UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 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 (IRS 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 November 14, 2001 was 7,539,642.
CELADON GROUP, INC.
INDEX TO
SEPTEMBER 30, 2001 FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2001
and June 30, 2001.............................................. 3
Condensed Consolidated Statements of Operations - For
the three months ended September 30, 2001 and 2000............. 4
Condensed Consolidated Statements of Cash Flows - For
the three months ended September 30, 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
Item 3. Quantitative and Qualitative Disclosures about
Market Risk................................................ 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 15
Item 2. Changes in Securities ..................................... 15
Item 3. Defaults upon Senior Securities ........................... 15
Item 4. Submission of Matters to a Vote of Security Holders........ 15
Item 5. Other Information.......................................... 15
Item 6. Exhibits and Reports on Form 8-K........................... 15
2
CELADON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
2001 2001
---- ----
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents .................................. $ 264 $ 794
Trade receivables, net of allowance ........................ 46,440 49,911
Accounts receivable - other ................................ 5,381 5,722
Prepaid expenses and other current assets .................. 9,703 9,015
Tires in service ........................................... 4,610 4,455
Income tax recoverable ..................................... 65 597
Deferred income taxes ...................................... 1,596 1,768
--------- ---------
Total current assets ................................... 68,059 72,262
Property and equipment .......................................... 143,523 144,383
Less accumulated depreciation and amortization ............. 45,323 42,481
--------- ---------
Net property and equipment ............................. 98,200 101,902
Tires in service ................................................ 2,299 2,182
Goodwill, net of accumulated amortization of $3,942 ............. 16,702 16,702
Other assets .................................................... 2,054 1,868
--------- ---------
Total assets ............................................... $ 187,314 $ 194,916
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 4,678 $ 4,793
Accrued expenses ........................................... 24,960 25,898
Bank borrowings and current maturities of long-term debt ... 8,898 12,394
Current maturities of capital lease obligations ............ 16,695 15,825
--------- ---------
Total current liabilities .............................. 55,231 58,910
Long-term debt, net of current maturities ....................... 38,747 37,568
Capital lease obligations, net of current maturities ............ 35,004 39,458
Deferred income taxes ........................................... 6,382 6,892
Minority interest ............................................... 25 25
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 179.985
shares; no shares Issued and outstanding ............... --- ---
Common stock, $0.033 par value, authorized 12,000,000
shares; issued 7,789,764 shares ........................ 257 257
Additional paid-in capital ................................. 59,923 59,923
Retained deficit ........................................... (5,917) (6,058)
Accumulated other comprehensive loss ....................... (1,330) (1,051)
Treasury stock, at cost, 250,122 shares .................... (1,008) (1,008)
--------- ---------
Total stockholders' equity ............................. 51,925 52,063
--------- ---------
Total liabilities and stockholders' equity ................. $ 187,314 $ 194,916
========= =========
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
SEPTEMBER 30,
2001 2000
---- ----
Operating revenue ............................... $ 82,870 $ 88,427
Operating expenses:
Salaries, wages and employee benefits ...... 24,224 23,615
Fuel ....................................... 9,507 10,010
Operating costs and supplies ............... 7,113 6,989
Insurance and claims ....................... 2,979 2,183
Depreciation and amortization .............. 3,289 3,761
Rent and purchased transportation .......... 27,702 34,182
Cost of products and services sold ......... 733 533
Professional and consulting fees ........... 364 595
Communications and utilities ............... 1,023 1,007
Permits, licenses and taxes ................ 1,575 1,562
General, administrative, and selling ....... 1,874 2,241
----------- -----------
Total operating expenses ............... 80,383 86,678
----------- -----------
Operating income ................................ 2,487 1,749
----------- -----------
Other (income) expense:
Interest income ............................ (30) (36)
Interest expense ........................... 2,109 2,359
Other (income) expense, net ................ 7 33
Minority interest in subsidiary loss ....... --- (12)
----------- -----------
Income (loss) before income taxes ............... 401 (595)
Provision (benefit) for income taxes ............ 260 (125)
----------- -----------
Net income (loss) .......................... $ 141 $ (470)
=========== ===========
Earnings (loss) per common share:
Diluted earnings (loss) per share .......... $ 0.02 $ (0.06)
Basic earnings (loss) per share ............ $ 0.02 $ (0.06)
Average shares outstanding:
Diluted .................................... 7,563,519 7,783,603
Basic ...................................... 7,539,642 7,783,603
See accompanying notes to condensed consolidated financial statements.
4
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
---- ----
Cash flows from operating activities:
Net Income (loss) ......................................... $ 141 $ (470)
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization ......................... 3,289 3,761
Provision for deferred income taxes ................... (337) ---
Provision for doubtful accounts ....................... 236 203
Changes in assets and liabilities:
Trade receivable ................................. 3,234 (750)
Accounts receivable - other ...................... 341 355
Income tax recoverable ........................... 532 (273)
Tires in service ................................. (273) 205
Prepaid expenses and other current assets ........ (688) (759)
Other assets ..................................... (21) 266
Accounts payable and accrued expenses ............ (1,053) (1,681)
-------- --------
Net cash provided by operating activities ........ 5,401 857
Cash flows from investing activities:
Purchase of property and equipment ........................ (866) (3,257)
Proceeds on sale of property and equipment ................ 1,207 7,970
-------- --------
Net cash provided by investing activities ............. 341 4,713
Cash flows from financing activities:
Proceeds from issuances of stock .......................... --- 49
Proceeds from bank borrowings and debt .................... 3,152 1,475
Payments of bank borrowings and debt ...................... (5,507) (1,685)
Principal payments under capital lease obligations ........ (3,917) (5,017)
-------- --------
Net cash used for financing activities ................ (6,272) (5,178)
-------- --------
Increase (decrease) in cash and cash equivalents .......... (530) 392
Cash and cash equivalents at beginning of year ................. 794 360
-------- --------
Cash and cash equivalents at end of period ..................... $ 264 $ 752
======== ========
Supplemental disclosure of cash flow information:
Interest .................................................. $ 2,344 $ 2,410
Income taxes .............................................. $ 30 $ 26
Supplemental disclosure of non-cash flow investing activities:
Lease obligation incurred in the purchase of equipment .... $ 333 $ 12,702
See accompanying notes to condensed consolidated financial statements.
5
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 it's 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, 2001.
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. ADOPTION OF CHANGES IN ACCOUNTING
As of July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets," which addresses the financial accounting and reporting
standards for the acquisition of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to their
acquisition. This accounting standard requires that goodwill be separately
disclosed from other intangible assets in the statement of financial position,
and no longer be amortized but tested for impairment on a periodic basis. The
provisions of this accounting standard also require the completion of a
transitional impairment test within six months of adoption, with any impairments
identified treated as a cumulative effect of a change in accounting principle.
6
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective July 1, 2001. A reconciliation of previously reported net
income and earnings per share to the amounts adjusted for the exclusion of
goodwill amortization net of the related income tax effect follows:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------
(DOLLARS IN THOUSANDS)
2001 2000
---- ----
(in thousands, except
per share amounts)
Reported net income (loss) $ 141 $ (470)
Add: Goodwill amortization, net of tax -- 232
------- -------
Adjusted net income (loss) $ 141 $ (238)
======= =======
Diluted and basic earnings (loss) per share
Reported net income (loss) $ 0.02 $ (0.06)
Goodwill amortization, net of tax -- 0.03
------- -------
Adjusted net income (loss) $ 0.02 $ (0.03)
======= =======
The Company is in the process of reviewing its recorded goodwill in
accordance with this statement.
3. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators
used in computing earnings per share (in thousands except for per share
amounts):
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
---- ----
Income (loss) available to common shareholders $ 141 $ (470)
=========== ===========
Basic income (loss) per share:
Weighted - average number of common shares outstanding 7,539,642 7,783,603
Basic income (loss) per share $ 0.02 $ (0.06)
=========== ===========
Diluted income (loss) per share:
Weighted - average number of common shares outstanding 7,539,642 7,783,603
Effect of stock options and other incremental shares 23,877 ---
----------- -----------
Weighted - average number of common shares
Outstanding - diluted 7,563,519 7,783,603
=========== ===========
Diluted income (loss) per share $ 0.02 $ (0.06)
=========== ===========
Diluted loss per share for the three months ended September 30, 2000 does
not include the anti-dilutive effect of 115 thousand stock options and other
incremental shares, respectively.
7
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
4. 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"). Cheetah was sold on June 18, 2001 and
therefore is not in fiscal 2002 results. 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.
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------
(DOLLARS IN THOUSANDS)
2001 2000
---- ----
Operating revenue
Transportation $ 81,609 $ 87,518
E-commerce 1,261 909
-------- --------
$ 82,870 $ 88,427
Operating income (loss)
Transportation $ 2,376 $ 2,435
E-commerce 111 (686)
-------- --------
$ 2,487 $ 1,749
Information as to the Company's operations by geographic area is summarized
below:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------
(DOLLARS IN THOUSANDS)
2001 2000
---- ----
Operating revenue:
United States $ 65,933 $ 70,355
Canada 12,099 13,445
Mexico 4,838 4,627
-------- --------
Total $ 82,870 $ 88,427
======== ========
The Company's largest customer is DaimlerChrysler, which accounted for
approximately 22% and 23% of the Company's total truckload revenue for the three
months ended September 30, 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's agreement with
DaimlerChrysler is an agreement for international freight with the Chrysler
division, which expires in October 2003. No other customer accounted for more
than 10% of the Company's total revenue during any of its three most recent
fiscal years.
8
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
5. INCOME TAXES
Income tax expense (benefit) varies from the amount computed by applying
the federal corporate rate of 35% to income before income taxes, primarily due
to state income taxes, permanent tax differences and Mexican taxes being based
on assets in lieu of income. The effective income tax rate for the three months
ended September 30, 2001 and 2000 were 65% and 21%, respectively.
6. COMPREHENSIVE LOSS
Total comprehensive loss was $0.1 million and $0.3 million for the three
months ended September 30, 2001 and 2000, respectively. The difference between
the total comprehensive loss and net loss relates to the effect of foreign
currency translation adjustments.
9
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
In June 2001, the Company sold certain assets and the owner operator and
agent contracts of Cheetah Transportation, Inc. ("Cheetah"), a wholly owned
subsidiary of the Company. Cheetah was a flatbed truckload carrier operating out
of Mooresville, NC. The Company incurred a $3.7 million loss on the disposition
of Cheetah, which included a non-cash charge of $3.2 million, related to the net
book value of goodwill and other intangible assets. For the three months ended
September 2000, Cheetah contributed approximately $225 thousand in operating
income.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of revenue and
expense items to operating revenues for the periods indicated:
PERCENTAGE OF OPERATING REVENUES
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------
2001 2000
---- ----
Operating Revenues 100% 100%
Operating expenses
Salaries, wages and employee benefits ..... 29.2% 26.7%
Fuel ...................................... 11.5% 11.3%
Operating costs and supplies .............. 8.6% 7.9%
Insurance and claims ...................... 3.6% 2.5%
Depreciation and amortization ............. 4.0% 4.3%
Rent and purchased transportation ......... 33.4% 38.7%
Communications and utilities .............. 1.2% 1.1%
Permits, licenses and taxes ............... 1.9% 1.8%
Other ..................................... 3.6% 3.7%
---- ----
Total operating expenses ....................... 97.0% 98.0%
---- ----
Operating income ............................... 3.0% 2.0%
==== ====
10
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
Revenue. Consolidated revenue decreased by $5.5 million, or 6%, to $82.9
million for the first quarter of fiscal 2002 from $88.4 million for the first
quarter of fiscal 2001. Revenue for fiscal 2001 included revenue from Cheetah
and higher pass-through revenues related to the Mexican portion of
transportation. Adjusted for these items, last years revenue would have been
$78.5 million. On a comparable basis, excluding Cheetah and the pass-through
revenues in the prior year, revenue for the September 2001 quarter represented
an increase of $4.4 million, or approximately 6%. This increase is related to 4%
increase in volume and a slight increase in rate per mile. A portion of the
increase in rate and mileage is related to the startup of a local shuttle
operation. Revenue for TruckersB2B was approximately $1.3 million in the first
quarter fiscal 2002 compared to $900 thousand in the first quarter fiscal 2001.
The TruckersB2B revenue for the September 2001 quarter represents over $40
million in purchases made by its member companies through the TruckersB2B
network.
The Company's fleet decreased from 2,664 tractors, including 1,012
owner-operated tractors at September 30, 2000 to 2,355 tractors including 728
owner-operated tractors at September 30, 2001. The decrease in owner-operated
tractors related primarily to the sale of Cheetah.
Operating Income. Consolidated operating income increased by $0.8 million,
or 47%, to $2.5 million in fiscal 2002 from $1.7 million in fiscal 2001. The
increase in operating income was primarily a result of increased revenue, and
decreased rent and purchased transportation offset by increased salaries, wages
and benefits. The Company's operating ratio, which expresses operating expenses
as a percentage of operating revenue improved from 98.0% in fiscal 2001 to 97.0%
in fiscal 2002.
Salaries, wages and benefits were 29.2% of operating revenues for the three
month period ending September 30, 2001 compared to 26.7% for the same period in
2000. This increase is driver pay related to a local operation for
transportation shuttle services. In addition, the Cheetah revenue and Mexican
pass through revenue decreased the percentage of revenue in fiscal 2001.
Fuel increased to 11.5% of revenue in the first quarter of fiscal 2002
compared to 11.3% in the first quarter of fiscal 2001. Fuel prices have declined
in September. In fiscal 2001, the increased revenue for Cheetah and pass-through
revenue resulted in a decreased percentage of revenue relative to Company driven
fleet miles.
Insurance and claims expense was 3.6% in the first quarter of fiscal 2002
compared to 2.5% for the first quarter of fiscal 2001. Insurance consists of
premiums for liability, physical damage and cargo damage. The Company's
insurance program involves self-insurance at various risk retention levels.
Claims in excess of these risk levels are covered by insurance in amounts the
Company considers adequate. The Company accrues for the uninsured portion of
claims based on historical experience. The liability premiums, which were
renewed effective May 11, 2001, increased significantly year-over-year.
Rent and purchased transportation decreased to 33.4% of revenue in the
first quarter of fiscal 2002 from 38.7% in the first quarter of fiscal 2001. The
decrease in fiscal 2002 is primarily related to reduced owner-operator expense
caused by the sale of Cheetah. Also, as pass-through revenue related to the
Mexico portion of loads decreased, the pass-through purchased transportation
expense has also decreased. To offset these decreases, trailer costs have risen
slightly as the Company continues to phase out 48-foot trailers and replace with
53-foot trailers. The Company has also added additional trailer capacity for the
local shuttle operations.
Net interest expense decreased by $0.2 million, or 9%, to $2.1 million in
the first quarter of fiscal 2002 from $2.3 million in the first quarter of
fiscal 2001. The decrease was primarily the result of reduced borrowings and
reduced interest rates under the Company's credit facilities.
11
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
The effective income tax rate increased to 65% for fiscal 2002 from 21% for
fiscal 2001. The increased tax rate is the effect of the permanent tax
differences on a low level of income, which inflates the effective tax rate. In
addition, taxes for Mexico are based on assets in lieu of income, which has the
effect of increasing the effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements in fiscal 2002 will be for the
acquisition of revenue equipment. 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. 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. Furthermore, sources
available under the Company's credit facilities are dependant upon the Company
maintaining compliance with its covenants or obtaining waivers or amendments
with respect to future covenant violations.
The Company's primary source of cash flow for fiscal 2002 was from
operations primarily provided by trade receivables and depreciation and
amortization. The net cash provided by operations in the first quarter of fiscal
2002 was $5.4 million compared to $0.9 million in the first quarter of fiscal
2001. The increase in fiscal 2002 was the result of a reduction in the day's
sales outstanding in trade receivables.
Net cash provided by investing activities decreased to $0.3 million in the
first quarter of fiscal 2002 from $4.7 million in the first quarter of fiscal
2001. This primarily relates to the purchase and sale of revenue equipment as
the Company continues to trade older equipment for new equipment. As of
September 30, 2001, the Company had on order revenue equipment representing an
capital commitment of approximately $5.1 million.
Net cash used in financing activities was $6.3 million in the first quarter
of fiscal 2002 compared to $5.2 million in the first quarter of fiscal 2001.
Financing activity generally represents bank borrowings (payment and proceeds)
and payment of capital lease obligations. As of September 30, 2001, the Company
had outstanding debt of $99.3 million. This debt consists of $51.7 million of
capital lease obligations, $14.3 million of term loan debt, $27.1 million of
revolver loan debt, $2.6 million of mortgage debt relating to equipment, $2.9
million of mortgage debt relating to property and $0.7 million of other debt.
Interest rates on this debt range from 5.3% to 8.0%.
The Company has completed a $65 million banking facility ("credit
agreement") with ING (U.S.) Capital LLC. The arrangement includes a $35 million
revolving loan and a $30 million term loan. In May 2001, the Company's credit
agreement with ING was amended to reflect modifications to the Company's
covenants. 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 September 30,
2001.
12
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
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 2002 and 2001 generally were not significant.
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.
13
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in
foreign currency exchange rates, interest rates, and fuel prices. The Company
does not enter into derivatives or other financial instruments for trading or
speculative purposes.
The Company is exposed to interest rate risk primarily from its Credit
Agreement ("Credit Agreement") in which floating rates are 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. A hypothetical 10% movement
in interest rates would have an impact on net income of approximately $235
thousand. In the event of a change of such magnitude, management would likely
consider actions to further mitigate its exposure to the change.
Shortages of fuel, increases in prices or rationing of petroleum products
can have a materially adverse effect on the operations and profitability of the
Company. Fuel is subject to economic, political and market factors that are
outside of the Company's control. The Company has historically been able to
recover a portion of high fuel prices from customers in the form of fuel
surcharges. The Company from time-to-time will enter into futures contracts and
derivative financial instruments to educe its exposure to fuel price
fluctuations. As of September 30, 2001, the Company had 14% of estimated fuel
purchases hedged through March 2002. The Company recognized approximately $40
thousand of income for the quarter ended September 30, 2001. A hypothetical 10%
movement on the price of fuel futures would have an impact on net income of
approximately $135 thousand.
The Company's foreign currency revenues are generally proportionate to its
foreign currency expenses and the Company does not generally engage in currency
hedging transactions. For purposes of consolidation, however, the operating
results earned by the Company's subsidiaries in foreign currencies is converted
into United States dollars. As a result, a decrease in the value of the Mexican
peso or Canadian dollar could adversely affect the Company's consolidated
results of operations and equity.
14
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are various claims, lawsuits and pending actions against the Company
and its subsidiaries which arose 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 in any
given period.
The Company is a defendant in a lawsuit filed by Reliance National
Indemnity Company ("Reliance") relating to one trucker's liability insurance
policy. The Company disagrees with Reliance and intends to vigorously defend
this lawsuit. This case is in the discovery phase and no trial date has been
set. On May 29, 2001, Reliance was placed in rehabilitation by the Commonwealth
of Pennsylvania and all activity on this case has been indefinitely stayed by
the Federal Judge presiding over this case. 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 in any given period.
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.28 -- Seventh Amendment Credit Agreement dated September 14, 2001
between the Company and Celadon Trucking Services, Inc. and ING (U.S.)
Capital LLC.
(b) The Company did not file any reports on form 8-K during the three
months ended September 30, 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: November 14, 2001
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