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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 MARCH 31, 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)
<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 May 7, 1999 was 7,751,657.
<PAGE>
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CELADON GROUP, INC.
INDEX TO
MARCH 31, 1999 FORM 10-Q
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets at March 31, 1999
and June 30, 1998.................................................................................3
Condensed consolidated statements of operations - For the three and nine months
ended March 31, 1999 and 1998.....................................................................4
Condensed consolidated statements of comprehensive income - For the three and
nine months ended March 31, 1999 and 1998.........................................................5
Condensed consolidated statements of cash flows - For the nine months ended
March 31, 1999 and 1998...........................................................................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 5. Other.....................................................................................18
Item 6. Exhibits and Reports on Form 8-K..........................................................18
</TABLE>
2
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<PAGE>
PART I - FINANCIAL INFORMATION
CELADON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
----- ----
A S S E T S
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................... $ 569 $ 2,537
Trade receivables, net of allowance......................................................... 39,447 39,063
Accounts receivable - other................................................................. 4,675 4,382
Prepaid expenses and other current assets................................................... 6,136 5,018
Tires in service ........................................................................... 3,900 3,555
Income tax recoverable...................................................................... --- 960
Current portion of notes receivable......................................................... 575 683
Deferred income tax assets ................................................................. 6,021 7,056
-------- ---------
Total current assets ................................................................. 61,323 63,254
-------- ---------
Property and equipment, at cost ................................................................. 152,684 150,535
Less accumulated depreciation and amortization.............................................. 40,035 35,476
-------- ---------
Net property and equipment............................................................ 112,649 115,059
-------- ---------
Deposits ....................................................................................... 167 496
Tires in service ................................................................................ 2,328 2,000
Notes receivable, net of current portion......................................................... 144 719
Intangible assets................................................................................ 531 625
Goodwill, net of accumulated amortization........................................................ 11,111 11,469
Other assets..................................................................................... 1,172 1,155
-------- ---------
Total assets................................................................................ $189,425 $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............................................................................ $5,324 $6,469
Accrued expenses ........................................................................... 18,568 18,301
Bank borrowings and current maturities of long-term debt.................................... 5,940 3,508
Current maturities of capital lease obligations............................................. 15,429 16,949
Income tax payable.......................................................................... 421 ---
-------- ---------
Total current liabilities............................................................. 45,682 45,227
-------- ---------
Long-term debt, net of current maturities ....................................................... 18,121 16,873
Capital lease obligations, net of current maturities............................................. 56,097 65,970
Deferred income tax ............................................................................ 14,103 14,373
-------- ---------
Total liabilities........................................................................... 134,003 142,443
-------- ---------
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 March 31, 1999 and June 30, 1998 ................................ 257 257
Additional paid-in capital.................................................................. 56,635 56,664
Retained earnings (deficit)................................................................. (439) (3,522)
Accumulated comprehensive income............................................................ (699) (475)
Treasury stock, at cost, 34,773 and 64,441 shares at March 31, 1999
and June 30, 1998 respectively............................................................ (344) (602)
-------- ---------
Total stockholders' equity............................................................ 55,410 52,322
-------- ---------
Total liabilities and stockholders' equity............................................ $189,425 $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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue $68,535 $56,010 $210,050 $164,690
------- ------- -------- --------
Operating expenses:
Salaries, wages and employee benefits.................. 18,864 16,647 56,414 51,182
Fuel................................................... 6,468 7,066 20,362 22,155
Operating costs and supplies........................... 6,243 5,048 19,829 13,527
Insurance and claims................................... 1,833 1,484 5,066 4,835
Depreciation and amortization.......................... 3,478 3,396 10,548 9,510
Rent and purchased transportation...................... 22,868 14,807 72,072 40,957
Professional and consulting fees....................... 471 329 1,867 1,167
Communications and utilities........................... 888 837 2,895 2,431
Permits, licenses and taxes........................... 1,276 890 3,960 2,812
Gain on sale of revenue equipment...................... --- --- --- (10)
General, administrative and selling.................... 2,039 1,420 6,370 4,444
------- ------- -------- --------
Total operating expenses........................... 64,428 51,924 199,383 153,010
------- ------- -------- --------
Operating income............................................ 4,107 4,086 10,667 11,680
Other (income) expense:
Interest income........................................ (26) (85) (138) (433)
Interest expense....................................... 1,828 1,782 5,716 4,555
Other (income) expense, net............................ 24 (88) 95 (86)
------- ------- -------- --------
Income before income taxes ............................ 2,281 2,477 4,994 7,644
Provision for income taxes............................. 888 961 1,911 2,944
------- ------- -------- --------
Net income .......................................... $ 1,393 $ 1,516 $ 3,083 $ 4,700
======= ======= ======== ========
Earnings per common share:
Diluted earnings per share............................. $0.18 $0.20 $0.40 $0.61
Basic earnings per share............................... $0.18 $0.20 $0.40 $0.61
Average shares outstanding:
Diluted................................................ 7,773 7,744 7,793 7,734
Basic.................................................. 7,749 7,670 7,735 7,647
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income................................................ $1,393 $1,516 $3,083 $4,700
Other comprehensive income (loss)......................... 91 (84) (224) (117)
------ ------- ------ ------
Comprehensive income...................................... $1,484 $1,432 $2,859 $4,583
====== ======= ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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<PAGE>
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----- ----
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................... $3,083 $4,700
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................................................... 10,548 9,510
Provision for deferred income taxes................................................... (270) 1,643
Provision for doubtful accounts....................................................... 342 171
Gain on sale of property and equipment................................................ --- (10)
Changes in assets and liabilities:
Trade receivables.................................................................. (726) 1,333
Accounts receivable -- other....................................................... (293) (585)
Income tax recoverable............................................................. 1,995 1,912
Tires in service................................................................... (673) (679)
Other assets....................................................................... (842) 234
Accounts payable and accrued expenses.............................................. (878) (2,446)
Income tax payable................................................................. 421 ---
--------- --------
Net cash provided by operating activities............................................. 12,707 14,923
--------- --------
Cash flows from investing activities:
Proceeds on sale of property and equipment............................................... 5,630 2,542
Purchase of property and equipment....................................................... (11,410) (2,201)
Purchase of business, net of cash ....................................................... --- (4,716)
Disposals of property and equipment...................................................... 368 641
Deposits................................................................................. 329 (21)
--------- --------
Net cash used for investing activities.............................................. (5,083) (3,755)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock................................................... --- 376
Purchase of common stock held in treasury................................................ (103) (586)
Proceeds from issuance of common stock held in treasury.................................. 332 835
Proceeds from bank borrowings and debt................................................... 7,862 1
Payments of bank borrowings and debt .................................................... (4,182) (2,160)
Principal payments under capital lease obligations....................................... (13,501) (9,822)
--------- --------
Net cash used for financing activities ............................................. (9,592) (11,356)
--------- --------
Decrease in cash and cash equivalents.................................................... (1,968) (188)
Cash and cash equivalents at beginning of period......................................... 2,537 1,845
--------- --------
Cash and cash equivalents at end of period............................................... $ 569 $ 1,657
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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") as
of and for each of the three years in the period ended June 30, 1998.
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 CUSTOMER
The Company's continuing 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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<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
Information as to the Company's operations by division is summarized below (in
thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Van............................................. $63,133 $ 49,607 $ 192,763 $145,719
Flatbed......................................... 5,402 6,403 17,287 18,971
------- -------- -------- --------
Total revenue............................... $68,535 $ 56,010 $210,050 $164,690
======= ======== ======== ========
Operating income:
Van............................................. $ 3,800 $ 3,774 $ 9,814 $10,696
Flatbed......................................... 307 312 853 984
------- -------- -------- --------
Total operating income...................... 4,107 4,086 10,667 11,680
Interest expense, net........................... (1,802) (1,697) (5,578) (4,122)
Other income (expense).......................... (24) 88 (95) 86
------- -------- -------- --------
Income before incomes taxes................. $ 2,281 $ 2,477 $ 4,994 $ 7,644
======= ======== ======== ========
Total assets:
Van............................................. $181,527 $161,681
Flatbed......................................... 7,898 8,077
-------- --------
Total from operating divisions.............. 189,425 169,758
Discontinued operations......................... --- 4,420
-------- --------
Total....................................... $189,425 $174,178
======== ========
Capital expenditures (including capital leases):
Van............................................. $3,002 $22,904 $13,448 $39,876
Flatbed......................................... 70 --- 70 122
------ ------- ------- -------
Total....................................... $3,072 $22,904 $13,518 $39,998
====== ======= ======= =======
Depreciation and amortization:
Van............................................. $3,418 $3,336 $10,369 $9,331
Flatbed......................................... 60 60 179 179
------ ------ ------- ------
Total....................................... $3,478 $3,396 $10,548 $9,510
====== ====== ======= ======
</TABLE>
8
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<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS -- (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
Information as to the Company's operations by geographic area is summarized
below (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
United States............................ $ 53,059 $ 53,553 $163,206 $ 157,915
Canada (i)............................... 12,296 --- 37,202 ---
Mexico (ii).............................. 3,180 2,457 9,642 6,775
--------- -------- -------- ---------
Total.................................. $ 68,535 $ 56,010 $210,050 $ 164,690
========= ======== ======== =========
Income before income taxes:
United States............................ $ 960 $ 2,123 $ 752 $ 6,895
Canada (i)............................... 976 --- 3,187 ---
Mexico (ii).............................. 345 354 1,055 749
------- ------- ------ -------
Total.................................. $ 2,281 $ 2,477 $4,994 $ 7,644
======= ======= ====== =======
Total assets:
Unites States.................................................................... $165,760 $171,258
Canada (i)....................................................................... 17,054 ---
Mexico (ii)...................................................................... 6,611 2,920
-------- --------
Total.......................................................................... $189,425 $174,178
======== ========
</TABLE>
(i) Relates to the Company's van operations in Canada.
(ii) Relates to the Company's van operations in Mexico.
Significant Customer:
Revenue from Chrysler accounted for approximately 21% and 35% of the
Company's total revenue for the three months ended March 31, 1999 and 1998,
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 33% and 67%, respectively, of the Company's revenue from Chrysler
for the three months ended March 31, 1999 and 28% and 72%, respectively, of the
Company's revenue from Chrysler for the three months ended March 31, 1998.
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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<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
Revenue from General Electric accounted for approximately 5% of the
Company's total revenue for the three months ended March 31, 1999. 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"). 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 nine months
ending March 31, 1999 and 1998 were 38.3% and 38.5%, respectively.
(4) HEDGING ACTIVITIES, COMMITMENTS AND CONTINGENCIES
The Company has outstanding commitments to purchase approximately
$67.0 million of revenue equipment at March 31, 1999.
Standby letters of credit, not reflected in the accompanying
consolidated financial statements, aggregated approximately $2.5 million at
March 31, 1999.
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 March
31, 1999, the Company had contracts to purchase fuel for future delivery in the
months of April 1999 through March 2000. These contracts represent approximately
6% of the anticipated fuel requirements for those months. Additionally, the
Company has periodically acquired 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 quarter ended March
31, 1998, losses of $442,000 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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<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999
(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 March 31, 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.
(5) SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 1999 and 1998, lease
obligations in the amount of $0.8 million and $22.3 million, respectively, and
for the nine months ended March 31, 1999 and 1998, lease obligations in the
amount of $8.1 million and $37.5 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 March 31, 1999 and 1998, the Company
made interest payments of $1.8 million, and for the nine months ended March 31,
1999 and 1998, the Company made interest payments of $5.7 million and $4.6
million, respectively.
11
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<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
(6) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and
diluted earnings per share, net income $1,393,000 $1,516,000 $3,083,000 $4,700,000
Denominator:
Denominator for basic earnings
per share-weighted-average shares..... 7,749,375 7,669,691 7,735,222 7,646,951
Effect of dilutive securities:
Employee stock options.................. 23,167 71,383 55,640 79,320
Warrants................................ 380 3,193 1,848 8,196
--------- -------- ------- -------
Dilutive potential common shares 23,547 74,576 57,488 87,516
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions.................... 7,772,922 7,744,267 7,792,710 7,734,467
Basic earnings per share............ $0.18 $0.20 $0.40 $0.61
===== ===== ===== =====
Diluted earnings per share.......... $0.18 $0.20 $0.40 $0.61
===== ===== ===== =====
</TABLE>
12
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<PAGE>
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 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 MARCH 31, 1999 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1998
Revenue. Consolidated revenue increased by $12.5 million or 22.3%, to
$68.5 million for fiscal 1999 from $56.0 million for fiscal 1998.
Revenue from the van division, which includes the operations of
Celadon Trucking Services, Inc. ("CTSI"), the Company's largest business unit,
as well as those of its Mexican subsidiary, Servicios de Transportacion Jaguar
S.A. de CV ("Jaguar"), and its Canadian subsidiary, Gerth, increased by $13.5
million or 27.2%, to $63.1 million in fiscal 1999 from $49.6 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 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 522 owner-operated tractors, increased
to 1,975 at March 31, 1999, compared to 1,354, including 186 owner-operated
tractors, at March 31, 1998.
13
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<PAGE>
Revenue for the flatbed division, which operates under the name of
Cheetah Transportation Company (Cheetah), decreased by $1.0 million or 15.6%, to
$5.4 million in fiscal 1999 from $6.4 million in fiscal 1998. The number of
owner-operated tractors in Cheetah's network was 211 at March 31, 1999 compared
to 186 at March 31, 1998. Approximately 20 owner-operators transferred from
Cheetah to CTSI in September 1998.
Operating Income. Operating income remained constant at $4.1 million
for fiscal 1999 and 1998. The Company's operating ratio, which expresses
operating expenses as a percentage of operating revenue increased from 92.7% in
fiscal 1998 to 94.0% in fiscal 1999.
Operating income within the van division remained constant at $3.8
million for fiscal 1999 and 1998. The van division's operating ratio increased
from 92.4% in fiscal 1998 to 94.0% in fiscal 1999. A higher mix of
owner-operator capacity and an increase in maintenance expense resulted in the
increased operating ratio.
Operating income within the flatbed division remained constant at $0.3
million in fiscal 1999 and 1998. The flatbed division's operating ratio
decreased from 95.2% in fiscal 1998 to 94.3% in fiscal 1999. The decrease in the
operating ratio was due primarily to reduced insurance costs.
Net Interest Expense. Net interest expense increased by $0.1 million
or 6.2%, to $1.8 million in fiscal 1999 from $1.7 million in fiscal 1998. The
increase was the result of additional capital leases and mortgage debt added in
fiscal 1999 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 $0.1 million or 10.0%, to $0.9
million in fiscal 1999 from $1.0 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 38.9% in fiscal 1999 and 38.8% in fiscal 1998.
NINE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THE NINE MONTHS ENDED MARCH 31,
1998
Revenue. Consolidated revenue increased by $45.4 million, or 27.6%,
to $210.1 million in fiscal 1999 from $164.7 million in 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 $47.1 million, or
32.3%, to $192.8 million in fiscal 1999 from $145.7 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 522 owner-operated tractors, increased
to 1,975 at March 31, 1999 compared to 1,354, including 186 owner-operated
tractors, at March 31, 1998.
14
<PAGE>
<PAGE>
Revenue from the flatbed division which, operates under the name of
Cheetah Transportation Company, ("Cheetah") decreased by $1.7 million, or 9.0%,
to $17.3 million in fiscal 1999 from $19.0 million in fiscal 1998, primarily as
a result of a decrease in the network of owner-operated tractors to 252 at March
31, 1999 from 276 at March 31, 1998. Approximately 20 owner-operators
transferred from Cheetah to CTSI in September 1998.
Operating income. Operating income decreased by $1.0 million, or 8.5%,
to $10.7 million in fiscal 1999 from $11.7 million in fiscal 1998. Included in
fiscal 1999 is 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, and a charge of $729,000, or $0.06 per diluted common share, related
to a 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, increased from 92.9% in
fiscal 1998 to 94.1% in fiscal 1999, excluding the two one-time charges in
fiscal 1999.
Operating income within the van division decreased by $0.9 million or
8.4%, to $9.8 million in fiscal 1999 from $10.7 million in fiscal 1998. The van
division's operating ratio, excluding the two one-time charges increased from
92.7% 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 $0.1 million or
10.0%, to $0.9 million in fiscal 1999 from $1.0 million in fiscal 1998. The
flatbed division operating ratio increased from 94.8% in fiscal 1998 to 95.1% 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 van 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 33.3%, to $5.6 million in fiscal 1999 from $4.1 million in fiscal 1998. The
increase was the result of additional capital leases and mortgage debt added in
fiscal 1999 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 34.5%, to $1.9
million in fiscal 1999 from $2.9 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 38.5% in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in fiscal 1999 were for the
acquisition of revenue equipment for the van division. The Company has financed
its capital requirements by obtaining lease financing on revenue equipment. At
March 31, 1999, the Company had an aggregate of $71.5 million in capital lease
financing at interest rates ranging from 5.7% to 10.6%, maturing at various
dates through 2004. Of this amount, $15.4 million is due prior to March 31,
2000. 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.
15
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As of March 31, 1999, the Company had on order revenue equipment
representing an aggregate capital commitment of $67.0 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.
At March 31, 1999, the Company had a credit facility aggregating $32.4
million. At March 31, 1999, $16.0 million was utilized as outstanding borrowings
and $2.5 million was utilized for standby letters of credit.
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
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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 become 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.
17
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PART II - OTHER INFORMATION
ITEM 5. OTHER
On May 7, 1999, the Company solicited proxies for its annual meeting
of stockholders to be held at Celadon World Headquarters, One Celadon Drive,
Indianapolis, Indiana 46235 on Friday, May 28, 1999 at 10:00 am (local time) for
stockholders of record as of April 23, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Form 8-K None
18
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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
Date: May 7, 1999
19
<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 MARCH 31, 1999
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> MAR-31-1999
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<COMMON> 257
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