<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended December 31, 1998
[ ] 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)
<TABLE>
<S> <C>
DELAWARE 13-3361050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Celadon Drive
Indianapolis, IN 46235-4207
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (317) 972-7000
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
--- ---
The number of shares outstanding of the Common Stock ($.033 par value) of the
Registrant as of the close of business on February 5, 1999 was 7,749,990.
<PAGE>
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CELADON GROUP, INC.
Index to
December 31, 1998 Form 10-Q
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets at December 31, 1998
and June 30, 1998......................................................................3
Condensed consolidated statements of operations - For the three and six months
ended December 31, 1998 and 1997.......................................................4
Condensed consolidated statements of comprehensive income - For the three and
six months ended December 31, 1998 and 1997............................................5
Condensed consolidated statements of cash flows - For the six months ended
December 31, 1998 and 1997.............................................................6
Notes to condensed consolidated financial statements ..................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders..............................19
Item 6. Exhibits and Reports on Form 8-K.................................................20
</TABLE>
2
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Part I - Financial Information
CELADON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
----- ----
(unaudited)
A S S E T S
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................... $736 $2,537
Trade receivables, net of allowance......................................................... 36,568 39,063
Accounts receivable - other................................................................. 4,676 4,382
Prepaid expenses and other current assets................................................... 5,281 5,018
Tires in service ........................................................................... 4,198 3,555
Income tax recoverable...................................................................... 57 960
Current portion of notes receivable......................................................... 575 683
Deferred income tax assets ................................................................. 6,021 7,056
---------- -----------
Total current assets ................................................................. 58,112 63,254
--------- ----------
Property and equipment, at cost ................................................................. 159,670 150,535
Less accumulated depreciation and amortization.............................................. 41,980 35,476
--------- ----------
Net property and equipment........................................................ 117,690 115,059
-------- ---------
Deposits ....................................................................................... 365 496
Tires in service ................................................................................ 2,263 2,000
Notes receivable, net of current portion......................................................... 431 719
Intangible assets................................................................................ 563 625
Goodwill, net of accumulated amortization........................................................ 11,270 11,469
Other assets..................................................................................... 1,230 1,155
-------- -----------
Total assets................................................................................ $191,924 $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............................................................................ $4,732 $6,469
Accrued expenses ........................................................................... 19,204 18,301
Bank borrowings and current maturities of long-term debt.................................... 5,019 3,508
Current maturities of capital lease obligations............................................. 16,500 16,949
-------- ----------
Total current liabilities............................................................. 45,455 45,227
--------- ----------
Long-term debt, net of current maturities ....................................................... 19,736 16,873
Capital lease obligations, net of current maturities............................................. 59,002 65,970
Deferred income tax ............................................................................ 13,812 14,373
--------- ----------
Total liabilities........................................................................... 138,005 142,443
-------- ----------
Minority interest................................................................................ 12 12
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 179,985 shares, issued and
outstanding zero shares.............................................................. -- --
Common stock, $.033 par value, authorized 12,000,000 shares; issued
7,786,430 shares at December 31, 1998 and June 30, 1998 ............................. 257 257
Additional paid-in capital.................................................................. 56,645 56,664
Retained earnings (deficit)................................................................. (1,832) (3,522)
Accumulated comprehensive income............................................................ (790) (475)
Treasury stock, at cost, 39,107 and 64,441 shares at December 31, 1998
and June 30, 1998 respectively............................................................ (373) (602)
---------- -----------
Total stockholders' equity............................................................ 53,907 52,322
---------- -----------
Total liabilities and stockholders' equity............................................ $191,924 $194,777
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue $69,402 $ 56,836 $141,515 $ 108,680
-------- -------- -------- ---------
Operating expenses:
Salaries, wages and employee benefits.......... 18,360 17,053 37,550 34,535
Fuel........................................... 6,940 7,800 13,894 15,089
Operating costs and supplies................... 6,998 4,493 13,586 8,479
Insurance and claims........................... 1,664 1,773 3,233 3,351
Depreciation and amortization.................. 3,631 3,159 7,130 6,114
Rent and purchased transportation.............. 24,063 15,193 49,204 26,150
Professional and consulting fees............... 1,091 423 1,396 838
Communications and utilities................... 1,003 814 2,007 1,594
Permits, licenses and taxes................... 1,340 1,062 2,684 1,922
Gain on sale of revenue equipment.............. -- (10) -- (10)
Selling expenses............................... 1,004 902 2,024 1,756
General and administrative..................... 1,171 603 2,307 1,268
------- ------- -------- ----------
Total operating expenses................... 67,265 53,265 135,015 101,086
------- ------- -------- --------
Operating income................................... 2,137 3,571 6,500 7,594
Other (income) expense:
Interest income................................ (17) (285) (112) (348)
Interest expense............................... 1,894 1,426 3,889 2,773
Other expense, net............................. 4 2 10 1
------ -------- ------- --------
Income before income taxes .................... 256 2,428 2,713 5,168
Provision for income taxes..................... 98 915 1,024 1,983
------ ------- ------- -------
Net Income .................................. $ 158 $ 1,513 $1,689 $ 3,185
====== ======= ====== =======
Earnings per Common Share:
Diluted Earnings Per Share..................... $0.02 $0.20 $0.22 $0.41
Basic Earnings Per Share....................... $0.02 $0.20 $0.22 $0.42
Average Shares Outstanding:
Diluted........................................ 7,754 7,751 7,803 7,730
Basic.......................................... 7,730 7,649 7,728 7,636
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income....................................... $158 1,513 $1,689 $3,185
Other comprehensive income (loss)................ 133 (64) (315) (33)
------ -------- ------ -------
Comprehensive income............................. $291 $1,449 $1,374 $3,152
====== ======== ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
December 31,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Continuing Operations:
Cash flows from operating activities:
Net income................................................................ $1,689 $3,185
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................................... 7,130 6,114
Provision for deferred income taxes................................... (561) 833
Provision for doubtful accounts....................................... 236 66
Gain on sale of property and equipment................................ -- (10)
Changes in assets and liabilities:
Trade receivables..................................................... 2,259 5,672
Accounts receivable -- other.......................................... (294) (1,365)
Income tax recoverable................................................ 1,938 945
Tires in service...................................................... (906) (881)
Prepaid expenses and other current assets............................ (263) (264)
Other assets.......................................................... (4) 257
Accounts payable and accrued expenses................................. (834) (2,878)
-------- --------
Net cash provided by operating activities................................ 10,390 11,674
-------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment................................ 676 2,506
Purchase of property and equipment.......................................... (9,154) (1,255)
Purchase of business, net of cash........................................... -- (4,626)
Disposals of property and equipment......................................... 281 338
Deposits.................................................................... 131 (50)
-------- --------
Net cash used for investing activities................................... (8,066) (3,087)
Cash flows from financing activities:
Proceeds from issuances of common stock..................................... -- 250
Purchase of common stock held in treasury................................... (40) (337)
Proceeds from issuance of common stock held in treasury..................... 250 72
Proceeds from bank borrowings and debt...................................... 7,535 --
Payments of bank borrowings and debt ....................................... (3,161) (3,185)
Principal payments under capital lease obligations.......................... (8,709) (5,797)
-------- --------
Net cash used for financing activities .................................. (4,125) (8,997)
-------- --------
Decrease in cash and cash equivalents....................................... (1,801) (410)
Cash and cash equivalents at beginning of period............................ 2,537 1,845
-------- --------
Cash and cash equivalents at end of period.................................. $736 $1,435
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting and the general instructions to Form 10-Q of
Regulation S-X. Accordingly, they do not include certain information and note
disclosures required by generally accepted accounting principles for annual
financial reporting and should be read in conjunction with the consolidated
financial statements and notes thereto of Celadon Group, Inc. (the "Company")
for the years ended June 30, 1998, 1997 and 1996 included in the Company's Form
10-K and annual report to stockholders.
The unaudited interim financial statements reflect all adjustments (all of
a normal recurring nature) which management considers necessary for a fair
presentation of the financial condition and results of operations for these
periods. The results of operations for the interim period are not necessarily
indicative of the results that may be reported for the full year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(2) Segment and Geographical Information; Significant Customers
The Company's operations consist of two divisions: van and flatbed, and the
Company generates revenue from its operations in the United States, Canada and
Mexico. Revenue from Chrysler and General Electric accounts for a significant
amount of the Company's total revenue.
7
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
(Dollars in thousands)
(Unaudited)
Information as to the Company's operations by division is summarized below (in
thousands):
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Van...................................... $63,903 $50,655 $129,630 $96,111
Flatbed.................................. 5,499 6,181 11,885 12,569
------- ------- -------- --------
Total revenue........................ $69,402 $56,836 $141,515 $108,680
======= ======= ======== ========
Operating income:
Van...................................... $1,905 $ 3,150 $5,954 $ 6,921
Flatbed.................................. 232 421 546 673
------- ------- -------- --------
Total operating income............... 2,137 3,571 6,500 7,594
Interest expense, net....................... (1,877) (1,141) (3,777) (2,425)
Other (expense)............................. (4) (2) (10) (1)
------- ------- -------- --------
Net income before incomes taxes.......... $ 256 $2,428 $2,713 $ 5,168
======= ======= ======== ========
Total assets:
Van.................................................................... $182,408 $138,255
Flatbed................................................................ 8,015 8,726
-------- --------
Total from operating divisions..................................... 190,423 146,981
Discontinued operations................................................ 1,501 4,582
-------- --------
Total.............................................................. $191,924 $151,563
======== ========
Capital expenditures (including capital leases):
Van..................................... $5,312 $ 8,121 $10,446 $16,972
Flatbed.................................. -- -- -- 122
------- ------- -------- --------
Total................................ $5,312 $ 8,121 $10,446 $ 17,094
======= ======= ======== ========
Depreciation and amortization:
Van...................................... $3,572 $ 3,099 $7,011 $ 5,995
Flatbed.................................. 59 60 119 119
------- ------- -------- --------
Total................................ $3,631 $ 3,159 $7,130 $ 6,114
======= ======= ======== =======
</TABLE>
8
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands)
(Unaudited)
Information as to the Company's operations by geographic area is summarized
below (in thousands):
<TABLE>
<CAPTION>
For the three months For the six months ended
December 31, December 31,
---------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
United States....................... $53,394 $54,585 $110,147 $104,362
Canada (i).......................... 12,862 -- 24,906 --
Mexico (ii)......................... 3,146 2,251 6,462 4,318
------- ------- -------- --------
Total............................. $69,402 $56,836 $141,515 $108,680
======= ======= ======== ========
Income (loss) before income taxes:
United States....................... $(1,485) $ 2,183 $ (208) $ 4,772
Canada (i).......................... 1,368 -- 2,211 --
Mexico (ii)......................... 373 245 710 396
-------- -------- -------- --------
Total............................. $ 256 $ 2,428 $ 2,713 $ 5,168
======== ======== ======== ========
Total assets:
United States........................................................ $170,684 $147,995
Canada (i)........................................................... 15,151 --
Mexico (ii).......................................................... 5,015 2,324
Europe (iii)......................................................... 1,074 1,244
--------- ---------
Total.............................................................. $191,924 $151,563
========= =========
</TABLE>
(i) Relates to the Company's van operations in Canada.
(ii) Relates to the Company's van operations in Mexico.
(iii) Relates to the Company's discontinued freight forwarding operations based
in the United Kingdom.
Significant Customer:
Revenue from Chrysler accounted for approximately 23% and 36% of the
Company's total revenue for the three months ended December 31, 1998 and 1997,
respectively. The Company transports Chrysler after-market replacement parts and
accessories within the United States and Chrysler original equipment automotive
parts primarily between the United States and the Mexican border, which
accounted for 30% and 70%, respectively, of the Company's revenue from Chrysler
for the three months ended December 31, 1998 and 26% and 74%, respectively, of
the Company's revenue from Chrysler for the three months ended December 31,
1997. Chrysler business is covered by a domestic contract and an international
contract which covers the United States-Mexico business. The international
contract expires on December 31, 1999. The contract applicable to domestic
business expires October 1, 2000. Historically, these contracts have been
renewed upon expiration.
9
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998
(Unaudited)
Revenue from General Electric accounted for approximately 5% of the
Company's total revenue for the three months ended December 31, 1998. In
conjunction with the General Electric Transportation Services ("GETS")
acquisition, the Company obtained a five year contract covering all loads
shipped for General Electric Industrial Control Systems ("GEICS"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Acquisition History".
(3) Income Taxes
The Company's effective tax rate differs from the statutory federal tax
rate of 35% due to state income taxes and certain expenses which are not
deductible for income tax purposes. The effective tax rates for the six months
ended December 31, 1998 and 1997 were 37.7% and 38.4%, respectively.
(4) Hedging Activities, Commitments and Contingencies
The Company has outstanding commitments to purchase approximately $45.2
million of revenue equipment at December 31, 1998.
Standby letters of credit, not reflected in the accompanying consolidated
financial statements, aggregated approximately $2.5 million at December 31,
1998.
The Company, from time-to-time, enters into arrangements to protect against
fluctuations in the price of the fuel used by its trucks. As of December 31,
1998, the Company had contracts to purchase fuel for future delivery in the
months of January 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 engages in 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. Effective December 31,
1998, the Company liquidated all of its remaining hedge positions. During the
quarters ended December 31, 1998 and 1997, losses of $729,000 and $387,000,
respectively, on futures contracts and commodity collar transactions were
included in fuel expense.
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.
10
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998
(Unaudited)
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 fiscal 1997, the Company filed its Original
Petition against representatives of the State of Texas. The state responded and
denied the Company's claims. As of December 31, 1998, 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.
11
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998
(Dollar amounts in thousands)
(Unaudited)
(5) Recent Developments
On November 30, 1998, the Company received notice from Laredo Acquisition
Corp. ("Laredo"), a newly-formed wholly-owned subsidiary of Odyssey Investment
Partners, that Laredo was terminating in accordance with its terms, the
Agreement and Plan of Merger (the "Merger Agreement") dated as of June 23, 1998,
by and between Laredo and the Company. The Merger Agreement had been approved
and adopted by the Company's shareholders at a special meeting held at the
Company's headquarters on November 30, 1998. In terminating the Agreement,
Laredo referenced its receipt of notice from the institution (Bankers Trust
Corporation) that was to provide $125,000,000 in bridge financing for the
contemplated merger (the "Merger") of Laredo with and into the Company, that the
institution had concluded that under the market conditions existing as of
November 30, 1998, it would not be obligated to provide the financing
contemplated by the Merger Agreement and the commitment letter issued to Laredo
with respect thereto. Because no funds had yet been disbursed thereunder, the
commitment letter issued by Bankers Trust corporation terminated in accordance
with its terms on November 30, 1998.
If the Merger had been consummated, the separate existence of Laredo would
have ceased as of the date of effectiveness and the Company would have continued
as the surviving corporation (the "Surviving corporation"). Each share of common
stock, par value $0.0033 of the Company was to be converted into the right to
receive $20.00, except that certain officers and stockholders of the Company
were to retain an aggregate of 320,000 shares of the Company's common stock in
lieu of receiving the cash merger consideration, which shares would then be
exchanged one-for-one for shares of common stock of the surviving corporation.
The Company had previously announced on September 18, 1998, that it had
received written notice from Laredo that Bankers Trust Corporation had concluded
as of September 15, 1998 that it would not be obligated to provide the necessary
financing for the Merger under the market conditions existing on that date.
In the December 1998 quarter, the Company incurred a charge of
approximately $1.2 million, or $0.10 per diluted common share, for transaction
costs related to the above attempted Merger.
(6) Supplemental Cash Flow Information
During the three months ended December 31, 1998 and 1997 obligations in the
amount of $3.8 million and $8.2 million, respectively and for the six months
ended December 31, 1998 and 1997 obligations in the amount of $7.3 million and
$15.2 million, respectively were incurred in connection with the purchase of, or
option to purchase, revenue equipment and the associated tires in service.
During the three months ended December 31, 1998 and 1997, the Company made
interest payments of $1.9 million and $1.2 million, respectively and for the six
months ended December 31, 1998 and 1997, the Company made interest payments of
$3.9 million and $2.2 million, respectively.
12
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Item 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This Report on Form 10-Q contains forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such comments
are based upon information currently available to management and management's
perception thereof as of the date of this report being filed. Actual results of
the Company's operations could materially differ from those forward looking
statements. Such differences could be caused by a number of factors including,
but not limited to, potential adverse affects of regulation and litigation;
changes in competition and the effects of such changes; increased competition;
change in fuel prices; changes in economic, political or regulatory
environments; changes in the availability of a stable labor force; ability of
the Company to hire drivers meeting Company standards; changes in management
strategies; environmental or tax matters; viability to obtain and implement year
2000 ("Y2K") hardware and software; and risks described from time to time in
reports filed by the Company with the Securities and Exchange Commission.
Readers should take these factors into account in evaluating any such forward
looking statements.
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. GETS had approximately $28.0 million in sales in calendar
1996, most of which were generated within the Company's shipping routes. 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 Transport (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 provides
additional density in its core north-south transport lanes.
Results of Operations
Three months ended December 31, 1998 compared with the three months ended
December, 1997
Revenue. Consolidated revenue increased by $12.6 million or 22.2%, to $69.4
million for fiscal 1999 from $56.8 million for fiscal 1998.
Revenue from the van division, which includes the operations of CTSI, the
Company's largest business unit, as well as those of its Mexican subsidiary,
Jaguar, and its Canadian subsidiary, Gerth, increased by $13.2 million or 26.0%,
to $63.9 million in fiscal 1999 from $50.7 million in fiscal 1998. This increase
in revenue was due to the acquired operations of Gerth, as well as an increase
in rate per mile and billings to customers
13
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<PAGE>
for the Mexican portion of their transportation. 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. The number of
tractors operated by the van division, including 475 owner-operated tractors,
increased to 2,002 at December 31, 1998, compared to 1,540, including 183
owner-operated tractors, at December 31, 1997.
Revenue for the flatbed division, which operates under the name of Cheetah
Transportation Company (Cheetah), decreased by $.7 million or 11.3%, to $5.5
million in fiscal 1999 from $6.2 million in fiscal 1998. The number of
owner-operated tractors in Cheetah's network was 252 at December 31, 1998
compared to 276 at December 31, 1997. Approximately 20 owner-operators
transferred from Cheetah to CTSI in September 1998.
Operating Income. Operating income decreased by $1.5 million or 41.7%, to
$2.1 million in fiscal 1999 from $3.6 million in fiscal 1998. Included in the
December 1998 quarterly results is a charge of approximately $1.2 million, or
$0.10 per diluted common share, of transaction costs incurred by the Company
related to its previously announced expiration of its merger agreement with
Odyssey Investment Partners and a charge of $729,000, or $0.06 per diluted
common share, related to the significant decline in oil prices and the Company's
selling out of its remaining futures position. The Company's operating ratio,
which expresses operating expenses as a percentage of operating revenue,
excluding the two one-time charges, increased from 93.7% in fiscal 1998 to 94.0%
in fiscal 1999.
Operating income within the van division decreased by $1.3 million or
40.6%, to $1.9 million in fiscal 1999 from $3.2 million in fiscal 1998. The van
division's operating ratio, excluding the two one-time charges increased from
93.8% in fiscal 1998 to 94.0% in fiscal 1999. In addition to the two one-time
charges described above, the increase in the mix of capacity toward
owner-operators and an increase in maintenance expense decreased operating
income.
Operating income within the flatbed division decreased by $0.2 million or
50.0%, to $0.2 million in fiscal 1999 from $0.4 million in fiscal 1998. The
flatbed division's operating ratio increased from 93.2% in fiscal 1998 to 95.8%
in fiscal 1999. The increase in the operating ratio was due primarily to reduced
volume from the transfer of approximately 20 owner-operators to the van
division.
Net Interest Expense. Net interest expense increased by $0.8 million or
72.7%, to $1.9 million in fiscal 1999 from $1.1 million in fiscal 1998. The
increase was the result of the conversion of operating leases in January 1998 to
capitalized leases and an increase in borrowings under the Company's credit
facilities primarily resulting from the acquisition of Gerth in May 1998.
Income Taxes. Income taxes decreased by $0.8 million or 88.9%, to $0.1
million in fiscal 1999 from $0.9 million in fiscal 1998. The decrease in income
tax expense reflects the Company's lower pre-tax income. The Company's effective
tax rate was 38.3% in fiscal 1999 and 37.7% in fiscal 1998.
Six months ended December 31, 1998 compared with the six months ended
December 31, 1997
Revenue. Consolidated revenue increased by $32.8 million, or 30.2%, to
$141.5 million in fiscal 1999 from $108.7 million in fiscal 1998.
14
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Revenue from the van division, which includes the operations of CTSI, the
Company's largest business unit, as well as those of its Mexican subsidiary,
Jaguar, and its Canadian subsidiary, Gerth, increased by $33.5 million, or
34.9%, to $129.6 million in fiscal 1999 from $96.1 million in fiscal 1998. This
increase in revenue was due to the acquired operations, as well as an increase
in rate per mile and billings to customers for the Mexican portion of their
transportation. 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. The number of tractors
operated by the van division, including 475 owner-operated tractors, increased
to 2,002 at December 31, 1998 compared to 1,540, including 183 owner-operated
tractors, at December 31, 1997.
Revenue from the flatbed division which, operates under the name of Cheetah
Transportation Company, ("Cheetah") decreased by $.7 million, or 5.6% to $11.9
million in fiscal 1999 from $12.6 million in fiscal 1998, primarily as a result
of a decrease in the network of owner-operated tractors to 252 at December 31,
1998 from 276 at December 31, 1997. Approximately 20 owner-operators transferred
from Cheetah to CTSI in September 1998.
Operating income. Operating income decreased by $1.1 million, or 14.5%, to
$6.5 million in the fiscal 1999 period from $7.6 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 94.0% in fiscal 1999,
excluding the two one-time charges in fiscal 1999.
Operating income within the van division decreased by $0.9 million or
13.0%, to $6.0 million in fiscal 1999 from $6.9 million in fiscal 1998. The van
division's operating ratio, excluding the two one-time charges increased from
92.8% in fiscal 1998 to 93.9% in fiscal 1999. In addition to the two one-time
charges described above, the increase in the mix of capacity toward
owner-operators and an increase in maintenance expense decreased operating
income. These cost increases were partially offset by the operating income
associated with the acquisition of Gerth in May 1998.
Operating income within the flatbed division decreased $0.2 million or
28.6%, to $0.5 million in fiscal 1999 from $0.7 million in fiscal 1998. The
flatbed division operating ratio increased from 94.7% in fiscal 1998 to 95.4% in
the fiscal 1999. The increase in the operating ratio was due primarily to
reduced volume from the transfer of approximately 20 owner-operators to the van
division. This ratio is typically higher than the Company's truckload division
since operating expense payments to owner operators generally exceed those
generated by Company-owned equipment, as a percentage of revenue.
Net Interest expense. Net interest expense increased by $1.4 million, or
58.3%, to $3.8 million in fiscal 1999 from $2.4 million in fiscal 1998. The
increase was the result of the conversion of operating leases to capitalized
leases and an increase in borrowings under the Company's credit facilities
primarily resulting from the acquisition of Gerth in May 1998.
Income taxes. Income taxes decreased by $1.0 million or 50%, to $1.0
million in fiscal 1999 from $2.0 million in fiscal 1998. The decrease in income
tax expense reflects the Company's lower pre-tax income. The Company's effective
tax rate was 37.7% in fiscal 1999 and 38.4% in fiscal 1999.
Liquidity and Capital Resources
The Company's primary capital requirements in fiscal 1999 have been used to
fund the acquisition of revenue equipment for the van division. These
requirements have been met primarily by equipment leasing arrangements. The
Company has historically met its capital investment requirements with a
combination of
15
<PAGE>
<PAGE>
internally generated funds, bank financing, equipment lease financing (both
capitalized and operating) and the issuance of common stock.
At December 31, 1998, the Company had a credit facility aggregating $32.4
million. At December 31, 1998, $16.0 million was utilized as outstanding
borrowings and $2.5 million was utilized for standby letters of credit.
The Company has financed its capital requirements by obtaining lease
financing on revenue equipment. At December 31, 1998, the Company had an
aggregate of $75.5 million in capital lease financing at interest rates ranging
from 5.7% to 10.6%, maturing at various dates through 2004. Of this amount,
$16.5 million is due prior to December 31, 1999.
As of December 31, 1998, the Company had on order revenue equipment
representing an aggregate capital commitment of $45.2 million. 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.
Seasonality
To date, the Company's revenues have not shown any significant seasonal
pattern. However, because the Company's primary traffic lane is between Canada,
the Midwest United States and Mexico, severe winter weather 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 negatively impact the Company's operations
in any particular period.
Inflation
Many of the Company's operating expenses, including fuel costs and 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 and 1998 were not significant.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information, was
issued. The statement must be adopted by the Company on June 30, 1999. Under
provisions of this statement, the Company will be required to modify or expand
the financial statement disclosures for operating segments, products and
services, and geographic areas. Implementation of this disclosure standard will
not affect the Company's financial position or results of operations.
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, 1999. 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.
16
<PAGE>
<PAGE>
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, Chrysler, 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 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.
Notwithstanding any of the foregoing, there can be no assurance that the
Company will not have to bear additional costs and expense in the future related
to the Year 2000 problem.
Recent Developments
On November 30, 1998, the Company received notice from Laredo Acquisition
Corp. ("Laredo"), a newly-formed wholly-owned subsidiary of Odyssey Investment
Partners, that Laredo was terminating in accordance with its terms, the
Agreement and Plan of Merger (the "Merger Agreement") dated as of June 23, 1998,
by and between Laredo and the Company. The Merger Agreement had been approved
and adopted by the Company's shareholders at a special meeting held at the
Company's headquarters on November 30, 1998. In terminating the Agreement,
Laredo referenced its receipt of notice from the institution (Bankers Trust
Corporation) that was to provide $125,000,000 in bridge financing for the
contemplated merger (the "Merger") of Laredo with and into the Company, that the
institution had concluded that under the market
17
<PAGE>
<PAGE>
conditions existing as of November 30, 1998, it would not be obligated to
provide the financing contemplated by the Merger Agreement and the commitment
letter issued to Laredo with respect thereto. Because no funds had yet been
disbursed thereunder, the commitment letter issued by Bankers Trust corporation
terminated in accordance with its terms on November 30, 1998.
If the Merger had been consummated, the separate existence of Laredo would
have ceased as of the date of effectiveness and the Company would have continued
as the surviving corporation (the "Surviving corporation"). Each share of common
stock, par value $0.0033 of the Company was to be converted into the right to
receive $20.00, except that certain officers and stockholders of the Company
were to retain an aggregate of 320,000 shares of the Company's common stock in
lieu of receiving the cash merger consideration, which shares would then be
exchanged one-for-one for shares of common stock of the surviving corporation.
The Company had previously announced on September 18, 1998, that it had
received written notice from Laredo that Bankers Trust Corporation had concluded
as of September 15, 1998 that it would not be obligated to provide the necessary
financing for the Merger under the market conditions existing on that date.
In the December 1998 quarter, the Company incurred a charge of
approximately $1.2 million, or $0.10 per diluted common share, for transaction
costs related to the above attempted Merger.
18
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Celadon Group, Inc. held a Special Meeting of shareholders on November 30,
1998. Proxies representing 5,693,641 shares of Common Stock or 73.69% of the
total outstanding shares voted as follows:
Proposal I - Adoption and approval of Merger Agreement
<TABLE>
<S> <C>
For 5,686,704
Against 6,026
Abstain 911
</TABLE>
Proposal II -Adjournment of postponement of Special Meeting if necessary to
obtain a sufficient number of proxies to ensure the success of Proposal I.
<TABLE>
<S> <C>
For 5,549,771
Against 142,025
Abstain 1,845
</TABLE>
19
<PAGE>
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
Exhibit 11 - Computation of per share earnings
Exhibit 27 - Financial Data Schedule
(b) Form 8-K None
20
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Celadon Group, Inc.
(Registrant)
/s/ Stephen Russell
---------------------------------------
Stephen Russell, Chief Executive Officer
/s/ Paul A. Will
---------------------------------------
Paul A. Will, Chief Financial Officer
(Chief Accounting Officer of the Company)
Date: February 11, 1999
21
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<PAGE>
EXHIBIT 11
CELADON GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income......................... $158,000 $1,513,000 $1,689,000 $3,185,000
-------- ---------- ---------- ----------
Numerator for basic and
diluted earnings per share......... $158,000 $1,513,000 $1,689,000 $3,185,000
Denominator:
Denominator for basic earnings
per share-weighted-average shares.. 7,729,627 7,648,583 7,728,145 7,635,582
Effect of dilutive securities:
Employee stock options............. 23,629 99,357 71,877 83,289
Warrants........................... 767 3,130 2,582 10,696
-------- -------- -------- -------
Dilutive potential common shares....... 24,396 102,487 74,459 93,985
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions........................ 7,754,023 7,751,070 7,802,604 7,729,567
========= ========= ========= =========
Basic earnings per share............... $0.02 $0.20 $0.22 $0.42
===== ===== ===== =====
Diluted earnings per share............. $0.02 $0.20 $0.22 $0.41
===== ===== ===== =====
</TABLE>
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Celadon Group, Inc. at December 31, 1998
and the condensed consolidated statement of operations of Celadon Group, Inc.
for the quarter then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 736
<SECURITIES> 0
<RECEIVABLES> 37,005
<ALLOWANCES> (437)
<INVENTORY> 0
<CURRENT-ASSETS> 58,112
<PP&E> 159,670
<DEPRECIATION> (41,980)
<TOTAL-ASSETS> 191,924
<CURRENT-LIABILITIES> 45,455
<BONDS> 100,257
0
0
<COMMON> 257
<OTHER-SE> 53,650
<TOTAL-LIABILITY-AND-EQUITY> 191,924
<SALES> 0
<TOTAL-REVENUES> 69,402
<CGS> 0
<TOTAL-COSTS> 67,265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,877
<INCOME-PRETAX> 256
<INCOME-TAX> 98
<INCOME-CONTINUING> 158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
