. TFH L&T was not in compliance with this covenant at March 31, 2000. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS First quarter ended March 31, 2000 compared to the first quarter ended March 31, 1999 TransFinancial operates primarily in two segments; transportation, through its subsidiary, TFH Logistics & Transportation Services, Inc. and its subsidiaries ("TFH L&T"); and financial services, through its subsidiary, UPAC. TRANSPORTATION Operating Revenue - The changes in transportation operating revenue are summarized in the following table (in thousands): Qtr. 1 2000 vs. Qtr. 1 1999 Increase (decrease) from: Decrease in LTL tonnage........................ $ (980) Decrease in LTL revenue per hundredweight...... (725) Increase in truckload revenues................. 867 Net increase (decrease).................... $ (838) Less-than-truckload ("LTL") revenues declined 5.1% from $33.7 million for the first quarter of 1999 to $32.0 million for the first quarter of 2000. The principal cause of the decline was a 2.9% decrease in LTL tons hauled and a 2.2% decline in LTL revenue yield. Management believes the decline in LTL tons hauled and revenue yield was the result of targeted marketing of Crouse's customers by certain competitors due to uncertainty amongst shippers about TFH L&T's future resulting from the terminated management buyout, recent operating losses and covenant violations under its financing arrangements.* Truckload ("TL") operating revenues rose 20.9% from $4.2 million for the first quarter of 1999 to $5.0 million for the first quarter of 2000. The increase in truckload revenues was the result of a 10.1% increase in the number of loads hauled and a 10.8% improvement in revenue per shipment. The increases in TL shipments and revenues were due to improved focus on this market resulting from the Company's restructuring of its TL operations as a separate subsidiary. Also, the first quarter 1999 TL revenues were depressed due to the temporary closing of a meat processing plant operated by one of Crouse's customers. Operating Expenses - A comparative summary of transportation operating expenses as a percent of transportation operating revenue follows:
Percent of Operating Revenue First Quarter 2000 1999 Salaries, wages and employee benefits.................... 63.9% 60.0% Operating supplies and expenses.......................... 16.7% 13.3% Operating taxes and licenses............................. 1.3% 0.8% Insurance and claims..................................... 2.1% 2.0% Depreciation............................................. 2.8% 2.8% Purchased transportation and rents....................... 21.6% 21.1% Total operating expenses............................. 108.4% 100.0%
TFH L&T's operating expenses as a percentage of operating revenue, or operating ratio, increased in the first quarter of 2000, in relation to the comparable period of 1999. The deterioration in operating ratio occurred principally in two cost categories: salaries, wages and employee benefits; and operating supplies and expenses. Operating expenses as a percentage of revenue were also higher for all cost categories as the result of dividing their fixed cost components by lower revenues in the first quarter of 2000. Salaries, wages and employee benefits increased 4.1% from $22.7 million for the first quarter of 1999 to $23.6 million for the first quarter of 2000. The increase in the first quarter of 2000 was principally the result of a scheduled increase in union wages and benefits effective April 1, 1999, pursuant to the Crouse's collective bargaining agreement and increased utilization of Company drivers and tractors to provide transportation of freight between terminals ("linehaul transportation") and decreased its utilization of owner- operator leased equipment. Operating supplies and expenses increased 23.1% from $5.0 million for the first quarter of 1999 to $6.2 million for the first quarter of 2000. The increase in the first quarter was primarily the result of increases in diesel fuel prices, as well as increased general supplies and expenses. The Company's transportation net loss for the first quarter of 2000 was $1,866,000, not considering the valuation allowance provided against consolidated deferred tax assets, as compared to a net loss of $31,000 for the first quarter of 1999, as a result of the decrease in operating revenues and increases in operating expenses discussed above. FINANCIAL SERVICES For the first quarter of 2000, UPAC reported operating income of $218,000 on net financial services revenue of $1.8 million, as compared to operating income of $290,000 on net revenue of $2.0 million for the comparable period of 1999. The decrease in net financial services revenue and operating income in 2000 was primarily the result of increased costs of funds under UPAC's securitization agreement. These decreases were offset in part by increased average total receivables outstanding. The growth in average total receivables was due to the addition of marketing representatives since the beginning of 1999 and increased finance contracts in existing markets. Operating expenses were lower by 3.5% in the first quarter of 2000 from the same period in 1999, due principally to increased productivity achieved through UPAC's investments in technology. UPAC reported net income of $141,000 for the first quarter of 2000, not considering the valuation allowance provided against consolidated deferred tax assets, as compared to net income of $167,000 for the first quarter of 1999, as a result of decreased revenues that more than offset decreased operating expenses as discussed above. OTHER As a result of the Company's use of funds for the stock repurchases, interest earnings on invested funds were substantially lower in the first quarter of 2000 than in the same period of 1999. Interest expense increased substantially in the first quarter of 2000 due to additional borrowings on long- term debt incurred to repurchase stock and fund operations in 1999, increased working capital borrowings in 2000 and increased interest rates on borrowings in the first quarter of 2000. TransFinancial's effective income tax provision (benefit) rate for the first quarter of 2000 was 6%, as compared to (17)% for the comparable period of 1999. In the first quarter of 2000, the Company's income tax provision was $23,000 on a pre-tax loss of $3.6 million, primarily as a result of a $1.4 million increase in its valuation allowance provided against consolidated deferred tax assets. The effective income tax rates for each period were a lower percentage than the statutory rate due to the impact of non-deductible amortization of intangibles and meals and entertainment expenses. FORWARD-LOOKING STATEMENTS The Company believes certain statements contained in this Quarterly Report on Form 10-Q which are not statements of historical fact may constitute forward- looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, the statements specifically identified as forward-looking statements in this Form 10-Q. These statements can often be identified by the use in such statements of forward- looking terminology, such as "believes," "expects," "may," "will," "should," "could," "intends," "plans," "estimates," or "anticipates," or the negative thereof, or comparable terminology. Certain of such statements contained herein are marked by an asterisk ("*") or otherwise specifically identified herein. In addition, the Company believes certain statements in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases, and in oral statements made by or with the approval of an authorized executive officer of the Company which are not statements of historical fact may constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to (i) projections of revenues, income or loss, earnings or loss per share, capital expenditures, the payment or non-payment of dividends, capital structure and other financial items, (ii) statements of plans and objectives of the Company or its management or Board of Directors, including plans or objectives relating to the products or services of the Company, (iii) statements of future economic performance, and (iv) statements of assumptions underlying the statements described in (i), (ii) and (iii). These forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those anticipated in such statements. The following discussion identifies certain important factors that could affect the Company's actual results and actions and could cause such results or actions to differ materially from any forward-looking statements made by or on behalf of the Company that relate to such results or actions. Other factors, which are not identified herein, could also have such an effect. TRANSPORTATION Certain specific factors which may affect the Company's transportation operation include: competition from other regional and national carriers for freight in the Company's primary operating territory; price pressure; changes in fuel prices; labor matters, including changes in labor costs, and other labor contract issues; and environmental matters. FINANCIAL SERVICES Certain specific factors which may affect the Company's financial services operation include: the performance of financial markets and interest rates; the performance of the insurance industry; competition from other premium finance companies and insurance carriers for finance business in the Company's key operating states; adverse changes in statutory interest rates or other regulations in states in which the Company operates; greater than expected credit losses; the acquisition and integration of additional premium finance operations or receivables portfolios; and the inability to obtain continued financing at a competitive cost of funds. OTHER MATTERS With respect to statements in this Report which relate to the current intentions of the Company and its subsidiaries or of management of the Company and its subsidiaries, such statements are subject to change by management at any time without notice. With respect to statements in Part II - Item 1 regarding the outcome of claims and litigation, such statements are subject to a number of risks and uncertainties, including without limitation the difficulty of predicting the results of the discovery process and the final resolution of ongoing claims and litigation. With respect to statements in "Financial Condition" regarding the adequacy of the Company's capital resources, such statements are subject to a number of risks and uncertainties including, without limitation: the ability of management to effect operational changes to improve the future economic performance of the Company (which is dependent in part upon the factors described above); the ability of management to close on a new credit facility, the ability of the Company and its subsidiaries to comply with the covenants contained in the financing agreements; future acquisitions of other businesses not currently anticipated by management of the Company; and other material expenditures not currently anticipated by management. With respect to statements in "Financial Condition" regarding the Company's intention to refinance, extend or replace certain financing arrangements, the Company's ability to do so is subject to a number of risks and uncertainties, including, without limitation, the future economic performance of the Company, the ability of the Company to comply with the terms of such financing arrangements, general conditions in the credit markets and the availability of credit to the Company on acceptable terms. GENERAL FACTORS Certain general factors that could impact any or all of the Company's operations include: changes in general business and economic conditions; changes in governmental regulation; and tax changes. Expansion of these businesses into new states or markets is substantially dependent on obtaining sufficient business volumes from existing and new customers in these new markets at compensatory rates. The cautionary statements made pursuant to Section 21E of the Securities Exchange Act of 1934, as amended, are made as of the date of this Report and are subject to change. The cautionary statements set forth in this Report are not intended to cover all of the factors that may affect the Company's businesses in the future. Forward-looking information disseminated publicly by the Company following the date of this Report may be subject to additional factors hereafter published by the Company. FINANCIAL CONDITION As of March 31, 2000, the Company's net working capital deficit was $5.1 million as compared to $2.2 million as of December 31, 1999. The Company's current ratio was 0.9 and its ratio of total liabilities to tangible net worth was 1.6 as of March 31, 2000, as compared to a current ratio of 0.9 and a ratio of total liabilities to tangible net worth of 1.2 as of December 31, 1999. Cash used by operating activities increased in the three months ended March 31, 2000 as compared to the three months ended March 31, 1999, due to current operating losses in the Company's transportation operations. The Company has experienced operating losses in first quarter of 2000, and for the years 1999 and 1998 and significantly reduced cash flows from operating activities in 1999 and 2000. In addition, the Company has violated certain covenants in its financing agreements. The report of the Company's Independent Accountants included in TransFinancial's Annual Report on Form 10-K for the year ended December 31, 1999, contains an explanatory paragraph indicating that these factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is ultimately dependent on its ability to refinance its outstanding debt with new lenders and make changes in its operations to allow it to operate profitably and sustain positive operating cash flows. Effective May 26, 2000, UPAC entered into a new receivable securitization agreement (See Note 4 of Notes to Consolidated Financial Statements). Management is in the process of negotiating a new $30 million credit facility for TFH L&T that, if closed, would enable it to repay its working capital line of credit and term loan and provide additional liquidity. The Company has also effected changes in its operations intended to bring operating expenses in line with operating revenue levels and to increase the levels of revenues. Management believes that it will be successful in closing on the new credit facility and that the operational changes should result in improved operating results.* However, there can be no assurance that the new credit facility will be successfully closed or that the operational changes will result in improved financial performance. A substantial portion of the capital required for UPAC's insurance premium finance operations has been provided through the sale of undivided interests in a designated pool of receivables on an ongoing basis under a receivables securitization agreement. As of March 31, 2000, $63.4 million of such receivables had been sold. Effective May 26, 2000, the securitization agreement was assigned to and assumed by a new purchaser. UPAC and APR Funding Corporation (wholly-owned subsidiary of UPAC) amended the securitization agreement with the new purchaser increasing the maximum allowable amount of receivables to be financed under the new agreement to $80.0 million, extending the term of the agreement by five years with annual liquidity renewals and amending certain financial covenants. Receivables transferred prior to the amendment were accounted for as sold, removed from the balance sheet and a gain on sale was recognized for the discounted interest strip retained as of the date of transfer. As a result of certain call provisions in the amended agreement, the receivables transferred under the amended agreement will not be reflected as sold in future balance sheets. The funds advanced will be accounted for as secured borrowings and earnings on receivables financed will be recognized on an interest earned basis over the term of the finance contracts. This change will have no effect on the total earnings recognized over the term of each finance contract or the cash flow received by UPAC on each such contract. The timing of earnings recognition will however be changed. The effect of this change on operating results in 2000 could be material.* Crouse has a three-year secured loan agreement with a commercial bank that provides for a $4.5 million working capital line of credit loan, ("Working Capital Line"). Borrowings on the Working Capital Line bear interest at 25 basis points below the bank's prime rate. The interest rate was 8.75% at March 31, 2000. As of March 31, 2000, borrowings of $4,500,000 were outstanding under the Working Capital Line. Crouse's banking arrangements with its primary bank provide for automatic borrowing under the Working Capital Line to cover checks presented in excess of collected funds. On certain occasions the timing of cash disbursements and cash collections results in a net cash overdraft. The outstanding checks representing such overdrafts are generally funded from the next days cash collections, or if not sufficient, from borrowings on the Working Capital Line. In September 1998, the Company entered into a two-year secured loan agreement with the same commercial bank to borrow $10.0 million (the "Loan"). Freight accounts receivable and a second lien on revenue equipment are pledged as collateral for the Loan. In March 1999, the Company amended and restated this agreement increasing the borrowings to $15 million. The Loan bears interest at 25 basis points below the bank's prime rate. The interest rate was 8.75% at March 31, 2000. The terms of the Loan provide for monthly payments of interest only through September 30, 1999, with monthly principal payments thereafter on $100,000 plus interest through maturity on September 30, 2000. The Company and Crouse were not in compliance with certain financial covenants, minimum tangible net worth and ratio total liability to equity, required by the Working Capital Line and the Loan as of March 31, 2000. Management is in the process of negotiating a new $30 million credit facility for TFH L&T that, if closed, would enable it to repay its working capital line of credit and term loan and provide additional liquidity. The Company had a working capital deficit at March 31, 2000, and was not in compliance with certain covenants in its financing agreements and was experiencing reduced cash flows from operating activities. In order to remedy the working capital deficit and covenant violations, management is in the process of negotiating a new $30 million credit facility for TFH L&T that would enable it to pay off its existing financing arrangements and provide additional liquidity. In addition, the Company has effected changes in its operations intended to bring operating expenses in line with operating revenue levels, and to increase the levels of revenues. Management believes that the new credit facility, if closed, together with the changes in operations should provide sufficient funds to meet the Company's short-term and long-term cash requirements.* If the Company is unable to close on the new credit facility, or is unsuccessful in effecting the operational changes to improve operating results, the Company will suffer increased liquidity problems in the future.* In the first quarter of 1999, the Board of Directors authorized the repurchase of 1,030,000 shares of the Company's common stock. In 1999, a total of 683,241 shares had been repurchased at a cost of $2.6 million. The repurchase of these shares was funded from the proceeds of the additional term loan borrowings described above. As announced by the Company in a press release dated June 21, 1999, three TransFinancial directors, the Company's Chairman, Vice-Chairman and President, presented a proposal to the Board of Directors of the Company by which they would agree to acquire all of the outstanding stock of the Company for $5.25 per share in cash. The Board of Directors appointed a Special Committee of the independent directors to consider this proposal and other options. The Special Committee engaged the general counsel of the Company as legal counsel and engaged a financial advisor to assist it in evaluating the proposal and other strategic options. On October 19, 1999, the Company executed a definitive agreement pursuant to which COLA Acquisitions, Inc. ("COLA"), a company newly formed by the three TransFinancial directors, would acquire all of the Company stock not owned by such directors for $6.03 in cash. Effective February 18, 2000, COLA notified the Company that its bank financing necessary to consummate the proposed merger had been withdrawn. The receipt of financing by COLA was a condition to the consummation of the merger. As a result, the Merger Agreement was terminated. Crouse has been named as a defendant in two lawsuits arising out of a motor vehicle accident. The first suit was instituted on June 16, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Kimberly Idalski, Personal Representative of the Estate of Lori Cothran, deceased against Crouse. The second suit was instituted on August 17, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf of Kaleb Cothran, an infant child against Crouse. The suits allege that Crouse negligently caused the death of Lori Cothran in a motor vehicle accident involving a Crouse driver. The first suit seeks damages in excess of $50,000,000, plus costs, interest and attorney fees. The second suit seeks damages in excess of $100,000,000, plus costs, interest and attorney fees. The claims against Crouse are currently under investigation. Based on the information presently known to the Company, management does not believe these suits will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. The Company believes that it is highly likely that any liability resulting from this litigation will be funded within the limits of Crouse's primary and excess liability insurance policies which provide a total coverage of $20 million.* The Company and its directors have been named as defendants in a lawsuit filed on January 12, 2000 in the Chancery Court in New Castle County, Delaware. The suit seeks declaratory, injunctive and other relief relating to the proposed management buyout of the Company. The suit alleges that the directors of the Company failed to seek bidders for the Company's subsidiary, Crouse, failed to seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the Company, imposed arbitrary time constraints on those making offers and favored a management buyout group's proposal. The suit seeks certification as a class action complaint. The proposed management buyout was terminated on February 18, 2000 and the Company has filed for dismissal of the suit. The Company believes this suit will not have a material adverse effect on the financial condition, liquidity or results of operations of the Company.* PART II - OTHER INFORMATION Item 1. Legal Proceedings -- Crouse has been named as a defendant in two lawsuits arising out of a motor vehicle accident. The first suit was instituted on June 16, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Kimberly Idalski, Personal Representative of the Estate of Lori Cothran, deceased against Crouse. The second suit was instituted on August 17, 1999 in the United States District Court in the Eastern District of Michigan (Northern Division) by Jeanne Cothran, as Legal Guardian, on behalf of Kaleb Cothran, an infant child against Crouse. The suits allege that Crouse negligently caused the death of Lori Cothran in a motor vehicle accident involving a Crouse driver. The first suit seeks damages in excess of $50,000,000, plus costs, interest and attorney fees. The second suit seeks damages in excess of $100,000,000, plus costs, interest and attorney fees. The claims against Crouse are currently under investigation. Based on the information presently known to the Company, management does not believe these suits will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. The Company believes that it is highly likely that any liability resulting from this litigation will be funded within the limits of Crouse's primary and excess liability insurance policies which provide a total coverage of $20 million.* The Company and its directors have been named as defendants in a lawsuit filed on January 12, 2000 in the Chancery Court in New Castle County, Delaware. The suit seeks declaratory, injunctive and other relief relating to the proposed management buyout of the Company. The suit alleges that the directors of the Company failed to seek bidders for the Company's subsidiary, Crouse, failed to seek bidders for its subsidiary, UPAC, failed to actively solicit offers for the Company, imposed arbitrary time constraints on those making offers and favored a management buyout group's proposal. The suit seeks certification as a class action complaint. The proposed management buyout was terminated on February 18, 2000 and the Company has filed for dismissal of the suit. The Company believes this suit will not have a material adverse effect on the financial condition, liquidity or results of operations of the Company.* Item 2. Changes in Securities -- None Item 3. Defaults Upon Senior Securities -- None Item 4. Submission of Matters to Vote of Security Holders -- None Item 5. Other Information -- None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27* Financial Data Schedule. (b) Reports on Form 8-K - Current Report on Form 8-K, filed February 22, 2000, reporting termination of Merger Agreement with COLA Acquisitions, Inc. Current Report on Form 8-K, filed March 16, 2000, announcing the date of the Company's Annual Meeting of Shareholders. (SIGNATURE) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TransFinancial Holdings, Inc. Registrant By: /s/ Timothy P. O'Neil Timothy P. O'Neil, President & Chief Executive Officer (Principal executive and financial officer) Date: June 22, 2000