1
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, 2001
[ ] 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 April 10, 2001 was 7,539,642.
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CELADON GROUP, INC.
INDEX TO
MARCH 31, 2001 FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2001
(unaudited) and June 30, 2000.....................................3
Condensed Consolidated Statements of Operations (unaudited) -
For the three and nine month periods ended March 31, 2001
and 2000..........................................................4
Condensed Consolidated Statements of Cash Flows (unaudited) -
For the nine month periods ended March 31, 2001 and 2000..........5
Notes to Condensed Consolidated Financial Statements .............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................15
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PART I - FINANCIAL INFORMATION
CELADON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
2001 2000
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 559 $ 360
Trade receivables, net of allowance .......................................... 53,599 53,521
Accounts receivable - other .................................................. 7,149 8,013
Prepaid expenses and other current assets .................................... 8,744 8,280
Tires in service ............................................................. 4,578 4,747
Income tax recoverable ....................................................... 1,832 1,639
Deferred income tax .......................................................... 802 802
--------- ---------
Total current assets .................................................. 77,263 77,362
Property and equipment, at cost ................................................... 144,657 150,119
Less accumulated depreciation and amortization .................................... 40,309 37,477
--------- ---------
Net property and equipment ............................................ 104,348 112,642
Tires in service .................................................................. 2,218 2,569
Goodwill, net of accumulated amortization ......................................... 20,072 20,435
Other assets ...................................................................... 2,176 2,314
--------- ---------
Total assets ................................................................. $ 206,077 $ 215,322
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 6,657 $ 5,669
Accrued expenses ............................................................. 26,732 26,819
Bank borrowings and current maturities of long-term debt ..................... 8,250 7,055
Current maturities of capital lease obligations .............................. 15,603 15,732
--------- ---------
Total current liabilities ............................................. 57,242 55,275
Long-term debt, net of current maturities ......................................... 43,198 49,751
Capital lease obligations, net of current maturities .............................. 42,088 42,908
Deferred income tax ............................................................... 8,862 8,862
Minority interest ................................................................. 12 119
Commitments and contingencies ..................................................... --- ---
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 179,985 shares, issued and
outstanding zero shares .................................................... --- ---
Common stock, $.033 par value, authorized 12,000,000 shares; issued 7,789,764
and 7,786,430 shares at March 31, 2001 and June 30, 2000, respectively ..... 257 257
Additional paid-in capital ................................................... 59,909 60,113
Retained earnings ............................................................ (3,329) (722)
Accumulated other comprehensive loss ......................................... (1,154) (1,206)
Treasury stock, at cost, 250,122 and 3,523 shares at March 31, 2001
and June 30, 2000, respectively ............................................ (1,008) (35)
--------- ---------
Total stockholders' equity ................................................... 54,675 58,407
--------- ---------
Total liabilities and stockholders' equity ............................ $ 206,077 $ 215,322
========= =========
See accompanying notes to condensed consolidated financial statements.
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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,
--------- ---------
2001 2000 2001 2000
---- ---- ---- ----
Operating revenue ............................ $ 88,234 $ 90,493 $ 263,709 $ 259,770
--------- --------- --------- ---------
Operating expenses:
Salaries, wages and employee benefits ... 24,291 24,548 71,070 71,264
Fuel .................................... 9,652 10,304 30,044 26,930
Operating costs and supplies ............ 6,651 6,719 19,593 19,316
Insurance and claims .................... 2,828 2,811 7,231 7,170
Depreciation and amortization ........... 3,925 3,912 11,464 10,599
Rent and purchased transportation ....... 34,016 34,827 101,909 97,501
Cost of goods sold ...................... 716 --- 1,971 ---
Professional and consulting fees ........ 1,284 425 2,326 1,215
Communications and utilities ............ 994 1,064 2,976 3,351
Permits, licenses and taxes ............ 1,659 1,666 4,785 4,576
General, administrative and selling ..... 2,374 2,943 7,453 8,261
--------- --------- --------- ---------
Total operating expenses ............ 88,390 89,219 260,822 250,183
--------- --------- --------- ---------
Operating income (loss) ...................... (156) 1,274 2,887 9,587
Other (income) expense:
Interest income ......................... (39) (9) (114) (66)
Interest expense ........................ 2,425 2,461 7,422 6,685
Other (income) expense, net ............. (128) 57 (230) 207
Minority interest in subsidiary ......... --- (91) (344) (91)
Loss on disposition of equipment ........ --- --- --- 3,266
--------- --------- --------- ---------
Loss before income taxes ................ (2,414) (1,144) (3,847) (414)
Benefit for income taxes ................ (832) (433) (1,240) (168)
--------- --------- --------- ---------
Net loss .............................. $ (1,582) $ (711) $ (2,607) $ (246)
========= ========= ========= =========
Loss per Common Share:
Diluted Loss Per Share .................. $ (0.21) $ (0.09) $ (0.34) $ (0.03)
Basic Loss Per Share .................... $ (0.21) $ (0.09) $ (0.34) $ (0.03)
Average Shares Outstanding:
Diluted ................................. 7,542 7,777 7,685 7,775
Basic ................................... 7,542 7,777 7,685 7,775
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CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
MARCH 31,
---------
2001 2000
-------- --------
Cash flows from operating activities:
Net loss ................................................. $ (2,607) $ (246)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization .......................... 11,464 10,599
Loss on disposition of equipment ....................... --- 3,266
Non-cash member and vendor development costs ........... 389 ---
Minority interest ...................................... (344) (91)
Provision for deferred income taxes .................... --- (1,434)
Provision for doubtful accounts ........................ 652 455
Changes in assets and liabilities:
Trade receivables ................................... (1,530) (7,293)
Accounts receivable -- other ........................ 864 (2,734)
Income tax recoverable .............................. (193) 67
Tires in service .................................... 520 (519)
Prepaid expenses and other current assets ........... (464) (1,571)
Other assets ........................................ (137) 329
Accounts payable and accrued expenses ............... 901 (78)
Income taxes payable ................................ --- 1,203
-------- --------
Net cash provided by operating activities ......... 9,515 2,044
Cash flows from investing activities:
Purchase of property and equipment ..................... (4,398) (9,222)
Proceeds on sale of property and equipment ............. 13,990 11,497
Purchase of business, net of cash ...................... --- (24,921)
-------- --------
Net cash provided by (used for) investing activities. 9,592 (22,646)
-------- --------
Cash flows from financing activities:
Proceeds from issuances of common stock ................ --- 277
Proceeds from issuances of common stock in subsidiary .. --- 696
Purchase of common stock held in treasury .............. (997) ---
Proceeds from bank borrowings and debt ................. 7,653 38,604
Payments of bank borrowings and debt ................... (8,594) (9,300)
Principal payments under capital lease obligations ..... (16,970) (9,508)
-------- --------
Net cash provided by (used for) financing activities (18,908) 20,769
-------- --------
Decrease in cash and cash equivalents .................... 199 167
Cash and cash equivalents at beginning of year ........... 360 695
-------- --------
Cash and cash equivalents at end of period ............... $ 559 $ 862
======== ========
See accompanying notes to condensed consolidated financial statements.
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and the general
instructions to Form 10-Q of Regulation S-X and includes the results of
Celadon Group, Inc. and its majority owned subsidiaries. Accordingly,
they do not include certain information and note disclosures required
by generally accepted accounting principles for annual financial
reporting and should be read in conjunction with the consolidated
financial statements and notes thereto of Celadon Group, Inc. (the
"Company") as of and for each of the three years in the period ended
June 30, 2000.
The unaudited interim financial statements reflect all
adjustments (all of a normal recurring nature) which management
considers necessary for a fair presentation of the financial condition
and results of operations for these periods. The results of operations
for the interim period are not necessarily indicative of the results
that may be reported for the full year.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
(2) SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
The Company operates in two segments, transportation and
e-commerce. The Company generates revenue, in the transportation
segment, providing truckload hauling services through its subsidiaries,
Celadon Trucking Services, Inc., ("CTSI"), Servicios de Transportacion
Jaguar, S.A. de C.V., ("Jaguar"), Gerth Transport Ltd. ("Gerth"), Zipp
Express, Inc., ("Zipp") and Cheetah Transportation, Inc., ("Cheetah").
The Company began providing certain services over the internet through
its e-commerce subsidiary TruckersB2B, Inc., ("TruckersB2B"), in the
last half of fiscal year 2000. The e-commerce segment generates revenue
by providing discounted fuel, tires, and other products and services to
small and medium-sized trucking companies. The Company evaluates its
operating segments on operating results. The e-commerce segment began
in February 2000, thus there are only two months of reportable
information for this segment for fiscal year 2000 comparison.
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2001
-------------- --------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
TRANSPORTATION E-COMMERCE TOTAL TRANSPORTATION E-COMMERCE TOTAL
-------------- ---------- ----- -------------- ---------- -----
Revenue from external customers .......... $ 87,202 $ 1,032 $ 88,234 $ 260,536 $ 3,173 $ 263,709
Operating income (loss) .................. 890 (1,046) (156) 5,274 (2,387) 2,887
Interest revenue ......................... (39) --- (39) (114) --- (114)
Interest expense ......................... 2,400 25 2,425 7,306 116 7,422
Other income ............................. (128) --- (128) (230) (344) (574)
Loss before income taxes ................. (1,343) (1,071) (2,414) (1,688) (2,159) (3,847)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 2000
-------------- --------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
TRANSPORTATION E-COMMERCE TOTAL TRANSPORTATION E-COMMERCE TOTAL
-------------- ---------- ----- -------------- ---------- -----
Revenue from external customers ........... $ 90,493 $ --- $ 90,493 $ 259,770 $ --- $ 259,770
Operating income (loss) ................... 1,977 (703) 1,274 10,290 (703) 9,587
Interest revenue .......................... (9) --- (9) --- --- (66)
Interest expense .......................... 2,461 --- 2,461 6,685 --- 6,685
Other (income) expense .................... 57 (91) (34) 207 (91) 116
Loss on disposition of equipment .......... --- --- --- 3,266 --- 3,266
Income (loss) before income taxes ......... (532) (612) (1,144) 198 (612) (414)
Information as to the Company's operations by geographic area is
summarized below:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2001
-------------- --------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
2001 2000 2001 2000
---- ---- ---- ----
Operating revenue:
United States............... $70,786 $71,314 $210,269 $207,201
Canada...................... 12,623 13,900 38,971 40,279
Mexico...................... 4,825 5,279 14,469 12,290
------- ------- -------- --------
Total .................. $88,234 $90,493 $263,709 $259,770
======= ======= ======== ========
The Company's largest customer is DaimlerChrysler, which accounted for
approximately 20% and 25% of the Company's total truckload revenue for the three
months ended March 31, 2001 and 2000, respectively. The Company transports
DaimlerChrysler original equipment automotive parts primarily between the United
States and Mexico and DaimlerChrysler after-market replacement parts and
accessories within the United States. The Company has two agreements with
DaimlerChrysler: (a) an agreement with the Chrysler division which expires in
October 2003, and (b) an international contract with the Freightliner division,
which expires in July 2001. The Chrysler division agreement accounted for
approximately 19% and 23% of the Company's total truckload revenue for the three
months ended March 31, 2001 and 2000, respectively. The Freightliner division
contract accounted for approximately 1% and 2% of the Company's total truckload
revenue for the three months ended March 31, 2001 and 2000, respectively. No
other customer accounted for more than 5% of the Company's total revenue during
any of its two most recent fiscal years.
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
(3) INCOME TAXES
Effective income tax benefits for the nine months ended March 31, 2001
and 2000 were 32.2% and 40.6%, respectively. The reduced effective tax benefit
for fiscal 2001 is primarily related to permanent tax differences and Mexican
taxes being based on assets in lieu of income.
(4) COMPREHENSIVE LOSS
Total comprehensive loss was $(1.5) million and $(0.7) million for the
three months ended March 31, 2001 and 2000, respectively. Total comprehensive
loss was $(2.6) million and $(0.3) million for the nine months ended March 31,
2001 and 2000, respectively. The difference between the total comprehensive loss
and net loss relates to the effect of foreign currency translation adjustments.
(5) CONTINGENCIES AND HEDGING ACTIVITIES
There are various claims, lawsuits and pending actions against the
Company and its subsidiaries in the normal course of the operations 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 consolidated financial position or results of operations when
settled.
The Company is a defendant in a lawsuit filed by Reliance National
Indemnity Company ("Reliance") relating to two trucker's liability insurance
policies. The Company disagrees with Reliance and intends to vigorously defend
this lawsuit. Discovery has been commenced and the case which was originally
filed in New Jersey has been transferred to Federal Court in Indianapolis,
Indiana. While there can be no certainty as to the outcome, the Company believes
that the ultimate resolution of this matter will not have a material adverse
effect on its consolidated financial position or results of operations when
settled .
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
and its amendments Statements 137 and 138, in June 1999 and June 2000,
respectively. The statement requires the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives are offset
against the change in fair value of assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The adoption of Statement No. 133 on July 1,
2000 resulted in no cumulative effect adjustment in the statement of operations
or other comprehensive income, as the Company had no derivatives outstanding on
that date. Since October 1, 2000, the Company has entered into various
derivative contracts to hedge fuel costs through June 2001. These contracts have
been recorded at fair value on the balance sheet with the offset being
recognized in the statement of operations. In connection with these activities,
the Company recognized earnings of approximately $205 thousand for the quarter
ended March 31, 2001 and $405 thousand for the nine months ended March 31, 2001.
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CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
(6) EARNINGS PER SHARE
The following is a reconciliation of the numerators and demoninators
used in computing earnings per share (in thousands except for per share
amounts):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31 MARCH 31
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
Loss available to common shareholders ................... $ (1,582) $ (711) $ (2,607) $ (246)
=========== =========== =========== ===========
Basic loss per share:
Weighted - average number of common
shares outstanding ............................... 7,541,909 7,777,390 7,685,100 7,775,301
Basic loss per share ............................... $ (0.21) $ (0.09) $ (0.34) $ (0.03)
=========== =========== =========== ===========
Diluted loss per share:
Weighted - average number of common
shares outstanding ............................... 7,541,909 7,777,390 7,685,100 7,775,301
Effect of stock options and other incremental shares --- --- --- ---
----------- ----------- ----------- -----------
Weighted - average number of common shares
outstanding-diluted .............................. 7,541,909 7,777,390 7,685,100 7,775,301
=========== =========== =========== ===========
Diluted loss per share .................................. $ (0.21) $ (0.09) $ (0.34) $ (0.03)
=========== =========== =========== ===========
Diluted loss per share for the three months ended March 31, 2001 and 2000
does not include the anti-dilutive effect of 36 thousand and 175 thousand stock
options and other incremental shares, respectively.
Diluted loss per share for the nine months ended March 31, 2001 and 2000
does not include the anti-dilutive effect of 50 thousand and 65 thousand stock
options and other incremental shares, respectively.
(7) MORTGAGE DEBT
In December 2000, the Company converted mortgage debt on 67 tractors
to operating leases. The Company reduced debt by $5.3 million and net revenue
equipment by $5.2 million in order to receive a more favorable interest rate on
the financing of nearly 2% per annum. The income statement effect of this
transaction was not material.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q contains forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
comments are based upon information currently available to management and
management's perception thereof as of the date of this report being filed.
Actual results of the Company's operations could materially differ from those
forward looking statements. Such differences could be caused by a number of
factors including, but not limited to, potential adverse affects of regulation
and litigation; changes in competition and the effects of such changes;
increased competition; changes in fuel prices; changes in economic, political or
regulatory environments; changes in the availability of a stable labor force;
ability of the Company to hire drivers meeting Company standards; changes in
management strategies; environmental or tax matters; and risks described from
time to time in reports filed by the Company with the Securities and Exchange
Commission. Readers should take these factors into account in evaluating any
such forward looking statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2000
Revenue. Consolidated revenue decreased by $2.3 million, or 2.5% to
$88.2 million for fiscal 2001 from $90.5 million for fiscal 2000. Decreased
revenue was related to a decrease in demand, primarily relating to the
automotive sector. In addition, revenue increased related to the Zipp Logistics
dedicated warehousing operations for Cummins and Navistar. The number of
tractors operated by the Company, including 976 owner-operated tractors,
increased to 2,625 at March 31, 2001, compared to 2,501 including 941
owner-operated tractors, at March 31, 2000.
Revenue includes $1.0 million in fiscal 2001 from TruckersB2B. The
TruckersB2B revenue for the March 2001 quarter represents over $38 million in
purchases made by its member companies through the TruckersB2B network.
TruckersB2B now has over 300,000 member trucks enrolled and these member trucks
were represented by more than 9,000 separate companies in the U.S. and Canada.
Operating Income. Consolidated operating income decreased by $1.5
million, or 115%, to a loss of $(0.2) million in fiscal 2001 from $1.3 million
in fiscal 2000. The decrease in operating income was a result of reduced
truckload revenue, rent and purchased transportation, and the write-off of
prepaid IPO costs related to TruckersB2B. The Company's operating ratio, which
expresses operating expenses as a percentage of operating revenue, excluding
TruckersB2B, increased from 97.8% in fiscal 2000 to 99.1% in fiscal 2001.
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In the March 2001 quarter, TruckersB2B recorded a $1.0 million
operating loss primarily related to expensing IPO costs of approximately $800
thousand.
Purchased transportation expenses increased due to increased logistics
expense in relation to revenue for this type of transportation business.
In addition, trailer costs have increased approximately $450 thousand
related to replacing 48 foot trailers with 53 foot trailers. The Company added
approximately 900 operating lease and short-term rental trailers in its fleet
since the March 2000 quarter. The Company has also sold or terminated short-term
leases on approximately 700 48-foot trailers since March 2000. A portion of the
trailer cost increases are offset by a reduction in depreciation expense of
owned trailers which were sold.
Net Interest Expense. Net interest expense decreased by $0.1 million,
or 4%, to $2.4 million in fiscal 2001 from $2.5 million in fiscal 2000. The
decrease was the result of a decrease in interest rates under the Company's
credit facilities and a reduction of capital lease obligation.
Income Taxes. Benefit for income taxes was $0.8 million in fiscal 2001
as compared to a benefit of $0.4 million in fiscal 2000. The Company's effective
tax rate was 34.5% in fiscal 2001 and 37.8% in fiscal 2000. The reduced tax rate
for fiscal 2001 is primarily related to permanent tax differences and Mexican
taxes being based on assets in lieu of income.
NINE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THE NINE MONTHS ENDED MARCH 31,
2000
Revenue. Consolidated revenue increased by $3.9 million, or 1.5%, to
$263.7 million for fiscal 2001 from $259.8 million for fiscal 2000. Higher
revenue was related to an increase in rate per mile, primarily relating to fuel
surcharges. In addition, revenue increased related to the Zipp Logistics
dedicated warehousing operations for Cummins and Navistar and billings to
customers for the Mexican portion of transportation. These increases were offset
by a reduction in dispatch miles related to the demand of the automotive sector.
The number of tractors operated by the Company, including 976 owner-operated
tractors, increased to 2,625 at March 31, 2001, compared to 2,501, including 941
owner-operated tractors, at March 31, 2000.
Revenue includes $3.2 million in fiscal 2001 from TruckersB2B. The
TruckersB2B revenue for the nine months ended March 2001 represents over $84
million in purchases made by its member companies through the TruckersB2B
network. TruckersB2B now has over 300,000 member trucks enrolled compared to
158,000 at June 30, 2000. At March 31, 2001, these member trucks were
represented by more than 9,000 separate companies in the U.S. and Canada
compared with more than 3,600 at June 30, 2000.
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Operating Income. Consolidated operating income decreased by $6.7
million, or 69.8%, to $2.9 million in fiscal 2001 from $9.6 million in fiscal
2000. The decrease in operating income was a result of reduced truckload
revenue, increases in fuel costs, rent and purchased transportation, and
TruckersB2B operating expenses. The Company's operating ratio, which expresses
operating expenses as a percentage of operating revenue increased from 96.0% in
fiscal 2000 to 98.2% in fiscal 2001, excluding TruckersB2B.
In fiscal 2001, TruckersB2B recorded a $2.4 million operating loss
primarily related to recognition of approximately $800 thousand of IPO expenses.
TruckersB2B also recorded $389 thousand of non-cash member and vendor
development expense related to issuing shares of TruckersB2B common stock at
fair value to a strategic partner. The non-cash member and vendor development
costs were offset by an increase in minority interest.
In the truckload segment, the most significant cost increase was fuel
expense. In fiscal 2001, fuel costs increases net of customer surcharges
resulted in additional expense of approximately $1.6 million (pre-tax) or
approximately $0.13 per share compared to prior year. Fuel costs rose at the
pump approximately 27% and the Company instituted a fuel reimbursement to the
owner-operators which increased expenses. This fuel reimbursement to the
owner-operator is included in the net fuel cost increase described above. These
increases were partially offset by fuel surcharges to our customers. In a market
of escalating fuel prices, fuel surcharges lag fuel cost increases. The Company
does not recover additional fuel expense related to deadhead mileage or idle
time from customers in the form of fuel surcharges.
Purchased transportation expenses increased due to increased logistics
expense and Mexico purchased transportation. Expenses for logistics and Mexico
purchased transportation increased in relation to revenue for these types of
transportation businesses.
In addition, trailer costs have increased approximately $1.6 million
related to replacing 48-foot trailers with 53-foot trailers. The Company added
approximately 900 operating lease and short-term rental trailers in its fleet
since the March 2000 quarter. The Company has sold or terminated short-term
leases on approximately 700 48-foot capital lease or owned trailers since March
2000. A portion of the trailer cost increases are offset by a reduction in
depreciation expense of $0.6 million relating to the owned equipment which was
sold.
Net Interest Expense. Net interest expense increased by $0.7 million,
or 10%, to $7.3 million in fiscal 2001 from $6.6 million in fiscal 2000. The
increase was primarily the result of an increase in borrowings and an increase
in interest rates under the Company's credit facilities through the first six
months of the fiscal year.
Income Taxes. Benefit for income taxes was $1.2 million in fiscal 2001
as compared to a benefit of $0.2 million in fiscal 2000. The Company's effective
tax rate was 32.2% in fiscal 2001 and 40.6% in fiscal 2000. The reduced tax rate
for fiscal 2001 is primarily related to permanent tax differences and Mexican
taxes being based on assets in lieu of income.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in fiscal 2001 will be for
the acquisition of revenue equipment and computer hardware and software. The
Company finances its capital requirements from cash provided by operating
activities, proceeds from the sale of revenue equipment, lease financing, and
the Company's credit agreement.
Net cash provided by operating activities increased to $9.5 million for
fiscal 2001 from $2.0 million in fiscal 2000. The increase is attributable to an
increase in depreciation and amortization offset by a decrease in accounts
receivable other, pertaining to collection on equipment sales. In addition, in
fiscal year 2000, there were large increases in trade receivables and prepaid
expenses relating to the Zipp acquisition.
Net cash provided by investing activities increased to $9.6 million for
fiscal 2001 compared to $22.6 million used for investing activities in fiscal
2000. The increase is related to $24.9 million used to purchase Zipp in fiscal
2000 and an increase in proceeds from the sale of revenue equipment in fiscal
2001.
As of March 31, 2001, the Company had on order revenue equipment
representing an aggregate capital commitment of approximately $1.2 million.
Management believes that there are presently adequate sources of secured
equipment financing together with its existing credit facilities and cash flows
from operations to support the Company's anticipated acquisitions.
Net cash used for financing activities amounted to $18.9 million in
fiscal 2001 compared to $20.8 million provided by financing activities in fiscal
2000. In fiscal 2000, the Company received additional proceeds from bank
borrowings for the purchase of Zipp, whereas, in fiscal 2001 additional cash was
used to pay off capital lease tracs.
In August 1999, the Company completed a $60 million banking facility
("credit agreement") with ING (U.S.) Capital LLC. The arrangement includes a $30
million revolving loan and a $30 million term loan. In November 1999, the
Company's credit agreement was increased by $5 million to $65 million. Interest
is based, at the Company's option, upon either the bank's base rate plus a
margin ranging from .5% to 2.0% or the London Interbank Offered Rate plus a
margin ranging from 1.5% to 3.0% depending upon performance by the Company.
Standby letters of credit, not reflected in the accompanying
consolidated financial statements, aggregated approximately $1.3 million at
March 31, 2001.
At March 31, 2001, the Company had an aggregate of $57.7 million in
capital lease financing at interest rates ranging from 5.3% to 8.0%, maturing at
various dates through 2005. Of this amount, $15.6 million is due prior to March
31, 2002. The Company has historically met its capital investment requirements
with a combination of internally generated funds, bank financing, equipment
lease financing (both capitalized and operating) and the issuance of common
stock.
In December 2000, the Company converted mortgage debt on 67 tractors
to operating leases. The Company reduced debt by $5.3 million and net revenue
equipment by $5.2 million in order to receive a more favorable interest rate on
the financing of nearly 2% per annum. The income statement effect of this
transaction was not material.
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SEASONALITY
To date, the Company's revenues have not shown any significant
seasonal pattern. However, because the Company's primary traffic lane is between
the Midwest United States and Mexico, winter may have an unfavorable impact upon
the Company's results of operations. Also, many manufacturers close or curtail
their operations during holiday periods, and observe vacation shutdowns, which
may impact the Company's operations in any particular period.
INFLATION
Many of the Company's operating expenses, including fuel costs and
related fuel taxes, are sensitive to the effects of inflation, which could
result in higher operating costs. The effects of inflation on the Company's
business during fiscal 2001 and 2000 generally were not significant.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.26 Fifth Amendment Credit Agreement dated February 14,
2001 between the Company and Celadon Trucking Services, Inc. and ING
(U.S.) Capital LLC.
(b) No Form 8-K was filed during the quarter ended March 31, 2001.
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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/Paul A. Will
---------------
Paul A. Will
Chief Financial Officer
Date: May 14, 2001
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