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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-23192
CELADON GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3361050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE CELADON DRIVE
INDIANAPOLIS, IN 46235-4207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 972-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No ____
The number of shares outstanding of the Common Stock ($.033 par value) of the
Registrant as of the close of business on May 13, 1998 was 7,721,989.
CELADON GROUP, INC.
INDEX TO
MARCH 31, 1998 FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets at March 31, 1998
and June 30, 1997......................................................................................3
Condensed consolidated statements of operations - For the three and nine months
ended March 31, 1998 and 1997..........................................................................4
Condensed consolidated statements of cash flows - For the nine months ended
March 31, 1998 and 1997................................................................................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 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)
MARCH 31, JUNE 30,
1998 1997
----- ----
A S S E T S
Current assets:
Cash and cash equivalents................................................................... $ 1,657 $1,845
Trade receivables, net of allowance......................................................... 31,533 27,736
Accounts receivable - other................................................................. 2,368 1,616
Prepaid expenses and other current assets................................................... 5,032 3,972
Tires in service ........................................................................... 3,621 2,987
Income tax recoverable...................................................................... 2,643 4,198
Current portion of notes receivable......................................................... 683 ---
Deferred income tax assets ................................................................. 1,211 1,568
----------- ----------
Total current assets ................................................................. 48,748 43,922
--------- ---------
Property and equipment, at cost ................................................................. 148,292 113,206
Less accumulated depreciation and amortization.............................................. 36,642 29,424
--------- ---------
Net property and equipment............................................................ 111,650 83,782
-------- ---------
Deposits ....................................................................................... 544 523
Tires in service ................................................................................ 2,026 2,057
Notes receivable, net of current portion......................................................... 863 ---
Advance to affiliate............................................................................. --- 1,933
Intangible assets................................................................................ 656 750
Goodwill, net of accumulated amortization........................................................ 8,366 4,848
Other assets..................................................................................... 1,325 1,379
----------- -----------
Total assets................................................................................ $ 174,178 $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............................................................................ $ 3,094 $ 5,284
Accrued expenses ........................................................................... 16,541 14,226
Bank borrowings and current maturities of long-term debt.................................... 1,500 309
Current maturities of capital lease obligations............................................. 17,372 11,376
---------- ----------
Total current liabilities............................................................. 38,507 31,195
---------- ----------
Long-term debt, net of current maturities ....................................................... 11,083 11,959
Capital lease obligations, net of current maturities............................................. 64,099 42,402
Deferred income tax liabilities ................................................................. 9,475 7,832
----------- ---------
Total liabilities........................................................................... 123,164 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 March 31, 1998
and June 30, 1997, respectively .......................................................... 257 256
Additional paid-in capital.................................................................. 56,656 56,281
Retained earnings (deficit)................................................................. (4,831) (9,531)
Equity adjustment for foreign currency translation.......................................... (369) (252)
Treasury stock, at cost, 76,107 and 128,000 shares at
March 31, 1998 and June 30, 1997, respectively ........................................... (711) (960)
------------ ----------
Total stockholders' equity............................................................ 51,002 45,794
----------- ----------
Total liabilities and stockholders' equity............................................ $174,178 $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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
---- ---- ---- ----
Operating revenue $56,010 $47,824 $164,690 $140,759
------- ------- -------- --------
Operating expenses:
Salaries, wages and employee benefits.................. 16,647 16,787 51,182 50,260
Fuel................................................... 7,066 8,011 22,155 23,074
Operating costs and supplies........................... 5,048 3,102 13,527 9,650
Insurance and claims................................... 1,484 1,449 4,835 4,074
Depreciation and amortization.......................... 3,396 2,647 9,510 7,527
Rent and purchased transportation...................... 14,807 8,754 40,957 25,993
Professional and consulting fees....................... 329 404 1,167 1,004
Communications and utilities........................... 837 774 2,431 2,264
Permits, licenses and taxes........................... 890 1,111 2,812 3,187
(Gain) on sale of revenue equipment.................... --- --- (10) ---
Selling expenses....................................... 854 860 2,610 2,335
General and administrative............................. 566 348 1,834 1,882
---------- --------- ---------- --------
Total operating expenses........................... 51,924 44,247 153,010 131,250
-------- ------- -------- --------
Operating income............................................ 4,086 3,577 11,680 9,509
Other (income) expense:
Interest income........................................ (85) (57) (433) (155)
Interest expense....................................... 1,782 1,361 4,555 3,817
Other (income) expense, net............................ (88) 8 (86) (37)
--------- -------- --------- ---------
Income before income taxes ............................ 2,477 2,265 7,644 5,884
Provision for income taxes............................. 961 906 2,944 2,354
-------- --------- --------- --------
Net income .......................................... $ 1,516 $ 1,359 $ 4,700 $ 3,530
======== ======= ======== =======
Earnings per common share:
Diluted earnings per share............................. $0.20 $0.18 $0.61 $0.46
Basic earnings per share............................... $0.20 $0.18 $0.61 $0.46
Average shares outstanding:
Diluted................................................ 7,744 7,675 7,734 7,656
Basic.................................................. 7,670 7,623 7,647 7,630
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,
---------------------------
1998 1997
---- ----
Continuing Operations:
Cash flows from operating activities:
Net income............................................................................... $4,700 $3,530
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................................................... 9,510 7,527
Provision for deferred income taxes................................................... 1,643 879
Provision for doubtful accounts....................................................... 171 189
Net (gain) on sale of property and equipment.......................................... (10) ---
Changes in assets and liabilities:
Decrease in trade receivables...................................................... 1,333 6,292
(Increase) decrease in accounts receivable -- other................................ (585) 923
Decrease (increase) in income tax recoverable...................................... 1,912 (26)
(Increase) in tires in service..................................................... (679) (159)
(Increase) in prepaid expenses and other current assets............................ (860) (1,273)
Decrease (increase) in other assets................................................ 234 (165)
(Decrease) in accounts payable and accrued expenses................................ (2,446) (6,928)
(Decrease) in income taxes payable................................................. --- (258)
------------ -----------
Net cash provided by operating activities............................................. 14,923 10,531
-------- --------
Cash flows from investing activities:
Purchase of property and equipment....................................................... (2,201) (1,274)
Proceeds on sale of property and equipment............................................... 2,542 13,864
Purchase of business, net of cash acquired............................................... (4,716) ---
Disposal of property and equipment....................................................... 641 ---
(Increase) decrease in deposits.......................................................... (21) 281
---------- ----------
Net cash provided by (used for) investing activities................................ (3,755) 12,871
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock................................................... 376 ---
Purchase of common stock held in treasury................................................ (586) (235)
Proceeds from issuance of common stock held in treasury.................................. 835 ---
Proceeds from bank borrowings and debt................................................... 1 132
Payments of bank borrowings and debt .................................................... (2,160) (19,005)
Principal payments under capital lease obligations....................................... (9,822) (8,234)
--------- ----------
Net cash (used for) financing activities ........................................... (11,356) (27,474)
---------- ---------
(Decrease) in cash and cash equivalents.................................................. (188) (4,072)
Cash and cash equivalents at beginning of year........................................... 1,845 5,246
--------- ---------
Cash and cash equivalents at end of period............................................... $ 1,657 $ 1,174
======== =======
See accompanying notes to condensed consolidated financial statements.
5
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 Corporation accounts for a significant
amount of the Company's truckload revenue.
6
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Information as to the Company's operations by division is summarized below (in
thousands):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
---- ---- ---- ----
Operating revenue:
Truckload....................................... $49,607 $ 41,675 $145,719 $123,950
Flatbed......................................... 6,403 6,149 18,971 16,809
---------- ---------- --------- ---------
Total....................................... $56,010 $ 47,824 $164,690 $140,759
======= ======== ======== ========
Operating income:
Truckload....................................... $ 3,774 $ 3,254 $10,696 $ 8,671
Flatbed......................................... 312 323 984 838
--------- --------- --------- ----------
Total....................................... 4,086 3,577 11,680 9,509
Interest expense, net........................... (1,697) (1,304) (4,122) (3,662)
Other income (expense).......................... 88 (8) 86 37
---------- ---------- ----------- ----------
Income from operations
before incomes taxes........................ $2,477 $ 2,265 $ 7,644 $ 5,884
====== ======= ======== =======
Capital expenditures (including capital leases):
Truckload....................................... $ 22,904 $225 $ 39,876 $ 28,624
Flatbed......................................... -- -- 122 32
--------- ------ ---------- -----------
Total....................................... $ 22,904 $225 $ 39,998 $ 28,656
======== ==== ======== ========
Depreciation and amortization:
Truckload....................................... $ 3,336 $ 2,588 $ 9,331 $ 7,348
Flatbed......................................... 60 59 179 179
---------- --------- --------- ---------
Total....................................... $ 3,396 $ 2,647 $ 9,510 $ 7,527
======= ======= ======= =======
Total assets:
Truckload......................................................................... $161,681 $130,395
Flatbed........................................................................... 8,077 7,272
---------- ----------
Subtotal ..................................................................... 169,758 137,667
Discontinued operations (i)....................................................... 4,420 7,063
--------- ----------
Total......................................................................... $174,178 $144,730
======== ========
(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)
MARCH 31, 1998
(UNAUDITED)
Information as to the Company's operations by geographic area is summarized
below (in thousands):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
---- ---- ---- ----
Operating revenue:
United States............................ $53,553 $46,346 $157,915 $ 136,915
Mexico (i)............................... 2,457 1,478 6,775 3,844
--------- --------- ---------- ----------
Total.................................. $ 56,010 $47,824 $ 164,690 $ 140,759
======== ======= ========= =========
Income (loss) before income taxes:
United States............................ $ 2,123 $ 2,117 $ 6,895 $ 5,772
Mexico (i)............................... 354 148 749 112
--------- -------- --------- ----------
Total.................................. $ 2,477 $ 2,265 $ 7,644 $ 5,884
========= ======== ======= ========
Total assets:
Unites States.................................................................... $ 170,148 $141,036
Mexico (i)....................................................................... 2,920 1,736
Europe (ii)...................................................................... 1,110 1,958
----------- ----------
Total.......................................................................... $174,178 $144,730
======== ========
(i) Relates to the Company's trucking operations in Mexico.
(ii) Relates to the Company's discontinued freight forwardin
operations based in the United Kingdom.
Significant Customer:
Revenue from Chrysler accounted for approximately 35% and 43% of the
Company's truckload revenue for the three months ended March 31, 1998 and 1997,
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 28% and 72%, respectively, of the Company's revenue from Chrysler
for the three months ended March 31, 1998 and 31% and 69%, respectively, for the
three months ended March 31, 1997. 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)
MARCH 31, 1998
(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 nine months
ending March 31, 1998 and 1997 were 38.5% and 40.0%, 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 March
31, 1998, the Company had contracts to purchase fuel for future physical
delivery in the months of April 1998 through May 1999. These contracts represent
approximately 19% of the anticipated fuel requirements for 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 March 31, 1998, liquidation of
outstanding transactions, not designated as hedges, which extended through
August 1998 (covering approximately 56% during April 1998, 21% during May and
June 1998 and an average of 11% in July and August 1998 of the Company's fuel
requirements), would have resulted in a $215,000 loss, which has been recognized
in the financial statements. Transactions designated as hedges and therefore not
marked-to-market value had a negative value of $335,000. 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 March 31, 1998
and 1997, losses of $442,000 and $75,000, respectively, on futures contracts and
commodity collar transactions were shown as an increase in fuel expense. For the
nine months ended March 31, 1998 and 1997, net losses of $651,000 and $7,000,
respectively, on futures contracts and commodity collar transactions were
included as an increase to 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
March 31, 1998.
The Company has outstanding commitments to purchase approximately $7.6
million of revenue equipment at March 31, 1998.
The Company has been assessed approximately $750,000 by the State of
Texas for Interstate Motor Carrier Sales and Use Tax for the period from April
1988 through June 1992. The Company disagrees with the State of Texas over the
method used by the state in computing such taxes and intends to vigorously
pursue all of its available remedies. On October 30, 1996, the Company made a
payment of $1.1 million, under protest, which includes interest to the date of
payment and enables the Company to pursue resolution of the matter with the
State of Texas Attorney General. In the March 1997 quarter, the Company filed
its Original Petition against representatives of the State of Texas. The state
responded and denied the Company's claims.
9
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
As of March 31, 1998, 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) ACQUISITIONS
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.
On March 16, 1998, the Company signed a definitive agreement to
acquire Gerth Transport of Kitchener, Ontario for approximately $20 million,
including cash and the assumption of debt.
(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 $250,000 upon the issuance of 36,408 shares of common stock 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 March 31, 1998 and 1997, capital lease
obligations in the amount of $22.3 million and $0 million, respectively and for
the nine months ended March 31, 1998 and 1997, capital lease obligations in the
amount of $37.5 million and $33.9 million, respectively were incurred in
connection with the purchase of, or option to purchase, revenue equipment
(including tires in service).
10
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
(8) EARNINGS PER SHARE
During the nine months ended March 31, 1998, 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.
11
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
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 MARCH 31, 1998 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1997
Revenue. Consolidated revenue from continuing operations of the
Company increased by $8.2 million, or 17%, to $56.0 million for the three months
ended March 31, 1998 (the "1998 period") from $47.8 million for the three months
ended March 31, 1997 (the "1997 period"). Revenue from the truckload division
which includes the Company's Mexican Subsidiary ("Jaguar") increased by $7.9
million, or 19%, to $49.6 million in the 1998 period from $41.7 million in the
1997 period. This increase is principally attributable to an increase in net
rate per mile and to the revenue generated from the General Electric Transport
Services ("GETS") division acquired in September 1997. Additionally, billings
for trailer detention and demurrage increased $0.6 million over the 1997 period
and billings to customers for purchased transportation in Mexico increased $1.5
million over the 1997 period. The number of tractors operated by the Company's
U.S. truckload operation in over-the-road service rose to 1,305 at March 31,
1998 compared to 1,211 at March 31, 1997 excluding 49 tractors operated by the
Company's Mexican affiliate in both periods. Owner-operated tractors increased
to 186 at March 31, 1998 from 4 at March 31, 1997, primarily as a result of the
GETS acquisition.
Revenue for Jaguar increased by $0.8 million, or 57%, to $2.2 million
in the 1998 period from $1.4 million in the 1997 period, primarily as a result
of expanding its fleet through the use of owner-operators which began in the
fourth quarter of fiscal year 1997. In addition, Jaguar increased revenues by
better equipment utilization and increased rates.
12
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Revenue for the flatbed division which operates under the name of
Cheetah Transportation Company ("Cheetah") increased by $0.3 million, or 5%, to
$6.4 million for the 1998 period from $6.1 million for the 1997 period. The
increase is primarily due to an increase in rate per mile.
Operating income. The truckload division operating income increased by
$0.5 million or 15%, to $3.8 million in the 1998 period from $3.3 million in the
1997 period. The operating ratio for the truckload division, which is the
percentage of operating expenses to its revenue, increased to 92.4% in the 1998
period from 92.2% in the 1997 period. The increased operating ratio was
principally attributable to cost increases partially offset by an increase in
net rate per mile. The 1998 operating ratio was negatively impacted by 0.9%, or
$453,000, due to realized losses from a decline in value of heating oil
financial contracts acquired by the Company as part of its fuel price management
program. The increase in the number of owner-operated tractors also increased
the operating ratio. In the 1998 period, the truckload division payments to
owner- operators included in rent and purchased transportation expense of $9.8
million, an increase of $5.9 million, was principally due to the acquisition of
GETS in September 1997. Charges for purchased transportation services relating
to transportation in Mexico also increased $1.5 million over the 1997 period.
The Company's flatbed division operating ratio increased to 95.2% in
the 1998 period from 94.8% in the 1997 period. This ratio is typically higher
than the Company's truckload division since operating expense payments to owner
operators generally exceed these generated by Company-owned equipment, as a
percentage of revenue. The quarterly increase in operating ratio is primarily
due to increased insurance costs for the current quarter.
Interest expense/income. Interest expense increased by $0.4 million,
or 31%, to $1.8 million in the 1998 period from $1.4 million in the 1997 period
which was due to increased borrowings associated with capital leased equipment.
The Company recognized $0.1 million of interest income in the 1998 period.
Income taxes. The effective tax rates for the March 31, 1998 and 1997
periods remained flat at 38.8%.
13
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
NINE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THE NINE MONTHS ENDED MARCH 31,
1997
Revenue. Consolidated revenue for the Company increased by $23.9
million, or 17%, to $164.7 million for the nine months ended March 31, 1998 (the
"1998 period") from $140.8 million for the nine months ended March 31, 1997 (the
"1997 period"). Revenue from the truckload division, which includes the
Company's Mexican Subsidiary ("Jaguar"), increased by $21.8 million, or 18%, to
$145.7 million in the 1998 period from $123.9 million in the 1997 period. This
increase was primarily due to an increase in overall rate per mile and the
addition of revenue generated from the General Electric Transport Services
("GETS") division acquired in September 1997. Additionally, billings for trailer
detention and demurrage increased $1.1 million over the 1997 period and billings
to customers for purchased transportation in Mexico increased $3.3 million over
the 1997 period. The number of tractors operated by the Company's U.S. truckload
operation in over-the-road service rose to 1,305 at March 31, 1997 compared to
1,211 at March 31, 1997 in both cases excluding 49 tractors operated by the
Company's Mexican affiliate in both periods. Owner-operated tractors increased
to 186 in the 1998 period from 4 in the 1997 period, primarily as a result of
the GETS acquisition.
Revenue for Jaguar increased by $2.6 million, or 72%, to $6.2 million
in the 1998 period from $3.6 million in the 1997 period, primarily as a result
of expanding its fleet through the use of owner-operators which began in the
fourth quarter of fiscal year 1997. In addition, Jaguar increased revenues by
better equipment utilization and increased rates.
Revenue from the flatbed division increased by $2.2 million, or 13% to
$19.0 million in the 1998 period from $16.8 million in the 1997 period,
primarily as a result of an increase in the rate per mile.
Operating income. The truckload division operating income increased by
$2.0 million, or 23%, to $10.7 million in the 1998 period from $8.7 million in
the 1997 period. The operating ratio for the truckload division, which is the
percentage of operating expenses to its revenue, decreased to 92.7% in the 1998
period from 93.0% in the 1997 period. This decrease was principally attributable
to the increase in net rate per mile noted above partially offset by cost
increases. Average fuel cost per gallon, net of realized losses attributable to
the Company's fuel management program, decreased by $0.10 in the 1998 period
compared with the 1997 period. The improvement in the operating ratio was also
attributable to an increase in operating income in the Jaguar division of
$700,000 over the 1997 period. In the 1998 period, the truckload division
payments to owner-operators included in rent and purchased transportation
expense of $26.3 million, an increase of $14.2 million, were principally due to
the acquisition of GETS in September 1997. Charges for purchased transportation
services relating to transportation in Mexico also increased $3.1 million over
the 1997 period.
14
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
The Company's flatbed division operating ratio improved to 94.8% in
the 1998 period from 95.1% in the 1997 period. This ratio is typically higher
than the Company's truckload division since operating expense payments to
owner-operators generally exceed those generated by Company-owned equipment, as
a percentage of revenue. This improvement was primarily due to the flatbed
division's revenue increasing at a rate greater than its costs. In the 1998
period, the flatbed division payments to owner-operators of $14.8 million, an
increase of $1.8 million on higher volume are included in rent and purchased
transportation expense and payments to brokers of $1.4 million, an increase of
$0.1 million, are included in selling expense.
Interest expense/income. Interest expense increased by $0.8 million,
or 21%, to $4.6 million in the 1997 period from $3.8 million in the 1997 period,
as a result of higher borrowings related to capital leases for revenue
equipment. The Company recognized $0.4 million of interest income in the 1998
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 March 31, 1998 and 1997
periods were 38.5% and 40.0% respectively. The lower effective tax rate during
the 1998 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 March
31, 1998 the Company had a credit facility of $30.0 million from its banks, of
which $10.0 million was utilized as outstanding borrowings, and $2.5 million was
utilized for standby letters of credit. The average balance outstanding during
the nine months was $10.5 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 7.31% at March 31, 1998. 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 on revenue equipment. At March 31, 1998, the Company
had an aggregate of $81.5 million in such financing at interest rates ranging
from 5.7% to 10.6%, maturing at various dates through 2004. Of this amount,
$17.4 million is due within one year.
During the March 1998 quarter, the Company declared its option to
purchase certain revenue equipment previously financed with operating leases at
the end of the lease term. As a result of this conversion, fixed assets and
capital lease obligations increased $22.3 million.
15
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
As of March 31, 1998, the Company had on order revenue equipment
representing an aggregate capital commitment of $7.6 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, 1998, increased
$3.8 million to $31.5 million from $27.7 million at June 30, 1997. The net
increase represented a $5.6 million increase in the truckload division, a $0.3
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 can be attributed to the GETS operation acquired in
September 1997 and the increased volume in freight and demurrage billings.
The Company purchases fuel contracts from time-to-time for a portion
of its projected fuel needs. At March 31, 1998, the Company had contracts to
purchase for future delivery approximately 19% of its fuel requirements through
May 1999. Contract prices are approximately 9% over March 31, 1998 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.
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.
17
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
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.
17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit 11 - Computation of per share earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the three months
ended March 31, 1998.
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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)
/s/ Stephen Russell
----------------------------------------
Stephen Russell, Chief Executive Officer
/s/ Robert Goldberg
----------------------------------------
Robert Goldberg, Executive Vice President
Chief Financial Officer
Date: May 14, 1998
19