- --------------------------------------------------------------------------------
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, 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 November 6, 1996 was 7,632,580.
CELADON GROUP, INC.
INDEX TO
SEPTEMBER 30, 1996 FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets at September 30, 1996
and June 30, 1996..............................................................3
Condensed consolidated statements of operations - For the three months
ended September 30, 1996 and 1995..............................................4
Condensed consolidated statements of cash flows - For the three months ended
September 30, 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..............................................13
PART II. OTHER INFORMATION
Item 5. Other..................................................................16
Item 6. Exhibits and Reports on Form 8-K.......................................16
2
PART I - FINANCIAL INFORMATION
CELADON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
1996 1996
----- ----
A S S E T S
Current assets:
Cash and cash equivalents................................................................... $ 4,573 $ 5,246
Trade receivables, net of allowance......................................................... 31,385 33,642
Accounts receivable - other................................................................. 5.946 4,338
Prepaid expenses and other current assets................................................... 2,645 3,247
Tires in service ........................................................................... 3,169 2,814
Income tax recoverable...................................................................... 5,950 3,926
Assets held for resale...................................................................... 97 2,548
Deferred income tax assets ................................................................. 1,085 3,404
--------- ---------
Total current assets ................................................ 54,850 59,165
-------- --------
Property and equipment, at cost ................................................................. 102,609 95,003
Less accumulated depreciation and amortization.............................................. 23,654 22,715
-------- --------
Net property and equipment........................................................ 78,955 72,288
-------- --------
Deposits......................................................................................... 525 809
Tires in service ................................................................................ 2,675 2,234
Intangible assets................................................................................ 844 875
Goodwill, net of accumulated amortization........................................................ 4,777 4,980
Other assets..................................................................................... 2,014 1,570
--------- ---------
Total assets................................................................................ $144,640 $141,921
========= ========
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............................................................................ 7,386 8,707
Accrued expenses ........................................................................... 19,369 20,122
Bank borrowings and current maturities of long-term debt.................................... 4,406 4,029
Notes payable............................................................................... ---- 1,200
Current maturities of capital lease obligations............................................. 8,749 7,356
Income taxes payable ....................................................................... 219 527
Current maturities of ESOP loan............................................................. 160 185
-------- --------
Total current liabilities............................................................. 40,289 42,126
-------- --------
Long-term debt, net of current maturities ....................................................... 18,700 26,552
Capital lease obligations, net of current maturities............................................. 35,313 23,473
Deferred income tax liabilities ................................................................. 8,295 7,796
-------- --------
Total liabilities........................................................................... 102,597 99,947
-------- --------
Minority interest................................................................................ 12 12
Commitments and contingencies
Stockholders' equity:
Common stock, $.033 par value, authorized 12,000,000 shares; issued and
outstanding 7,750,580 shares at September 30, 1996 and
June 30, 1996 ............................................................................ 256 256
Additional paid-in capital.................................................................. 56,281 56,281
Retained earnings .......................................................................... (13,145) (14,035)
Equity adjustment for foreign currency translation.......................................... (341) (355)
-------- --------
43,051 42,147
Treasury stock, at cost, 118,000 shares and zero shares at September 30, 1996
and June 30, 1996, respectively (860) ---
Less:
Debt guarantee for ESOP.......................................................................... (160) (185)
-------- --------
Total stockholders' equity.................................................................. 42,031 41,962
-------- --------
Total liabilities and stockholders' equity.................................................. $144,640 $141,921
======== ========
See accompanying notes to condensed consolidated financial statements.
3
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1996 1995
---- ----
Operating revenue................................................................... $46,192 $38,821
------- -------
Operating expenses:
Salaries, wages and employee benefits.......................................... 17,134 14,373
Fuel........................................................................... 7,483 5,841
Operating costs and supplies................................................... 2,888 2,516
Insurance and Claims........................................................... 1,656 1,117
Depreciation and amortization.................................................. 2,288 1,687
Rent and purchased transportation ............................................. 8,752 7,853
Professional and consulting fees............................................... 210 477
Communications and utilities................................................... 745 651
Permits, licenses and taxes .................................................. 1,058 991
Employee stock ownership plan contribution..................................... 34 25
(Gain) on sale of revenue equipment............................................ --- (546)
Selling expenses............................................................... 822 836
General and administrative..................................................... 656 512
------- -------
Total operating expenses................................................... 43,726 36,333
------- -------
Operating income ................................................................... 2,466 2,488
Other (income) expense:
Interest expense, net.......................................................... 981 860
Other (income) expense net..................................................... (9) 13
------- -------
Income from continuing operations before
income taxes................................................................ 1,494 1,615
Provision for income taxes..................................................... 604 1,049
------- -------
Income from continuing operations........................................... 890 566
Discontinued operations:
Loss from operations of freight forwarding
division (net of tax)....................................................... --- (186)
Income from operations of logistics
division (net of tax)....................................................... --- 236
------- -------
Income from discontinued operations (net of tax)............................... --- 50
------- -------
Net income.................................................................. $890 $616
======= =======
Earnings per Common Share:
Continuing operations.......................................................... $0.12 $0.07
Discontinued operations........................................................ --- 0.01
------- -------
Net income per share........................................................ $0.12 $0.08
======= ========
Weighted average number of common shares and
equivalents outstanding........................................................ 7,643 8,037
======= ========
See accompanying notes to condensed consolidated financial statements.
4
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
---- ----
Continuing Operations:
Cash flows from operating activities:
Net income (loss) from continuing operations............................................ $ 890 $ 566
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................................................... 2,288 1,687
Provision for deferred income taxes................................................. 496 544
Provision for doubtful accounts..................................................... 106 30
Net (gain) loss on sale of property and equipment................................... --- (546)
Changes in assets and liabilities:
(Increase) decrease in trade receivables........................................ (265) (1,924)
(Increase) decrease in accounts receivable -- other............................. (178) 1,396
Increase in income tax recoverable.............................................. 193 ----
Increase in tires in service.................................................... (795) (327)
(Increase) decrease in prepaid expenses and other current assets............... 378 (65)
(Increase) decrease in other assets............................................. 248 (2,683)
Increase (decrease) in accounts payable and accrued expenses.................... (107) 2,597
Increase (decrease) in income taxes payable..................................... (198) 457
-------- ---------
Net cash provided by (used for) operating activities.................................. 3,056 1,732
-------- ---------
Cash flows from investing activities:
Purchase of property and equipment....................................................... (176) (2,182)
Proceeds on sale of property and equipment............................................... 6,211 1,485
(Increase) decrease in deposits.......................................................... 284 (245)
-------- ---------
Net cash provided by (used for) investing activities................................. 6,319 (942)
Cash flows from financing activities:
Proceeds from issuance of common stock................................................... --- 135
Purchase of common stock held in treasury................................................ (135) ---
Proceeds from bank borrowings and debt................................................... 65 1,318
Payments of bank borrowings and debt .................................................... (8,766) (108)
Principal payments under capital lease obligations....................................... (1,680) (1,899)
-------- ---------
Net cash provided by (used for) financing activities ................................. (10,516) (554)
--------- ----------
Net cash provided by (used for) continuing operations................................. (1,141) 236
--------- ----------
Discontinued Operations:
Income (loss) from operations, net of income taxes....................................... --- 50
Change in net operating assets........................................................... 468 (1,610)
-------- ---------
Operating activities..................................................................... 468 (1,560)
Investing activities..................................................................... --- (658)
Financing activities..................................................................... --- 1,047
-------- ---------
Net cash provided by (used for) discontinued operations............................... 468 (1,171)
Increase (decrease) in cash and cash equivalents......................................... (673) (935)
Cash and cash equivalents at beginning of year........................................... 5,246 1,809
-------- ---------
Cash and cash equivalents at end of year................................................. $4,573 $ 874
======== =========
See accompanying notes to condensed consolidated financial statements.
5
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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, 1996, 1995 and 1994.
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, 1996 was derived
from the audited consolidated balance sheet at that date.
(2) SEGMENT AND GEOGRAPHICAL INFORMATION; SIGNIFICANT CUSTOMER
The Company's continuing operations consist of two divisions: truckload
and flatbed, and the Company generates revenue from its operations in the United
States and Mexico. 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. In the fourth quarter of
fiscal year 1996, the Company also discontinued the operations of the logistics
operations which was previously reported as a separate business segment. The
Company has presented the results of these segments as discontinued
operations, as described in note 5.
6
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Information as to the Company's continuing operations by division is summarized
below (in thousands):
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1996 1995
----- ----
Operating revenue:
Truckload.................................................. $41,206 $34,144
Flatbed .................................................. 4,986 4,677
------- -------
Total................................................ $46,192 $38,821
======= =======
Operating income:
Truckload.................................................. $2,771 $3,280
Flatbed ................................................... 192 137
------- -------
Total from operating divisions....................... 2,963 3,417
Corporate expenses......................................... 497 929
Interest expense........................................... 981 860
Other expense (income)..................................... (9) 13
------- -------
Income from continuing operations
before income taxes.................................. $ 1,494 $1,615
======= =======
Total assets:
Truckload.................................................. $113,045 $ 95,912
Flatbed ................................................... 6,947 6,782
-------- --------
Total from operating divisions....................... 119,992 102,694
Corporate.................................................. 7,217 2,593
Discontinued operations.................................... 17,431 54,898
-------- --------
Total................................................ $144,640 $160,185
======== ========
Capital expenditures (including capital leases):
Truckload.................................................. $15,101 $10,420
Flatbed ................................................... 13 ---
Corporate.................................................. 7 4
------- -------
Total................................................ $15,121 $10,424
======= =======
Depreciation and amortization:
Truckload.................................................. $2,210 $1,632
Flatbed ................................................... 60 60
Corporate.................................................. 18 5
------ ------
Total................................................ $2,288 $1,697
====== ======
7
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Information as to the Company's continuing operations by geographic area is
summarized below (in thousands):
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
---- ----
Operating revenue:
United States........................ $45,117 $37,737
Mexico (i)........................... 1,075 1,084
------- -------
Total ........................ $46,192 $38,821
======= =======
Income (loss) before income taxes:
United States........................ $1,507 $1,397
Mexico (i)........................... (13) 218
------- --------
Total ...................... $1,494 $1,615
======= ========
Total assets:
United States........................ $124,796 $103,637
Mexico (i)........................... 2,413 1,649
-------- --------
Total.......................... $127,209 $105,286
======== ========
- ----------
(i) Relates to the Company's trucking operations in Mexico.
Significant Customer:
Revenue from Chrysler accounted for approximately 52% and 46% of the
Company's trucking revenue for the three months ended September 30, 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 29% and 71%, respectively, of the Company's revenue from
Chrysler for the three months ended September 30, 1996 and 35% and 65%,
respectively, for the three months ended September 30, 1995. Chrysler business
is covered by two agreements, one of which covers the United States-Mexico
business and the other of which covers domestic business. The international
contract was extended for three years and now expires on December 31, 1999. The
contract applicable to domestic movements is being renegotiated. No other
customer accounted for more than 5% of the Company's trucking revenue during any
of its three most recent fiscal years.
8
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 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 three months ending September 30, 1996 and 1995 were 40.4%
and 65.0%, respectively. The 1995 tax provision include additional tax expense
related to the non-deductible portion of expense allowances paid to drivers
which pay practice was discontinued by the Company in September, 1995.
(4) HEDGING ACTIVITIES, COMMITMENTS AND CONTINGENCIES
The Company, from time-to-time, enters into arrangements to protect
against fluctuations in the price of the fuel used by its trucks. As of
September 30, 1996, the Company had contracts to purchase for future delivery
approximately 35% of its fuel requirements through February, 1997. Contracts for
fuel delivery in the period March through July 1997 were canceled in the
September 1996 quarter and the Company realized a cancellation gain of $85
thousand. This gain was reflected as a reduction in fuel expense in the quarter.
Additionally, the Company periodically acquires exchange-traded petroleum
futures contracts and various commodity collar transactions. At September 30,
1996, the market value of outstanding transactions which extended through March
of 1997 approximated carrying cost and covered approximately 40% of the
Company's fuel requirements. Gains and losses on closed transactions, not
designated as hedges, are recognized when realized and in the September 1996
quarter resulted in a gain of $83 thousand. This gain was reflected as a
reduction of fuel expense. The current and future delivery prices of fuel are
monitored closely and transaction positions adjusted accordingly. Total
commitments are also monitored to ensure they will not exceed actual fuel
requirements in any period.
Standby letters of credit, not reflected in the accompanying condensed
consolidated financial statements, aggregated approximately $2,125,000 at
September 30, 1996.
The Company has outstanding commitments to purchase approximately $12
million of revenue equipment at September 30, 1996.
The Company has been assessed approximately $750 thousand 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 paid $1.1
million under protest which enables the Company to pursue resolution of this
matter with the State of Texas Attorney General. 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.
9
(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. It is now estimated that there will be no additional payments by
Harper Group, Inc., to the Company. The remaining assets and liabilities of this
segment are in the process of liquidation.
In the fourth quarter of fiscal 1996, the Company disposed of the two
primary operating subsidiaries of the logistics segment. At that time, the
Company determined that it would discontinue offering logistics services as a
separate product line. In accordance with the terms of sale of the South
American warehousing, logistics and distribution business, the Company received
payment on October 3, 1996, of the $2.5 million promissory note issued by the
purchaser.
10
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
At September 30, 1996 and June 30, 1996, assets and liabilities included in
the Company's consolidated balance sheet related to the discontinued operations
are as follows (in thousands):
Freight Forwarding: September 30, June 30,
1996 1996
---- ----
Assets:
Cash.................................................... $ 3,643 $ 3,142
Accounts receivable (net of allowance).................. 6,174 8,436
Accounts receivable other............................... 2,235 2,558
Assets held for resale.................................. 97 69
Deferred income tax receivable.......................... 2,266 2,369
Prepaid expenses and other current assets............... 115 224
--------- --------
Total.............................................. $ 14,530 $ 16,798
========= ========
Liabilities and Equity:
Accounts payable........................................ $ 4,266 $ 4,805
Accrued expenses........................................ 4,865 6,146
Income taxes payable.................................... (11) 105
Deferred income tax assets.............................. --- (11)
Equity adjustment for foreign currency translation...... 22 25
--------- --------
Total.............................................. $ 9,142 $ 11,070
========= ========
Logistics:
Assets:
Cash..................................................... $ --- $ 33
Accounts receivable (net of allowances)................. 150 303
Accounts receivable other............................... 2,386 632
Assets held for sale.................................... --- 2,479(1)
Income tax - receivable................................. 329 329
Deferred income tax receivable.......................... 36 36
--------- ---------
Total............................................... $ 2,901 $ 3,812
========= =========
Liabilities and Equity:
Accrued expenses........................................ $ 68 $ 214
Income taxes payable.................................... 272 276
Deferred income taxes payable........................... 209 206
Equity adjustment for foreign currency translation...... --- (2)
--------- ---------
Total.............................................. $ 549 $ 694
========= ========
- ---------------------
(1) Represents the net investment in Celsur Inc., the stock of which was
sold on July 3, 1996.
11
The disposals of the freight forwarding and logistics segments has
been accounted for as discontinued operations 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
these lines of business.
(6) COMMON STOCK
On October 18, 1996, the Company's Board of Directors ("the Board")
authorized the sale of up to 250,000 shares of the Company's Common Stock to the
Celadon Group, Inc. Employee Stock Purchase Plan. The Common Stock, par value
$0.33 per share, may be treasury shares or newly issued shares, at a price equal
to 85% of the fair market value of the shares as of the day of purchase.
On September 24, 1996, the Board extended to November 1, 1997 the
expiration date for the International Bancshares Corporation stock purchase
warrant issued pursuant to the Employee Stock Ownership Plan loan agreement.
(7) SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended September 30, 1996 and 1995, capital
lease obligations in the amount of $14.2 million and $8.4 million, respectively
were incurred in connection with the purchase of, or option to purchase revenue
equipment (including tires in service).
12
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenue. Consolidated revenue from continuing operations of the Company
increased by $7.4 million, or 19%, to $46.2 million for the three months ended
September 30, 1996 (the "1996 period") from $38.8 million for the three months
ended September 30, 1995 (the "1995 period"). Revenue from the truckload
division increased by $7.1 million, or 21%, to $41.2 million in the 1996 period
from $34.1 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 flatbed division acquired in June, 1995 represented
$0.3 million of the increase in consolidated revenues. The number of tractors
operated by the Company's U.S. truckload operation in over-the-road service rose
to 1,203 at September 30, 1996 compared to 1,036 at September 30, 1995 in both
cases excluding 49 tractors operated by the Company's Mexican affiliate in both
periods.
Operating income. The truckload division operating income decreased by
$0.5 million, or 15%, to $2.7 million in the 1996 period from $3.3 million in
the 1995 period. The operating ratio for the truckload division, which is the
percentage of operating expenses to its revenue, increased to 93.3% in the 1996
period from 90.4% in the 1995 period. This increase was principally attributable
to a one time gain of approximately $0.5 million on the sale of revenue
equipment in the 1995 period and losses experienced in the Company's Mexican
affiliate in the 1996 period. Average fuel cost per gallon increased to $1.14 in
the 1996 period compared with $1.02 in the 1995. This cost increase is net of
realized gains of $188 thousand achieved in the Company's fuel price management
program or $0.029 per gallon consumed. Increases in the Company's equipment
fleet and associated costs particularly related to trailers, exceeded growth in
revenue also contributing to an increase in expense as a percentage of revenue.
The Company's flatbed division operating ratio, which is typically higher than
the Company's truckload division 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, decreased to 96.1% in the 1996 period
from 97.1% in the 1995 period. This improvement was primarily due to a decrease
in the flatbed division's operating expenses. Costs associated with the rental
of flatbed owner-operated equipment is classified as rent expense in the
consolidated statement of operations.
Corporate expenses decreased by $0.5 million to $0.4 million in the 1996
period from $0.9 million in the 1995 period primarily due to senior management
changes implemented at the end of the June 1996 quarter and decreased
professional fees.
Interest expense. Interest expense increased by $0.1 million, or 11%, to
$1.0 million in the 1996 period from $0.9 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 September 30, 1996 and
1995 periods were 40.4% and 65.0% 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 pay
practice was discontinued in September, 1995.
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in fiscal 1997 have been
funding the acquisition of revenue equipment for the trucking division. These
requirements have been met primarily by equipment leasing arrangements. At
September 30, 1996, the Company had a credit facility of $35.0 million from its
banks, of which $22.0 million was utilized as outstanding borrowings, and $2.1
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 7.48% at September 30, 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 has financed some of its capital requirements by
obtaining lease financing and notes payable on revenue equipment. At September
30, 1996, the Company had an aggregate of $44.1 million in such financing at
interest rates ranging from 6.0% to 11.5%, maturing at various dates through
2003. Of this amount, $8.8 million is due within one year.
As of September 30, 1996, the Company had on order revenue equipment
representing an aggregate capital commitment of $12 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 relating to continuing
operations at September 30, 1996, increased $0.2 million to $25.1 million from
$24.9 million at June 30, 1996. The truckload division accounted for $0.7
million of the increase. The 1% increase in accounts receivable for the
truckload division reflects the 20% increase in revenues for fiscal 1996.
Effective September 19, 1996, the Company completed a sale/leaseback
transaction relating to its new headquarters facility in Indianapolis, Indiana.
The proceeds from the transaction were used to reduce by approximately $6
million the borrowings outstanding under its bank credit facility.
The Company purchases fuel contracts from time-to-time for a portion of
its projected fuel needs. At September 30, 1996, the Company had contracts to
purchase for future delivery approximately 35% of its fuel requirements. The
Company's fuel price management program has not significantly impacted the
Company's recent operating results and has not adversely impacted the Company's
liquidity.
On September 24, 1996, the Company's Board of Directors extended to
November 1, 1997, the expiration date for the International Bancshares
Corporation stock purchase warrant issued pursuant to the Employee Stock
Ownership Plan loan agreement.
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 and fund the acquisition of tractors and trailers
presently on order. Additional growth in the tractor and trailer fleet beyond
the Company's existing orders will require additional sources of financing.
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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 1997 and 1996 generally were
not significant.
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PART II - OTHER INFORMATION
ITEM 5. OTHER
On November 8, 1996, the Company solicited proxies for its annual
meeting of stockholders to be held at the New York City Athletic Club, 180
Central Park South, New York City, New York 10019 on Tuesday, December 17, 1996
at 10:00 AM (local time) for stockholders of record as of November 1, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
* Exhibit 10.8 - Motor Carrier Transportation Contract dated August 30, 1996 between Chrysler
Corporation and Celadon Group, Inc.
Exhibit 10.9 - Motor Carrier Transportation Agreement, effective as of October 1, 1993,
between Chrysler Motors Corporation and Celadon Trucking Services, Inc., as
amended. Amendment incorporated by reference to Exhibit 10.9 of Form 10-K
filed October 14, 1994.
Exhibit 10.41 - Consulting and Non-Competition Agreement dated July 3, 1996 between Leonard
R. Bennett and the Company
Exhibit 10.42 - Third amendment, dated September 13, 1996, to the $35,000,000 Credit
Agreement dated June 1, 1994 between Celadon Group, Inc., Celadon Trucking
Services, Inc. and Randy International, Ltd. and NBD Bank N.A. and the First
National Bank of Boston.
Exhibit 10.43 - Amendment dated July 3, 1996 to Stockholders Agreement dated October 8, 1992
between Leonard R. Bennett, Stephen Russell, Hanseatic Corporation and the
Company. Incorporated by reference to Exhibit 10.17 of Form 10-K filed
September 26, 1996.
Exhibit 10.44 - Agreement dated July 3, 1996 terminating Voting Agreements dated October 8,
1992 and October 6, 1986 between Leonard R. Bennett, Stephen Russell and the
Company.
Exhibit 11 - Computation of per share earnings
Exhibit 27 - Financial Data Schedule
(b) Form 8-K Reports on Form 8-K were listed in Form 10-K filed September 26, 1996.
* Confidential treatment for portions of this Exhibit has been
requested pursuant to Rule 406 of the Securities Act of 1933, as
amended.
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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: November 14, 1996
/s/ Stephen Russell
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Stephen Russell, Chief Executive Officer
/s/ Don S. Snyder
----------------------------------------
Don S. Snyder, Executive Vice President
Chief Financial Officer
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