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 DECEMBER 31, 1997
[ ] 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 February 6, 1998 was 7,650,155.
CELADON GROUP, INC.
INDEX TO
DECEMBER 31, 1997 FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets at December 31, 1997
and June 30, 1997................................................3
Condensed consolidated statements of operations - For the three and
six months ended December 31, 1997 and 1996......................4
Condensed consolidated statements of cash flows - For the six months
ended December 31, 1997 and 1996.................................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......................................................17
Item 6. Exhibits and Reports on Form 8-K...........................17
2
PART I - FINANCIAL INFORMATION
CELADON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
DECEMBER 31, JUNE 30,
1997 1997
----- ----
A S S E T S
Current assets:
Cash and cash equivalents................................................... $1,435 $1,845
Trade receivables, net of allowance......................................... 27,299 27,736
Accounts receivable - other................................................. 3,148 1,616
Prepaid expenses and other current assets................................... 4,436 3,972
Tires in service ........................................................... 3,618 2,987
Income tax recoverable...................................................... 3,649 4,198
Current portion of notes receivable......................................... 575 ---
Deferred income tax assets ................................................. 1,172 1,568
---------- ---------
Total current assets .................................................. 45,332 43,922
--------- --------
Property and equipment, at cost ................................................ 125,472 113,206
Less accumulated depreciation and amortization.............................. 33,490 29,424
--------- --------
Net property and equipment....................................... 91,982 83,782
--------- --------
Deposits ....................................................................... 573 523
Tires in service ............................................................... 2,231 2,057
Notes receivable, net of current portion........................................ 1,006 ---
Advance to affiliate............................................................ --- 1,933
Intangible assets............................................................... 688 750
Goodwill, net of accumulated amortization....................................... 8,370 4,848
Other assets.................................................................... 1,381 1,379
-------- --------
Total assets................................................................ $151,563 $139,194
======== ========
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............................................................ $4,554 $5,284
Accrued expenses ........................................................... 14,649 14,535
Bank borrowings and current maturities of long-term debt.................... 1,500 ---
Current maturities of capital lease obligations............................. 13,523 11,376
-------- -------
Total current liabilities.............................................. 34,226 31,195
---------- ------
Long-term debt, net of current maturities ...................................... 10,057 11,959
Capital lease obligations, net of current maturities............................ 49,672 42,402
Deferred income tax liabilities ................................................ 8,665 7,832
-------- -------
Total liabilities........................................................... 102,620 93,388
--------- ------
Minority interest............................................................... 12 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 and
outstanding 7,786,430 and 7,750,580 shares at December 31, 1997
and June 30, 1997, respectively .......................................... 257 256
Additional paid-in capital.................................................. 56,560 56,281
Retained earnings (deficit)................................................. (6,346) (9,531)
Equity adjustment for foreign currency translation.......................... (285) (252)
Treasury stock, at cost, 147,442 and 128,000 shares at
December 31, 1997 and June 30, 1997, respectively ....................... (1,255) (960)
--------- ---------
Total stockholders' equity............................................. 48,931 45,794
--------- --------
Total liabilities and stockholders' equity............................. $151,563 $139,194
======== ========
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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Operating revenue $ 56,836 $ 46,743 $108,680 $ 92,935
-------- -------- -------- --------
Operating expenses:
Salaries, wages and employee benefits........ 17,053 16,339 34,535 33,473
Fuel......................................... 7,800 7,581 15,089 15,063
Operating costs and supplies................. 4,493 3,660 8,479 6,548
Insurance and claims......................... 1,773 969 3,351 2,625
Depreciation and amortization................ 3,159 2,592 6,114 4,880
Rent and purchased transportation............ 15,193 8,487 26,150 17,238
Professional and consulting fees............. 423 389 838 600
Communications and utilities................. 814 745 1,594 1,490
Permits, licenses and taxes................. 1,062 1,018 1,922 2,076
Employee stock ownership plan contribution .. --- --- --- 34
(Gain) on sale of revenue equipment.......... (10) --- (10) ---
Selling expenses............................. 902 653 1,756 1,475
General and administrative................... 603 845 1,268 1,502
-------- -------- --------- --------
Total operating expenses................. 53,265 43,278 101,086 87,004
-------- -------- --------- --------
Operating income................................. 3,571 3,465 7,594 5,931
Other (income) expense:
Interest income.............................. (285) (5) (348) (98)
Interest expense............................. 1,426 1,383 2,773 2,456
Other (income) expense, net.................. 2 (37) 1 (46)
-------- -------- --------- --------
Income before income taxes .................. 2,428 2,124 5,168 3,619
Provision for income taxes................... 915 850 1,983 1,448
-------- --------- -------- --------
Net Income ................................ $ 1,513 $ 1,274 $ 3,185 $ 2,171
======= ======= ======= ========
Earnings per Common Share:
Diluted Earnings Per Share................... $0.20 $0.17 $0.41 $0.28
Basic Earnings Per Share..................... $0.20 $0.17 $0.42 $0.28
Average Shares Outstanding:
Diluted...................................... 7,751 7,651 7,730 7,647
Basic........................................ 7,649 7,628 7,636 7,634
See accompanying notes to condensed consolidated financial statements.
4
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
---------------------------
1997 1996
---- ----
Continuing Operations:
Cash flows from operating activities:
Net income............................................................. $3,185 $2,171
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................................... 6,114 4,880
Provision for deferred income taxes................................... 833 853
Provision for doubtful accounts....................................... 66 131
Net (gain) on sale of property and equipment.......................... (10) ---
Changes in assets and liabilities:
Decrease in trade receivables...................................... 5,672 3,762
(Increase) decrease in accounts receivable -- other................ (1,365) 1,624
Decrease in income tax recoverable................................. 945 208
(Increase) in tires in service..................................... (881) (482)
(Increase) in prepaid expenses and other current assets........... (264) (447)
Increase (decrease) in other assets................................ 257 (205)
(Decrease) in accounts payable and accrued expenses................ (2,878) (3,795)
Increase in income taxes payable................................... --- 191
--------- --------
Net cash provided by operating activities............................. 11,674 8,891
--------- --------
Cash flows from investing activities:
Purchase of property and equipment....................................... (1,255) (862)
Proceeds on sale of property and equipment............................... 2,506 13,798
Purchase of business, net of cash........................................ (4,626) ---
Disposals of property and equipment...................................... 338 ---
Increase in deposits..................................................... (50) 285
-------- --------
Net cash provided by (used for) investing activities................ (3,087) 13,221
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock................................... 250 ---
Purchase of common stock held in treasury................................ (337) (235)
Proceeds from issuance of common stock held in treasury.................. 72 ---
Proceeds from bank borrowings and debt................................... --- 132
Payments of bank borrowings and debt .................................... (3,185) (17,133)
Principal payments under capital lease obligations....................... (5,797) (5,649)
-------- --------
Net cash (used for) financing activities ............................. (8,997) (22,885)
-------- --------
(Decrease) in cash and cash equivalents.................................. (410) (773)
Cash and cash equivalents at beginning of year........................... 1,845 5,246
-------- ----------
Cash and cash equivalents at end of period............................... $ 1,435 $ 4,473
========= =========
See accompanying notes to condensed consolidated financial statements.
5
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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, 1997, 1996 and 1995.
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, 1997 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 truckload revenue.
6
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
Information as to the Company's operations by division is summarized below (in
thousands):
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Operating revenue:
Truckload............................... $50,655 $41,069 $96,111 $ 82,274
Flatbed................................. 6,181 5,674 12,569 10,661
--------- -------- --------- --------
Total............................... $56,836 $46,743 $108,680 $92,935
========= ======== ========= ========
Operating income:
Truckload............................... $ 3,150 $ 3,141 $ 6,921 $ 5,416
Flatbed................................. 421 324 673 515
--------- -------- --------- --------
Total............................... 3,571 3,465 7,594 5,931
Interest expense, net...................... (1,141) (1,378) (2,425) (2,358)
Other income (expense)..................... (2) 37 (1) 46
--------- -------- --------- --------
Income from operations before
incomes taxes........................... $ 2,428 $2,124 $5,168 $ 3,619
========= ======== ========= ========
Capital expenditures (including capital leases):
Truckload............................... $8,121 $ 13,291 $16,972 $28,399
Flatbed................................. --- 19 122 32
--------- -------- --------- --------
Total............................... $8,121 $ 13,310 $17,094 $ 28,431
========= ======== ========= ========
Depreciation and amortization:
Truckload............................... $3,099 $ 2,533 $5,995 $ 4,761
Flatbed................................. 60 59 119 119
--------- -------- --------- --------
Total............................... $3,159 $ 2,592 $6,114 $ 4,880
========= ======== ========= ========
Total assets:
Truckload........................................................... $138,255 $ 134,011
Flatbed............................................................. 8,726 6,647
---------- ---------
Subtotal........................................................ 146,981 140,658
Discontinued operations (i)......................................... 4,582 11,017
---------- ---------
Total........................................................... $151,563 $151,675
========== =========
(i) Remaining assets being liquidated related to operations discontinued in
the fiscal year ended June 30, 1996.
7
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS -- (CONTINUED)
(UNAUDITED)
Information as to the Company's operations by geographic area is summarized
below (in thousands):
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED
December 31, DECEMBER 31,
-------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Operating revenue:
United States..................... $54,585 $45,453 $104,362 $90,569
Mexico (i)........................ 2,251 1,290 4,318 2,366
--------- -------- -------- --------
Total........................... $56,836 $46,743 $108,680 $92,935
========= ======== ======== ========
Income (loss) before income taxes:
United States..................... $ 2,183 $ 2,147 $ 4,772 $ 3,654
Mexico (i)........................ 245 (23) 396 (35)
--------- -------- -------- --------
Total........................... $ 2,428 $ 2,124 $ 5,168 $ 3,619
========= ======== ======== ========
Total assets:
United States...................................................... $147,995 $146,329
Mexico (i)......................................................... 2,324 2,348
Europe (ii)........................................................ 1,244 2,998
-------- --------
Total............................................................ $151,563 $151,675
======== ========
(i) Relates to the Company's trucking operations in Mexico.
(ii) Relates to the Company's discontinued freight forwarding operations based
in the United Kingdom.
Significant Customer:
Revenue from Chrysler accounted for approximately 36% and 42% of the
Company's truckload revenue for the three months ended December 31, 1997 and
1996, 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 26% and 74%, respectively, of the Company's revenue from
Chrysler for the three months ended December 31, 1997 and 29% and 71%,
respectively, for the three months ended December 31, 1996. 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 was extended for three years and now expires
October 1, 2000. No other customer accounted for more than 5% of the Company's
revenue during any of its three most recent fiscal years.
8
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
(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 the six months
ending December 31, 1997 and 1996 were 38.4% and 40%, respectively.
(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 December
31, 1997, the Company had contracts to purchase fuel for future physical
delivery in the month of January 1998 through May 1998. These contracts
represent approximately 21% of the anticipated fuel requirements in those
months. Additionally, the Company periodically acquires exchange-traded
petroleum futures contracts and various commodity collar transactions. Gains and
losses on transactions, not designated as hedges, are recognized based on market
value at the date of the financial statements. At December 31, 1997, liquidation
of outstanding transactions, not designated as hedges, which extended through
August 1998 and covered approximately 78% during January 1998 through April
1998, 43% during May and June 1998 and an average of 22% in July and August 1998
of the Company's fuel requirements, would have resulted in a $298 thousand loss.
Transactions designated as hedges and therefore not marked-to-market value had a
negative value of $99 thousand. 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. During the quarter ending December 31, 1997 and
1996, losses of $387 thousand and $15 thousand, respectively, on futures
contracts and commodity collar transactions were shown as an increase in fuel
expense. For the six months ended December 31, 1997, net losses of $209 thousand
on futures contracts and commodity collar transactions were included as an
increase to fuel expense and for the six months ended December 31, 1996 net
gains of $153 thousand on physical delivery and futures contracts and commodity
collar transactions were included as a reduction of fuel expense. To the extent
the Company hedges portions of its fuel purchases, it may not fully benefit from
decreases in fuel prices.
Standby letters of credit, not reflected in the accompanying condensed
consolidated financial statements, aggregated approximately $2.5 million at
December 31, 1997.
The Company has outstanding commitments to purchase approximately $10.2
million of revenue equipment at December 31, 1997.
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 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 the March 1997 quarter, the Company filed
its Original
9
Petition against representatives of the State of Texas. The state responded and
denied the Company's claims. As of December 31, 1997, the parties to the
litigation were exchanging discovery requests and documentation. The Company has
accrued an amount that management estimates is due based upon methods they
believe are appropriate. 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 incidental 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 or results of operations.
(5) ACQUISITION
On August 25, 1997, the Company acquired the net assets of General
Electric Transportation Services ("GETS"), the transportation services unit of
the General Electric Industrial Control Systems ("GEICS") business. In addition
to the net assets acquired, the Company received a five-year contract to
continue providing transportation service to GEICS, which represents
approximately one-half of the current business volume of the transportation
services unit. The total acquisition price was $8.5 million payable as $5.5
million in cash at closing and a $3.0 million note plus assumption of certain
liabilities and lease obligations. The revenues and expenses of the operations
acquired from GEICS have been included in the Company's consolidated financial
statements since September 1, 1997.
(6) COMMON STOCK
On November 1, 1997, the warrant held by International Bancshares
Corporation was exercised. The warrant holder exercised the warrant by paying
the Company $250 thousand upon the issuance of 36,408 shares by the Company. In
connection with the issuance of the warrant, the Company granted certain
piggyback and demand registration rights with respect to shares issued.
(7) SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended December 31, 1997 and 1996, capital lease
obligations in the amount of $8.2 million and $19.3 million, respectively and
for the six months ended December 31, 1997 and 1996, capital lease obligations
in the amount of $15.2 million and $34.0 million, respectively were incurred in
connection with the purchase of, or option to purchase revenue equipment
(including tires in service).
(8) EARNINGS PER SHARE
During the three months ended December 31, 1997, the Company adopted the
provisions of Financial Accounting Standards FAS No. 128, Earnings Per Share.
Accordingly, interim periods ending before December 15, 1997 have been restated
to reflect basic and diluted earnings per share in accordance with this
Standard.
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; changes in fuel prices;
changes in economic, political or regulatory environments; changes in the
availability of a stable labor force; the 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THE THREE MONTHS ENDED
DECEMBER 31, 1996
Revenue. Consolidated revenue from continuing operations of the Company
increased by $10.1 million, or 22%, to $56.8 million for the three months ended
December 31, 1997 (the "1997 period") from $46.7 million for the three months
ended December 31, 1996 (the "1996 period"). Revenue from the truckload division
which includes the Company's Mexican Subsidiary ("Jaguar") increased by $9.6
million, or 23%, to $50.7 million in the 1997 period from $41.1 million in the
1996 period. This increase is a result of a volume increase primarily in the
demand for the Company's transportation services between the United States and
Mexico in addition to the revenue generated from the General Electric Transport
Services ("GETS") division acquired in September 1997. Additionally, billings
for trailer detention and demurrage increased $0.4 million over the 1996 period
and billings to customers for purchased transportation in Mexico increased $1.3
million over the 1996 period. The number of tractors operated by the Company's
U.S. truckload operation in over-the-road service rose to 1,308 at December 31,
1997 compared to 1,200 at December 31, 1996 excluding 49 tractors operated by
the Company's Mexican affiliate in both periods. Owner-operated tractors
increased from 4 to 183 between December 1996 to December 1997, primarily
as a result of the GETS acquisition.
Revenue for Jaguar increased by $0.9 million, or 75%, to $2.1 million in
the 1997 period from $1.2 million in the 1996 period, primarily as a result of
better equipment utilization and increased rates. In addition, Jaguar increased
revenues by expanding its fleet through the use of owner-operators which began
in the fourth quarter of fiscal year 1997.
Revenue for the flatbed division which operates under the name of Cheetah
Transportation Company ("Cheetah") increased by $0.5 million, or 9%, to $6.2
million for the 1997 period from $5.7 million for the 1996 period. The increase
is primarily due to the number of owner-operated tractors in Cheetah's network
which increased to 276 at December 31, 1997 from 260 at December 31, 1996.
Operating income. The truckload division operating income was $3.2
million in both the 1997 and 1996 periods. The operating ratio for the truckload
division, which is the percentage of operating expenses to its revenue,
increased to 93.8% in the 1997 period from 92.4% in the 1996 period. The 1997
operating ratio was impacted by 0.7 of a percentage point due to a decline in
value of heating oil financial contracts acquired by
11
the Company as part of its fuel price management program. The 1997 operating
ratio was also impacted by 0.7 of a percentage point due to excess idle
equipment which the Company estimates cost approximately $360 thousand in the
1997 period. The increase in the number of owner-operated tractors also
increased the operating ratio. In the 1997 period, the truckload division
payments to owner-operators included in rent and purchased transportation
expense of $5.7 million, an increase of $5.6 million, was principally due to the
acquisition of GETS in September 1997. Charges for purchased transportation
services relating to transportation in Mexico also increased $1.2 million
over the 1996 period. Average fuel cost per gallon decreased by $0.05 in
the 1997 period compared with the 1996 period. This cost decrease includes
realized losses of $387 thousand attributable to the Company's fuel price
management program.
The Company's flatbed division operating ratio improved to 93.2% in the
1997 period from 94.3% in the 1996 period. This ratio 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. This improvement was primarily due to
the flatbed division's overhead and fixed operating expenses not increasing as
rapidly as the revenue increase. In the 1997 period, the flatbed division
payments to owner-operators of $4.7 million, an increase of $0.4 million on
higher volume are included in rent and purchased transportation expense and
payments to brokers of $0.4 million, in both periods, are included in selling
expense.
Interest expense/income. Interest expense remained constant at $1.4
million in both the 1997 and 1996 periods which was due to a comparable amount
of outstanding borrowings in both periods. The Company recognized $0.3 million
of interest income in the 1997 period which included approximately $0.2 million
related to interest income on federal income tax refunds received due to the
carry back of losses on discontinued operations.
Income taxes. The effective tax rates for the December 31, 1997 and 1996
periods were 37.7% and 40% respectively. The lower effective tax rate during the
1997 period is principally due to lower estimated state tax expense.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THE SIX MONTHS ENDED DECEMBER
31, 1996
Revenue. Consolidated revenue from continuing operations of the Company
increased by $15.7 million, or 17%, to $108.7 million for the six months ended
December 31, 1997 (the "1997 period") from $92.9 million for the six months
ended December 31, 1996 (the "1996 period"). Revenue from the truckload division
which includes the Company's Mexican Subsidiary ("Jaguar") increased by $13.8
million, or 17%, to $96.1 million in the 1997 period from $82.3 million in the
1996 period. This increase was primarily a result of a volume increase in the
demand for the Company's transportation services between the United States and
Mexico, a 5% increase in overall rates per mile and the addition to revenue
generated from the General Electric Transport Services ("GETS") division
acquired in September 1997. Additionally, billings for trailer detention and
demurrage increased $0.5 million over the 1996 period and billings to customers
for purchased transportation in Mexico increased $1.8 million over the 1996
period. The number of tractors operated by the Company's U.S. truckload
operation in over-the-road service rose to 1,308 at December 31, 1997
compared to 1,200 at December 31, 1996 in both cases excluding 49 tractors
operated by the Company's Mexican affiliate in both periods. Owner-operated
tractors increased from 4 to 183 between December 1996 to December 1997
primarily as a result of the GETS acquisition.
Revenue for Jaguar increased by $1.8 million, or 82%, to $4.0 million in
the 1997 period from $2.2 million in the 1996 period, primarily as a result of
better equipment utilization and increased rates. In addition, Jaguar increased
revenues by expanding its fleet through the use of owner-operators which began
in the fourth quarter of fiscal year 1997.
12
Revenue from the flatbed division increased by $1.9 million, or 18% to
$12.6 million in the 1997 period from $10.7 million in the 1996 period,
primarily as a result of increasing the network of owner-operated tractors to
276 at December 31, 1997 from 260 at December 31, 1996.
Operating income. The truckload division operating income increased by
$1.5 million, or 28%, to $6.9 million in the 1997 period from $5.4 million in
the 1996 period. The operating ratio for the truckload division, which is the
percentage of operating expenses to its revenue, improved to 92.8% in the 1997
period from 93.4% in the 1996 period. This improvement was principally
attributable to the increase in net rate per mile noted above partially offset
by cost increases. Average fuel cost per gallon decreased by $0.06 in the 1997
period compared with the 1996 period. This cost decrease is net of realized
losses attributable to the Company's fuel price management program, of $209
thousand, or $0.015 per gallon. In addition, costs associated with the larger
tractor fleet partially offset the benefits of the price increases. The
improvement in the operating ratio was also attributable to operating income
recognized in the Jaguar division in the 1997 period compared with an operating
loss in the 1996 period. In the 1997 period, the truckload division payments to
owner-operators included in rent and purchased transportation expense of $7.7
million, an increase of $7.6 million, was principally due to the acquisition of
GETS in September 1997. Charges for purchased transportation services relating
to transportation in Mexico also increased $1.7 million over the 1996 period.
The Company's flatbed division operating ratio improved to 94.7% in the
1997 period from 95.2% in the 1996 period. This ratio 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. This improvement was primarily due to
the flatbed division's overhead and fixed operating expenses not increasing as
rapidly as the revenue increase. In the 1997 period, the flatbed division
payments to owner-operators of $9.8 million, an increase of $1.6 million on
higher volume are included in rent and purchased transportation expense and
payments to brokers of $0.9 million, an increase of $0.1 million, are included
in selling expense.
Interest expense/income. Interest expense increased by $0.3 million, or
13%, to $2.8 million in the 1997 period from $2.4 million in the 1996 period, as
a result of higher average outstanding borrowings primarily in the first quarter
of the 1997 period. The Company recognized $0.3 million of interest income in
the 1997 period which included approximately $0.2 million related to interest
income on federal income tax refunds received due to the carry back of losses on
discontinued operations.
Income taxes. The effective tax rates for the December 31, 1997 and 1996
periods were 38.4% and 40% respectively. The lower effective tax rate during the
1997 period is principally due to lower estimated state tax expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in fiscal 1998 have been
funding the acquisition of revenue equipment for the trucking division. These
requirements have been met primarily by equipment leasing arrangements. At
December 31, 1997, the Company had a credit facility of $30.0 million from its
banks, of which $8.7 million was utilized as outstanding borrowings, and $2.5
million was utilized for standby letters of credit. The average balance
outstanding during the six months was $10.3 million and the highest balance
outstanding was $17.6 million.
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 7.82% at December 31, 1997. 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.
13
The trucking division has financed some of its capital requirements by
obtaining lease financing and notes payable on revenue equipment. At December
31, 1997, the Company had an aggregate of $63.2 million in such financing at
interest rates ranging from 5.7% to 10.6%, maturing at various dates through
2004. Of this amount, $13.5 million is due within one year.
As of December 31, 1997, the Company had on order revenue equipment
representing an aggregate capital commitment of $10.2 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 December 31, 1997, decreased
$0.4 million to $27.3 million from $27.7 million at June 30, 1997. The net
decrease represented a $1.6 million increase in the truckload division, a $0.5
million decrease in the flatbed division and a $1.5 million decrease related to
the winddown of discontinued operations. The increase in accounts receivable for
the truckload division reflects the GETS operation acquired in September 1997
which had receivables of $3.3 million at December 31, 1997 compared with $5.3
million included in the assets originally acquired.
The Company purchases fuel contracts from time-to-time for a portion of
its projected fuel needs. At December 31, 1997, the Company had contracts to
purchase for future delivery approximately 21% of its fuel requirements through
May 1998. Contract prices are approximately 5% over December 31, 1997 market
prices for future delivery. The Company does not believe that these price levels
will have a material adverse effect on its results of operations. The Company's
fuel price management program has not adversely impacted the Company's
liquidity.
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.
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, winter generally may have
an unfavorable impact upon the Company's results of operations. Also, business
demands for full truckload service tend to fall during holidays in both the U.S.
and Mexico and the timing of holidays can therefore impact the Company's
operations in any particular period.
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.
14
YEAR 2000
The Company recognizes the potential problems for many computer systems
and the users relating to the Year 2000. The preponderance of the Company's
systems are purchased from outside vendors. The Company has assessed its primary
systems and believes that virtually all of the systems are Year 2000 compliant.
Those installed systems which are not currently able to fully function in the
Year 2000 either have new versions which are Year 2000 compliant and which the
Company is preparing to install on the system, or the vendor has committed to a
Year 2000 compliant release in sufficient time to allow installation and testing
prior to critical cut over dates. Consequently, the Company presently does not
anticipate either a significant amount of incremental expense or a disruption in
service associated with the Year 2000 and its impact on the Company's computer
systems.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Celadon Group, Inc. held its regular Annual Meeting of shareholders on
December 1, 1997. Proxies representing 6,853,859 shares of Common Stock or
89.91% of the total outstanding shares voted as follows:
Proposal I - Elections of Directors
Voted For Vote Withheld
--------- -------------
Stephen Russell 6,850,787 3,072
Paul A. Biddelman 6,851,057 2,802
Michael Miller 6,850,557 3,302
Kilin To 6,851,057 2,802
Joel E. Smilow 6,844,057 9,802
Proposal II - Approval and adoption of Celadon Group, Inc. Non-Employee Director
Stock Option Plan
For 6,539,181
Against 208,246
Abstain 7,175
Broker Non-votes 99,257
Proposal III - Approval of Amendment to the Celadon Group, Inc. 1994 Stock
Option Plan (i)
For 5,832,442
Against 890,977
Abstain 7,279
Broker Non-votes 103,157
Proposal IV - Ratification of appointment of Ernst & Young LLP as Auditors
For 6,842,354
Against 10,597
Abstain 908
(i) Among other things, the approved amendment increased from 500,000 to
650,000, the number of shares of common stock that may be subject to
options, stock appreciation rights and restricted stock awards that may be
granted under the 1994 Stock Option Plan.
16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit 10.3 1994 Stock Option Plan of the Company.
Incorporated by reference to Exhibit B to the
Company's Proxy Statement dated October 17, 1997.
Exhibit 10.52 Seventh amendment dated December 16, 1997 to the
Credit Agreement dated June 1, 1994 between
Celadon Group, Inc. Celadon Trucking Services,
Inc., and NBD Bank N.A. and the First National
Bank of Boston.
Exhibit 10.53 Celadon Group, Inc. Non-Employee Director Stock
Option. Incorporated by reference to Exhibit A
to the Company's Proxy Statement dated
October 17, 1997.
Exhibit 10.54 Amendment No. 2 dated August 1, 1997 to Employment
Agreement dated January 21, 1994 between the
Company and Stephen Russell.
Exhibit 11 Computation of per share earnings
Exhibit 27 Financial Data Schedule
(b) Form 8-K None
17
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/ Don S. Snyder
----------------------------------------
Don S. Snyder, Executive Vice President
Chief Financial Officer
Date: February 11, 1998
18