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, 2002
[ ] 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 15, 2002 was 7,645,992.
CELADON GROUP, INC.
INDEX TO
MARCH 31, 2002 FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited)
and June 30, 2001....................................................................................3
Condensed Consolidated Statements of Operations (unaudited) - For the three
and nine month periods ended March 31, 2002 and 2001.................................................4
Condensed Consolidated Statements of Cash Flows (unaudited) - For the nine
month periods ended March 31, 2002 and 2001..........................................................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.....................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................17
Item 2. Changes in Securities .........................................................................17
Item 3. Defaults upon Senior Securities ...............................................................17
Item 4. Submission of Matters to a Vote of Security Holders............................................17
Item 5. Other Information..............................................................................17
Item 6. Exhibits and Reports on Form 8-K...............................................................17
2
PART I - FINANCIAL INFORMATION
CELADON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, JUNE 30,
2002 2001
---- ----
(UNAUDITED)
A S S E T S
Current assets:
Cash and cash equivalents .................................................... $ 824 $ 794
Trade receivables, net of allowance .......................................... 43,756 49,911
Accounts receivable - other .................................................. 7,941 5,722
Prepaid expenses and other current assets .................................... 7,490 9,015
Tires in service ............................................................. 4,210 4,455
Income tax recoverable ....................................................... --- 597
Deferred income taxes ........................................................ 1,400 1,768
--------- ---------
Total current assets .................................................... 65,621 72,262
Property and equipment ............................................................ 140,808 144,383
Less accumulated depreciation and amortization ............................... 45,872 42,481
--------- ---------
Net property and equipment .............................................. 94,936 101,902
Tires in service .................................................................. 1,982 2,182
Goodwill .......................................................................... 16,702 16,702
Other assets ...................................................................... 3,133 1,868
--------- ---------
Total assets ................................................................. $ 182,374 $ 194,916
========= =========
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
Current liabilities:
Accounts payable ............................................................. $ 4,620 $ 4,793
Accrued expenses ............................................................. 23,729 25,898
Bank borrowings and current maturities of long-term debt ..................... 6,222 12,394
Current maturities of capital lease obligations .............................. 18,285 15,825
Income tax payable ........................................................... 411 ---
--------- ---------
Total current liabilities ............................................... 53,267 58,910
Long-term debt, net of current maturities ......................................... 43,741 37,568
Capital lease obligations, net of current maturities .............................. 25,823 39,458
Deferred income tax ............................................................... 6,353 6,892
Minority interest ................................................................. 25 25
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 7,789,764 257 257
Additional paid-in capital ................................................... 59,921 59,923
Retained deficit ............................................................. (5,440) (6,058)
Accumulated other comprehensive loss ......................................... (990) (1,051)
Treasury stock, at cost, 143,772 and 250,122 shares at March 31, 2002
and June 30, 2001, respectively ............................................ (583) (1,008)
--------- ---------
Total stockholders' equity ................................................... 53,165 52,063
--------- ---------
Total liabilities and stockholders' equity .............................. $ 182,374 $ 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 FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------- ---------
2002 2001 2002 2001
---- ---- ---- ----
Operating revenue .............................. $ 78,737 $ 88,234 $ 240,956 $ 263,709
--------- --------- --------- ---------
Operating expenses:
Salaries, wages and employee benefits ..... 23,394 24,291 70,599 71,070
Fuel ...................................... 7,868 9,652 25,556 30,044
Operating costs and supplies .............. 6,613 6,651 21,106 19,593
Insurance and claims ...................... 2,820 2,828 8,290 7,231
Depreciation and amortization ............. 3,057 3,925 9,652 11,464
Rent and purchased transportation ......... 27,122 34,016 81,694 101,909
Cost of products and services sold ........ 1,023 716 2,789 1,971
Professional and consulting fees .......... 389 1,284 1,166 2,326
Communications and utilities .............. 945 994 2,848 2,976
Permits, licenses and taxes ............... 1,628 1,659 4,875 4,785
General, administrative and selling ....... 1,691 2,374 5,483 7,453
--------- --------- --------- ---------
Total operating expenses .............. 76,550 88,390 234,058 260,822
--------- --------- --------- ---------
Operating income (loss) ........................ 2,187 (156) 6,898 2,887
Other (income) expense:
Interest income ........................... (31) (39) (85) (114)
Interest expense .......................... 1,721 2,425 5,666 7,422
Other (income) expense, net ............... 24 (128) 115 (230)
Minority interest in subsidiary loss ...... --- --- --- (344)
--------- --------- --------- ---------
Income (loss) before income taxes ......... 473 (2,414) 1,202 (3,847)
Provision (benefit) for income taxes ...... 195 (832) 584 (1,240)
--------- --------- --------- ---------
Net income (loss) ....................... $ 278 $ (1,582) $ 618 $ (2,607)
========= ========= ========= =========
Earnings (loss) per Common Share:
Diluted earnings (loss) per share ......... $ 0.04 $ (0.21) $ 0.08 $ (0.34)
Basic earnings (loss) per share ........... $ 0.04 $ (0.21) $ 0.08 $ (0.34)
Average Shares Outstanding:
Diluted ................................... 7,762 7,542 7,671 7,685
Basic ..................................... 7,644 7,542 7,597 7,685
4
CELADON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
MARCH 31,
---------
2002 2001
---- ----
Cash flows from operating activities:
Net income (loss) ................................................ $ 618 $ (2,607)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ............................... 9,652 11,464
Non-cash member and vendor development costs ................... --- 389
Minority interest .............................................. --- (344)
Provision for deferred income taxes ............................ (171) ---
Provision for doubtful accounts ................................ 695 652
Changes in assets and liabilities:
Trade receivables ........................................... 5,460 (1,530)
Accounts receivable -- other ................................ (2,219) 864
Income tax recoverable ...................................... 597 (193)
Tires in service ............................................ 445 520
Prepaid expenses and other current assets ................... 1,525 (464)
Other assets ................................................ (637) (137)
Accounts payable and accrued expenses ....................... (2,342) 901
Income taxes payable ........................................ 411 ---
-------- --------
Net cash provided by operating activities ................... 14,034 9,515
Cash flows from investing activities:
Purchase of property and equipment ............................. (9,566) (4,398)
Proceeds on sale of property and equipment ..................... 7,310 13,990
-------- --------
Net cash provided by investing activities ................... (2,256) 9,592
Cash flows from financing activities:
Proceeds from issuances of stock ............................... 423 ---
Purchase of common stock held in treasury ...................... --- (997)
Proceeds from bank borrowings and debt ......................... 7,767 7,653
Payments of bank borrowings and debt ........................... (8,429) (8,594)
Principal payments under capital lease obligations ............. (11,509) (16,970)
-------- --------
Net cash used for financing activities ...................... (11,748) (18,908)
-------- --------
Increase in cash and cash equivalents ............................ 30 199
Cash and cash equivalents at beginning of year ................... 794 360
-------- --------
Cash and cash equivalents at end of period ....................... $ 824 $ 559
======== ========
Supplemental disclosure of cash flow information
Interest paid .................................................. $ 5,891 $ 7,492
Income taxes paid .............................................. $ 178 $ 103
Supplemental disclosure of non-cash flow investigating activities:
Lease obligation incurred in the purchase of equipment ......... $ 8,495 $ 16,848
See accompanying notes to condensed consolidated financial statements.
5
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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, 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. The transitional
impairment test has been completed and as a result there is no adjustment for
impairment as of July 1, 2001, the date the Company adopted the provisions of
this statement.
6
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(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 FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------- ---------
2002 2001 2002 2001
---- ---- ---- ----
(in thousands, except per share amounts) (in thousands, except per share amounts)
Reported net income (loss) $ 278 $ (1,582) $ 618 $ (2,607)
Add: Goodwill amortization, net of tax --- 233 --- 698
--------- --------- --------- ---------
Adjusted net income (loss) $ 278 $ (1,349) $ 618 $ (1,909)
Diluted and basic earnings (loss) per share:
Reported net income (loss) $ 0.04 $ (0.21) $ 0.08 $ (0.34)
Add: Goodwill amortization, net of tax --- 0.03 --- 0.09
--------- --------- --------- ---------
Adjusted net income (loss) $ 0.04 $ (0.18) $ 0.08 $ (0.25)
========= ========= ========= =========
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 FOR THE NINE MONTHS ENDED
MARCH 31 MARCH 31
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
Income (loss) available to common shareholders $ 278 $ (1,582) $ 618 $ (2,607)
=========== =========== =========== ===========
Basic income (loss) per share:
Weighted - average number of common
shares outstanding 7,643,936 7,541,909 7,596,983 7,685,100
=========== =========== =========== ===========
Basic income (loss) per share $ 0.04 $ (0.21) $ 0.08 $ (0.34)
=========== =========== =========== ===========
Diluted income (loss) per share:
Weighted - average number of common
shares outstanding 7,643,936 7,541,909 7,596,983 7,685,100
Effect of stock options and other incremental shares 118,382 --- 73,779 ---
----------- ----------- ----------- -----------
Weighted - average number of common shares
outstanding-diluted 7,762,318 7,541,909 7,670,672 7,685,100
=========== =========== =========== ===========
Diluted income (loss) per share $ 0.04 $ (0.21) $ 0.08 $ (0.34)
=========== =========== =========== ===========
Diluted loss per share for the three and nine months ended March 31,
2001 does not include the anti-dilutive effect of 36 thousand and 50 thousand
stock options and other incremental shares, respectively.
7
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(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 included in fiscal 2002 results. The Company provides certain
services over the Internet through its e-commerce subsidiary TruckersB2B, Inc.,
("TruckersB2B"). 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 FOR THE NINE MONTHS ENDED
MARCH 31, 2002 MARCH 31, 2002
-------------- --------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
Transportation E-commerce Total Transportation E-commerce Total
-------------- ---------- ----- -------------- ---------- -----
Revenue from external customers $77,021 $ 1,716 $78,737 $236,291 $ 4,665 $240,956
Operating income 1,908 279 2,187 6,285 613 6,898
Interest income (31) --- (31) (85) --- (85)
Interest expense 1,667 54 1,721 5,612 54 5,666
Other expense 24 --- 24 115 --- 115
Income before income taxes $ 248 $ 225 $ 473 $ 643 $ 559 $ 1,202
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 income (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)
8
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
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, 2002 MARCH 31, 2000
-------------- --------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
2002 2001 2002 2001
---- ---- ---- ----
Operating revenue:
United States $62,275 $70,786 $190,747 $210,269
Canada 11,482 12,623 35,363 38,971
Mexico 4,980 4,825 14,846 14,469
------- ------- -------- --------
Total $78,737 $88,234 $240,956 $263,709
======= ======= ======== ========
The Company's largest customer is DaimlerChrysler, which accounted for
approximately 20% of the Company's total truckload revenue for the three months
ended March 31, 2002 and 2001. DaimlerChrysler accounted for 20% and 22% of the
Company's total truckload revenue for the nine months ended March 31, 2002 and
2001, 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 two most recent fiscal years.
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
nine months ended March 31, 2002 and 2001 were 49% and 32%, respectively.
6. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was $0.4 million and $(1.5) million
for the three months ended March 31, 2002 and 2001, respectively. Total
comprehensive income (loss) was $0.7 million and $(2.6) million for the nine
months ended March 31, 2002 and 2001, respectively. The difference between the
total comprehensive loss and net loss relates to the effect of foreign currency
translation adjustments.
7. ACQUISITION OF FIXED ASSETS
The Company purchased certain fixed ssets from Foothill Capital, a
secured lender to Burlington Motor Carriers ("Burlington"), which included
primarily tractors and trailers. In conjunction with the purchase of the
approximately 300 tractors and 900 trailers, the Company incurred $7.5 million
in notes payable related to the transaction.
9
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SALE OF SUBSIDIARY
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 and nine
months ended March 2001, Cheetah contributed approximately $6.9 million and
$21.2 million respectively, to operating revenue. For the three and nine months
ended March 2001, Cheetah contributed approximately $286 thousand and $734
thousand respectively, in operating income.
ACQUISITION OF FIXED ASSETS
The Company purchased certain fixed assets from Foothill Capital, a
secured lender to Burlington Motor Carriers ("Burlington"), which included
primarily tractors and trailers. In conjunction with the purchase of the
approximately 300 tractors and 900 trailers, the Company incurred $7.5 million
in notes payable related to the transaction.
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 FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------- ---------
2002 2001 2002 2001
---- ---- ---- ----
Operating Revenues ............................. 100% 100% 100% 100%
Operating expenses
Salaries, wages and employee benefits ..... 29.7% 27.5% 29.3% 27.0%
Fuel ...................................... 10.0% 10.9% 10.6% 11.4%
Operating costs and supplies .............. 8.4% 7.5% 8.8% 7.4%
Insurance and claims ...................... 3.6% 3.2% 3.4% 2.7%
Depreciation and amortization ............. 3.9% 4.4% 4.0% 4.3%
Rent and purchased transportation ......... 34.4% 38.6% 33.9% 38.6%
Communications and utilities .............. 1.2% 1.1% 1.2% 1.1%
Permits, licenses and taxes ............... 2.1% 1.9% 2.0% 1.8%
Other ..................................... 3.9% 4.2% 3.9% 4.6%
----- ----- ----- -----
Total operating expenses ....................... 97.2% 100.2% 97.1% 98.9%
----- ----- ----- -----
Operating income ............................... 2.8% (0.2)% 2.9% 1.1%
===== ===== ===== =====
10
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2001
Revenue. Consolidated revenue decreased by $9.5 million, or 11%, to
$78.7 million for fiscal 2002 from $88.2 million for 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 and
fuel surcharges, last year's consolidated revenue would have been $76.7 million.
On a comparable basis, excluding Cheetah and the pass-through revenues in the
prior year, revenue for the March 2002 quarter represented an increase of $2.0
million, or approximately 3%. This increase is primarily related to an increase
in mileage for the startup of a local shuttle operation. Revenue for TruckersB2B
was approximately $1.7 million in fiscal 2002 compared to $1.0 million in fiscal
2001. The TruckersB2B revenue for the March 2002 quarter represents over $46
million in purchases made by its member companies through the TruckersB2B
network.
The Company's fleet remained constant at 2,625 tractors, including 834
owner-operated tractors at March 31, 2002 compared to 976 owner-operated
tractors at March 31, 2001. The decrease in tractors related to the sale of
Cheetah was offset by the addition of tractors related to the acquisition of
Burlington tractors from Foothill Capital.
Operating Income. Consolidated operating income increased by $2.4
million, to $2.2 million in fiscal 2002 from a loss of $0.2 million in fiscal
2001. The increase in operating income was primarily a result of decreased rent
and purchased transportation expense, fuel expense, professional fees and
depreciation and amortization expense. The Company's operating ratio, which
expresses operating expenses as a percentage of operating revenue improved from
100.2% in fiscal 2001 to 97.2% in fiscal 2002.
Salaries, wages and benefits were 29.7% of operating revenues for the
three month period ending March 31, 2002 compared to 27.5% for the same period
in 2001. This increase is primarily related to driver pay for a local shuttle
operation. In addition, the Cheetah revenue and Mexican pass through revenue
decreased the percentage of revenue in fiscal 2001.
Fuel decreased to 10.0% of revenue in the first quarter of fiscal 2002
compared to 10.9% in the first quarter of fiscal 2001. Fuel prices declined
approximately $0.17 per gallon in the March 2002 quarter compared to the March
2001 quarter. 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 fiscal 2002 compared to 3.2%
for 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 known claims and historical experience.
11
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
Rent and purchased transportation decreased to 34.4% of revenue in
fiscal 2002 from 38.6% in 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. In addition,
tractor costs have increased as most new tractors added since March 31, 2001
have been operating leases on a four year trade cycle.
Net interest expense decreased by $0.7 million, or 29%, to $1.7
million in fiscal 2002 from $2.4 million in fiscal 2001. The decrease was
primarily the result of reduced borrowings and reduced interest rates under the
Company's credit facilities.
NINE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THE NINE MONTHS ENDED MARCH 31,
2001
Revenue. Consolidated revenue decreased by $22.7 million, or 9%, to
$241.0 million for fiscal 2002 from $263.7 million for 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
year's consolidated revenue would have been $233.4 million. On a comparable
basis, excluding Cheetah and the pass-through revenues in the prior year,
revenue for the nine months ended March 2001 represented an increase of $7.6
million, or approximately 3%. This increase is primarily mileage related to the
startup of a local shuttle operation. Revenue for TruckersB2B was approximately
$4.7 million in fiscal 2002 compared to $3.2 million in fiscal 2001. The
TruckersB2B revenue for the nine months ended March 2001 represents over $130
million in purchases made by its member companies through the TruckersB2B
network.
The Company's fleet remained steady at 2,625 tractors, including 834
owner-operated tractors at March 31, 2002 compared to 976 owner-operated
tractors at March 31, 2001. . The decrease in tractors related to the sale of
Cheetah was offset by the addition of tractors related to the acquisition of
Burlington tractors from Foothill Capital.
Operating Income. Consolidated operating income increased by $4.0
million, or 138%, to $6.9 million in fiscal 2002 from $2.9 million in fiscal
2001. The increase in operating income was primarily a result of decreased fuel,
decreased rent and purchased transportation and decreased depreciation and
amortization expense offset by increased insurance expenses. The Company's
operating ratio, which expresses operating expenses as a percentage of operating
revenue improved from 98.9% in fiscal 2001 to 97.1% in fiscal 2002.
Salaries, wages and benefits were 29.3% of operating revenues for the
nine month period ending March 31, 2002 compared to 27.0% for the same period in
2001. This increase is primarily related to driver pay for a local shuttle
operation. In addition, the Cheetah revenue and Mexican pass through revenue
decreased the percentage of revenue in fiscal 2001.
Fuel decreased to 10.6% of revenue for fiscal 2002 compared to 11.4%
in fiscal 2001. Fuel prices have declined approximately $0.25 for the nine
months ended March 31, 2002 compared to March 31, 2001. 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.
12
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
Insurance and claims expense was 3.4% in fiscal 2002 compared to 2.7%
for 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 known claims and historical
experience. The liability premiums, which were renewed effective May 11, 2001,
increased significantly year-over-year.
Rent and purchased transportation decreased to 33.9% of revenue for
the nine month period ending March 31, 2002 from 38.6% for the same period in
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 48-foot trailers and replace with 53-foot
trailers. In addition, tractor costs have increased as most new tractors have
been operating leases on a four year trade cycle.
Net interest expense decreased by $1.7 million, or 23%, to $5.7
million in fiscal 2002 from $7.4 million in fiscal 2001. The decrease was
primarily the result of reduced borrowings and reduced interest rates under the
Company's credit facilities.
13
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
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 provided
by operating activities. The net cash provided by operations in the nine months
ending March 31, 2002 was $14.0 million compared to $9.5 million in the same
period in 2001. The increase in fiscal 2002 was the result of increase in
profitability, a reduction in the day's sales outstanding in trade receivables
and the collection of the Cheetah trade receivables offset by an increase in
accounts receivable other and a reduction of accrued expenses.
Net cash provided by investing activities decreased to $5.2 million in
fiscal 2002 from $9.6 million in 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 March 31, 2002, the Company had $1.6 million
of revenue equipment on order.
Net cash used in financing activities was $19.2 million in fiscal 2002
compared to $18.9 million in fiscal 2001. Financing activity generally
represents bank borrowings (payment and proceeds) and payment of capital lease
obligations. As of March 31, 2002, the Company had outstanding debt of $94.1
million. This debt consists of $44.1 million of capital lease obligations, $13.3
million of term loan debt, $22.9 million of revolver loan debt, $5.4 million of
mortgage debt relating to equipment, $7.5 million of notes payable relating to
the Burlington equipment purchased from Foothill Capital and $0.9 million of
other debt. Interest rates on this debt range from 5.8% to 8.0%.
The Company has 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 December 2001, the Company's credit
agreement with ING was amended to reflect modifications to the Company's
covenants and other provisions. The revolving credit termination date was
amended to September 30, 2003. Interest is based, at the Company's option, upon
either the bank's base rate plus a margin ranging from 1.0% to 2.5% or the
London Interbank Offered Rate plus a margin ranging from 2.0% to 3.5% depending
upon performance by the Company.
Standby letters of credit, not reflected in the accompanying
consolidated financial statements, aggregated approximately $2.8 million at
March 31, 2002.
14
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(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.
15
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(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 with ING (U.S.) Capital LLC in which floating rates are based, at the
Company's option, upon either the bank's base rate plus a margin ranging from
1.0% to 2.5% or the London Interbank Offered Rate plus a margin ranging from
2.0% to 3.5%, depending upon performance by the Company. A hypothetical 10%
movement in interest rates would have an impact on net income of approximately
$198 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 reduce its exposure to fuel price
fluctuations. As of March 31, 2002, the Company had 25% of estimated fuel
purchases hedged through August 2002. The Company recognized approximately $64
thousand of income associated with these derivative contracts for the quarter
ended March 31, 2002. A hypothetical 10% movement on the price of fuel futures
would have an impact on net income of approximately $75 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.
16
CELADON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(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 - none
(b) The Company did not file any reports on form 8-K during the three
months ended March 31, 2002.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Celadon Group, Inc.
(Registrant)
/s/ Stephen Russell
-------------------
Stephen Russell
Chief Executive Officer
/s/ Paul A. Will
----------------
Paul A. Will
Chief Financial Officer
Date: May 15, 2002
18