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, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-23192
CELADON GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3361050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9503 EAST 33RD STREET
ONE CELADON DRIVE
INDIANAPOLIS, IN 46236-4207
(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 8, 1996 was 7,750,580.
CELADON GROUP, INC.
INDEX TO
MARCH 31, 1996 FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets at March 31, 1996
and June 30, 1995........................................................3
Condensed consolidated statements of operations - For the three and
nine months ended March 31, 1996 and 1995................................4
Condensed consolidated statements of cash flows - For the nine months
ended March 31, 1996 and 1995............................................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
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, JUNE 30,
1996 1995
----- ----
A S S E T S
Current assets:
Cash and cash equivalents................................................... $ 3,954 $ 1,809
Trade receivables, net of allowance......................................... 39,368 50,376
Accounts receivable - other................................................. 11,513 4,904
Prepaid expenses and other current assets................................... 4,110 3,606
Tires in service ........................................................... 2,769 1,956
Assets held for resale...................................................... 3,624 2,711
Deferred income tax assets ................................................. 882 807
---------- ---------
Total current assets ................................................... 66,220 66,169
---------- ---------
Property and equipment, at cost ................................................ 95,839 81,054
Less accumulated depreciation and amortization.................................. 21,163 19,660
---------- ---------
Net property and equipment.............................................. 74,676 61,394
---------- ---------
Deposits........................................................................ 876 1,208
Tires in service ............................................................... 2,295 2,115
Intangible assets............................................................... 906 2,311
Goodwill, net of accumulated amortization....................................... 5,087 15,630
Other assets.................................................................... 1,918 2,797
---------- ---------
Total assets............................................................ $151,978 $151,624
---------- ---------
---------- ---------
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........................................................... $ 12,066 $ 18,483
Accrued expenses .......................................................... 17,826 11,986
Bank borrowings and current maturities of long-term debt................... 12,225 4,530
Current maturities of capital lease obligations............................ 8,941 6,446
Income taxes payable ...................................................... 163 823
Current maturities of ESOP loan............................................ 100 100
---------- ---------
Total current liabilities........................................... 51,321 42,368
Long-term debt, net of current maturities ...................................... 16,787 18,323
Capital lease obligations, net of current maturities............................ 24,294 21,049
ESOP loan, net of current maturities ........................................... 110 185
Deferred income tax liabilities ................................................ 6,875 5,089
---------- ---------
Total liabilities 99,387 87,014
---------- ---------
Minority interest............................................................... 208 3,157
Commitments and contingencies
Redeemable common stock, issued and outstanding 200,000 shares at June 30,1995 --- 3,614
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 and
outstanding 7,750,580 and 7,741,247 shares at March 31, 1996 and
June 30, 1995, respectively .............................................. 256 256
Additional paid-in capital.................................................. 56,281 55,282
Retained earnings .......................................................... (3,770) 2,764
Equity adjustment for foreign currency translation.......................... (174) (178)
---------- ---------
52,593 58,124
Less:
Debt guarantee for ESOP.................................................... (210) (285)
---------- ---------
Total stockholders' equity ........................................... 52,383 57,839
---------- ---------
Total liabilities and stockholders' equity............................ $ 151,978 $151,624
---------- ---------
---------- ---------
See accompanying notes to condensed consolidated financial statements.
3
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
March 31, MARCH 31,
1996 1995 1996 1995
---- ---- ---- ----
Operating revenue.................................. $ 48,448 $ 30,612 $ 133,292 $ 91,133
-------- -------- --------- --------
Operating expenses:
Salaries, wages and employee benefits.......... 17,709 11,837 48,631 35,052
Fuel........................................... 7,425 4,755 19,625 14,299
Operating costs and supplies................... 3,322 3,496 8,542 8,727
Direct expenses for logistics.................. 1,378 1,158 3,199 3,343
Insurance and claims........................... 1,739 1,227 4,904 3,676
Depreciation and amortization.................. 2,009 1,316 5,750 4,486
Rent........................................... 8,631 2,363 24,392 6,776
Professional and consulting fees............... 362 321 1,217 876
Communications and utilities................... 743 443 2,106 1,242
Permits, licenses and taxes................... 1,020 800 2,979 2,372
Employee stock ownership plan contribution..... 25 --- 75 ---
Gain on sale of revenue equipment.............. (90) (87) (995) (188)
Selling........................................ 887 384 2,436 1,066
General and administrative..................... 951 400 2,372 1,104
-------- -------- --------- --------
Total operating expenses................... 46,111 28,413 125,233 82,831
-------- -------- --------- --------
Operating income................................... 2,337 2,199 8,059 8,302
Other expense:
Interest expense............................... 926 680 2,728 2,457
Other.......................................... 34 (24) 77 ---
-------- -------- --------- --------
Income from continuing operations before income
taxes........................................ 1,377 1,543 5,254 5,845
Provision for income taxes..................... 545 937 2,437 3,093
-------- -------- --------- --------
Income from continuing operations............ 832 606 2,817 2,752
Discontinued operations (note 5 ):
Loss from operations of freight forwarding
division (net of tax)....................... --- (634) (1,137) (788)
Loss on disposal of freight forwarding division (net
of tax)...................................... --- --- (8,214) ---
-------- -------- --------- --------
Loss from discontinued operations............ --- (634) (9,351) (788)
-------- -------- --------- --------
Net income (loss)............................ $ 832 $ (28) $ (6,534) $ 1,964
-------- -------- --------- --------
-------- -------- --------- --------
Earnings (loss) per Common Share:
Continuing operations......................... $ 0.11 $ 0.08 $ 0.35 $ 0.39
Discontinued operations........................ --- (0.08) (1.17) (0.11)
-------- -------- --------- --------
Net income (loss) ........................... $ 0.11 $ --- $ (0.82) $ 0.28
-------- -------- --------- --------
-------- -------- --------- --------
Weighted average number of common shares and
common share equivalents outstanding......... 7,884,100 7,672,781 7,921,627 7,048,941
-------- -------- --------- --------
-------- -------- --------- --------
See accompanying notes to condensed consolidated financial statements.
4
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
( DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
---- ----
Continuing Operations:
Cash flows from operating activities:
Net income............................................................. $ 2,817 $2,752
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................................... 5,750 4,486
Provision for deferred income taxes.................................. 2,580 1,445
Provision for doubtful accounts....................................... 98 24
Imputed interest on partnership note.................................. (32)
Net (gain) loss on sale of property and equipment..................... (995) (188)
Net (gain) loss other................................................. 77 ---
Changes in assets and liabilities:
(Increase) decrease in trade receivables........................... (7,137) 604
(Increase) decrease in accounts receivable -- other................ 4,998 (262)
(Increase) in income tax receivable................................ (891) (55)
(Increase) in tires in service..................................... (699) (195)
(Increase) decrease in prepaid expenses and other current assets... (784) (1,946)
(Increase) in other assets......................................... (1,943) (1,193)
Increase in accounts payable and accrued expenses.................. 9,002 (10,283)
Increase (decrease) in income taxes payable........................ (206) 404
---------- ----------
Net cash provided by (used for) operating activities.................. 12,667 (4,439)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment....................................... (9,209) (9,017)
Proceeds on sale of property and equipment............................... 1,877 2,468
Decrease in deposits..................................................... 331 234
---------- ----------
Net cash used for investing activities............................... (7,001) (6,315)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of Common Stock................................... 136 16,137
Proceeds from issuance of redeemable common stock........................ --- 3,614
Proceeds from bank borrowings and debt................................... 46,266 27,705
Payments of bank borrowings and debt .................................... (44,090) (34,297)
Principal payments under capital lease obligations....................... (6,312) (5,332)
---------- ----------
Net cash provided by (used for) financing activities ................ (4,000) 7,827
---------- ----------
Net cash provided by (used for) continuing operations................ 1,666 (2,927)
---------- ----------
Discontinued Operations:
Loss from operations, net of income taxes................................ (1,137) (788)
Estimated loss on disposal, net of income taxes.......................... (8,214) ---
Change in net operating assets........................................... 8,001 4,460
---------- ----------
Operating activities..................................................... (1,350) 3,672
Investing activities..................................................... 4,405 (5,107)
Financing activities..................................................... (2,576) 4,500
---------- ----------
Net cash provided by (used for ) discontinued operations.................... 479 3,065
---------- ----------
Increase in cash and cash equivalents....................................... 2,145 138
Cash and cash equivalents at beginning of period............................ 1,809 2,446
---------- ----------
Cash and cash equivalents at end of period.................................. $3,954 $2,584
---------- ----------
---------- ----------
Supplemental cash flow information:
During the nine months ended March 31, 1996 and 1995, capital lease
obligations in the amount of $15.8 million and $13.0 million, respectively were
incurred in connection with the purchase of, or option to purchase revenue
equipment (including tires in service).
See accompanying notes to condensed consolidated financial statements.
5
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting and the general instructions to Form 10-Q of
Regulation S-X. Accordingly, they do not include certain information and note
disclosures required by generally accepted accounting principles for annual
financial reporting and should be read in conjunction with the consolidated
financial statements and notes thereto of Celadon Group, Inc. (the "Company")
for the years ended June 30, 1995, 1994 and 1993.
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.
The condensed consolidated balance sheet at June 30, 1995 was derived from
the audited consolidated balance sheet at that date.
(2) SEGMENT AND GEOGRAPHICAL INFORMATION; SIGNIFICANT CUSTOMER
The Company's continuing operations consists of two segments: trucking,
and logistics, and the Company generates revenue from its operations in the
United States, Mexico and South America. Revenue from Chrysler accounts for a
significant amount of the Company's trucking revenue. During December, 1995, the
Company's Board of Directors adopted a plan to discontinue its freight
forwarding business which was previously reported as a separate business
segment. The Company has presented the results of this segment as a discontinued
operation, as described in note 5.
6
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
( DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Information as to the Company's continuing operations by segment is
summarized below:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
---- ---- ---- ----
Operating revenue:
Trucking - Truckload $ 39,517 $ 28,619 $110,143 $85,570
- Flatbed....................... 4,621 --- 13,509 ---
Logistics................................ 4,310 1,993 9,640 5,563
-------- -------- -------- -------
Total................................. $ 48,448 $ 30,612 $133,292 $91,133
-------- -------- -------- -------
-------- -------- -------- -------
Operating income:
Trucking - Truckload.................... $ 2,423 $ 2,757 $ 8,879 $9,828
- Flatbed...................... 230 --- 571 ---
Logistics............................... 476 271 1,064 836
-------- -------- -------- -------
Total from operating segments........... 3,129 3,028 10,514 10,664
Corporate expenses...................... (792) (829) (2,455) (2,362)
Interest expense........................ (926) (680) (2,728) (2,457)
Other income............................ (34) 24 (77) ---
-------- -------- -------- -------
Income from continuing operations
before income taxes................. $ 1,377 $ 1,543 $ 5,254 $ 5,845
-------- -------- -------- -------
-------- -------- -------- -------
Capital expenditures (including capital leases):
Trucking - Truckload $ 3,098 $ 334 $ 22,772 $ 25,579
- Flatbed...................... --- --- 18 ---
Logistics .............................. 982 3 1,908 12
Corporate............................... --- 3 3 34
-------- -------- -------- -------
Total from continuing operations 4,080 340 24,701 25,625
Discontinued operations................. --- 81 487 1,181
-------- -------- -------- -------
Total................................. $ 4,080 $ 421 $25,188 $ 26,806
-------- -------- -------- -------
-------- -------- -------- -------
Depreciation and amortization:
Trucking - Truckload $ 1,836 $ 1,298 $ 5,338 $ 4,431
- Flatbed...................... 60 --- 179 ---
Logistics .............................. 108 18 219 53
Corporate............................... 5 --- 14 2
-------- -------- -------- -------
Total from continuing operations...... 2,009 1,316 5,750 4,486
Discontinued operations................. --- 386 884 888
-------- -------- -------- -------
Total................................. $ 2,009 $ 1,702 $ 6,634 $ 5,374
-------- -------- -------- -------
-------- -------- -------- -------
Identifiable assets:
Trucking - Truckload $106,701 $ 85,812
- Flatbed.................................................... 7,100 ---
Logistics ............................................................ 6,046 2,713
-------- --------
Total from operating segments....................................... 119,847 88,525
Corporate............................................................. 3,220 1,751
-------- --------
Total from continuing operations.................................... 123,067 90,276
Discontinued operations............................................... 28,911 53,521
-------- --------
Total........................................................... $151,978 $143,797
-------- --------
-------- --------
7
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Information as to the Company's operations by geographic area is summarized
below:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
---- ---- ---- ----
Operating revenue from continuing operations:
United States........................... $ 44,091 $ 30,612 $ 123,780 $ 91,133
Mexico (i).............................. 1,350 --- 3,535 ---
South America (ii)...................... 3,007 --- 5,977 ---
---------- -------- --------- ---------
Total................................ $ 48,448 $ 30,612 $ 133,292 $ 91,133
---------- -------- --------- ---------
---------- -------- --------- ---------
Income (loss) from continuing operations:
United States........................... $ 1,021 $ 1,543 $ 4,602 $ 5,845
Mexico (i).............................. 144 --- 298 ---
South America (ii)...................... 212 --- 354 ---
---------- -------- --------- ---------
Total................................ $ 1,377 $ 1,543 $ 5,254 $ 5,845
---------- -------- --------- ---------
---------- -------- --------- ---------
Total assets:
Continuing operations:
United States..................................................................... $116,363 $ 90,276
Mexico (i)........................................................................ 2,219 ---
South America (ii)................................................................ 4,485 ---
-------- --------
Total continuing operations.................................................... $123,067 $ 90,276
-------- --------
Discontinued operations:
United States..................................................................... 25,090 45,897
Europe (iii)...................................................................... 3,821 7,624
-------- --------
Total discontinued operations................................................... 28,911 53,521
-------- --------
Total assets.................................................................... $151,978 $143,797
-------- --------
-------- --------
- - ----------
(i) Relates to the Company's trucking operations in Mexico.
(ii) Relates to the Company's logistics operations in Argentina and Brazil.
(iii) Relates to the Company's freight forwarding operations based in the United
Kingdom.
Significant Customer:
Revenue from Chrysler accounted for approximately 54% and 42% of the
Company's trucking revenue for the nine months ended March 31, 1996 and 1995,
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 31% and 69%, respectively, of the Company's revenue from Chrysler
for the nine months ended March 31, 1996 and 48% and 52%, respectively, for the
nine months ended March 31, 1995. Chrysler business is covered by two
agreements, one of which covers the domestic portion of this business and
expires on September 30, 1996, and the other of which covers the United
States-Mexican portion of this business and expires on December 31, 1996.
8
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
(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 continuing
operations for the nine months ending March 31, 1996 and 1995 were 46.4% and
52.9%, respectively. The tax provisions include additional tax expense related
to the non-deductible portion of expense allowances paid to drivers which was
discontinued by the Company in September, 1995.
(4) COMMITMENTS AND CONTINGENCIES
Standby letters of credit, not reflected in the accompanying condensed
consolidated financial statements, aggregated approximately $3,255,000 at March
31, 1996.
The Company has outstanding commitments to purchase approximately $34
million of revenue equipment at March 31, 1996.
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, including litigation of this matter. The
Company has accrued an amount that management estimates is due based upon
methods they believe are appropriate. The Company believes that the ultimate
resolution of this matter will not have a material adverse effect on its
consolidated financial position.
There are various claims, lawsuits and pending actions against the
Company and its subsidiaries incident to the operation 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 financial position.
(5) DISCONTINUED OPERATIONS
During December, 1995 the Board of Directors of Celadon Group, Inc.
authorized the disposal of the Company's freight forwarding business. In
connection with the Company's plan of disposition effective February 1, 1996,
the U.S. customer list together with certain assets and liabilities of the
Company's U.S. freight forwarding business, operating under the name
Celadon/Jacky Maeder Company, were sold to the Harper Group, Inc.'s primary
operating subsidiary, Circle International, Inc. Pursuant to the terms of the
transaction, the total purchase price for these assets and liabilities will be
paid in cash and will equal the net revenue derived from such customer list
during the twelve-month period following February 1, 1996. The Harper Group,
Inc. made an initial down payment of $9.5 million at closing with the balance of
the purchase price to be paid in quarterly installments as earned by the Harper
Group, Inc.
The precise timetable for the sale and liquidation of the remaining assets
and liabilities of the freight forwarding business, principally composed of the
Company's remaining freight forwarding branches, as well as trade receivables,
and payables, will depend upon the Company's ability to identify appropriate
purchasers and to negotiate acceptable terms for the sale of such businesses.
However, the Company currently anticipates completing such sale and liquidation
by December 31, 1996.
9
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
At March 31, 1996 assets and liabilities included in the Company's
consolidated balance sheet related to the discontinued operation are as follows:
Assets:
Cash......................................... $ 1,983
Accounts receivable (net of allowance) 14,366
Accounts receivable other.................... 8,563
Assets held for resale....................... 3,624
Prepaid expenses and other current assets ... 375
-------
Total ................................... $28,911
-------
-------
Liabilities:
Accounts payable............................. $ 5,508
Accrued expenses............................. 5,780
Bank borrowings and current maturities
of long term debt ......................... 5,159
-------
Total.................................... $16,447
-------
-------
- - --------------------
The anticipated loss on the disposal of the freight forwarding segment has
been accounted for as a discontinued operation in accordance with Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." As such, prior
period financial statements have been restated to reflect the discontinuation of
this line of business and the Company recorded a charge to earnings during the
three months ending December 31, 1995 representing the expected loss on the
disposal of this business. In determining the estimated loss on disposition in
the December 31, 1995 financial statements, management made certain estimates
and assumptions based upon currently available information. These estimates and
assumptions primarily relate to the ultimate sales price to be received from the
sale of the U.S. customer list to the Harper Group, Inc., the net realizable
value of the remaining assets to be disposed of, the liquidation of trade
receivables, and the costs associated with the settlement of certain leases,
severance and other obligations. However, actual amounts may differ from these
estimates. Revenue of the freight forwarding segment for the three and nine
month period ended March 31, 1996 and 1995 were $0 and $70.9 million and $31.7
million and $87.6 million, respectively.
(6) COMMON STOCK
On February 7, 1996 the Company's Board of Directors (" the Board")
authorized the purchase of the 200,000 shares of the Company's Common Stock from
Swissair Associated Companies, Ltd., which shares were previously presented as
redeemable Common Stock in the Company's consolidated balance sheet. The shares
were repurchased at a negotiated price of $13.75 per share. The Board also
authorized the repurchase of up to $2 million of the Company's Common Stock on
the open market from time to time as market conditions warrant. To date, no
shares have been repurchased.
10
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1995
Revenue. Consolidated revenue of the Company increased by $17.8 million, or
58%, to $48.4 million for the three months ended March 31, 1996 (the "1996
period") from $30.6 million for the three months ended March 31, 1995 (the "1995
period"). Revenue from the trucking division's truckload segment increased by
$10.9 million, or 38%, to $39.5 million in the 1996 period from $28.6 million in
the 1995 period, primarily as a result of an increase in the demand for the
Company's transportation services between the United States and Mexico. The
Company's trucking division's flatbed segment acquired in June, 1995 represented
$4.6 million of the increase in consolidated revenues. The number of tractors
operated by the Company's U.S. truckload operation rose to 1,143 at March 31,
1996 compared to 928 at March 31, 1995.
Revenue from the logistics division increased by $2.3 million to $4.3
million in the 1996 period from $2.0 million in the 1995 period. This increase
was the result of the South American operations in Brazil and Argentina, which
commenced operations during the fourth quarter of fiscal 1995 offset partially
by a decline in domestic special projects logistics business.
Operating income. The trucking division's truckload segment operating
income decreased by $.4 million, or 14%, to $2.4 million in the 1996 period from
$2.8 million in the 1995 period. This decrease was principally attributable to
higher fuel costs and a change in the mix of Mexican traffic. The operating
ratio for the truckload segment, which is the percentage of operating expenses
to its revenue, increased to 93.9% in the 1996 period from 90.4% in the 1995
period. The Company's flatbed segment acquired in June, 1995, had an operating
ratio of 95.0%, which is typically higher than the Company's truckload segment
since its revenue is generated by owner operators which are generally more
expensive as a percentage of revenue than the use of Company owned equipment.
Costs associated with the rental of flatbed owner operated equipment is
classified as rent expense in the consolidated statement of operations.
Operating income for the 1996 period in the logistics segment increased by
$.2 million, or 67%, to $.5 million for the three months ended March 31, 1996
from $.3 million for the three months ended March 31, 1995 as gains in the South
American operations, which commenced operations during the fourth quarter of
fiscal 1995, were offset by fewer special projects moves.
Corporate expenses in the 1996 period were comparable with the 1995 period.
Interest expense. Interest expense increased by $.2 million, or 29%, to $.9
million in the 1996 period from $.7 million in the 1995 period, as a result of
higher average outstanding borrowings, which was partially offset by lower
average interest rates.
Income taxes. The effective tax rates for the March 31, 1996 and 1995
periods were 39.6% and 60.7% respectively. The higher effective tax rate during
the 1995 period is principally due to additional tax expense related to the
non-deductible portion of expense allowances paid to drivers, which was
discontinued in September, 1995.
11
NINE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THE NINE MONTHS ENDED
MARCH 31, 1995
Revenue. Consolidated revenue of the Company increased by $42.2 million, or
46%, to $133.3 million for the nine months ended March 31, 1996 (the "1996
period") from $91.1 million for the nine months ended March 31, 1995 (the "1995
period"). Revenue from the trucking division's truckload segment increased by
$24.5 million, or 29%, to $110.1 million in the 1996 period from $85.6 million
in the 1995 period, primarily as a result of an increase in the demand for the
Company's transportation services between the United States and Mexico. The
Company's trucking division's flatbed segment acquired in June, 1995 represented
$13.5 million of the increase in consolidated revenues.
Revenue from the logistics division increased by $4.0 million to $9.6
million in the 1996 period from $5.6 million in the 1995 period. This increase
was the result of the South American operations in Brazil and Argentina, which
commenced operations during the fourth quarter of fiscal 1995.
Operating income. Trucking division's truckload segment operating income
decreased by $.9 million, or 9%, to $8.9 million in the 1996 period from $9.8
million in the 1995 period. This decrease was principally attributable to lower
average revenue per mile for the quarter ended December 31, 1995 and an increase
in fuel expenses in the March 1996 quarter. These factors were partially offset
by an increased gain on sale of revenue equipment of $.8 million. The operating
ratio for the truckload segment, which is the percentage of the trucking
division's operating expenses to its revenue increased to 91.9% in the 1996
period from 88.5% in the 1995 period. The Company's flatbed segment acquired in
June, 1995, had an operating ratio of 95.8%, which is typically higher than the
Company's truckload segment since its revenue is generated by owner operators
which are generally more expensive as a percentage of revenue than the use of
Company owned equipment. Costs associated with the rental of flatbed owner
operated equipment is classified as rent expense in the consolidated statement
of operations.
Operating income for the 1996 period in the logistics division increased by
$.3 million, or 27%, to $1.1 million for the nine months ended March 31, 1996
from $.8 million for the nine months ended March 31, 1995. This increase was the
result of the South American operations in Brazil and Argentina, which commenced
operations during the fourth quarter of fiscal 1995.
Corporate expenses in the 1996 period increased by $.1 million to $2.5
million as compared with the 1995 period amount of $2.4 million.
Interest expense. Interest expense increased by $.2 million, or 8%, to $2.7
million in the 1996 period, primarily as a result of the Company maintaining
higher average outstanding borrowings, which was partially offset by lower
average rates.
Income taxes. The effective tax rates for the nine months ended March 31,
1996 and 1995 were 46.4% and 52.9% respectively. The higher effective tax rate
during the 1995 period is principally due to tax expense related to the
non-deductible portion of expense allowances paid to drivers, which was
discontinued in September, 1995.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in fiscal 1996 have been funding
the acquisition of revenue equipment for the trucking division, the investment
in Celsur, Inc. and the construction of a corporate heardquarters in
Indianapolis, Indiana. These requirements have been met primarily by internally
generated funds, bank financings, and equipment leasing arrangements. At March
31, 1996 the Company had a credit facility of $35.0 million from its banks, of
which $20.1 million was utilized as outstanding borrowings, and $3.3 million was
utilized for standby letters of credit.
The credit facilities bear interest at either a margin over LIBOR or the
bank's prime rate, at the option of the Company. The weighted average interest
rate charged on outstanding borrowings was 6.6% at March 31, 1996. The standby
letter of credit portion of the Company's facility collaterizes the Company's
obligations under insurance policies for liability coverage relating to its
trucking operations.
The trucking division also has financed its capital requirements by
obtaining lease financings and notes payable on revenue equipment. At March 31,
1996, the Company had an aggregate of $33.5 million in such financings at
interest rates ranging from 7.2% to 11.5%, maturing at various dates through
2002. Of this amount, $9.1 million is due within one year.
As of March 31, 1996, the Company had on order 230 tractors and 662
trailers representing an aggregate capital commitment of $34 million. All of the
new equipment has been or will be financed using a combination of operating and
capital leases and the Company's credit facility.
The Company's accounts receivable balance at March 31, 1996 decreased to
$39.4 million from $50.4 million at June 30, 1995. This decrease was principally
attributable to the freight forwarding business which decreased $18.0 million
due to collections, an additional $5 million allowance for doubtful accounts
related to the discontinuance of this business and the reclassification of $3.9
million, net of related payables to assets held for resale. This decrease in
freight forwarding receivables was partially offset by a $6.2 million increase
in trucking receivables due to increased revenues during the period and $.8
million relating to flatbed operations acquired in June, 1995.
The Company purchases fuel contracts from time to time for a portion of its
projected fuel needs. At March 31, 1996, the Company had futures contracts
aggregating approximately $400,000 to hedge against possible increases in fuel
prices. Such contracts represent approximately 13% of the Company's anticipated
monthly gallons of fuel to be purchased through June 30, 1996. The fair value of
such contracts at March 31, 1996, based upon current market quotes for contracts
with similar terms, was not significantly higher than the carrying value of such
contracts. The Company's fuel hedging program has not significantly impacted the
Company's recent operating results and has not adversely impacted the Company's
liquidity.
13
During December, 1995 , the Company decided to discontinue the operation of
its freight forwarding segment and has accounted for this as a discontinued
operation. As such, the Company has made certain estimates as to the ultimate
amount to be realized on the sale of its customer list and other assets related
to this operation and has provided for certain costs expected to be incurred in
the discontinuance of these activities. The actual amounts may differ from these
estimates.
Upon completion of the discontinuance of the freight forwarding segment,
approximately $19 million in cash flow is expected to be generated, of which
approximately $12 million will be used to retire debt directly related to the
freight forwarding segment. As of March 31, 1996 the discontinuance generated
$9.5 million in cash, of which $6.5 million was used to retire bank debt.
On February 7, 1996 the Company's Board of Directors (" the Board")
authorized the purchase of the 200,000 shares of the Company's Common Stock from
Swissair Associated Companies, Ltd. presented as redeemable Common stock in the
Company's consolidated balance sheet at June 30, 1995. On February 21, 1996
these shares were purchased at a negotiated price of $13.75 per share. The Board
also authorized the repurchase of up to $2 million of the Company's Common Stock
on the open market from time to time as market conditions warrant.
Management believes that there are presently adequate sources of secured
equipment financings together with its existing credit facilities and cash flow
from operations to provide sufficient funds to meet the Company's anticipated
working capital requirements, fund the acquisition of tractors and trailers
presently on order and to complete the construction of the new trucking division
headquarters. Additional growth in the tractor and trailer fleet beyond the
Company's existing orders will require additional sources of financing.
SEASONALITY
To date, the Company's revenues have not shown any significant seasonal
pattern. However, because the Company's trucking subsidiary's primary traffic
lane is between the Midwest United States and Mexico, a severe winter generally
may have an unfavorable impact upon the Company's results of operations.
INFLATION
Many of the Company's operating expenses are sensitive to the effects of
inflation, which could result in higher operating costs. The effects of
inflation on the Company's businesses during fiscal 1996, 1995 and 1994
generally were not significant.
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PART II - OTHER INFORMATION
ITEM 5. OTHER
On April 17, 1996 the Company solicited proxies for its annual meeting of
stockholders to be held at the Company's headquarters in Indianapolis, on Friday
May 17, 1996 at 10:00 AM (local time) for stockholders of record as of April 11,
1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit 11 - Computation of per share earnings
(b) Reports on Form 8-K
April 3, 1996 - Relocation of Corporate Headquarters
(c) Exhibits
Exhibit 27 - Financial Data Schedule
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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)
Date: May 13, 1996
/s/ Stephen Russell
-----------------------------------------
Stephen Russell, Chief Executive Officer
(Principal Executive Officer and
acting Chief Financial Officer)
Date: May 13, 1996 /s/ Leonard R. Bennett
-----------------------------------------
Leonard R. Bennett, President and
Chief Operating Officer
16