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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 SEPTEMBER 30, 2000
[ ] 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 November 14, 2000 was 7,788,242.
<PAGE>
CELADON GROUP, INC.
INDEX TO
SEPTEMBER 30, 2000 FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2000
and June 30, 2000....................................................................3
Condensed Consolidated Statements of Operations - For the three months
ended September 30, 2000 and 1999....................................................4
Condensed Consolidated Statements of Cash Flows - For the three months
ended September 30, 2000 and 1999....................................................5
Notes to Condensed Consolidated Financial Statements ................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
CELADON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
---- ----
(UNAUDITED)
A S S E T S
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................... $752 $360
Trade receivables, net of allowance ........................................................ 54,068 53,521
Accounts receivable - other................................................................. 7,658 8,013
Prepaid expenses and other current assets................................................... 9,039 8,280
Tires in service ........................................................................... 4,532 4,747
Income tax recoverable...................................................................... 1,912 1,639
Deferred income tax ....................................................................... 802 802
-------- --------
Total current assets ................................................................ 78,763 77,362
Property and equipment, at cost ................................................................. 153,672 150,119
Less accumulated depreciation and amortization................................................... 36,330 37,477
-------- --------
Net property and equipment........................................................ 117,342 112,642
Tires in service ................................................................................ 2,579 2,569
Goodwill, net of accumulated amortization........................................................ 20,047 20,435
Other assets..................................................................................... 2,134 2,314
-------- --------
Total assets................................................................................ $220,865 $215,322
======== ========
<CAPTION>
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
<S> <C> <C>
Current liabilities:
Accounts payable............................................................................ $5,978 $5,669
Accrued expenses ........................................................................... 24,829 26,819
Bank borrowings and current maturities of long-term debt.................................... 6,963 7,055
Current maturities of capital lease obligations............................................. 16,192 15,732
-------- --------
Total current liabilities.............................................................. 53,962 55,275
Long-term debt, net of current maturities ....................................................... 49,633 49,751
Capital lease obligations, net of current maturities............................................. 50,133 42,908
Deferred income tax.............................................................................. 8,862 8,862
Minority interest................................................................................ 107 119
Commitments and contingencies....................................................................
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 7,789,764
and 7,786,430 shares at September 30, 2000 and June 30, 2000, respectively.................. 257 257
Additional paid-in capital.................................................................. 60,154 60,113
Retained earnings........................................................................... (1,192) (722)
Accumulated other comprehensive loss........................................................ (1,036) (1,206)
Treasury stock, at cost, 1,522 and 3,523 shares at September 30, 2000
and June 30, 2000, respectively .......................................................... (15) (35)
-------- --------
Total stockholders' equity.................................................................. 58,168 58,407
-------- --------
Total liabilities and stockholders' equity............................................ $220,865 $215,322
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Operating revenue........................................................... $88,427 $82,665
------- -------
Operating expenses:
Salaries, wages and employee benefits.................................. 23,615 23,315
Fuel................................................................... 10,010 7,930
Operating costs and supplies........................................... 6,989 6,053
Insurance and claims................................................... 2,183 2,255
Depreciation and amortization.......................................... 3,761 3,243
Rent and purchased transportation...................................... 34,182 29,691
Professional and consulting fees....................................... 533 402
Cost of goods sold..................................................... 595 ---
Communications and utilities........................................... 1,007 1,155
Permits, licenses and taxes .......................................... 1,562 1,509
General, administrative and selling.................................... 2,241 2,697
------- -------
Total operating expenses............................................... 86,678 78,250
------- -------
Operating income ........................................................... 1,749 4,415
------- -------
Other (income) expense:
Interest income........................................................ (36) (28)
Interest expense....................................................... 2,359 2,030
Other expense, net..................................................... 33 89
Minority interest in subsidiary loss................................... (12) --
Loss on disposition of equipment....................................... --- 3,266
------- -------
Income before income taxes............................................. (595) (942)
Benefit for income taxes .............................................. (125) (353)
------- -------
Net loss............................................................. $(470) $ (589)
======= =======
Earnings (loss) per common share:
Diluted earnings per share........................................... $(0.06) $(0.08)
Basic earnings per share............................................. $(0.06) $(0.08)
Average shares outstanding:
Diluted.............................................................. 7,783,603 7,771,956
Basic................................................................ 7,783,603 7,771,956
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
( DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $(470) $(589)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................................... 3,761 3,243
Loss on disposition of equipment.................................... --- 3,266
Provision for deferred income taxes................................. --- (1,217)
Provision for doubtful accounts..................................... 203 179
Changes in assets and liabilities:
Trade receivables................................................ (750) (4,048)
Accounts receivable -- other..................................... 355 (220)
Income tax recoverable........................................... (273) 67
Tires in service................................................. 205 (854)
Prepaid expenses and other current assets........................ (759) (2,041)
Other assets..................................................... 266 (78)
Accounts payable and accrued expenses............................ (1,681) (1,835)
Income taxes payable ........................................... --- 1,381
------- -------
Net cash provided by (used for) operating activities............. 857 (2,746)
Cash flows from investing activities:
Purchase of property and equipment.................................. (3,257) (5,277)
Proceeds on sale of property and equipment.......................... 7,970 5,674
Purchase of business, net of cash................................... --- (25,554)
------- -------
Net cash provided by (used for) investing activities............ 4,713 (25,157)
Cash flows from financing activities:
Proceeds from issuances of common stock............................. 43 200
Proceeds from issuance common stock in subsidiary................... 6 ---
Proceeds from bank borrowings and debt.............................. 1,475 35,066
Payments of bank borrowings and debt ............................... (1,685) (3,742)
Principal payments under capital lease obligations.................. (5,017) (3,284)
------- -------
Net cash provided by (used for) financing activities ........... (5,178) 28,240
------- -------
Increase in cash and cash equivalents................................. 392 337
Cash and cash equivalents at beginning of year........................ 360 695
------- -------
Cash and cash equivalents at end of period............................ $ 752 $1,032
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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 and includes the results of Celadon Group, Inc. and it's majority
owned subsidiaries. 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, 2000.
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 INFORMATION AND SIGNIFICANT CUSTOMERS
The Company operates in two segments, transportation and e-commerce. The
Company generates revenue, in the transportation segment, providing truckload
hauling services through its subsidiaries, Celadon Trucking Services, Inc.,
("CTSI"), Servicios de Transportacion Jaguar, S.A. de C.V., ("Jaguar"), Gerth
Transport Ltd. ("Gerth"), Zipp Express, Inc., ("Zipp") and Cheetah
Transportation, Inc., ("Cheetah"). The Company began providing certain services
over the internet through its e-commerce subsidiary TruckersB2B, Inc.,
("TruckersB2B"), in the last half of fiscal year 2000. The e-commerce segment
generates revenue by providing discounted fuel, tires, and other products and
services to small and medium-sized trucking companies. The Company evaluates its
operating segments on operating results. As the e-commerce segment began in
February 2000, there is no reportable information for this segment for the first
quarter of fiscal year 2000 for comparison.
6
<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
(DOLLARS IN THOUSANDS)
TRANSPORTATION E-COMMERCE TOTAL
-------------- ---------- -----
<S> <C> <C> <C>
Revenue from external customers............. $87,518 $909 $88,427
Operating income (loss)..................... 2,435 (686) 1,749
Interest revenue............................ 36 --- 36
Interest expense ........................... 2,328 31 2,359
Other expense (income)...................... 33 (12) 21
Income (loss) before income taxes........... $110 $(705) $(595)
</TABLE>
Information as to the Company's operations by geographic area is summarized
below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
(DOLLARS IN THOUSANDS)
2000 1999
---- ----
<S> <C> <C>
Operating revenue:
United States............................ $70,355 $66,236
Canada................................... 13,445 13,442
Mexico................................... 4,627 2,987
------- -------
Total ............................... $88,427 $82,665
======= =======
</TABLE>
The Company's largest customer is DaimlerChrysler, which accounted for
approximately 19% and 23% of the Company's total truckload revenue for the three
months ended September 30, 2000 and 1999, respectively. The Company transports
DaimlerChrysler original equipment automotive parts primarily between the United
States and Mexico and DaimlerChrysler after-market replacement parts and
accessories within the United States. The Company's most recent agreements with
DaimlerChrysler are covered by three agreements: (a) an agreement for
international freight with the Chrysler division which expires in December 2000,
(b) a domestic agreement with the Chrysler division which expires in October
2003, and (c) an international contract with the Freightliner division, which
expires in April 2001. The two Chrysler division agreements accounted for
approximately 18% and 20% of the Company's total truckload revenue for the three
months ended September 30, 2000 and 1999, respectively. The Freightliner
division contract accounted for approximately 1% and 3% of the Company's total
revenue for the three months ended September 30, 2000 and 1999, respectively. No
other customer accounted for more than 10% of the Company's total revenue during
any of its three most recent fiscal years.
7
<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
(3) INCOME TAXES
The effective tax rates, pertaining to the tax benefits, for operations for
the three-months ended September 30, 2000 and 1999 were 21% and 38%,
respectively. The reduced tax rate for fiscal 2001 is primarily related to
permanent tax differences and Mexican taxes being based on assets in lieu of
income.
(4) COMPREHENSIVE INCOME
Total comprehensive income (loss) was $0.2 million and $(0.6) million for
the three months ended September 30, 2000 and 1999, respectively. The difference
between the total comprehensive income (loss) and net loss relates to the effect
of foreign currency translation adjustments.
(5) LINES OF CREDIT
In August 1999, the Company completed a $60 million banking facility
("credit agreement") with ING (U.S.) Capital LLC. The arrangement includes a $30
million revolving loan and a $30 million term loan. In November 1999, the
Company's credit agreement was increased by $5 million to $65 million. In May
2000, the Company's credit agreement with ING was amended to reflect
modifications to the Company's covenants. The modifications allowed the Company
to remain in compliance with the terms and conditions of the credit agreement.
On September 6, 2000, the Company's credit agreement was amended to increase the
loan by $2 million to $67 million, primarily to finance the operations of
TruckersB2B. This amendment expired on October 31, 2000. Interest is based, at
the Company's option, upon either the bank's base rate plus a margin ranging
from .5% to 1.5% or the London Interbank Offered Rate plus a margin ranging from
1.5% to 2.5% depending upon performance by the Company.
(6) HEDGING ACTIVITIES, COMMITMENTS AND CONTINGENCIES
The Company has outstanding commitments to purchase approximately $12.8
million of revenue equipment at September 30, 2000, which will be financed
utilizing long-term lease agreements.
Standby letters of credit, not reflected in the accompanying consolidated
financial statements, aggregated approximately $1.2 million at September 30,
2000.
There are various claims, lawsuits and pending actions against the Company
and its subsidiaries in the normal course of the operations of its business. 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.
8
<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
The Company has a lawsuit filed by Reliance National Indemnity Company
("Reliance") relating to two truckers liability insurance policies. The Company
disagrees with Reliance and intends to vigorously defend this lawsuit. This case
is in the very early stages, and to date, no formal discovery has been
completed. 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.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, and its
amendments Statements 137 and 138, in June 1999 and June 2000, respectively. The
statement requires the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives are offset against the change in
fair value of assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The adoption of Statement No. 133 on July 1, 2000 resulted in no
cumulative effect change in the income statement or other comprehensive income,
as the Company had no derivatives in place on that date. The Company has entered
into three exchange traded petroleum futures contracts, beginning October 1,
2000. There was no earnings impact in the September 2000 quarter.
(7) SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended September 30, 2000 and 1999, lease
obligations in the amount of $12.7 million and $2.6 million, respectively, were
incurred to lease revenue equipment and the associated tires in service.
During the three months ended September 30, 2000 and 1999, the Company made
interest payments of $2.4 million and $1.9 million, respectively.
9
<PAGE>
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
(8) EARNINGS PER SHARE
The following is a reconciliation of the numerators and demoninators used
in computing earnings per share (in thousands except for per share amounts):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
------------
2000 1999
---- ----
<S> <C> <C>
Loss available to common shareholders......................... $(470) $(589)
====== ======
Basic loss per share:
Weighted - average number of common
shares outstanding ................................... 7,783,603 7,771,956
Basic loss per share ................................... $(0.06) $(0.08)
====== ======
Diluted loss per share:
Weighted - average number of common
shares outstanding ................................... 7,783,603 7,771,956
Effect of stock options and other incremental shares..... --- ---
--------- ---------
Weighted - average number of common shares
outstanding-diluted ................................... 7,783,603 7,771,956
========= =========
Diluted loss per share ................................... $(0.06) $(0.08)
======= =======
</TABLE>
Diluted loss per share for the three months ended September 30, 2000 and
1999 does not include the anti-dilutive effect of 115 thousand and 4 thousand
stock options and other incremental shares, respectively.
(9) SUBSEQUENT EVENTS
In November 2000, the Company decided not to pursue an initial public
offering of TruckersB2B. Approximately $800,000 of deferred costs associated
with the attempted initial public offering have been expensed in the second
quarter of fiscal 2001. TruckersB2B has issued an additional 600,000 shares of
TruckersB2B Class A common stock to a strategic partner as of October 20, 2000.
These shares were issued for assistance provided to TruckersB2B to enroll
members and supply member data. This transaction will be expensed as non-cash
member and vendor development fees based on a valuation to be determined in the
second quarter of fiscal 2001.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION 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;
changes 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; 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.
RECENT DEVELOPMENTS
On February 7, 2000, Celadon Group, Inc. announced the formation of
TruckersB2B, Inc. ("TruckersB2B"). TruckersB2B provides cost benefits for truck
owners in such areas as fuel, tires, parts, calling cards, insurance, trailer
leasing, credit cards, and tractor financing. TruckersB2B is owned by Celadon
E-Commerce, Inc., a wholly owned subsidiary of Celadon Group, Inc. and GE
Capital, as well as several venture funds.
TruckersB2B, as of September 30, 2000, had over 225,000 member trucks
enrolled, represented by over 6,000 separate companies in the U.S. and Canada.
The board of directors of Celadon Group had authorized the management of
TruckersB2B to proceed with an initial public offering but in view of current
market conditions, the Company has decided not to pursue a public offering at
this time. TruckersB2B accounted for $0.06 per share of the September 2000
quarter loss, which related to marketing and administrative costs associated
with operating this business.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenue. Consolidated revenue increased by $5.7 million, or 6.9%, to $88.4
million for fiscal 2001 from $82.7 million for fiscal 2000. Higher revenue was
related to an increase in rate per mile, primarily relating to fuel surcharges.
In addition, revenue increased related to the Zipp Logistics dedicated
warehousing operations for Cummins and Navistar and billings to customers for
the Mexican portion of transportation. Revenue includes approximately $900
thousand in fiscal 2001 from TruckersB2B. The TruckersB2B revenue for the
September 2000 quarter represents over $25 million in purchases made by its
11
<PAGE>
member companies through the TruckersB2B network. The number of tractors
operated by the Company, including 1,012 owner-operated tractors, increased to
2,664 at September 30, 2000, compared to 2,557, including 964 owner-operated
tractors, at September 30, 1999.
Operating Income. Consolidated operating income decreased by $2.7 million,
or 61.4%, to $1.7 million in fiscal 2001 from $4.4 million in fiscal 2000. The
decrease in operating income was primarily a result of TruckersB2B operating
expenses, in addition to increases in fuel costs, rent and purchased
transportation and other direct operating expenses. The Company's operating
ratio, which expresses operating expenses as a percentage of operating revenue
increased from 94.7% in fiscal 2000 to 97.2%, excluding TruckersB2B, in fiscal
2001.
In the September 2000 quarter, TruckersB2B recorded a $686 thousand
operating loss primarily related to marketing costs and salaries.
In the truckload segment, the most significant cost increase was fuel
expense. In the September 2000 quarter, fuel costs increases net of customer
surcharges resulted in additional expense of approximately $850 thousand
(pre-tax) or approximately $0.07 per share compared to prior year. Fuel costs
rose at the pump approximately 27% and the Company instituted a fuel
reimbursement to the owner-operators which increased expenses approximately $650
thousand. This fuel reimbursement to the owner-operator is included in the net
fuel cost increase described above. These increases were partially offset by
fuel surcharges to our customers. In a market of escalating fuel prices, fuel
surcharges lag fuel cost increases. The Company does not recover additional fuel
expense related to deadhead mileage or idle time from customers in the form of
fuel surcharges.
Purchased transportation expenses increased due to increased logistics
expense, Mexico purchased transportation and owner-operator fleet capacity.
Expenses for logistics and Mexico purchased transportation increased in relation
to revenue for these types of transportation business. The Company's
owner-operator fleet increased from 964 in fiscal 2000 to 1,012 in fiscal 2001,
which increased the Company's owner-operator capacity and related expense.
In addition, trailer and tractor rental costs have increased. The trailer
costs have increased approximately $475 thousand related to replacing 48 foot
trailers with 53 foot trailers. The Company added 239 units as operating lease
tractors in its fleet since the September 1999 quarter, for an increased
operating expense of approximately $600 thousand. The Company has disposed of
approximately 300 units which were comprised of both operating and capital
leased equipment since the prior year.
Net Interest Expense. Net interest expense increased by $0.3 million, or
15.0%, to $2.3 million in fiscal 2001 from $2.0 million in fiscal 2000. The
increase was the result of additional borrowings under the Company's credit
facilities.
Income Taxes. Benefit for income taxes decreased to $0.1 million in fiscal
2001 from $0.4 million in fiscal 2000. The Company's effective tax rate was 21%
in fiscal 2001 and 38% in fiscal 2000. The reduced tax rate for fiscal 2001 is
primarily related to permanent tax differences and Mexican taxes being based on
assets in lieu of income.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in fiscal 2001 will be for the
acquisition of revenue equipment. The Company has financed its capital
requirements by obtaining lease financing on revenue equipment. At September 30,
2000, the Company had an aggregate of $66.3 million in capital lease financing
at interest rates ranging from 5.3% to 8.0%, maturing at various dates through
2005. Of this amount, $16.2 million is due prior to September 30, 2001. 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.
As of September 30, 2000, the Company had on order revenue equipment
representing an aggregate capital commitment of approximately $12.8 million.
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.
In August 1999, the Company completed a $60 million banking facility
("credit agreement") with ING (U.S.) Capital LLC. The arrangement includes a $30
million revolving loan and a $30 million term loan. In November 1999, the
Company's credit agreement was increased by $5 million to $65 million. In May
2000, the Company's credit agreement with ING was amended to reflect
modifications to the Company's covenants. The modifications allowed the Company
to remain in compliance with the terms and conditions of the credit agreement.
On September 6, 2000, the Company's credit agreement was amended to increase the
loan by $2 million to $67 million, primarily to finance the operations of
TruckersB2B. This amendment expired on October 31, 2000. Interest is based, at
the Company's option, upon either the bank's base rate plus a margin ranging
from .5% to 1.5% or the London Interbank Offered Rate plus a margin ranging from
1.5% to 2.5% depending upon performance by the Company.
SEASONALITY
To date, the Company's revenues have not shown any significant seasonal
pattern. However, because the Company's primary traffic lane is between the
Midwest United States and Mexico, winter may have an unfavorable impact upon the
Company's results of operations. Also, many manufacturers close or curtail their
operations during holiday periods, and observe vacation shutdowns, which may
impact the Company's operations in any particular period.
INFLATION
Many of the Company's operating expenses, including fuel costs and related
fuel taxes, are sensitive to the effects of inflation, which could result in
higher operating costs. The effects of inflation on the Company's business
during fiscal 2001 and 2000 generally were not significant.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Form 8-K Report on Form 8-K dated July 20, 2000 with relation to
the Stockholder's Rights Plan dated July 20, 2000.
14
<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
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Paul A. Will
Chief Financial Officer
Date: November 14, 2000
15
