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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, 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)
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)
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 12, 2000 was 7,782,907.
CELADON GROUP, INC.
INDEX TO
MARCH 31, 2000 FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 2000
and June 30, 1999......................................................................................3
Condensed Consolidated Statements of Operations - For the three and nine months
ended March 31, 2000 and 1999..........................................................................4
Condensed Consolidated Statements of Cash Flows - For the nine months
ended March 31, 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 5. Other..........................................................................................15
Item 6. Exhibits and Reports on Form 8-K...............................................................15
2
PART I - FINANCIAL INFORMATION
CELADON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
2000 1999
---- ----
(UNAUDITED)
A S S E T S
Current assets:
Cash and cash equivalents ............................................. $ 862 $ 695
Trade receivables, net of allowance ................................... 55,312 43,884
Accounts receivable - other ........................................... 8,166 5,336
Prepaid expenses and other current assets ............................. 9,197 6,941
Tires in service ...................................................... 4,820 4,179
Income tax recoverable ................................................ -- 29
Deferred income tax ................................................... 5,080 4,847
-------- --------
Total current assets ........................... 83,437
-------- --------
65,911
Property and equipment, at cost ............................................ 146,152 141,213
Less accumulated depreciation and amortization ........................ 36,239 33,629
-------- --------
Net property and equipment .................................. 109,913 107,584
-------- --------
Tires in service ........................................................... 2,081 2,331
Goodwill, net of accumulated amortization .................................. 20,822 10,967
Other assets ............................................................... 2,017 1,966
-------- --------
Total assets .......................................................... $218,270 $188,759
======== ========
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 ...................................................... $ 5,857 $ 5,505
Accrued expenses ...................................................... 22,463 17,953
Bank borrowings and current maturities of long-term debt .............. 5,893 7,239
Current maturities of capital lease obligations ....................... 16,529 15,099
Income tax payable .................................................... 1,203 --
-------- --------
Total current liabilities ....................................... 51,945 45,796
-------- --------
Long-term debt, net of current maturities .................................. 51,514 18,613
Capital lease obligations, net of current maturities ....................... 44,006 52,967
Deferred income tax ........................................................ 12,864 14,065
-------- --------
Total liabilities ..................................................... 160,329 131,441
-------- --------
Minority interest .......................................................... (79) 12
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 7,786,430 shares at March 31, 2000 and June 30, 1999 ......... 257 257
Additional paid-in capital ............................................ 57,436 56,679
Retained earnings ..................................................... 1,073 1,319
Accumulated other comprehensive income ................................ (709) (605)
Treasury stock, at cost, 3,773 and 34,773 shares at March 31, 2000
and June 30, 1999, respectively ..................................... (37) (344)
-------- --------
Total stockholders' equity ...................................... 58,020 57,306
-------- --------
Total liabilities and stockholders' equity ...................... $218,270 $188,759
======== ========
See accompanying notes to condensed consolidated financial statements.
3
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
Operating revenue ........................ $90,493 $68,535 $259,770 $210,050
------- ------- -------- --------
Operating expenses:
Salaries, wages and employee benefits 24,548 18,864 71,264 56,414
Fuel ................................ 10,304 6,468 26,930 20,362
Operating costs and supplies ........ 6,719 6,243 19,316 19,829
Insurance and claims ................ 2,811 1,833 7,170 5,066
Depreciation and amortization ....... 3,912 3,478 10,599 10,548
Rent and purchased transportation ... 34,827 22,868 97,501 72,072
Professional and consulting fees .... 425 471 1,215 1,867
Communications and utilities ........ 1,064 888 3,351 2,895
Permits, licenses and taxes ........ 1,666 1,276 4,576 3,960
General, administrative and selling . 2,943 2,039 8,261 6,370
------- ------- -------- --------
Total operating expenses ........ 89,219 64,428 250,183 199,383
------- ------- -------- --------
Operating income ......................... 1,274 4,107 9,587 10,667
Other (income) expense:
Interest income ..................... (9) (26) (66) (138)
Interest expense .................... 2,461 1,828 6,685 5,716
Other expense, net .................. 57 24 207 95
Minority interest in subsidiary ..... (91) -- (91) --
Loss on disposition of equipment .... -- -- 3,266 --
------- ------- -------- --------
Income (loss) before income taxes ... (1,144) 2,281 (414) 4,994
Provision for income taxes (benefit) (433) 888 (168) 1,911
------- ------- -------- --------
Net income (loss) ................. $ (711) $ 1,393 $ (246) $ 3,083
======= ======= ======== ========
Earnings (loss) per Common Share:
Diluted Earnings Per Share .......... $ (0.09) $ 0.18 $ (0.03) $ 0.40
Basic Earnings Per Share ............ $ (0.09) $ 0.18 $ (0.03) $ 0.40
Average Shares Outstanding:
Diluted ............................. 7,952 7,773 7,840 7,793
Basic ............................... 7,777 7,749 7,775 7,735
4
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income (loss) ................................................................ $ (246) $ 3,083
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................................ 10,599 10,548
Loss on disposition of equipment ................................................ 3,266 --
Provision for deferred income taxes ............................................. (1,434) (270)
Provision for doubtful accounts ................................................. 455 342
Changes in assets and liabilities:
Trade receivables ............................................................ (7,293) (726)
Accounts receivable -- other ................................................. (2,734) (293)
Income tax recoverable ....................................................... 67 1,995
Tires in service ............................................................. (519) (673)
Prepaid expenses and other current assets .................................... (1,571) (1,118)
Other assets ................................................................. 329 276
Accounts payable and accrued expenses ........................................ (78) (878)
Income taxes payable ......................................................... 1,203 421
-------- --------
Net cash provided by operating activities .................................... 2,044 12,707
Cash flows from investing activities:
Proceeds on sale of property and equipment ........................................ 11,497 5,630
Purchase of property and equipment ................................................ (9,222) (10,713)
Purchase of business, net of cash ................................................. (24,921) --
-------- --------
Net cash used for investing activities ...................................... (22,646) (5,083)
-------- --------
Cash flows from financing activities:
Purchase of common stock held in treasury ......................................... -- (103)
Proceeds from issuance of common stock held in treasury ........................... 277 332
Proceeds from bank borrowings and debt ............................................ 38,604 7,862
Payments of bank borrowings and debt .............................................. (9,300) (4,182)
Principal payments under capital lease obligations ................................ (9,508) (13,501)
Other financing activities ........................................................ 696 --
-------- --------
Net cash provided by (used for) financing activities ......................... 20,769 (9,592)
-------- --------
Increase (decrease) in cash and cash equivalents .................................. 167 (1,968)
Cash and cash equivalents at beginning of period .................................. 695 2,537
-------- --------
Cash and cash equivalents at end of period ........................................ $ 862 $ 569
======== ========
5
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(DOLLARS IN THOUSANDS)
(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, 1999.
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 predominately operates and provides its transportation
services in the truckload transportation segment of the transportation industry.
The Company generates revenue from its truckload operations in the United
States, Canada and Mexico.
Effective in the three month period ended March 31, 2000, the company
formed TruckersCo-op.com, Inc. ("TruckersCo-op"). TruckersCo-op was formed to
provide member transportation companies with cost savings in such areas as fuel,
tires, parts, calling cards, insurance, trailer leasing, credit cards, and
tractor financing. TruckersCo-op is owned by Celadon E-Commerce, Inc., a wholly
owned subsidiary of Celadon Group, Inc., GE Capital and several venture capital
funds. Revenues for TruckersCo-op were not significant for the three month
period ended March 31, 2000. Operating expenses, which primarily related to
marketing and administrative costs associated with the start-up operations were
approximately $700 thousand before minority interest and taxes.
6
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Information as to the Company's operations by geographic area is
summarized below (in thousands):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
---- ---- ---- ----
Operating revenue:
United States ....................... $71,314 $53,059 $207,201 $163,206
Canada .............................. 13,900 12,296 40,279 37,202
Mexico .............................. 5,279 3,180 12,290 9,642
------- ------- -------- --------
Total ........................... $90,493 $68,535 $259,770 $210,050
======= ======= ======== ========
Significant Customer:
Revenue from DaimlerChrysler accounted for 25% and 21% of the Company's
total revenue for the three months ended March 31, 2000 and 1999. The Company
transports DaimlerChrysler after-market replacement parts and accessories within
the United States and DaimlerChrysler original equipment automotive parts
primarily between the United States and the Mexican border, which accounted for
29% and 71%, respectively, of the Company's revenue from DaimlerChrysler for the
three months ended March 31, 2000 and 33% and 67%, respectively, of the
Company's revenue from Chrysler for the three months ended March 31, 1999.
DaimlerChrysler business is covered by three agreements, one of which covers the
United States-Mexican business for the Chrysler division, one of which covers
the United States-Mexican business for the Freightliner division and the last of
which covers domestic movements. The international contract, which covers the
Chrysler division, expires in December 2000. The international contract, which
covers the Freightliner division, expires in April 2001. The contract applicable
to domestic movements expires in October 2000.
7
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Revenue from General Electric accounted for approximately 4% and 5% of
the Company?s total revenue for the three months ended March 31, 2000 and March
31, 1999, respectively. General Electric business is covered by a contract,
which expires in April 2002, and that covers all loads shipped for General
Electric Industrial Control Systems ("GEICS").
(3) INCOME TAXES
The effective tax rates for operations for the nine-months ended March
31, 2000 and 1999 were 40.4% and 38.3%, respectively. 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.
(4) COMPREHENSIVE INCOME
Total comprehensive income (loss) was $ (0.7) million and $1.5 million
for the three months ended March 31, 2000 and 1999, respectively. Total
comprehensive income (loss) was $ (0.3) million and $2.9 million for the nine
months ended March 31, 2000 and 1999, respectively. The difference between the
total comprehensive income (loss) and net income (loss) relates to the effect of
foreign currency translation adjustments.
(5) ACQUISITIONS
Effective July 1, 1999, the Company acquired the assets and assumed
certain liabilities of Zipp Express, Inc. for approximately $26 million. The
Company accounted for the transaction as a purchase.
Assuming the transaction described above was consummated as of the
beginning of the nine month period ended March 31, 1999, and after giving effect
to certain pro forma adjustments, the pro forma consolidated results of
operations for the nine months ended March 31,1999 would be as follows:
FOR THE NINE MONTHS
ENDED MARCH 31, 1999
--------------------
(Dollar amounts in thousands except per share data)
Operating revenue.................................... $239,203
Net income........................................... $4,572
Net income per common share.......................... $0.59
In addition, as a result of this acquisition, the Company disposed of a
group of its own older equipment and related items that will no longer be
required. The effect of upgrading the Company's fleet through this disposition
resulted in a non-cash charge of approximately $3.2 million in the nine months
ended March 31, 2000.
8
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(6) LINES OF CREDIT
In August 1999, the Company completed a new $60 million banking
facility with ING Barings. In November 1999, the Company's banking facility with
ING Barings was increased by $5 million to $65 million. The new arrangement
includes a $35 million revolving loan and a $30 million term loan. The new
banking arrangement was obtained to finance the $26 million asset purchase of
Zipp Express, Inc.
(7) HEDGING ACTIVITIES, COMMITMENTS AND CONTINGENCIES
The Company has outstanding commitments to purchase approximately $4.0
million of revenue equipment at March 31, 2000 which will be financed utilizing
long-term lease agreements.
Standby letters of credit, not reflected in the accompanying
consolidated financial statements, aggregated approximately $2.0 million at
March 31, 2000.
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 or liquidity, but could possibly be material
to the consolidated results of operations in any one period.
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, 2000, the parties to the litigation
were exchanging 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.
9
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2000
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
(8) SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 2000 and 1999, lease
obligations in the amount of $0.7 million and $0.8 million, respectively, and
for the nine months ended March 31, 2000 and 1999 obligations in the amount of
$4.9 million and $8.1 million, respectively were incurred to lease revenue
equipment and the associated tires in service.
During the three months ended March 31, 2000 and 1999, the Company made
interest payments of $2.7 million and $1.8 million, respectively and for the
nine months ended March 31, 2000 and 1999, the Company made interest payments of
$7.0 million and $5.7 million, respectively.
(9) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands except for per share amounts):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
---- ---- ---- ----
Numerator for basic and
diluted earnings (loss) per share, net income $(711) $1,393 $(246) $3,083
====== ====== ====== ======
Denominator:
Denominator for basic earnings
per share-weighted-average shares..... 7,777,390 7,749,375 7,775,301 7,735,222
Effect of dilutive securities:
Employee stock options.................. 174,593 23,167 64,712 55,640
Warrants................................ -- 380 -- 1,848
------- --------- --------- ---------
Dilutive potential common shares 174,593 23,547 64,712 57,488
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions................... 7,951,983 7,772,922 7,840,013 7,792,710
Basic earnings (loss) per share.... $(0.09) $0.18 $(0.03) $0.40
====== ===== ====== =====
Diluted earnings (loss) per share.. $(0.09) $0.18 $(0.03) $0.40
====== ===== ====== =====
10
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;
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.
ACQUISITION HISTORY
Effective July 1, 1999, the Company acquired the assets and assumed
certain liabilities of Zipp Express, Inc. ("Zipp") for approximately $26
million. The Company believes that Zipp will further strengthen its position in
the market between the U.S. and Mexico as well as within the Midwest region.
Zipp is a major carrier to and from Mexico and also maintains a strong base of
business in the Midwest. In calendar year 1998, Zipp had $38 million in revenue
and an operating ratio of 89.8%. Zipp operates a relatively new fleet of about
270 tractors and 800 trailers. As a result of this acquisition, the Company
disposed of a group of its own older equipment and related items that will no
longer be required. The effect of upgrading the Company's fleet through this
disposition resulted in a non-cash charge of approximately $3.2 million in the
nine months ended March 31, 2000.
RECENT DEVELOPMENTS
On February 7, 2000, Celadon Group, Inc. announced the formation of
TruckersCo-op.com, Inc. ("TruckersCo-op"). TruckersCo-op will provide cost
benefits for truck owners in such areas as fuel, tires, parts, calling cards,
insurance, trailer leasing, credit cards, and tractor financing. TruckersCo-op
is owned by Celadon E-Commerce, Inc., a wholly owned subsidiary of Celadon
Group, Inc. and GE Capital, as well as several venture funds.
TruckersCo-op accounted for $0.05 per diluted share of the March 2000
quarter loss which related to marketing and administrative costs associated with
the start-up of the new business.
11
TruckersCo-op, as of April 27, 2000, had over 100,000 member trucks
enrolled, represented by over 1,800 separate companies in the U.S. and Canada.
The board of directors of Celadon Group has authorized the management of
TruckersCo-op to proceed with its initial public offering. The proceeds of such
an offering will be for purposes of growing and strengthening TruckersCo-op's
future. In preparation for the offering, the name of TruckersCo-op will be
changed from TruckersCo-op.com, Inc. to TruckersB2B.com, Inc ("TruckersB2B").
A registration statement relating to the offering by TruckersCo-op has
not been filed. The offering will be made only by means of a prospectus included
in the registration statement. This does not constitute an offer for sale of any
securities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1999
Revenue. Consolidated revenue increased by $22.0 million or 32.1%, to
$90.5 million for fiscal 2000 from $68.5 million for fiscal 1999. This increase
in revenue was due to the acquired operations of Zipp, 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, fuel surcharges
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 Company, including 941 owner-operated tractors, increased to
2,501 at March 31, 2000, compared to 2,186, including 733 owner-operated
tractors, at March 31, 1999.
Operating Income. Operating income decreased by $2.8 million, or 68.3%,
to $1.3 million in fiscal 2000 from $4.1 million in fiscal 1999. The decrease in
operating income was primarily a result of the Zipp acquisition offset by higher
net fuel costs and start-up costs related to the Company's new subsidiary,
TruckersB2B. The Company's operating ratio, which expresses operating expenses
as a percentage of operating revenue increased from 94.0% in fiscal 1999 to
98.6% in fiscal 2000.
Net Interest Expense. Net interest expense increased by $0.7 million or
38.9%, to $2.5 million in fiscal 2000 from $1.8 million in fiscal 1999. The
increase was the result of additional borrowings under the Company's credit
facilities partially offset by reduced borrowings under capital leases.
Income Taxes. Income taxes decreased by $1.3 million, to a benefit of
$0.4 million in fiscal 2000 from an expense of $0.9 million in fiscal 1999. The
decrease in income tax expense reflects the Company's pre-tax loss. The
Company's effective tax rate was 37.8% in fiscal 2000 and 38.9% in fiscal 1999.
NINE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THE NINE MONTHS ENDED MARCH 31,
1999
Revenue. Consolidated revenue increased by $49.7 million or 23.7%, to
$259.8 million for fiscal 2000 from $210.1 million for fiscal 1999. This
increase in revenue was due to the acquired operations of Zipp, 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 Company, including 941 owner-operated tractors, increased to
2,501 at March 31, 2000, compared to 2,186, including 733 owner-operated
tractors, at March 31, 1999.
12
Operating Income. Operating income decreased by $1.1 million, or 10.3%,
to $9.6 million in fiscal 2000 from $10.7 million in fiscal 1999. The decrease
in operating income was primarily a result of the Zipp acquisition offset by
higher net fuel costs and start-up costs related to the Company's new
subsidiary, TruckersB2B. The Company's operating ratio, which expresses
operating expenses as a percentage of operating revenue increased from 94.1% in
fiscal 1999 to 96.3% in fiscal 2000.
Net Interest Expense. Net interest expense increased by $1.0 million or
17.9%, to $6.6 million in fiscal 2000 from $5.6 million in fiscal 1999. The
increase was the result of borrowings under the Company's credit facilities
partially offset by reduced borrowings under capital leases.
Income Taxes. Income taxes decreased by $2.1 million, to a benefit of
$0.2 million in fiscal 2000 from an expense of $1.9 million in fiscal 1999. The
decrease in income tax expense reflects the Company's pre-tax loss. The
Company's effective tax rate was 40.4% in fiscal 2000 and 38.3% in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in fiscal 2000 will be for
the acquisition of revenue equipment. The Company has financed its capital
requirements by obtaining lease financing on revenue equipment. At March 31,
2000, the Company had an aggregate of $60.5 million in capital lease financing
at interest rates ranging from 5.3% to 10.0%, maturing at various dates through
2004. Of this amount, $16.5 million is due prior to March 31, 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 March 31, 2000, the Company had on order revenue equipment
representing an aggregate capital commitment of approximately $4.0 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.
In August 1999, the Company completed a new $60 million banking
facility with ING Barings. In November 1999, the Company's banking facility with
ING Barings was increased by $5 million to $65 million. The new arrangement
includes a $35 million revolving loan and a $30 million term loan. The new
banking arrangement was obtained to finance the $26 million asset purchase of
Zipp Express, Inc.
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
13
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 2000 and 1999 generally were not significant.
IMPACT OF THE YEAR 2000
An issue existed for all companies that rely on computers as the year
2000 approached. 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 performed a
complete inventory assessment of both its information technology ("IT") and
non-IT systems prior to December 31, 1999. 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.
To date, the Company has not experienced any problems with Company IT
or non-IT systems, vendor's system or customer's systems. It does not expect any
significant future costs associated with year 2000 issues. The costs of the
Company's Year 2000 efforts are based upon management's best estimates, which
are derived using numerous assumptions, including the continued availability of
certain resources, third-party remediation plans and other factors. The Company
currently estimates it spent $150,000 over the life of the program. Expenses
associated with addressing the Year 2000 issues were recognized as incurred.
14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
15
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 12, 2000