CELADON GROUP INC, 10-K405, 1999-09-28

CELADON GROUP INC
10-K405, 1999-09-28
ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-23192

CELADON GROUP, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 13-3361050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

9503 EAST 33RD STREET
INDIANAPOLIS, IN 46235
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (317) 972-7000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock ($0.033 Par Value)

Indicate by check mark whether the Registrant (1) has filed all reports
required 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. [X]

As of September 16, 1999, the aggregate market value of the Common Stock held
by non-affiliates of the Registrant (3,903,275 shares) was approximately
$31,226,200 (based upon the closing price of such stock on September 16,
1999). The number of shares outstanding of the Common Stock ($0.033 par
value) of the Registrant as of the close of business on September 16, 1999
was 7,776,557.

<PAGE>

CELADON GROUP, INC
FORM 10-K

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Document and Location
---------------------
<S> <C> <C>
PART I

ITEM 1. Business..................................................Page 3 herein
ITEM 2. Properties................................................Page 9 herein
ITEM 3. Legal Proceedings.........................................Page 10 herein
ITEM 4. Submission of Matters to a Vote of Security Holders.......Page 10 herein

PART II

ITEM 5. Market for Registrant's Common Stock and Related
Stockholder Matters.....................................Page 11 herein
ITEM 6. Selected Financial Data...................................Page 12 herein
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................Page 13 herein
ITEM 8. Financial Statements and Supplementary Data...............Page 20 herein
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures....................Page 44 herein

PART III

ITEM 10.
Directors and Executive Officers of the Registrant......................Page 1 of Proxy Statement
ITEM 11.
Executive Compensation..................................................Page 5 of Proxy Statement
ITEM 12.
Security Ownership Principal Stockholders
and Management........................................................Page 12 of Proxy Statement
ITEM 13.
Certain Relationships and Related Transactions..........................Page 14 of Proxy Statement

PART IV

ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.....................................Page 45 herein

SIGNATURES......................................................................Page 51 herein

</TABLE>

<PAGE>

PART I

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information in Items 1, 2, 3, 7
and 8 of this Form 10-K include information that is forward looking, such as the
Company's opportunities to increase revenue from its truckload and flatbed
services, its exposure to fluctuations in foreign currencies, its anticipated
liquidity and capital requirements and the results of legal proceedings. The
matters referred to in forward looking statements could be affected by the risks
and uncertainties involved in the Company's business. These risks and
uncertainties include, but are not limited to, the effect of economic and market
conditions, the availability of drivers and fuel, as well as certain other risks
described in Item 1 under "Competition" and "Regulation", and "Cargo Liability
Insurance and Legal Proceedings," and in Item 3 in "Legal Proceedings" and in
Item 7 in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Subsequent written and oral forward looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements in this paragraph and
elsewhere in this Form 10-K.

Item 1. Business

THE COMPANY

Celadon was formed in 1985 primarily to provide trucking services for
DaimlerChrysler Corporation ("DaimlerChrysler") to and from its Mexican assembly
plants. Due to both increased trade between the United States and Mexico and
completion of the recent acquisitions, the Company has developed a strong record
of revenue growth and has diversified its customer base to include over 4,000
accounts in a variety of industries.

Celadon Group, Inc. (collectively, with its subsidiaries, the "Company")
is a leading trucking company that specializes in providing and arranging
truckload transport services from the United States and Canada to and from
locations in Mexico. Through its sales force in the United States Canada and
Mexico, its 75% ownership interest in Servicios de Transportacion Jaguar S.A. de
CV ("Jaguar"), and its relationships with other key Mexican carriers, the
Company is one of a limited number of companies that is able to provide or
arrange for door-to-door transport service between points in the United States
and Canada and Mexico. The Company also provides van truckload transport
services within the United States, and flatbed trucking services within the
United States and to the Mexican border, through a network of independent agents
and operators coordinated by its subsidiary, Cheetah Transportation Company
("Cheetah").

During fiscal 1998, the Company completed two acquisitions. The net
assets of General Electric Transportation Services ("GETS"), a unit of General
Electric Company, were acquired in September 1997 (the "GETS Acquisition"). The
operations of GETS were subsequently merged into

<PAGE>

the operations of Celadon Trucking Services, Inc. ("CTSI"), the largest
subsidiary of the Company. In connection with the GETS Acquisition, the Company
obtained a five-year contract to continue to provide transportation services to
General Electric Industrial Control Systems ("GEICS") which expires in September
2002. In May 1998, the Company acquired the net assets of Gerth Transport
("Gerth"), a Canadian motor carrier specializing in transportation to and from
Mexico, (the "Gerth Acquisition"). The Gerth Acquisition allowed the Company to
enhance its service offering to and from Canada.

The Company is headquartered in Indianapolis, Indiana and maintains a
regional network of nine terminals within the Ontario, Canada to Laredo, Texas
corridor and three terminals within Mexico, which enables the Company to focus
primarily on north-south trucking lanes. The Company currently operates a fleet
of approximately 2,300 tractors and 5,750 trailers.

INDUSTRY OVERVIEW

The full truckload market is defined by the quantity of goods, generally
over 10,000 pounds, shipped by a single customer and is divided into several
segments by the type of trailer used to transport the goods. These segments
include van, temperature-controlled, flatbed, and tank carriers. The Company
participates primarily in the van and to a lesser degree the flatbed portion of
the North American truckload market. The markets within the United States,
Canada, and Mexico are fragmented, with many competitors.

Transportation of goods by truck between the United States, Canada, and
Mexico is subject to the provisions of the North American Free Trade Agreement
("NAFTA"). United States and Canadian based carriers may operate within both
countries. United States and Canadian carriers are not allowed to operate within
Mexico, and Mexican carriers are not allowed to operate within the United States
and Canada, in each case except for a 26 kilometer band along either side of the
Mexican border. Trailers may cross the Mexican border.

Transportation of goods between the United States or Canada and Mexico
consists of three components: (i) transport from the point of origin to the
Mexican border, (ii) drayage, which is transportation across the border, and
(iii) transportation from the border to the final destination. The Company is
one of a limited number of trucking companies that participates in all three
segments of this cross border market.

SERVICES PROVIDED

The Company provides and arranges for long-haul, time sensitive,
full truckload transport of goods between the United States and Canada and
Mexico. The Company provides van truckload carriage through three operating
units: CTSI, headquartered in Indianapolis, Gerth, headquartered in Kitchener,
Ontario and Jaguar, headquartered in Mexico City, Mexico. Because most
international shipments are carried on through-trailer service on U.S. or
Canadian trailers, Mexican carriers use the Company's trailers. As a result, the
Company maintains an above average trailer to tractor ratio. The Company
utilized, 2,283 tractors (of which 790 were owner-operators) and 5,758

<PAGE>

trailers as of June 30, 1999, and transported in excess of 169,000 full
truckload shipments during fiscal 1999. Additionally, the Company's fleet of
revenue equipment has grown consistently since the Company's inception to
accommodate the strong growth in freight movement to and from Mexico. The
Company provides flatbed carriage through its subsidiary Cheetah, which is
headquartered in Mooresville, North Carolina. Flatbed services are employed for
commodities such as steel coils, lumber and other building materials because of
their special loading requirements and for shipments of large or oversized
freight. Cheetah has recently expanded its flatbed service to Mexico.

CUSTOMERS

The Company targets large service-sensitive customers with time-definite
delivery requirements and provides services tailored to customer specific needs
throughout the United States, Canada and Mexico. The Company's customers
frequently ship in the north-south lanes (i.e. to and from locations in Mexico
and to and from locations in the United States and Canada, primarily in the
Midwestern and Eastern United States and Eastern Canada). The Company currently
services in excess of 4,000 trucking customers. Those customers generally
require high quality service and information regarding their shipments. Service
to these customers is enhanced by the division's strategy of using a high
percentage of driver teams, a high trailer-to-tractor ratio, state-of-the-art
technology, well maintained, late-model tractors and trailers, and 24-hours a
day, seven-days a week dispatch and reporting services. The principal types of
freight transported by the division include automotive parts, paper products,
manufacturing parts, semi-finished products, textiles, appliances, and toys.

The Company's largest customer is DaimlerChrysler, which accounted for
approximately 42%, 37%, and 25% of the Company's total revenue for fiscal 1997,
1998, and 1999, respectively. The Company transports DaimlerChrysler original
equipment automotive parts primarily between the United States and Mexico and
DaimlerChrysler after-market replacement parts and accessories within the United
States. Of the total revenue received in fiscal 1999 from DaimlerChrysler,
approximately 26% was derived from the Company's transportation of after-market
replacement parts and accessories within the United States and approximately 74%
was derived from shipments of original equipment automotive parts between the
United States and Mexico. The Company has been doing business with
DaimlerChrysler since the Company's inception. The Company's most recent
agreements with DaimlerChrysler are covered by two three-year contracts with the
Chrysler division, one of which covers the United States-Mexico business and the
other of which covers domestic business in addition to one two-year contract
which covers the United States-Mexico business for the Freightliner division.
The international contract for the Chrysler division expires in December 1999
and the domestic contract for the Chrysler division expires in October 2000. The
international contract for the Freightliner division expires in April 2001.
GEICS is the Company's next largest customer, accounting for approximately 5% of
total revenue. No other customer accounted for more than 5% of the Company's
total revenue during any of its three most recent fiscal years.

<PAGE>

TECHNOLOGY

Customer requirements for information about the movement of their goods
have become an ever-increasing component of such customers' carrier service
profile. To effectively compete, transportation companies must provide, in
addition to on-time pickup and delivery, real time information on the status of
shipments and other technology to meet customers' billing and service needs.

The Company uses computer and satellite technology for customer service,
dispatch, equipment control, driver communications, electronic data interchange,
and administrative purposes. CTSI and Jaguar have equipped all of their tractors
with QUALCOMM mobile communication terminals, which allow information to be
passed to and from the driver and the Company instantaneously. The Company
intends to equip the Gerth tractors in fiscal 2000. Customer order information,
load tracking, and service performance are all monitored using the latest in
mobile communication technology. The Company introduced Cela-Trac, an Internet
based tracking system, in August 1998, which allows customers to track their own
loads through the Company's operating system.

PERSONNEL AND DRIVERS

At June 30, 1999, the Company employed 2,070 persons, of whom 1,364 were
drivers, 151 were truck maintenance personnel and 555 were administrative
personnel. None of the Company's drivers or other employees are represented by a
union or a collective bargaining unit.

Driver recruitment, retention, and satisfaction are essential components
of the Company's success. Drivers are selected in accordance with specific
guidelines, relating primarily to safety records, driving experience, and
personal evaluations, including a physical examination and mandatory drug
testing. The Company's drivers attend an orientation program and ongoing driver
efficiency and safety programs. The percentage of drivers with less than one
year of service in the Company's CTSI subsidiary decreased from 50% at the end
of June 1998 to 44% by the end of June 1999. As of June 30, 1999, the average
length of time that CTSI drivers had been employed by the Company was
approximately 2.1 years.

CTSI utilizes driver teams in instances where customers' transit
requirements or operating efficiencies dictate the need for such team services.
The Company balances the use of driver teams against the number of available
trucks and, in certain circumstances, has split teams to improve utilization of
available equipment. As of June 30, 1999, approximately 20% of CTSI's seated
tractors were operated by driver teams.

Historically, the Company utilized owner-operators exclusively for
flatbed shipments. However, with the GETS Acquisition and Gerth Acquisition,
owner-operator capacity was added to the Company. Owner-operators are
independent contractors who, through a contract with the Company, supply one or
more tractors and drivers for Company use. Owner-operators must pay

<PAGE>

their own tractor expenses, fuel, maintenance and driver costs and must meet
specified Company guidelines with respect to safety. As June of 30, 1999,
owner-operators provided 35% of the Company's capacity.

REVENUE EQUIPMENT

The Company's equipment strategy is to utilize premium late-model
tractors, maintain a high trailer to tractor ratio, actively manage equipment
throughout its life cycle and employ a comprehensive service and maintenance
program.

The Company's fleet is comprised of tractors manufactured by
Freightliner and Peterbilt to the Company's specifications, which the Company
believes helps attract and retain drivers and to minimize maintenance and repair
costs. The Company owns or leases most of its tractors and trailers and as of
June 30, 1999, utilized 790 tractors owned by independent owner-operators.

As of June 30, 1999, the average age of the Company's owned and leased
tractors and trailers was approximately 3.7 years and 4.7 years, respectively.
The average age of the Company's U.S. operations linehaul over-the-road tractors
was approximately 2.9 years at June 30, 1999. The Company utilizes a
comprehensive maintenance program to minimize downtime, enhance the resale value
of its revenue equipment, and control its maintenance costs. Centralized
purchasing of spare parts and tires, and centralized control of over-the-road
repairs are also used to control costs. The Company generally replaces its
tractors every five years, although it retains some older tractors for use on
shorter haul routes (including drayage) where they can be utilized more
economically. The Company further reduces exposure to declines in the resale
value of the Company's equipment by entering into agreements with certain
manufacturers providing for pre-established resale values upon trade-in of
existing equipment.

The following table shows by type and model year the Company's revenue
equipment at June 30, 1999:

<TABLE>
<CAPTION>
Model Year .................................. Tractors Trailers
---------- -------- --------
<S> <C> <C>
2000 .................................... 65 ---
1999 .................................... 134 354
1998 .................................... 167 391
1997 .................................... 164 168
1996 .................................... 359 1,804
1995 .................................... 383 1,046
1994 .................................... 21 368
1993 .................................... 55 666
1992 .................................... 4 192
1991 .................................... 1 56
Pre-1991 .................................... 12 713
----- -----
Total .................................... 1,365 5,758
===== =====
</TABLE>

The Company maintains its 3.0 to 1 trailer-to-tractor ratio (including
van truckload owner-operator equipment) in order to provide availability in
Mexico and to allow it to leave extra trailers with its high volume shippers to
load and unload at their convenience. As of June 30, 1999, the Company had 400
tractors on order for delivery in fiscal 2000. Additional growth in the tractor
and trailer fleet beyond the Company's existing orders will require additional
sources of financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."

<PAGE>

SALES AND MARKETING

The Company's primary sales and marketing focus is to generate
additional north-south freight and to support its customers in the movement of
freight to and from the United States, Canada and Mexico. The Company has sales
and marketing operations located in the United States, Canada and Mexico. The
Company has national account managers, regional account mangers and customer
service representatives to service its customers. The sales and marketing
personnel in the various offices work together to source northbound and
southbound transport, in addition to drayage. The Company's sales force also
works closely with the Mexican carriers with whom the Company has a
relationship.

The Company maintains a strong commitment to marketing on an
international level as well as on a local level and focuses its marketing
strategy on its door-to-door service capabilities. The Company's marketing group
services existing customers' needs and solicits new customers, with an emphasis
on large service-sensitive customers. In order to maximize its equipment
utilization, the Company seeks customers that regularly ship multiple loads from
locations on or near the Company's primary existing traffic lanes. Customer
shipping patterns are regularly monitored and, as they expand or change, the
Company attempts to obtain additional customers that will complement the primary
traffic.

Fuel

The Company's fuel strategy is designed to minimize the overall cost of
fuel. To accomplish this, the Company has historically hedged a portion of its
fuel needs through the purchase of fuel futures contracts. In addition, the
Company is able to pass on a portion of increases in fuel cost to certain of its
customers through fuel surcharges when the price of fuel rises above a certain
specified level. The Company also purchases fuel in bulk for use at its
terminals and contracts with truck-stop fuel chains for discounts in exchange
for high quantity purchasing. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Fuel Purchase."

COMPETITION

While the truckload industry is highly competitive and fragmented, the
Company is one of a limited number of companies that is able to provide or
arrange for door-to-door transport service between points in the United States
and Canada and Mexico. Although both service and price drive competition in the
premium long-haul, time sensitive portion of the market, the Company relies
primarily on its high level of service to attract customers. This strategy
requires the Company to focus on market segments that employ just-in time
inventory systems and other premium services. Competitors include other
long-haul truckload carriers and, to a lesser extent, medium-haul truckload
carriers and railroads.

REGULATION

The Company's operations are regulated and licensed by various U.S.
federal and state, Canadian provincial and Mexican federal agencies. Interstate
motor carrier operations are subject

<PAGE>

to safety requirements prescribed by the Department of Transportation. Such
matters as weight and equipment dimensions are also subject to United States
federal and state and Canadian provincial regulations. The company operates in
the United States throughout the 48 contiguous states pursuant to operating
authority granted by the Federal Highway Administration, in various Canadian
provinces pursuant to operation authority granted by the Ministries of
Transportation and Communications in such provinces, and within Mexico pursuant
to operating authority granted by Secretaria de Communiciones y Transportes. To
the extent that the Company conducts operation outside the United States, the
Company is subject to the Federal Corrupt Practices Act, which generally
prohibits United States companies and their intermediaries from bribing foreign
officials for the purpose of obtaining or keeping otherwise obtaining favorable
treatment.

CARGO LIABILITY, INSURANCE, AND LEGAL PROCEEDINGS

The Company is a party to routine litigation incidental to its business,
primarily involving claims for bodily injury or property damage incurred in the
transportation of freight. The Company is responsible for the safe delivery of
the cargo. Since April 1998, the Company has been fully insured in the U.S. and
Canada with no deductible for bodily injury and property damage, and the Company
is self-insuring to $15,000 per occurrence for truck damage claims, $2,000 per
occurrence for trailer damage, $150,000 for workers' compensation and $10,000
per occurrence for cargo loss. The Company maintains separate insurance in
Mexico, consisting of bodily injury and property damage, cargo, and equipment
damage coverage with minimum deductibles. Management believes its uninsured
exposure is conservative for the industry. Consequently, the Company does not
believe that the litigation and claims experienced will have a material impact
on the Company's financial position or results of operations.

ITEM 2. PROPERTIES

The Company operates an international network of twelve terminal
locations, including facilities in Laredo and El Paso, Texas, which are the two
largest inland freight gateway cities between the United States and Mexico.
Operating terminals are currently located in the following cities:

<TABLE>
<CAPTION>
United States Mexico Canada
------------- ------ ------
<S> <C> <C> <C>
Denton, TX Indianapolis, IN Guadalajara Kitchener, ON
Detroit, MI Laredo, TX Mexico City
El Paso, TX Mooresville, NC Monterrey
Ft. Wayne, IN Nuevo Laredo
Goodletsville, TN
</TABLE>

Both the Laredo and Indianapolis facilities include administrative
functions, lounge and sleeping facilities for drivers, parking, fuel and truck
washing facilities. The Company's executive and administrative offices occupy
four buildings located on 30 acres of property in Indianapolis, Indiana.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

See discussion under ACargo Liability, Insurance, and Legal
Proceedings."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Celadon Group, Inc. held its regular Annual Meeting of Stockholders on
May 28, 1999. Proxies representing 6,169,755 shares of common Stock or 79.59% of
the total outstanding shares voted at the Annual Meeting.

<TABLE>
<CAPTION>
Proposal I - (Elections of Directors) Voted For Vote Withheld
--------- -------------
<S> <C> <C>
Stephen Russell 6,119,958 49,797
Paul A. Biddelman 6,119,958 49,797
Michael Miller 6,119,958 49,797
Kilin To 6,119,958 49,797
Joel E. Smilow 6,119,858 49,897
</TABLE>

Proposal II - (Ratification of appointment of Ernst & Young LLP as auditors)

<TABLE>
<S> <C>
For 6,134,599
Against 33,082
Abstain 2,074
</TABLE>

<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Since January 24, 1994, the date of the initial public offering of the
Company's Common Stock, the Common Stock has been quoted through the National
Association of Security Dealers, Inc. National Market (the "Nasdaq National
Market") under the symbol "CLDN". The following table sets forth the high and
low reported sales price for the Common Stock as quoted through the Nasdaq
National Market for the periods indicated.

<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW

<S> <C> <C>
Quarter ended September 30, 1997 $15.75 $11.13
Quarter ended December 31, 1997 $17.00 $12.88
Quarter ended March 31, 1998 $16.00 $13.00
Quarter ended June 30, 1998 $19.25 $12.75

FISCAL 1999

Quarter ended September 30, 1998 $ 19.38 $ 9.38
Quarter ended December 31, 1998 $ 15.19 $ 7.00
Quarter ended March 31, 1999 $ 14.50 $ 7.88
Quarter ended June 30, 1999 $ 10.50 $ 7.38
</TABLE>

On September 16, 1999, there were approximately 1,500 holders of the
Company's Common Stock, and the closing price of the Company's Common Stock was
$8.00.

DIVIDEND POLICY

The Company has not paid cash dividends on its Common Stock as a
public company and has no present intention of paying cash dividends on its
Common Stock in the foreseeable future. Moreover, pursuant to its existing
credit agreements, the Company and certain of its subsidiaries may pay cash
dividends only up to certain specified levels and if certain financial ratios
are met.

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The statement of operations data and balance sheet data presented below have
been derived from the Company's consolidated financial statements and related
notes thereto. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and related
notes thereto.

<TABLE>
<CAPTION>
Fiscal year ended June 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data :
Operating revenue ..................... $ 281,829 $ 229,928 $ 191,035 $ 166,544 $ 116,360
Operating income ...................... $ 15,291 $ 15,804 $ 12,435 $ 1,737 $ 9,179
Interest expense, net ................. 7,385 5,905 4,944 3,672 3,171
Other expense (income) ................ 85 (12) (37) 72 103
--------- --------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes ..... 7,821 9,911 7,528 (2,007) 5,905
Provision for income taxes (benefit) .. 2,980 3,902 3,024 (411) 3,690
--------- --------- --------- --------- ---------
Income (loss) continuing operations . 4,841 6,009 4,504 (1,596) 2,215
Income (loss) discontinued operations -- -- -- (15,203) (2,606)
--------- --------- --------- --------- ---------
Net income (loss) ................... $ 4,841 $ 6,009 $ 4,504 $ (16,799) $ (391)
========= ========= ========= ========= =========
Diluted Earnings Per Share:
Continuing operations ............... $ 0.62 $ 0.78 $ 0.59 $ (0.20) $ 0.31
Discontinued operations ............. -- -- -- (1.93) (0.36)
--------- --------- --------- --------- ---------
Net income (loss) (1) ............... $ 0.62 $ 0.78 $ 0.59 $ (2.13) $ (0.05)
========= ========= ========= ========= =========
Average diluted shares outstanding .. 7,784 7,752 7,660 7,877 7,192
Balance Sheet Data:
Working capital ..................... $ 20,114 $ 18,027 $ 16,435 $ 17,039 $ 23,801
Total assets ........................ 188,759 194,777 142,902 141,921 151,624
Long-term debt .................... 71,580 82,843 54,361 50,025 39,557
Stockholders' equity .............. $ 57,306 $ 52,322 $ 45,794 $ 41,962 $ 57,830
</TABLE>

- ------------

1. Calculation of diluted net income (loss) per common share for the 1995 and
1996 periods are anti-dilutive.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company is a leading trucking company that specializes in providing
and arranging truckload transport services from the United States and Canada to
and from locations in Mexico. The Company serves a diverse set of industries
including automotive, technology, industrial equipment, textiles and furniture.
The Company provides its customers with long-haul time sensitive transportation
utilizing a network of company owned and leased tractors and, to a lesser
extent, independent owner-operators.

The Company's capacity mix changed in fiscal 1998 with the acquisitions
of GETS and Gerth. Prior to these acquisitions, 82% of the Company's capacity
was provided by Company owned and leased equipment. The capacity acquired with
GETS was 100% provided by owner-operators, and with Gerth was 60% provided by
owner-operators. As a result, purchased transportation expense has increased and
equipment ownership costs, maintenance, fuel and driver expenses have decreased
as percentages of operating revenue. The Company expects this trend to continue,
as both acquisitions have been included in the results for 12 months in fiscal
1999. As of June 30, 1999, owner-operators provided 35% of the Company's
capacity.

ACQUISITION HISTORY

In September 1997, the Company acquired the assets of GETS for $8.2
million. The purchase included 150 owner-operator tractors, 455 trailers and a
contract granting the right of first refusal on all loads shipped for GEICS for
a five-year period. In addition to adding GEICS as a key customer, the GETS
Acquisition improved shipping density of the Company's core routes. The assets
acquired in the GETS Acquisition were successfully integrated into CTSI, within
six months of the date of acquisition.

In May 1998, the Company acquired the assets of Gerth for $13.8 million.
The Company believes that Gerth is the leading Canadian truckload carrier to
Mexico, having 301 tractors and 817 trailers as of June 30, 1998, and
approximately $31.0 million of revenue in calendar 1997. The Company believes
that this acquisition has strengthened its presence in Canada and provide
additional density in its core north-south transport lanes.

<PAGE>

Results of Operations

The following table includes certain information with respect to the
operating revenue, operating profit, operating ratio, and operating expense of
the Company for the years indicated.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating ratio ........................................ 94.6% 93.1% 93.5%
Operating expenses as a percentage of operating revenue:
Salaries, wages and employee benefits .............. 27.0% 30.4% 35.5%
Fuel ............................................... 9.5% 12.8% 16.2%
Operating costs and supplies ....................... 9.3% 8.3% 7.1%
Insurance and claims ............................... 2.6% 2.8% 3.1%
Depreciation and amortization ...................... 4.7% 5.6% 5.3%
Rent and purchased transportation ................. 34.6% 26.7% 18.6%
Selling, general and administrative expenses ...... 3.0% 2.7% 3.1%
Other operating expenses .......................... 3.9% 3.8% 4.6%
---- ---- ----
Total ............................................... 94.6% 93.1% 93.5%
==== ==== ====
</TABLE>

- ----------

FISCAL YEAR ENDED JUNE 30, 1999 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1998

REVENUE. Consolidated revenue increased by $51.9 million, or 22.6%, to
$281.8 million for fiscal 1999 from $229.9 million for fiscal 1998. This
increase was principally attributable to a $44.4 million increase in Gerth
revenue which was acquired in May 1998. In addition, the Company increased its
overall rates per mile by 2% compared to fiscal 1998. This increase in rates
reflects price increases obtained by the Company through its continued efforts
to focus on its core routes as well as an improvement in the Company's overall
business mix.

OPERATING INCOME. Operating income decreased by $0.5 million, or 3.2%,
to $15.3 million in fiscal 1999 from $15.8 million in fiscal 1998. The Company's
operating ratio, which expresses operating expenses as a percentage of operating
revenue, increased from 93.1% in fiscal 1998 to 94.6% in fiscal 1999.

The decrease in operating income and the increased operating ratio were
attributable to a charge of approximately $1.2 million, or $0.10 per diluted
common share, of transaction costs incurred by the Company related to the
expiration of its previously announced merger agreement with Odyssey Investment
Partners. These charges were offset by the Gerth acquisition, volume growth and
rate per mile increases. Rent and purchased transportation expense increased as
a result of growth in owner-operator capacity and an increased use of
independent Mexican carriers. This increase was partially offset by a decrease
in salaries, wages, fuel and depreciation expense as a percentage of revenue.

<PAGE>

NET INTEREST EXPENSE. Net interest expense increased by $1.5 million or
25.4%, to $7.4 million in fiscal 1999 from $5.9 million in fiscal 1998. The
increase was the result of higher borrowings under the Company's existing credit
facility partially offset by reduced borrowings under capital leases.

INCOME TAXES. Income taxes decreased by $0.9 million or 23.1%, to $3.0
million in fiscal 1999 from $3.9 million in fiscal 1998. The decrease in income
tax expense reflects the Company's lower pre-tax income.

FISCAL YEAR ENDED JUNE 30, 1998 COMPARED WITH FISCAL YEAR ENDED JUNE
30, 1997

REVENUE. Consolidated revenue increased by $38.9 million or 20.4%, to
$229.9 million for fiscal 1998 from $191.0 million for fiscal 1997. This
increase in revenue was attributable principally to strong revenue growth in the
Company's core north-south traffic lanes, the inclusion of $23.3 million of
revenue from the GETS operations, which were acquired in September 1997, $5.4
million of revenue from the Gerth operations, which were acquired in May 1998,
and an increase of approximately 2% in overall rates per mile compared to fiscal
1997. The increase in rates reflected price increases and the Company's
continued efforts to focus on its core routes as well as an improvement in the
Company's overall business mix. This growth was offset by revenue reductions in
less profitable east/west routes.

OPERATING INCOME. Operating income increased by $3.4 million or 27.4%,
to $15.8 million in fiscal 1998 from $12.4 million in fiscal 1997. The Company's
operating ratio improved from 93.5% in fiscal 1997 to 93.1% in fiscal 1998. The
increase in operating income and the improvement in the operating ratio were
attributable principally to the successful integration of GETS into CTSI, the
Gerth Acquisition, volume growth in the core routes and rate per mile increases,
partially offset by increases in certain operating expenses. Rent and purchased
transportation expense increased as a result of growth in owner-operator
capacity and an increased use of independent Mexican carriers. This increase was
partially offset by the conversion of operating leases on approximately 1,300
trailers to capitalized leases in January, 1998, which served to decrease rent
expense. Depreciation expense increased due to fleet growth and the conversion
of certain operating leases to capital leases. Salaries, wages, fuel and other
operating expenses all decreased as a percentage of revenue.

NET INTEREST EXPENSE. Net interest expense increased by $1.0 million or
20.4 %, to $5.9 million in fiscal 1998 from $4.9 million in fiscal 1997. The
increase was a result of higher borrowings under capital leases and the
conversion of operating leases to capitalized leases, partially offset by
reduced borrowings under the Company's existing credit facility.

<PAGE>

INCOME TAXES. Income taxes increased by $0.9 million or 30.0%, to $3.9
million in fiscal 1998 from $3.0 million in fiscal 1997. The increase in income
tax expense reflects the Company's higher pre-tax income partially offset by a
reduction in the Company's effective tax rate to 39.4% in fiscal 1998 from 40.2%
in fiscal 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company generated cash flow of $17.2 million, $18.5 million and
$12.3 million from operating activities in fiscal 1997, 1998 and 1999,
respectively. In fiscal 1999, the decrease in cash flow relative to fiscal year
1998 was due to reduced profitability which included the transaction costs
related to the expiration of the proposed Odyssey merger, the selling out of the
remaining fuel futures position and an increase in trade receivables. These
items were partially offset by lower levels of cash flow required for accounts
payable and accrued expenses. The Company's primary capital requirements over
the last three years have been funding (i) the acquisition of equipment, (ii)
the GETS Acquisition and (iii) the Gerth Acquisition. Capital expenditures
(including the value of equipment procured under capital lease) totaled $35.4
million, $41.5 million and $15.8 million in fiscal 1997, 1998 and 1999,
respectively. The Company purchased $33.9 million, $37.5 million and $8.1
million of revenue equipment under capitalized lease and debt financing in
fiscal 1997, 1998 and 1999, respectively. The Company has historically met its
capital investment requirements with a combination of internally generated
funds, bank financing, equipment lease financing (both capitalized and
operating) and the issuance of common stock.

At June 30, 1999, $20.1 million of the Company's credit facility was
utilized as outstanding borrowings and $1.8 million was utilized for standby
letters of credit. The average balance outstanding during fiscal 1999 was $17.5
million and the highest balance outstanding was $28.6 million. The Company also
has financed its capital requirements by obtaining lease financing on revenue
equipment. At June 30, 1999, the Company had an aggregate of $68.0 million in
capital lease financing at interest rates ranging from 5.3 % to 10.0%, maturing
at various dates through 2004. Of this amount, $15.1 million is due prior to
June 30, 2000.

As of June 30, 1999, the Company had 400 tractors on order for delivery
in fiscal 2000. A commitment for lease financing on these units has been
obtained. Management believes that there are presently adequate sources of
secured equipment financing together with its existing credit facilities and
cash flow from operations to provide sufficient funds to meet the Company's
anticipated working capital requirements. Additional growth in the tractor and
trailer fleet beyond the Company's existing orders will require additional
sources of financing.

<PAGE>

In August 1999, the Company completed a new $60 million banking
facility with ING (U.S.) Capital, LLC. The new arrangement includes a $30
million revolving loan and a $30 million term loan. The new banking arrangement
was obtained to finance the $26 million asset purchase of Zipp Express, Inc.
("Zipp"). Zipp is a major carrier to and from Mexico as well as its having a
strong base of business in the Midwest. Zipp operates a relatively new fleet of
about 270 tractors and 800 trailers.

FOREIGN OPERATIONS

Jaguar's revenues and expenses are generally recorded in Mexican pesos
and Gerth's revenues and expenses are recorded in United States and Canadian
dollars. The Company's foreign currency revenues are generally proportionate to
its foreign currency expenses and the Company does not generally engage in
significant currency hedging transactions. For purposes of consolidation,
however, the operating profit earned by the Company's subsidiaries in foreign
currencies is converted into United Statesdollars. As a result, a decrease in
the value of the Mexican peso or Canadian dollar could adversely affect the
Company's consolidated results of operations.

FUEL PURCHASES

The Company purchases fuel contracts from time to time for a portion of
its projected fuel needs. At June 30, 1999, the Company had fixed price
contracts to purchase for future delivery approximately 6% of its fuel
requirements through March 2000.

SEASONALITY

To date, the Company's revenues have not shown any significant seasonal
pattern. However, because the Company's primary traffic lane is between the
Midwest United States and Mexico, winter generally may have an unfavorable
impact upon the Company's results of operations. Also, many manufacturers close
or curtail their operations during holiday periods, and observe vacation
shutdowns, which may impact the Company's operations in any particular period.

INFLATION

Many of the Company's operating expenses, including fuel costs and
related fuel taxes, are sensitive to the effects of inflation, which could
result in higher operating costs. The effects of inflation on the Company's
business during fiscal 1999, 1998 and 1997 generally were not significant.

<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 2000. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.

IMPACT OF THE YEAR 2000

An issue exists for all companies that rely on computers as the year
2000 approaches. The "Year 2000" problem is the result of the past practice in
the computer industry of using two digits rather than four to identify the
applicable year. This practice may result in incorrect results when computers
perform arithmetic operations, comparisons or data field sorting involving years
later than 1999. In an effort to assess its state of readiness for the
technological challenges posed by the Year 2000 problem the Company has
performed a complete inventory assessment of both its information technology
("IT") and non-IT systems. In assessing its level of readiness the Company
considered the following to be the most important factors: (i) the level of
compliance of the Company's central computer systems; (ii) the level of
compliance of the software used in the Company's ongoing operations; (iii) the
level of readiness of the Company's largest vendors; (iv) the level of readiness
of the Company's largest customers; and (v) the level of compliance of the
Company's non-IT systems. The Company's non-IT systems are Year 2000 compliant
in all material respects.

The Company's central computer systems are Year 2000 compliant, with
the exception of minimal numbers of desktop personal computers ("PC's"). These
PC's are scheduled for replacement with newer models by the Company as part of
its ongoing technology maintenance. The Company relies on prepackaged,
non-modified software systems for approximately 95% of its software needs. These
software systems have been upgraded and have been recognized as being Year 2000
compliant by the respective vendor.

The Company has taken steps to encourage its suppliers and customers to
become Year 2000 compliant in a timely manner, but there can be no assurances
that such suppliers and customers will be Year 2000 compliant. The Company has
received certifications from most of its suppliers indicating that they have
taken, or will on a timely basis take, such measures as are necessary to become
Year 2000 compliant. Failure of the Company's suppliers to be come Year 2000
compliant on a timely basis may cause the Company to utilize more labor
intensive means to place orders and make payments.

The Company's largest customer, DaimlerChrysler, is currently doing
business with the Company using Year 2000 compliant technology. The Company does
not know the extent to which all of its customers have completed or initiated
Year 2000 remediation programs. In the event that

<PAGE>

the Company's customers do not install Year 2000 compliant systems, the Company
may need additional clerical staff to perform certain tasks, such as order entry
and cash posting, and to provide the information currently provided to customers
electronically.

The Company has and is continuing to develop contingency plans to
address the process necessary to maintain critical business functions should a
significant third party system or critical internal system fail. These
contingency plans generally include the repair of existing systems and, in some
instances, the use of alternative systems or procedures. The Company is
developing business continuity plans specific to Year 2000 issues that are based
on these existing plans. The Company currently plans to complete analysis and
have contingency plans in place by September 30, 1999.

The costs of the Company's Year 2000 efforts are based upon
management's best estimates, which are derived using numerous assumptions
regarding future events, including the continued availability of certain
resources, third-party remediation plans and other factors. There can be no
assurance that these estimates will prove to be accurate, and actual results
could differ materially from those currently anticipated. The Company currently
estimates it will spend approximately $125,000 over the life of the program and
that approximately 85 percent of the anticipated costs were incurred by the end
of fiscal 1999. Expenses associated with addressing the Year 2000 issues are
being recognized as incurred. The failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Such failures could materially and adversely
affect the Company's results of operations.

Due to the uncertainty inherent in the Year 2000 problem, 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. The
Company's Year 2000 projects are expected to significantly reduce the Company's
level of uncertainty about the Year 2000 problem and, in particular, about the
Year 2000 compliance and readiness of its vendors, service suppliers and
customers. The Company believes that, with the completion of the project as
scheduled, the possibility of a material interruption of normal operations
should be reduced.

RECENT DEVELOPMENTS

In August 1999, the Company acquired the assets and assumed certain
liabilities of Zipp Express, Inc. for approximately $26 million. The Company
believes that Zipp will further strengthen its position in the market between
the U.S. and Mexico as well as within the Midwest region. Zipp is a major
carrier to and from Mexico and also maintains a strong base of business in the
Midwest. In calendar year 1998, Zipp had $38 million in revenue and an operating
ratio of 89.8%. Zipp operates a relatively new fleet of about 270 tractors and
800 trailers. As a result of this acquisition, the Company plans to dispose of a
group of its own older equipment and related items that will no longer be
required. The effect of upgrading the Company's fleet through this

<PAGE>

disposition will result in a non-cash charge of approximately $3.2 million in
the first quarter of fiscal 2000, to end September 30, 1999.

In August 1999, the Company also completed a new $60 million banking
facility with ING Barings. The new arrangement includes a $30 million revolving
loan and a $30 million term loan. The new banking arrangement was obtained to
finance the $26 million asset purchase of Zipp Express, Inc.

Item 8. Financial Statements and Supplementary Data

See "Index to Consolidated Financial Statements," which is Item 14(a), and
the consolidated financial statements and schedules included as a part of this
Annual Report.

<PAGE>

CELADON GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Three years ended June 30, 1999 with
Report of Independent Auditors

Contents

<TABLE>
<S> <C>
Report of Independent Auditors....................................22

Audited Consolidated Financial Statements:

Consolidated Balance Sheets.....................................23
Consolidated Statements of Operations...........................24
Consolidated Statements of Cash Flows...........................25
Consolidated Statements of Stockholders' Equity.................26
Notes to Consolidated Financial Statements......................27
</TABLE>

<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders of Celadon Group, Inc.

We have audited the accompanying consolidated balance sheets of Celadon
Group, Inc. as of June 30, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Celadon Group, Inc. at June 30, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Indianapolis, Indiana
August 27, 1999

<PAGE>

CELADON GROUP, INC.
CONSOLIDATED BALANCE SHEETS

JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)

1999 1998
---- ----
A S S E T S

<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $695 $2,537
Trade receivables, net of allowance for doubtful accounts of $788
and $528 in 1999 and 1998, respectively ................................. 43,884 39,063
Accounts receivable -- other................................................ 5,336 4,382
Prepaid expenses and other current assets .................................. 6,941 5,701
Tires in service ........................................................... 4,179 3,555
Income tax recoverable...................................................... 29 960
Deferred income taxes....................................................... 4,847 7,056
---------- ----------
Total current assets .................................................. 65,911 63,254
---------- ----------
Property and equipment, at cost ................................................ 141,213 150,535
Less accumulated depreciation and amortization.............................. 33,629 35,476
---------- ----------
Net property and equipment............................................. 107,584 115,059
---------- ----------
Tires in service ............................................................... 2,331 2,000
Goodwill, net of accumulated amortization ..................................... 10,967 11,469
Other assets.................................................................... 1,966 2,995
---------- ----------
Total assets........................................................... $188,759 $194,777
========== ==========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y

Current liabilities:
Accounts payable............................................................ $5,505 $6,469
Accrued expenses ........................................................... 17,953 18,301
Bank borrowings and current maturities of long-term debt.................... 7,239 3,508
Current maturities of capital lease obligations............................. 15,099 16,949
---------- ----------
Total current liabilities.............................................. 45,796 45,227
---------- ----------
Long-term debt, net of current maturities....................................... 18,613 16,873
Capital lease obligations, net of current maturities............................ 52,967 65,970
Deferred income taxes........................................................... 14,065 14,373
---------- ----------
Total liabilities...................................................... 131,441 142,443
---------- ----------
Minority interest .............................................................. 12 12
Commitments and contingencies................................................... --- ---
Stockholders' equity :
Preferred stock, $1.00 par value, authorized 179,985 shares; issued and
outstanding zero shares....................................................... --- ---
Common stock, $0.033 par value, authorized 12,000,000 shares; issued
7,786,430 shares in 1999 and 1998........................................... 257 257
Additional paid-in capital.................................................... 56,679 56,664
Retained earnings (deficit) .................................................. 1,319 (3,522)
Accumulated other comprehensive income........................................ (605) (475)
Treasury stock, at cost, 34,773 shares and 64,441 shares at June 30, 1999,
and 1998, respectively...................................................... (344) (602)
---------- ----------
Total stockholders' equity............................................. 57,306 52,322
---------- ----------
Total liabilities and stockholders' equity............................. $188,759 $194,777
========== ==========

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED JUNE 30, 1999, 1998 AND 1997

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating revenue......................................... $281,829 $229,928 $191,035

Operating expenses:
Salaries, wages and employee benefits................... 76,183 69,938 67,758
Fuel.................................................... 26,738 29,404 30,854
Operating costs and supplies............................ 26,266 18,952 13,482
Insurance and claims.................................... 7,166 6,488 6,014
Depreciation and amortization........................... 13,161 12,889 10,135
Rent and purchased transportation....................... 97,366 61,466 35,604
Professional and consulting fees........................ 2,174 1,503 1,536
Communications and utilities............................ 3,786 3,285 3,102
Permits, licenses and taxes ........................... 5,100 3,901 4,174
Selling expenses........................................ 4,093 3,623 3,286
General and administrative ............................. 4,505 2,675 2,655
--------- --------- ---------
Total operating expenses............................ 266,538 214,124 178,600
--------- --------- ---------
Operating income ........................................... 15,291 15,804 12,435
Other (income) expense:
Interest income......................................... (185) (493) (161)
Interest expense........................................ 7,570 6,398 5,105
Other (income) expense, net ............................ 85 (12) (37)
--------- --------- ---------
Income before income taxes.................................. 7,821 9,911 7,528
Provision for income taxes ................................. 2,980 3,902 3,024
--------- --------- ---------
Net Income........................................... $ 4,841 $ 6,009 $ 4,504
========= ========= ========

Earnings per Common Shares:
Diluted earnings per share........................... $0.62 $0.78 $0.59
Basic earnings per share............................. $0.63 $0.78 $0.59
Average shares outstanding:
Diluted ............................................. 7,784 7,752 7,660
Basic ............................................... 7,739 7,664 7,628

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

CELADON GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)

1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Net Income from continuing operations $ 4,841 $ 6,009 $ 4,504
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 13,161 12,889 10,135
Loss on disposal of property and equipment 493 1,265 --
Provision for deferred income taxes (308) 2,884 (1,570)
Provision for doubtful accounts 716 250 280
Changes in assets and liabilities:
Trade receivables (5,537) (245) (1,655)
Accounts receivable -- other (954) (2,545) (442)
Income tax recoverable 3,140 1,407 3,823
Tires in service (955) (738) 4
Prepaid expenses and other current assets (1,348) (502) (782)
Other assets 355 446 3,998
Accounts payable and accrued expenses (1,311) (2,638) (937)
Income taxes payable (43) -- (145)
-------- -------- --------
Net cash provided by operating activities 12,250 18,482 17,213
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (7,643) (3,623) (1,595)
Proceeds from sale of property and equipment 10,443 4,662 14,100
Purchase of business, net of cash acquired -- (3,670) --
Decrease in deposits 329 27 286
-------- -------- --------
Net cash provided by (used for) investing activities 3,129 (2,604) 12,791
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuances of common stock 419 384 --
Proceeds from issuance of common stock held in treasury -- 944 --
Purchase of treasury stock (103) (586) (235)
Proceeds from bank borrowings and debt 5,937 1,506 --
Payments of bank borrowings and debt (6,513) (2,397) (19,822)
Principal payments under capital lease obligations (16,961) (15,037) (10,903)
-------- -------- --------
Net cash used for financing activities (17,221) (15,186) (30,960)
-------- -------- --------
Net cash (used for) provided by continuing operations (1,842) 692 (956)
-------- -------- --------
Discontinued Operations:
Net cash used for discontinued operations -- -- (2,445)
-------- -------- --------
(Decrease) increase in cash and cash equivalents (1,842) 692 (3,401)
Cash and cash equivalents at beginning of year 2,537 1,845 5,246
-------- -------- --------
Cash and cash equivalents at end of year $ 695 $ 2,537 $ 1,845
======== ======== ========

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(Dollars in thousands except share amounts)

COMMON STOCK ADDITIONAL
NO. OF SHARES PAID-IN RETAINED
OUTSTANDING AMOUNT CAPITAL EARNINGS

<S> <C> <C> <C> <C>
Balance at June 30, 1996 7,750,580 $ 256 $ 56,281 $ (14,035)
Net income -- -- -- 4,504
Equity adjustments for foreign
currency translation -- -- -- --
---------- ---------- ---------- ----------
Comprehensive income 7,750,580 -- -- 4,504
Treasury stock purchases (128,000) -- -- --
Reduction of ESOP guarantee -- -- -- --
---------- ---------- ---------- ----------
Balance at June 30, 1997 7,622,580 256 56,281 (9,531)
Net income -- -- -- 6,009
Equity adjustments for foreign
currency translation -- -- -- --
---------- ---------- ----------
Comprehensive income -- -- -- 6,009
Exercise of warrant 35,850 1 245 --
Treasury stock purchases (43,000) -- -- --
Exercise of incentive stock options 106,559 -- 138 --
---------- ---------- ---------- ----------
Balance at June 30, 1998 7,721,989 257 56,664 (3,522)
Net income -- -- -- 4,841
Equity adjustments for foreign
currency translation -- -- -- --
---------- ---------- ---------- ----------
Comprehensive income -- -- -- 4,841
Tax benefits from stock options -- -- 43 --
Treasury stock purchases (8,000) -- -- --
Exercise of incentive stock options 37,668 -- (28) --
---------- ---------- ---------- ----------
Balance at June 30, 1999 7,751,657 $ 257 $ 56,679 $ 1,319
========== ========== ========== ==========

TOTAL
OTHER TREASURY DEBT STOCK-
COMPREHENSIVE STOCK- GUARANTEE HOLDERS'
INCOME/(LOSS) COMMON FOR ESOP EQUITY

<S> <C> <C> <C> <C>
Balance at June 30, 1996 $ (355) -- $(185) $41,962
Net income -- -- -- 4,504
Equity adjustments for foreign
currency translation 103 -- -- 103
---------- ---------- -------------- ----------
Comprehensive income 103 -- -- 4,607
Treasury stock purchases -- (960) -- (960)
Reduction of ESOP guarantee -- -- 185 185
---------- ---------- -------------- ----------
Balance at June 30, 1997 (252) (960) -- 45,794
Net income -- -- -- 6,009
Equity adjustments for foreign
currency translation (223) -- -- (223)
---------- ---------- -------------- ----------
Comprehensive income (223) -- -- 5,786
Exercise of warrant -- -- -- 246
Treasury stock purchases -- (586) -- (586)
Exercise of incentive stock options -- 944 -- 1,082
---------- ---------- -------------- ----------
Balance at June 30, 1998 (475) (602) -- 52,322
Net income -- -- -- 4,841
Equity adjustments for foreign
currency translation (130) -- -- (130)
---------- ---------- -------------- ----------
Comprehensive income (130) -- -- 4,711
Tax benefits from stock options -- -- -- 43
Treasury stock purchases -- (103) -- (103)
Exercise of incentive stock options -- 361 -- 333
---------- ---------- -------------- ----------
Balance at June 30, 1999 $ (605) $ (344) $ -- $ 57,306
========== ========== ============== ==========

</TABLE>

See accompanying notes to financial statements.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,1999

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Celadon Group, Inc. (the "Company") through its operating subsidiaries,
Celadon Trucking Services, Inc. ("CTSI") a U.S. company formed to provide
trucking services, Servicio de Transportacion Jaguar, S.A. de C.V. ("Jaguar") a
Mexican company formed to provide trucking services, Cheetah Transportation
Company and CLK, Inc., including its subsidiary Cheetah Brokerage, Inc.
(collectively "Cheetah"). Cheetah provides flatbed trucking and brokerage
services principally in the United States and Gerth Transport, Kitchener,
Ontario ("Gerth"), a leading truckload carrier between Canada and Mexico is an
international transportation company primarily offering trucking services. The
Company specializes in providing long-haul, full truckload services between the
United States, Canada and Mexico.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Presentation

The consolidated financial statements include the accounts of Celadon
Group, Inc. and its subsidiaries, all of which are wholly owned except for
Jaguar in which the Company has a 75% interest. All significant intercompany
accounts and transactions have been eliminated in consolidation. Unless
otherwise noted, all references to annual periods refer to the respective fiscal
years ended June 30.

Use 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, liabilities, revenues,
expenses and related disclosures at the date of the financial statements and
during the reporting period. Such estimates include provisions for damage and
liability claims and uncollectible accounts receivable. Actual results could
differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

Revenue Recognition

Trucking revenue is recognized as of the date the freight is delivered
by the Company. Amounts payable to drivers for wages and other related trucking
expenses on delivered shipments are accrued.

Tires in Service

Original and replacement tires on tractors and trailers are included in
tires in service and are amortized over 18 to 36 months.

Fuel

Fuel is generally expensed when purchased, except for the fuel supplies
at terminals, which are classified as prepaid expenses.

Property and Equipment

Property and equipment are stated at cost. Property and equipment under
capital leases are stated at the lower of the present value of minimum lease
payments at the beginning of the lease term or fair value at the inception of
the lease.

Depreciation of property and equipment and amortization of assets under
capital leases is generally computed using the straight-line method and is based
on the estimated useful lives (net of salvage value) of the related assets as
follows:

<TABLE>

<S> <C>

Revenue and service equipment................ 4 -12 years
Furniture and office equipment............... 5 - 7 years
Buildings.................................... 20 years
Leasehold improvements....................... Lesser of life of lease or
useful life of improvement
</TABLE>

Initial delivery costs relating to placing tractors and trailers in
service, which are included in revenue and service equipment, are being
amortized on a straight-line basis over the lives of the assets or in the case
of leased equipment, over the respective lease term. The cost of maintenance and
repairs, including tractor overhauls, is charged to expense as incurred; costs
incurred to place assets in service and improvements are capitalized and
depreciated over the remaining life of each respective asset.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

Goodwill

Goodwill reflects the excess of cost over net assets of businesses
acquired and is being amortized by the straight-line method over 15- 40 years.
The carrying value of the goodwill is reviewed if the facts and circumstances
suggest that it may be permanently impaired. Such review is based upon the
undiscounted expected future operating profit derived from such businesses and,
in the event such result is less than the carrying value of the goodwill, the
carrying value of the goodwill is reduced to an amount that reflects the
expected future benefit.

Insurance Reserves

Reserves for known claims and incurred but not reported claims up to
specific policy limits are accrued based upon information provided by insurance
adjusters and actuarial factors. Such amounts are included in accrued expenses.

Income Taxes

Deferred taxes are recognized for the future tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting, based on enacted tax laws and rates. Federal income
taxes are provided on the portion of the income of foreign subsidiaries that is
expected to be remitted to the United States and be taxable.

Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables.
Concentrations of credit risk with respect to trade receivables are generally
limited due to the Company's large number of customers and the diverse range of
industries, which they represent. Accounts receivable balances due from
DaimlerChrysler totaled $7.9 million or 18% of the gross trade receivables at
June 30, 1999. The Company had no other significant concentrations of credit
risk.

Foreign Currency Translation

Foreign financial statements are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Assets and liabilities of the Company's foreign
operations are translated into U.S. dollars at year-end exchange rates. Income
statement accounts are translated at the average exchange rate prevailing during
the year. Resulting translation adjustments are included in other comprehensive
income.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

Reclassifications

Certain reclassifications have been made to the 1998 and 1997 financial
statements in order to conform to the 1999 presentation.

Recent Accounting Pronouncements

(2) ACQUISITIONS

In August 1997, the Company acquired the net assets of General Electric
Transportation Services ("GETS"), the transportation services unit of the
General Electric Industrial Control Systems ("GEICS") business. In addition to
the net assets acquired, the Company received a five-year contract to continue
providing transportation service to GEICS, which represents approximately
one-half of the current business volume of the transportation services unit. The
total acquisition price was $8.5 million payable as $5.5 million in cash at
closing and a $3.0 million note plus assumption of certain liabilities and lease
obligations. The revenues and expenses of the operations acquired from GEICS
have been included in the Company's consolidated financial statements since
September 1, 1997.

In May 1998, the Company acquired the net assets of Gerth Transport,
Kitchener, Ontario ("Gerth") for $13.8 million. The Company believes that Gerth
is the leading Canadian truckload carrier to Mexico. The Gerth Acquisition has
allowed the Company to enhance its service offering to and from Canada. The
revenues and expenses of the operations acquired from Gerth have been included
in the Company's consolidated financial statements since May 1998.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

(3) PROPERTY, EQUIPMENT AND LEASES

Property, Equipment and Revenue Equipment Under Capital Leases

Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>

1999 1998
---- ----
<S> <C> <C>

Revenue equipment......................... $32,190 $ 35,608
Revenue equipment under capital leases.... 98,095 106,563
Furniture and office equipment............ 4,841 3,583
Land and buildings........................ 5,136 4,143
Service equipment......................... 489 449
Leasehold improvements.................... 462 189
-------- --------
$141,213 $150,535
======== ========
</TABLE>

Included in accumulated depreciation was $21.9 million and $16.9 million
in 1999 and 1998, respectively, related to revenue equipment under capital
leases.

Depreciation and amortization expense relating to property and equipment
owned and revenue equipment under capital leases was $12.4 million in 1999,
$12.3 million in 1998, $9.9 million in 1997.

Lease Obligations

The Company leases certain revenue and service equipment under long-term
lease agreements, payable in monthly installments with interest at rates ranging
from 5.3% to 10.0% per annum, maturing at various dates through 2004.

The Company leases warehouse and office space under noncancellable
operating leases expiring at various dates through September 2016. Certain
leases contain renewal options.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

Future minimum lease payments relating to capital leases and to
operating leases with initial or remaining terms in excess of one year are as
follows (in thousands):

YEAR ENDED CAPITAL OPERATING
JUNE 30 LEASES LEASES
------- ------ ------
<S> <C> <C>
2000......................................... $19,229 $14,624
2001......................................... 17,927 12,627
2002......................................... 14,895 7,452
2003......................................... 18,554 5,374
2004......................................... 6,443 5,635
Thereafter................................... 1,886 9,782
------- -------
Total minimum lease payments........... $78,934 $55,494
======= =======

Less amounts representing interest........... 10,868
--------
Present value of net minimum lease payments.. 68,066
Less current maturities...................... 15,099
--------
Non-current portion.................... $52,967
=======
</TABLE>

Total rental expense for operating leases is as follows (in thousands):

Revenue, service equipment and purchased transportation $95,692 $59,775 $34,446
Office facilities and terminals....................... 1,674 1,691 1,158
------- ------- -------
$97,366 $61,466 $35,604
======= ======= =======

</TABLE>

(4) BANK BORROWINGS AND LONG-TERM DEBT

The Company's outstanding borrowings consist of the following at
June 30:

1999 1998
---- ----
(in thousands)
<S> <C> <C>

Outstanding amounts under lines of credit (collateralized
by certain trade receivables and revenue equipment)... $20,143 $14,578
Other borrowings........................................ 5,709 5,803
------- -------
25,852 20,381
Less current maturities................................. 7,239 3,508
------- -------
Non-current portion................................... $18,613 $16,873
======= =======
</TABLE>

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

Lines of Credit

In June 1994, the Company refinanced the outstanding borrowings under the
1994 Credit Agreement ("1994 Credit Agreement") which was amended and modified
in June 1997. Interest is based, at the Company's option, upon either the bank's
prime rate or the London Interbank Offered Rate ("LIBOR") plus a margin ranging
from .625% to 1.625% depending upon performance by the Company. At June 30,
1999, the interest rate charged on outstanding borrowings was 6.97%. In
addition, the Company pays a commitment fee of .5% on the unused portion of the
1994 Credit Agreement.

In August 1999, the Company refinanced the outstanding borrowings under
the 1999 Credit Agreement ("Credit Agreement"). Interest is based, at the
Company's option, upon either the bank's base rate plus a margin ranging from
.50% to 1.5% or the London Interbank Offered Rate ("LIBOR") plus a margin
ranging from 1.5% to 2.5% depending upon performance by the Company.

Amounts available under the Credit Agreement are determined based upon the
Company's borrowing base, as defined. In addition, there are certain covenants
which restrict, among other things, the payment of cash dividends, and require
the Company to maintain certain financial ratios and certain other financial
conditions. Such borrowings are secured by a significant portion of the
Company's assets.

Maturities of long-term debt, assuming the Company exercises the
conversion feature within its Credit Agreement entered into in August 1999, for
the years ending June 30 are as follows (in thousands):

<TABLE>

<S> <C>

2000................................ $ 6,081
2001................................ 5,688
2002................................ 7,324
2003................................ 7,347
2004................................ 8,134
Thereafter.......................... 30,000
-------
$64,574
=======
</TABLE>

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

(5) EMPLOYEE BENEFIT PLANS

401(k) Profit Sharing Plan

The Company has a 401(k) profit sharing plan which permits U.S.
employees of the Company to contribute up to 15% of their annual compensation,
up to certain Internal Revenue Service limits. The contributions made by each
employee are fully vested at all times and are not subject to forfeiture. The
Company makes a matching contribution of 25% of the employee's contribution up
to 5% of their annual compensation and may make additional discretionary
contributions. The aggregate Company contribution may not exceed 5% of the
employee's compensation. Employees vest in the Company's contribution to the
plan at the rate of 20% per year from the date of contribution. Contributions
made by the company during 1999, 1998 and 1997 amounted to $117,000, $112,000
and $155,000, respectively. No discretionary contributions were made during
1999, 1998 or 1997.

Employee Stock Purchase Plan

The Company's Board of Directors authorized the sale of up to 250,000
shares of the Company's Common Stock under an employee purchase plan . The
common stock, may be treasury shares or newly issued shares, sold at a price
equal to 85% of the fair market value of the shares as of the day of sale. There
were approximately 133 active participants in the plan as of June 30, 1999.
Participation in the plan is limited to employees who meet the eligibility
requirements set forth in the plan and executive officers of the Company may not
participate. As of June 30, 1999, 54,193 shares had been purchased by employees
under the Plan in open market transactions for an average price of $12.62 per
share. The Company's contribution to the purchases made was $20,502 in fiscal
1999.

(6) STOCK OPTIONS

The Company has a Stock Option Plan (the "Plan") which provides for the
granting of stock options, stock appreciation's rights and restricted stock
awards to purchase not more than 750,000 shares of Common Stock, subject to
adjustment under certain circumstances, to select management and key employees
of the Company and its subsidiaries.

The Company has elected to follow Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock options. Under APB No. 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. However, SFAS No. 123, "Accounting for Stock-Based Compensation,"
requires presentation of pro forma net income and earnings per share as if the
Company had accounted for its

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

employee stock options granted subsequent to June 30, 1995, under the fair value
method of that statement. Under SFAS No. 123, total compensation expense for
stock-based awards of $378,000 and $523,000 in 1999 and 1998, respectively, on a
proforma basis, would have been reflected in income on a pretax basis. For
purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the vesting period. Under the fair value method, the
Company's net income (in thousands) and earnings per share would have been
reduced as follows:

1999 1998
---- ----
<S> <C> <C>

Net Income...................... $227 $314
Earnings per share.............. .03 .04
</TABLE>

Because SFAS No. 123 is applicable only to options granted subsequent to
June 30, 1995, and the options have a three-year vesting period, the pro forma
effect did not become fully reflected until fiscal year 1999.

The weighted-average per share fair value of the individual options
granted during fiscal year 1999 and 1998 is estimated as $6.22 and $6.37,
respectively, on the date of grant. The fair values for both years were
determined using a Black-Scholes option-pricing model with the following
weighted average assumptions:

1999 1998
---- ----
<S> <C> <C>

Dividend yield.................. 0 0
Volatility...................... 61.0% 37.0%
Risk-free interest rate......... 4.88% 5.70%
Forfeiture rate................. 16.2% 3.70%
Expected life................... 7 years 7 years

</TABLE>

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

Stock option activity is summarized below:

Shares of Weighted
Common Stock Average
Attributable Exercise
to Options Price of Options
---------- ----------------
<S> <C> <C>

Unexercised at June 30, 1996 589,617 $ 13.7468
Granted 98,000 8.9541
Exercised ---- ---
Forfeited (257,817) 14.1815
-------- -------

Unexercised at July 1, 1997 429,800 11.9919
Granted 124,000 13.8387
Exercised (106,001) 10.1745
Forfeited (44,399) 16.9654
--------- --------

Unexercised at June 30, 1998 403,400 12.4841
Granted 94,000 10.2646
Exercised (37,668) 8.8274
Forfeited (54,516) 13.2119
-------- -------

Unexercised at June 30, 1999 405,216 12.2138
======= =======
</TABLE>

The following table summarizes information concerning outstanding and
exercisable options at June 30, 1999:

Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>

$ 5 - $10 92,666 7.9790 $ 9.4290 69,501 $ 9.6762
$10 - $15 283,550 8.5461 12.5656 147,557 13.5053
$15 - $20 29,000 7.1782 17.6724 23,668 18.2463
</TABLE>

Shares exercisable at June 30, 1999 and 1998, were 240,726 and 246,074,
respectively.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

(7) EARNINGS PER SHARE

The following is a reconciliation of the numerators and demoninators
used in computing earnings per share from continuing operations:

1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income available to common shareholders............ $4,841 $6,009 $4,504
====== ====== ======

Basic earnings per share:
Weighted - average number of common
shares outstanding........................... 7,739 7,664 7,628

Basic earnings per share....................... $0.63 $0.78 $.059
===== ===== =====

Diluted earnings per share:
Weighted-average number of common
shares outstanding........................... 7,739 7,664 7,628
Stock options and other incremental shares..... 45 88 32
------- ------- ------

Weighted-average number of common shares
outstanding-diluted.......................... 7,784 7,752 7,660
===== ===== =====

Diluted earnings per share......................... $0.62 $0.78 $0.59
===== ===== =====
</TABLE>

(8) RELATED PARTY TRANSACTIONS

The Company's Chief Executive Officer is party to a stockholders'
agreement that require the parties thereto to vote their shares of stock for the
election as directors of the Company certain designees of the other party to the
agreement. The Company, the Company's Chief Executive Officer (the "Company
Executive"), and Hanseatic, a significant shareholder, are parties to a
stockholders agreement. This agreement provides that, as long as Hanseatic or
the Company Executive each beneficially own at least five percent of the
outstanding shares of Common Stock, the Company shall use its best efforts to
ensure that one member of the Company's board of directors is a designee of
Hanseatic and that another member of the Company's board of directors is a
designee of the Company Executive. In addition, the Company Executive and
Hanseatic have agreed to vote all shares of Common Stock owned by them in favor
of the election of such nominees or, upon the death of the Company Executive,
for the designee of the holder of a majority of the Company Executive's shares
of Common Stock on the date of death.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

JUNE 30,1999

(9) HEDGING ACTIVITIES, COMMITMENTS AND CONTINGENCIES

The Company has outstanding commitments to purchase approximately $32.0
million of revenue equipment at June 30, 1999 which will be financed utilizing
long-term lease agreements.

Standby letters of credit, not reflected in the accompanying condensed
consolidated financial statements, aggregated approximately $1.8 million at June
30, 1999.

The Company has employment and consulting agreements with various key
employees providing for minimum combined annual compensation over the next two
years ranging from $1.0 million in 2000 to $0.5 million in 2001.

There are various claims, lawsuits and pending actions against the
Company and its subsidiaries incidental to the operation of its businesses. The
Company believes many of these proceedings are covered in whole or in part by
insurance and that none of these matters will have a material adverse effect on
its consolidated financial position.

The Company, from time-to-time, has entered into arrangements to protect
against fluctuations in the price of the fuel used by its trucks. As of June 30,
1999, the Company had fixed price contracts to purchase fuel for future physical
delivery in the months of July 1999 through March 2000. These contracts
represent approximately 6% of the anticipated fuel requirements for those
months. Additionally, the Company periodically acquires exchange-traded
petroleum futures contracts and various commodity collar transactions. Gains and
losses on transactions, not designated as hedges, are recognized based on market
value at the date of the financial statements. During the years ended June 30,
1999 and 1998, a loss of $996,000 and $997,000, respectively, on futures
contracts and commodity collar transactions were included in fuel expense. To
the extent that the Company hedged portions of its fuel purchases, it may not
have fully benefited from decreases in fuel prices.

The Company has been assessed approximately $750,000 by the State of
Texas for Interstate Motor Carrier Sales and Use Tax for the period from April
1988 through June 1992. The Company disagrees with the State of Texas over the
method used by the state in computing such taxes and intends to vigorously
pursue all of its available remedies. On October 30, 1996, the Company made a
payment of $1.1 million, under protest, which includes interest to the date of
payment and enables the Company to pursue resolution of the matter with the
State of Texas Attorney General. In the March 1997 quarter, the Company filed
its Original Petition against representatives of the State of Texas. The state
responded and denied the Company's claims. As of June 30, 1999, the parties to
the litigation were exchanging discovery requests and documentation. The Company
has accrued an amount that management estimates is due based upon methods they
believe are appropriate. While there can be no certainty as to the outcome, the
Company believes that the ultimate resolution of this matter will not have a
material adverse effect on its consolidated financial position.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

JUNE 30, 1999

(10) INCOME TAXES

The income tax provision for operations in 1999, 1998 and 1997 consisted
of the following (in thousands):

1999 1998 1997
---- ---- ----
<S> <C> <C> <C>

Current:
Federal .......... $ -- $ 229 $1,229
State and local... 137 274 400
Foreign .................. 1,511 515 104
------ ------ ------
$1,648 $1,018 $1,733
------ ------ ------
Deferred:

Federal .......... 1,209 2,533 1,126
State and local... 122 351 165
------ ------ ------
1,331 2,884 1,291
------ ------ ------
$2,979 $3,902 $3,024
====== ====== ======
</TABLE>

No provision is made for U.S. federal income taxes on undistributed
earnings of foreign subsidiaries of approximately $4.6 million at June 30, 1999,
as management intends to permanently reinvest such earnings in the Company's
operations in the respective foreign countries where earned.

The Company's effective tax rate on income (loss) from continuing
operations differs from the statutory federal tax rate as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate................. 35.00% 35.00% 35.00%
State taxes, net of federal benefit........ 2.19 4.16 4.88
Non-deductible expenses ................... 1.04 .77 1.26
Other, net................................. (.13) (.56) (.97)
------ ------ ------
Effective tax rate.................. 38.10% 39.37% 40.17%
====== ====== ======

</TABLE>

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

JUNE 30,1999

The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 1999 and 1998
consisted of the following (in thousands):

1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:

Allowance for doubtful accounts ................... $ 125 $ 152
Insurance reserves................................. 146 461
Revenue recognition................................ --- 109
Tires in service................................... --- 198
Parts and supplies................................. --- 116
Net operating loss carryforwards................... 1,504 935
Alternative minimum tax credit carryforward........ 628 722
Other ........................................... 2 177
------ ------
Total deferred tax assets.................. $2,405 $2,870
====== ======

Deferred tax liabilities:
Excess tax depreciation........................... $(5,003) $(5,287)
Capital leases .................................. (3,642) (2,785)
Deferred gain..................................... (1,086) (560)
Other ........................................... (1,892) (1,555)
--------- ---------
Total deferred tax liabilities............. $(11,623) $(10,187)
========= =========

Net current deferred tax assets........................... $4,847 $7,056
Net noncurrent deferred tax liabilities................... (14,065) (14,373)
--------- ---------
Total net deferred tax liabilities......... $ (9,218) $ (7,317)
========= =========

</TABLE>

As of June 30, 1999, the Company had approximately $4.4 million of
operating loss carryforwards with expiration dates through 2014.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

(11) SUPPLEMENTAL CASH FLOW INFORMATION

In 1999, 1998 and 1997, capital lease obligations and debt financing in
the amount of $8.1 million, $37.5 million and $33.9 million, respectively, were
incurred in connection with the purchase of, or option to purchase, revenue
equipment and tires in service.

For 1999, 1998 and 1997, the Company made interest payments of $7.4
million, $6.3 million and $4.9 million, respectively.

For 1999, 1998 and 1997, the Company made income tax payments of $1.1
million, $1.1 million, and $0.3 million, respectively.

(12) GEOGRAPHICAL INFORMATION AND SIGNIFICANT CUSTOMERS

The Company predominately operates and provides its transportation
services in the truckload transportation segment of the transportation industry.
The Company generates revenue from its truckload operations in the United
States, Canada and Mexico.

Information as to the Company's operations by geographic area is
summarized below (in thousands):

1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
United States................. $221,937 $215,069 $ 185,378
Canada........................ 49,798 5,421 ---
Mexico........................ 10,094 9,438 5,657
-------- -------- --------
Total ................... $281,829 $229,928 $191,035
======== ======= ========
Income before income taxes:
United States................. $9,761 $8,475 $7,221
Canada........................ 3,835 447 ---
Mexico........................ 1,695 989 307
------- ------ ------
Total ................. $15,291 $9,911 $7,528
======= ====== ======
Total assets:
United States................. $164,240 $172,463 $139,849
Canada........................ 17,823 17,788 ---
Mexico........................ 6,476 3,427 1,670
Europe (i).................... 220 1,099 1,383
-------- -------- --------
Total.................... $188,759 $194,777 $142,902
======== ======== ========
</TABLE>

- ----------
(i) Relates to the Company's discontinued freight forwarding operations based
in the United Kingdom.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

Revenue from DaimlerChrysler accounted for 25%, 37%, and 42% of the
Company's total revenue for 1999, 1998, and 1997, respectively. The Company
transports DaimlerChrysler after-market replacement parts and accessories within
the United States and DaimlerChrysler original equipment automotive parts
primarily between the United States and the Mexican border, which accounted for
26% and 74%, respectively, of the Company's revenue from DaimlerChrysler in 1999
and 1998. DaimlerChrysler business is covered by three agreements, one of which
covers the United States-Mexican business for the Chrysler division, one of
which covers the United States-Mexican business for the Freightliner division
and the last of which covers domestic movements. The international contract
which covers the Chrysler division expires in December 1999. The international
contract which covers the Freightliner division expires in April 2001. The
contract applicable to domestic movements expires in October 2000.

Revenue from General Electric accounted for approximately 5% of the
Company's total revenue for both 1999 and 1998. In conjunction with the General
Electric Transportation Services ("GETS") acquisition in August 1997, the
Company obtained a five-year contract covering all loads shipped for General
Electric industrial Control Systems ("GEICS").

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

(13) SELECTED QUARTERLY DATA (UNAUDITED)

Summarized quarterly data for 1999 and 1998 follows (in thousands except per
share amounts):

<TABLE>
<CAPTION>
FISCAL YEAR 1999
9/30/98 12/31/98 3/31/99 6/30/99
--------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues.................. $72,113 $69,402 $68,535 $71,779
Operating expenses.................. 67,750 67,265 64,428 67,143
------- ------- ------- -------

Operating income.................... 4,363 2,137 4,107 4,636
Other expense....................... 1,906 1,881 1,826 1,809
------- ------- ------- -------

Income before taxes................. 2,457 256 2,281 2,827
Income taxes........................ 925 98 888 1,068
------- ------- ------- -------

Net income.......................... $1,532 $ 158 $ 1,393 $ 1,759
======= ======= ======= =======

Basic earnings per share............ $ 0.20 $ 0.02 $ 0.18 $ 0.23
======= ======= ======= =======

Diluted earnings per share.......... $ 0.20 $ 0.02 $ 0.18 $ 0.23
======= ======= ======= =======

<CAPTION>
FISCAL YEAR 1998
9/30/97 12/31/97 3/31/98 6/30/98
--------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues.................. $51,844 $56,836 $56,010 $65,238
Operating expenses.................. 47,821 53,265 51,924 61,114
------- ------- ------- -------

Operating income.................... 4,023 3,571 4,086 4,124
Other expense....................... 1,284 1,143 1,609 1,857
------- ------- ------- -------

Income before taxes................. 2,739 2,428 2,477 2,267
Income taxes........................ 1,068 915 961 958
------- ------- ------- -------

Net income.......................... $ 1,671 $ 1,513 $ 1,516 $ 1,309
======= ======= ======= =======

Basic earnings per share............ $ 0.22 $ 0.20 $ 0.20 $ 0.17
======= ======= ======= =======

Diluted earnings per share.......... $ 0.22 $ 0.20 $ 0.20 $ 0.17
======= ======= ======= =======
</TABLE>

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1999

(14) SUBSEQUENT EVENTS (UNAUDITED)

On August 10, 1999, the Company acquired the assets and assumed certain
liabilities of Zipp Express, Inc. for approximately $26 million. The Company
believes that Zipp will further strengthen its position in the market between
the U.S. and Mexico as well as within the Midwest region. Zipp is a major
carrier to and from Mexico and also maintains a strong base of business in the
Midwest. In calendar year 1998, Zipp had $38 million in revenue and an operating
ratio of 89.8%. Zipp operates a relatively new fleet of about 270 tractors and
800 trailers. As a result of the completion of this acquisition, the Company
will dispose of a group of its own older equipment and related items that will
no longer be required. The effect of upgrading the Company's fleet through this
disposition will result in a non-cash charge of approximately $3.2 million in
the first fiscal quarter to end September 30, 1999.

On August 11, 1999, the Company also completed a new $60 million banking
facility with ING (U.S.) Capital, LLC. The new arrangement includes a $30
million revolving loan and a $30 million term loan. The new banking arrangement
was obtained to finance the $26 million purchase of Zipp Express, Inc. Interest
is based, at the Company's option, upon either the bank's base rate plus a
margin ranging from .50% to 1.5% or the London Interbank Offered Rate ("LIBOR")
plus a margin ranging from 1.5% to 2.5% depending upon performance by the
Company.

Amounts available under the Credit Agreement are determined based upon
the Company's borrowing base, as defined therein. In addition, there are certain
covenants which restrict, among other things, the payment of cash dividends, and
require the Company to maintain certain financial ratios and certain other
financial conditions. Such borrowings are secured by a significant portion of
the Company's assets.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

There were no changes in or disagreements with accountants on accounting
or financial disclosures within the last three fiscal years.

<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

<TABLE>
<CAPTION>
Page Number of
Annual Report
on Form 10-K
--------------
<S> <C>
(a) List of Documents filed as part of this Report

(1) Financial Statements

Reports of Independent Auditors 22

Consolidated Balance Sheets as of June 30, 1999 and 1998 23

Consolidated Statements of Operations for the years ended
June 30, 1999, 1998 and 1997 24

Consolidated Statements of Cash Flows for the years ended 25
June 30, 1999, 1998 and 1997

Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1999, 1998 and 1997 26

Notes to Consolidated Financial Statements 27

(2) Financial Statement Schedules

Consolidated Financial Statements Schedules as of and for the years ended June
30, 1999, 1998 and 1997:

Schedule II Valuation and Qualifying Accounts 52

All other Financial Statements Schedules have been omitted because they are
not required or are not applicable.
</TABLE>

<PAGE>

(3) Exhibits (Numbered in accordance with Item 601 of Regulation S-K).

3.1-- Certificate of Incorporation of the Company. Incorporated by reference
to Exhibit 3.1 of Form S-1 filed January 20, 1994 (No. 33-72128).

3.2-- Certificate of Amendment of Certificate of Incorporation dated
February 2, 1995 decreasing aggregate number of authorized shares to
12,179,985, of which 179,985 shares of the par value $1.00 per share
shall be designated "Preferred Stock" and 12,000,000 shares of the par
value of $.033 per share shall be designated "Common Stock",
Incorporated by reference to Exhibit 3.2 of Form 10-K filed November
30, 1995.

3.3-- By-laws of the Company. Incorporated by reference to Exhibit 3.2 of
Form S-1 filed January 20, 1994 (No. 33-72128).

10.1-- Amended and Restated Employment Agreement, dated May 13, 1994, between
Norman Greif and Randy International, Ltd., Celadon Group, Inc. and
certain of their affiliates, Incorporated by reference to Exhibit 10.1
of form 10-K filed October 13, 1994.

10.2-- Employment Agreement, dated September 24, 1993, between Brian Reach
and the Company. Incorporated by reference to Exhibit 10.2 of Form S-1
filed January 20, 1994 (No. 33-72128).

10.3-- 1994 Stock Option Plan of the Company. Incorporated by reference to
Exhibit B to the Company's proxy Statement dated October 17, 1997.

10.4-- 401(k) Profit Sharing Plan of the Company. Incorporated by reference
to Exhibit 10.4 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.5-- Employee Stock Ownership Plan and Trust Agreement, effective July 1,
1990. Incorporated by reference to Exhibit 10.5 of Form S-1 filed
January 20, 1994 (No. 33-72128).

10.6-- ESOP Loan Agreement, dated July 2, 1990, among the International Bank
of Commerce, the Company's Employee Stock Ownership Trust, the
Company, and Celadon Trucking Services, Inc. Incorporated by reference
to Exhibit 10.6 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.7-- Stock Purchase Agreement, dated June 30, 1990, among Randy Acquisition
Corp., Norman Greif, Wilfred Lembck, John Rocca, and Ronald Steele, as
amended. Incorporated by reference to Exhibit 10.7 of Form S-1 filed
January 20, 1994 (No. 33-72128).

**10.8-- Motor Carrier Transportation Agreement, dated February 1, 1987,
between Chrysler Motors Corporation and the Trucking Division, as
amended. Amendment incorporated by reference to Exhibit 10.8 of Form
10-Q filed November 14, 1996.

10.9-- Motor Carrier Transportation Agreement, effective as of October 1,
1993, between Chrysler Motors Corporation and Celadon Trucking
Services, Inc., as amended. Amendment incorporated by reference to
Exhibit 10.9 of Form 10-K filed October 14, 1994.

10.10-- Registration Rights Agreement, dated February 14, 1991, between
Unibank A/S and the Company. Incorporated by reference to Exhibit
10.21 of Form S-1 filed January 20, 1994 (No. 33-72128).

<PAGE>

10.11-- Common Stock Purchase Warrant Agreement, dated February 14, 1991,
between Unibank A/S and the Company. Incorporated by reference to
Exhibit 10.22 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.12-- International Bancshares Corporation Warrant to Purchase Shares of
Common Stock, as amended. Incorporated by reference to Exhibit 10.23
of Form S-1 filed January 20, 1994 (No. 33-72128).

10.13-- Registration Rights Agreement, dated April 7, 1988, between Citicorp
Venture Capital, Ltd. and the Company. Incorporated by reference to
Exhibit 10.24 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.14-- Stockholders' Agreement, dated April 7, 1988, among Citicorp Venture
Capital, Ltd., the Company, and the Stockholders set forth on Schedule
I thereto. Incorporated by reference to Exhibit 10.25 of Form S-1
filed January 20, 1994 (No. 33-72128).

10.15-- Voting Agreement, dated as of October 8, 1992, among the Company,
Stephen Russell, and Leonard R. Bennett. Incorporated by reference to
Exhibit 10.27 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.16-- Registration Rights Agreement, dated October 8, 1992, between the
Company and Hanseatic Corporation. Incorporated by reference to
Exhibit 10.30 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.17-- Stockholders' Agreement, dated October 8, 1992, among the Company,
Stephen Russell, Leonard Bennett, and Hanseatic Corporation.
Incorporated by reference to Exhibit 10.31 of Form S-1 filed January
20, 1994 (No. 33-72128).

10.18-- Warrant Certificate, dated October 8, 1992, to subscribe for and
purchase 12,121 shares of Common Stock of the Company registered in
the name of Deltec Asset Management Corporation, as Custodian for
Hanseatic Corporation. Incorporated by reference to Exhibit 10.33 of
Form S-1 filed January 20, 1994 (No. 33-72128).

10.19-- Lease, dated as of September 13, 1990, between Prime GL Realty
Associates, Inc. and Randy International, Ltd., as amended.
Incorporated by reference to Exhibit 10.34 of Form S-1 filed January
20, 1994 (No. 33-72128).

10.20-- Joint Venture Operating Agreement, effective as of September 1, 1993,
between the Company and Grupo Hercel, S.A. de C.V. Incorporated by
reference to Exhibit 10.35 of Form S-1 filed January 20, 1994 (No.
33-72128).

10.21-- Loan and Security Agreement, dated as of June 30, 1992, between Sanwa
General Equipment Leasing, Incorporated and Celadon Trucking Services,
Inc. Incorporated by reference to Exhibit 10.36 of Form S-1 filed
January 20, 1994 (No. 33-72128).

10.22-- Guaranty, dated June 30, 1992, of the Company in favor of Sanwa
General Equipment Leasing, Incorporated. Incorporated by reference to
Exhibit 10.37 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.23-- Lease Agreement, dated November 29, 1989, between Porcelli GMC Trucks,
Inc. and Celadon Trucking Services, Inc. Incorporated by reference to
Exhibit 10.38 of Form S-1 filed January 20, 1994 (No. 33-72128).

<PAGE>

10.24-- Lease Agreement, dated February 24, 1993, between Central Jersey
Freightliner and Celadon Trucking Services, Inc. Incorporated by
reference to Exhibit 10.39 of Form S-1 filed January 20, 1994 (No.
33-72128).

10.25-- Lease Agreement, dated October 31, 1991, between Mercedes-Benz Credit
Corp. and Celadon Trucking Services, Inc. Incorporated by reference to
Exhibit 10.40 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.26-- Real Estate Lien Notes made by Celadon Trucking Services, Inc. in
favor of International Bank of Commerce. Incorporated by reference to
Exhibit 10.41 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.27-- Promissory Note, dated June 28, 1990, made by the Company in favor of
American National Bank and Trust Company. Incorporated by reference to
Exhibit 10.42 of Form S-1 filed January 20, 1994 (No. 33-72128).

10.28-- Employment Agreement between the Company and Stephen Russell.
Incorporated by reference to Exhibit 10.43 of Form S-1 filed January
20, 1994 (No. 33-72128).

10.29-- Employment Agreement between the Company and Leonard R. Bennett.
Incorporated by reference to Exhibit 10.44 of Form S-1 filed January
20, 1994 (No. 33-72128).

10.30-- Partnership Agreement dated August 24, 1994, between Randy
International, Ltd. and Jacky Maeder, Ltd. Incorporated by reference
to Exhibit 10.30 of Form 10-K filed October 13, 1994.

10.31-- Global Alliance and Cooperation Agreement dated August 26, 1994 among
Celadon Group, Inc; Randy International, Ltd., Jacky Maeder AG, Jacky
Maeder, Ltd. and Celadon-Jacky Maeder Company. Incorporated by
reference to Exhibit 10.31 of Form 10-K filed October 13, 1994.

10.32-- Non-Qualified Stock Option Agreement dated May 13, 1994, between
Celadon Group, Inc. and Norman Greif. Incorporated by reference to
Exhibit 10.32 of Form 10-K filed October 13, 1994.

10.33-- $35,000,000 Credit Agreement dated June 1, 1994 between Celadon Group,
Inc., Celadon Trucking Services, Inc. and Randy International Ltd. and
NBD Bank N.A. and The First National Bank of Boston. Incorporated by
reference to Exhibit 10.33 of Form 10-K filed October 13, 1994.

10.34-- First amendment, dated October 31, 1994, to the $35,000,000 Credit
Agreement dated June 1, 1994 between Celadon Group, Inc., Celadon
Trucking Services, Inc. and Randy International, Ltd. and NBD Bank
N.A. and the First National Bank of Boston. Incorporated by reference
to Exhibit 10.34 of Form 10-K filed November 30, 1995.

10.35-- Second amendment, dated October 31, 1995, to the $35,000,000 Credit
Agreement dated June 1, 1994 between Celadon Group, Inc., Celadon
Trucking Services, Inc. and Randy International, Ltd. and NBD bank
N.A. and the First National Bank of Boston. Incorporated by reference
to Exhibit 10.35 of Form 10-K filed November 30, 1995.

10.36-- $6,500,000 Credit Agreement dated October 31, 1994 between
Celadon/Jacky Maeder Company and NBD Bank, N.A. and the First National
Bank of Boston. Incorporated by reference to Exhibit 10.36 of Form
10-K filed November 30, 1995.

10.37-- First amendment, dated October 31, 1995, to the $6,500,000 Credit
Agreement dated October

<PAGE>

31, 1994 between Celadon/Jacky Maeder Company and NBD Bank, N.A.
Incorporated by reference to Exhibit 10.37 of Form 10-K filed November
30, 1995.

10.38-- Share Purchase Agreement, dated June 30, 1995, between Charles E.
Holland, Michael Kuykendall and Roger Sanderson. Incorporated by
reference to Exhibit 10.38 of Form 10-K filed November 30, 1995.

10.39-- International Bancshares Corporation Warrant extension letter October
25, 1995. Incorporated by reference to Exhibit 10.39 of Form 10-K
filed November 30, 1995.

10.40-- Employment Agreements dated April 1, 1996 and June 28, 1996 between
Don S. Snyder and the Company. Incorporated by reference to Exhibit
10.40 of Form 10-K filed September 26, 1996.

10.41-- Consulting and Non-Competition Agreement dated July 3, 1996 between
Leonard R. Bennett and the Company. Incorporated by reference to
Exhibit 10.41 of Form 10-Q filed November 14, 1996.

10.42-- Third amendment, dated September 13, 1996, to the $35,000,000 Credit
Agreement dated June 1, 1994 between Celadon Group, Inc., Celadon
Trucking Services, Inc. and Randy International, Ltd. and NBD Bank
N.A. and the First National Bank of Boston. Incorporated by reference
to Exhibit 10.42 of Form 10-Q filed November 14, 1996.

10.43-- Amendment dated July 3, 1996 to Stockholders Agreement dated October
8, 1992 between Leonard R. Bennett, Stephen Russell, Hanseatic
Corporation and the Company. Incorporated by reference to Exhibit
10.43 of Form 10-Q filed November 14, 1996.

10.44-- Agreement dated July 3, 1996 terminating Voting Agreements dated
October 8, 1992 and October 6, 1986 between Leonard R. Bennett,
Stephen Russell and the Company. Incorporated by reference to Exhibit
10.44 of Form 10-Q filed November 14, 1996.

10.45-- 401(K) Profit Sharing Plan and Adoption Agreement of the Company.
Incorporated by reference to Exhibit 10.45 of Form 10-Q filed February
12, 1997.

10.46-- Settlement Agreement dated March 28, 1997 between Leonard R. Bennett
and the Company. Incorporated by reference to Exhibit 10.46 of Form
10-Q filed May 9, 1997.

10.47-- Fourth amendment, dated March 24, 1997, to the Credit Agreement dated
June 1, 1994 between Celadon Group, Inc., Celadon Trucking Services,
Inc., and NBD Bank N.A. and the First National Bank of Boston.
Incorporated by reference to Exhibit 10.47 of Form 10-Q filed May 9,
1997.

10.48-- International Bancshares Corporation Warrant extension letter dated
October 1, 1996. Incorporated by reference to Exhibit 10.48 of Form
10-K filed September 12, 1997.

10.49-- Fifth amendment dated June 30, 1997 to the Credit Agreement dated
June 1, 1994 between Celadon Group, Inc. Celadon Trucking Services,
Inc., and NBD Bank N.A. and the First National Bank of Boston.
Incorporated by reference to Exhibit 10.49 of Form 10-K filed
September 12, 1997.

10.50-- Amendment dated February 12, 1997 to Employment Agreement dated
January 21, 1994 between the Company and Stephen Russell. Incorporated
by reference to Exhibit 10.50 of Form 10-K filed September 12, 1997.

<PAGE>

10.51-- Employment Agreements dated October 1, 1996 and June 25, 1997 between
Ronald S. Roman and the Company. Incorporated by reference to Exhibit
10.51 of Form 10-K filed September 12, 1997.

10.52-- Sixth Amendment dated August 28, 1997 to the Credit Agreement dated
June 1, 1994 between Celadon Group, Inc. Celadon Trucking Services
Inc. and NBD Bank N.A. and the First National Bank of Boston.
Incorporated by reference to Exhibit 10.52 of Form 10-Q filed November
12, 1997.

10.53-- Seventh Amendment dated December 16, 1997 to the Credit Agreement
dated June 1, 1997 between Celadon Group, Inc. Celadon Trucking
Services, Inc. and NBD Bank N.A. and the First National Bank of
Boston. Incorporated by reference to Exhibit 10.53 of Form 10-Q filed
February 11, 1998.

10.54-- Celadon Group, Inc. Non-Employee Director Stock Option Plan.
Incorporated by reference to Exhibit A to the Company's Proxy
Statement dated October 17, 1997.

10.55-- Amendment No. 2 dated August 1, 1997 to Employment Agreement dated
January 21, 1994 between the Company and Stephen Russell. Incorporated
by reference to Exhibit 10.55 of Form 10-Q filed February 11, 1998.

10.56-- Employment Agreement dated October 30, 1997 between Michael Archual
and CTSI.*

10.57-- Employment Agreement dated January 13, 1997 between Nancy Morris and
CTSI.*

10.58-- Amendment No. 2 dated May 5, 1998 to Employment Agreement between the
Company and Ronald S. Roman.*

10.59-- Amendment No. 1 dated June 28, 1998 to Employment Agreement between
CTSI and Michael Archual.*

10.60-- Amendment No. 2 dated May 5, 1998 to Employment Agreement between CTSI
and Nancy Morris.*

21 -- Subsidiaries.

27 -- Financial Data Schedule

- ------------------
* Filed previously

** Confidential treatment for portions of this Exhibit has been granted pursuant
to Rule 24b-2 of the Securities Exchange Act of 1934.

(4) Reports on Form 8-K.

No Current Reports on Form 8-K were filed during the three months ended
June 30, 1999.

(5) Exhibits.

The exhibits required to be filed with this Annual Report on Form-10-K
pursuant to Item 601 of Regulation S-K are listed under "Exhibits" in Part IV,
Item 14(a)(3) of this Annual Report on Form 10-K, and are incorporated herein by
reference.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934 the Registrant has duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized this September 28, 1999.

Celadon Group, Inc.

By: /s/ Stephen Russell
-------------------------------------
Stephen Russell,
Chairman of the Board, President
and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1934, this Report
on Form 10-K has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen Russell Chairman of the Board, President September 28, 1999
- ----------------------------- and Chief Executive Officer
(Stephen Russell)

/s/ Robert Goldberg Executive Vice President and Chief September 28, 1999
- ----------------------------- Operating Officer of the Company
(Robert Goldberg)

/s/ Paul A. Will Vice President, Chief Financial Officer September 28, 1999
- ----------------------------- (Principal Accounting Officer)
(Paul A. Will)

/s/ Michael W. Dunlap Vice President, Treasurer September 28, 1999
- -----------------------------
(Michael W. Dunlap)

/s/ Paul A. Biddelman Director September 28, 1999
- -----------------------------
(Paul A. Biddelman)

/s/ Michael Miller Director September 28, 1999
- -----------------------------
(Michael Miller)

/s/ Kilin To Director September 28, 1999
- -----------------------------
(Kilin To)
</TABLE>

<PAGE>

SCHEDULE II

CELADON GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1999, 1998, and 1997

<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Additions Deductions Period
- ----------- --------- -------- --------- ---------- ------
<S> <C> <C> <C> <C>
Year ended June 30, 1997:

Allowance for doubtful
accounts $5,431,515 $279,514 --- $2,937,675(a) $2,773,354
========== ======== ========== ==========
Reserves for claims
payable as self insurer $1,970,000 $4,378,375 --- $4,532,425(b) $1,815,950
========== ========== ========== ==========
Year ended June 30, 1998:

Allowance for doubtful
accounts $2,773,354 $249,780 100,406(c) $2,595,295(a) $ 528,245
========== ========== ========== ==========
Reserves for claims
payable as self insurer $1,815,950 $2,871,407 --- $2,703,109(b) $1,984,248
========== ========== ========== ==========

Year ended June 30, 1999:
Allowance for doubtful
accounts $528,245 $716,073 --- $456,130(a) $788,188
========== ========== ========== ==========
Reserves for claims
payable as self insurer $1,984,248 $2,666,551 --- $3,626,479(b) $1,024,320
========== ========== ========== ==========
</TABLE>

- -------------------

(a) Represents accounts receivable write-offs.
(b) Represents claims paid.
(c) Represents allowances for uncollectible accounts on books of acquired
companies at dates of acquisitions.

<PAGE>

Exhibit 21
CELADON GROUP, INC.

SUBSIDIARY NAME INCORPORATION JURISDICTION
- --------------- --------------------------
<S> <C>
Celadon Jacky Maeder Company NY

Celadon Jacky Maeder (U.K.) Ltd. UK

Celadon Logistics, Inc. DE

Celadon Mexicana, S.A. de C.V. MX

Celadon Transportation, LLP IN

Celadon Trucking Services, Inc. NJ

Celadon Trucking Services of Indiana, Inc. IN

Cheetah Brokerage Co. NV

Cheetah Transportation, Inc. DE

GerthTransport, Ltd. ON

Guestair Ltd. UK

International Freight Holding Corp. DE

JML Freight Forwarding, Inc. NY

Leasing Servisio, S.A. de C.V. MX

Randy Express, Ltd. NY

Randy International, U.K. UK

RIL Acquisition Corp. DE

RIL Group, Ltd. DE

RIL, Inc. DE

Servicios de Transportacion Jaguar, S.A. de C.V. MX

Wellingmuft Holding Co. NY

</TABLE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Celadon Group, Inc. at June 30, 1999 and
the condensed consolidated statement of operations of Celadon Group, Inc. for
the year then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,845
<SECURITIES> 0
<RECEIVABLES> 30,509
<ALLOWANCES> (788)
<INVENTORY> 0
<CURRENT-ASSETS> 65,911
<PP&E> 141,213
<DEPRECIATION> (33,629)
<TOTAL-ASSETS> 188,759
<CURRENT-LIABILITIES> 45,796
<BONDS> 93,818
0
0
<COMMON> 256
<OTHER-SE> 57,089
<TOTAL-LIABILITY-AND-EQUITY> 188,759
<SALES> 0
<TOTAL-REVENUES> 281,829
<CGS> 0
<TOTAL-COSTS> 266,526
<OTHER-EXPENSES> 97
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,385
<INCOME-PRETAX> 7,821
<INCOME-TAX> 2,980
<INCOME-CONTINUING> 4,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,841
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.62

</TABLE>