- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
====================
FORM 8-K/A
====================
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
August 10, 1999
------------------------------------------------
Date of Report (Date of earliest event reported)
CELADON GROUP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 0-23192 13-3361050
- ---------------------------- ---------------------- ----------------------
(State or other jurisdiction Commission File Number (I.R.S. Employer Number)
of incorporation or
organization)
One Celadon Drive, Indianapolis, Indiana 46236-4207
--------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(317) 972-7000
---------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
---------------------------------------------------------------
(Former name or former address, if changed since last
report.)
- --------------------------------------------------------------------------------
ITEM 2. Acquisition or Disposition of Assets
On August 10, 1999, Celadon Group, Inc. (the "Company") and Zipp Express,
Inc. ("Zipp Express"), a wholly-owned subsidiary of the Company (the Company and
Zipp Express collectively, the "Purchaser"), acquired certain assets of Zipp --
Express, Inc., an Indiana corporation ("Express") and Zipp Logistics, LLC, an
Indiana limited liability company ("Logistics"), pursuant to an ASSET PURCHASE
AGREEMENT (the "Agreement"), made and entered into by and among the Company,
Zipp Express, Express, Logistics and Jerry L. Closser, Daniel J. Frieden, Ernest
F. Krebs and Richard E. Williamson (collectively referred to herein as the
"Shareholders"). Express and the Shareholders are referred to herein
collectively, and when the context so requires, individually as "Seller". A copy
of the Asset Purchase Agreement is annexed hereto as Exhibit 2.1.
Pursuant to the Agreement, the Purchaser has purchased (i) all Equipment,
Inventory, and Real Property Improvements (each of the forgoing as defined in
the Agreement); (ii) Express' intellectual property (including, without
limitation, all trademark, service mark, trade name or copyright rights and all
trade secrets, know-how and proprietary information and processes), contract and
warranty rights, business records, prepaid expenses, licenses and permits (to
the extent transferable and/or assignable), accounts receivable, and claims,
counterclaims and rights of setoff;(iii) certain of Express' Real Property; and
(iv) certain other assets owned by Express prior to the closing (collectively,
the "Assets"). All of the Assets were used in or relate to Express and Logistics
business as a provider of transportation services to and from Mexico and
throughout the Midwest and will be used by Purchaser in or in connection with
its transportation services offered from the United States and Canada to and
from Mexico. In addition, several members of Express' management team have
signed employment contracts with Purchaser.
Purchaser has assumed only certain limited liabilities of Express. As
consideration for the purchase of the Assets, Purchaser has paid to the Seller
the sum of Twenty-Five Million Seven Hundred Seven Thousand Four Hundred
Fifty-Five Dollars ($25,707,455.00), subject to adjustment as provided in
Section 1.6.5 of the Agreement. The funds needed to pay the Purchase Price were
obtained by the Purchaser from its newly completed $60 million banking facility
with ING Barings. The new banking arrangement includes a $30 million revolving
loan and a $30 million term loan.
The foregoing description does not purport to be complete and is qualified in
its entirety by reference to the Asset Purchase Agreement filed with the 8-K
dated August 10, 1999 as Exhibit 2.1.
2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
The Form 8-K originally filed on August 25, 1999 is being amended to incorporate
the historical financial statements and related notes for the business acquired
as well as to include pro forma financial information of Zipp Express, Inc.
("Zipp") giving effect to the Asset Purchase.
a) Financial statements of the business acquired prepared pursuant to
Rule 3-05 of Regulation S-X:
Financial Statements of Zipp Express, Inc.
Page
Independent Auditors' Report 8
Balance Sheets as of December 31, 1998
and 1997 9
Statements of Income for the years ended
December 31, 1998 and 1997 10
Statements of Stockholder's Equity for the years
ended December 31, 1998 and 1997 11
Statements of Cash Flows for the years
months ended December 31, 1998 and 1997 12
Notes to Financial Statements 13-17
Financial Statements of Zipp Express, Inc. (Unaudited)
Condensed Consolidated Balance Sheet as of
June 30, 1999 18
Condensed Consolidated Statements of Income for
the six months ended June 30, 1999 and 1998 19
Condensed Consolidated Statements of Cash Flows
the six months ended June 30, 1999 and 1998 20
Notes to Condensed Consolidated Financial Statements 21
b) Unaudited pro forma financial information required pursuant to Article 11
of egulation S-X:
Unaudited pro forma consolidated financial statements of Zipp Express
Financial Statements 22
Unaudited pro forma Consolidated Balance Sheet
as of June 30, 1999 24
Unaudited pro forma Consolidated Income Statement
for the year ended June 30, 1999 26
3
c) Exhibits:
Exhibit No. Description
- ----------- -----------
2.1* Asset Purchase Agreement dated as of August 10, 1999 by and
among Zipp - Express, Inc., Zipp Logistics, LLC, Jerry L.
Closser, Daniel J. Frieden, Ernest F. Krebs and Richard
E.Williamson, Celadon Group, Inc., and Zipp Express, Inc.
(formerly known as Zipp AcquisitionCorp.).
22.1 Independent Auditors' Consent
99.1* Press release dated August 11, 1999.
*Filed with 8-K dated August 25, 1999.
4
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 hereunto duly authorized.
Date: October 25, 1999
CELADON GROUP, INC.
(Registrant)
By: /s/ Paul Will
Name: Paul Will
Title: Chief Financial Officer
5
ZIPP EXPRESS, INC.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
December 31, 1998 and 1997
6
ZIPP EXPRESS, INC.
CONTENTS
Page
Independent Auditors' Report 8
Balance Sheets 9
Statements of Income 10
Statements of Stockholders' Equity 11
Statements of Cash Flows 12
Notes to Financial Statements 13-16
7
Independent Auditors' Report
Board of Directors
Zipp Express, Inc.
We have audited the accompanying balance sheets of Zipp Express, Inc. as of
December 31, 1998 and 1997, and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Zipp Express, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 10 to the financial statements, Zipp Express, Inc.
sold substantially all of its assets and liabilities to Celadon Group, Inc.
effective August 10, 1999.
/s/ KATZ, SAPPER & MILLER, LLP
Certified Public Accountants
Indianapolis, Indiana March 4, 1999 (except for Note 10, as to which the
date is August 10, 1999)
8
ZIPP EXPRESS, INC.
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
CURRENT ASSETS-Note 4
Cash and cash equivalents $ 66,445 $ 37,457
Marketable securities-Note 2 1,078,054 773,667
Accounts receivable-trade, less allowance for
doubtful accounts of $75,000 in 1998 and 1997 4,209,530 4,014,554
Note receivable-stockholder-Note 8 15,902 14,978
Driver advances 48,814 55,887
Prepaid expenses and other current assets 264,177 144,867
--------------------- -------------------
Total Current Assets 5,682,922 5,041,410
--------------------- -------------------
PROPERTY AND EQUIPMENT-Notes 4 and 9
Land
Buildings and improvements 57,000 57,000
Revenue equipment 1,538,473 714,390
Machinery and equipment 19,607,654 17,334,626
Furniture and fixtures 1,744,935 1,584,478
1,324,692 1,186,884
--------------------- -------------------
24,272,754 20,877,378
Less: Accumulated depreciation 9,029,330 8,333,993
--------------------- -------------------
Total Property and Equipment 15,243,424 12,543,385
--------------------- -------------------
OTHER ASSETS
Note receivable-stockholder-Note 8 298,929 314,831
Advances to stockholders 71,177 -
--------------------- -------------------
Total Other Assets 370,106 314,831
--------------------- -------------------
TOTAL ASSETS $ 21,296,452 $ 17,899,626
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 1,828,804 1,773,818
Accrued payroll and payroll taxes 901,438 340,730
Accrued property taxes 120,000 101,745
Accrued expenses 363,641 93,305
Note payable to bank-Note 4 99,000 79,000
Current portion of long-term debt-Note 4 3,081,591 4,777,917
--------------------- -------------------
Total Current Liabilities 6,394,474 7,166,515
LONG-TERM DEBT, net of current portion above-Note 4 6,957,932 4,557,458
--------------------- -------------------
Total Liabilities 13,352,406 11,723,973
--------------------- -------------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 1,000 shares
authorized, issued and outstanding 2,500 2,500
Additional paid-in capital 30,000 30,000
Retained earnings 7,775,059 6,199,238
Accumulated other comprehensive income-net
unrealized holding gains (losses) on marketable
securities-Note 2 136,487 (56,085)
--------------------- -------------------
Total Stockholders' Equity 7,944,046 6,175,653
--------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,296,452 $ 17,899,626
===================== ===================
See Accompanying Notes to Financial Statements.
9
ZIPP EXPRESS, INC.
STATEMENTS OF INCOME
Years Ended December 31, 1998 and 1997
1998 1997
REVENUE $ 37,744,848 $ 35,469,855
---------------------- ----------------------
OPERATING EXPENSES
Salaries and wages 9,026,393 8,253,933
Other fringes 1,936,477 1,737,712
Operating supplies and expenses 4,357,771 4,499,038
General supplies and expenses 960,582 817,621
Operating taxes and licenses 638,958 565,159
Insurance 1,080,127 1,030,499
Communications and utilities 294,307 247,894
Depreciation - Note 9 2,617,782 3,331,059
Revenue equipment rents and purchased
transportation transportation 13,257,287 12,595,207
Building and office equipment rent 299,216 241,504
(Gain) loss on disposals of equipment (19,383) 6,533
Miscellaneous expenses 27,008 17,501
---------------------- ----------------------
Total Operating Expenses 34,476,525 33,343,860
---------------------- ----------------------
Net Operating Income 3,268,323 2,125,995
---------------------- ----------------------
OTHER INCOME (EXPENSE)
Realized net gain on sales of marketable securities 70,170 93,504
Interest expense (763,239) (781,657)
---------------------- ----------------------
Total Other Income (Expense) (693,069) (688,153)
---------------------- ----------------------
Net income before income Tax Benefit 2,575,254 1,437,842
INCOME TAX BENEFIT - Note 3 -- 1,352,500
---------------------- ----------------------
NET INCOME $ 2,575,254 $ 2,790,342
====================== ======================
See Accompanying Notes to Financial Statements.
10
ZIPP EXPRESS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1997
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders
Stock Capital Earnings Income (Loss) Equity
BALANCE AT DECEMBER 31, 1996 $ 2,500 $ 30,000 $ 3,408,896 $ 3,441,396
Compresensive Income: -----------------
Net income 2,790,342 2,790,342
Unrealized net loss on marketable securities $ (56,085) (56,085)
-----------------
Total Comprehensive Income - - - - 2,734,257
------------- ------------ --------------- -------------------- ----------------
BALANCE AT DECEMBER 31, 1997 2,500 30,000 6,199,238 (56,085) 6,175,653
----------------
Comprehensive Income:
Net income 2,575,254 2,575,254
Unrealized net gain on marketable securities 188,510 188,510
Add: Reclassification adjustment 4,062 4,062
---------------
Total Comprehensive Income 2,767,826
---------------
Distributions to stockholders - - (999,433) - (999,433)
------------- ------------- --------------- ------------------- -----------------
BALANCE AT DECEMBER 31, 1998 $ 2,500 $ 30,000 $ 7,775,059 $ 136,487 $ 7,944,046
============= ============= =============== =================== =================
See Accompanying Notes to Financial Statements
11
ZIPP EXPRESS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
1998 1997
OPERATING ACTIVITIES $ 2,575,254 2,790,342
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,617,782 331,059
(Gain) on loss disposals of equipment (19,383) 6,533
(Gain) on sales of marketable securities (70,170) (93,504)
Deferred income tax (benefit) (1,352,500)
(increase) decrease in certain current assets:
Accounts receivable (194,976) (134,943)
Driver advances 7,073 46,168
Prepaid expenses and other current assets (119,310) 17,630
Increase (decrease) in certain current liabilities:
Accounts payable 54,986 400,808
Accrued expenses 849,299 (185,346)
Income taxes payble - (83,045)
-------------------------- -------------------------
Net Cash Provided by Operating Acitivities 5,700,555 4,743,202
-------------------------- -------------------------
INVESTING ACTIVITIES
Purchases of properly and equipment (3,931,348) (2,434,653)
Proceeds from sales properly and equipment 96,726 70,884
Loans and advances to stockholders (71,177) (174,594)
Collections on note receivable-stockholder 14,978 13,833
Proceeds from sales of marketable securities 767,261 518,258
Purchases of marketable securities (808,906) (904,627)
-------------------------- -------------------------
Net Cash (Used) by investing Activities (3,932,466) 2,910,899
-------------------------- -------------------------
FINANCING ACTIVITIES
Proceeds of line credit borrowings 13,544,000 (11,222,000)
Repayments of line of credit borrowings (13,524,000) (11,143,000)
Proceeds from long-term debt 4,637,345 1,988,598
Principal payments on long-term debt (5,397,013) (4,370,206)
Distributions to stockholders (999,433) --
-------------------------- -------------------------
Net Cash (Used) by Financing Acitivites (1,739,101) (2,302,608)
-------------------------- -------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 28,986 (470,305)
CASH AND EQUIVALENTS
-------------------------- -------------------------
Beginning of Year 37,457 507,762
-------------------------- -------------------------
End of Year $ 66,445 $ 37,457
========================== =========================
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
Interest expense $ 668,368 $ 744,153
Income taxes (net of refunds) 89,622
Noncash investing and financing activities:
Equipment acquired and financed by lending institution 1,463,816 1,852,662
Trade-in of equipment used to pay long-term debt 667,238 52,358
See Accompanying Notes to Financial Statements.
12
ZIPP EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Zipp Express, Inc. (the Company) is primarily engaged in the
long haul transportation over the road business and grants credit to customers
located throughout the United States.
Estimates: The Company uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.
Cash and Equivalents: For purposes of the statement of cash flow, cash
equivalents may include bank time deposits, money market fund shares and all
highly liquid debt instruments with original maturities of three months or less.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits.
Investments in marketable securities are classified as "available-for-sale
securities" and are carried at fair value based on quoted market prices.
Unrealized holding gains and losses are not included in "net income", but are
accounted for as "other comprehensive income" and reflected as a separate
component of stockholders' equity. For purposes of determining the gain or loss
on a sale of securities, the cost of the securities sold is determined by
specifically-identified securities.
Inventory of supplies is recorded at the lower of cost (first-in,
first-out) or market.
Property and Equipment are recorded at cost and are being depreciated over
the expected useful lives of the assets using primarily the straight-line
method. The estimated useful lives are as follows:
Buildings and Improvements 19-31 years
Revenue Equipment 4-7 years
Machinery and Equipment 5 years
Furniture and Fixtures 4-5 years
Long-lived assets, including the Company's property and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability is
measured by comparison of the carrying amount to future net undiscounted cash
flows expected to be generated by the related asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount exceeds the fair market value of the assets.
To date, no adjustments to the carrying amount of long-lived assets have been
required.
Advertising Costs are expensed as incurred and totaled $100,110 in 1998 and
$83,929 in 1997.
Income Taxes: Effective January 1, 1997, the stockholders consented to the
Company's election to be taxed as an S corporation under the applicable
provisions of the Internal Revenue Code, wherein the stockholders are taxed
directly on the Company's income.
13
NOTE 2 - MARKETABLE SECURITIES
Following is a summary of the investment in marketable securities
classified as "available for sale" at December 31, 1998 and 1997:
1998 1997
---- ----
Unrealized Unrealized
Fair Value Cost Gain (Loss) Fair Value Cost (Loss)
Equity securities $ 778,352 $623,694 $154,658 $460,318 $482,313 $(21,995)
Debt securities 299,702 317,873 (18,171) 313,349 333,603 (20,254)
------------ --------- ---------- --------- --------- ----------
Total $1,078,054 $941,567 $136,487 $773,667 $815,916 $(42,249)
========== ======== ======== ======== ======== ========
At December 31, 1998 and 1997, investments in debt securities classified as
available for sale mature as follows:
1998 1997
---- ----
Within After Within After
1 Year 1-10 Years 10 Years 1 Year 1-10 Years 10 Years
Debt securities $ 50,540 $ 199,552 $ 49,610 $ 10,398 $ 287,193 $ 15,758
======== ========= ======== ======== ========= ========
NOTE 3 - INCOME TAXES
In 1997, the Company recognized an income tax benefit of $1,352,500 due to
the Company's election to be taxed as an S corporation effective January 1,
1997. The tax benefit resulted from the reversal of the Company's existing
deferred tax liability at the date of the S corporation election.
NOTE 4 - DEBT AND CREDIT AGREEMENTS
The Company has a bank line of credit for short-term bank borrowings of up
to $1,500,000. Actual borrowings are limited to a formula based on outstanding
account receivables. Availability is reduced by the amount of outstanding
letters of credit as prescribed by the line of credit agreement. At December 31,
1998, the Company had borrowed $99,000 against the line of credit, which expires
on July 1, 1999. Interest on short-term borrowings is payable monthly at the
Bank's prime lending rate. The loans are secured by accounts receivable,
equipment, inventory and general intangibles.
The line of credit agreement contains restrictions on sales of stock,
guaranties, and liens. In addition, the agreement requires the Company to
maintain a minimum cash flow coverage ratio, as defined, of 1.1 to 1.0, a
leverage ratio, as defined, not to exceed 3.5 to 1.0, and a minimum tangible net
worth, as defined, of $6,000,000.
The line of credit agreement also provides for a line of credit for
equipment purchases of up to $10,000,000. Equipment borrowings are payable over
five years at a rate agreed upon by the Company and the bank at the time the
loan is made. The Company has $8,711,773 outstanding on the equipment line of
credit at December 31, 1998.
14
Letters of credit totaling $190,875 were outstanding at December 31, 1998.
At December 31, 1998 and 1997, long-term debt of $10,039,523 and
$9,335,375, respectively, was comprised of various installment notes for
equipment totaling $8,879,523 and $8,912,362, respectively, with interest rates
ranging from 6.25% to 8.08% and a mortgage loan of $1,160,000 in 1998, with an
interest rate of 7.2%. The notes are payable in monthly installments and are
secured by the related revenue equipment, property and equipment.
NOTE 4 - DEBT AND CREDIT ARRANGEMENTS (CONTINUED)
At December 31, 1998, the aggregate long-term debt maturities were as
follows:
Payable In Principal
1999 $ 3,081,591
2000 2,962,645
2001 2,982,671
2002 56,615
2003 956,001
------------
Total $10,039,523
NOTE 5 - OPERATING LEASES
The Company leases various equipment under noncancellable operating
leases. Rent expense under these leases was $98,228 in 1998 and $102,155 in
1997. The minimum future lease payments required by these leases at December 31,
1998 were as follows:
Payable In Rental Payments
1999 $202,720
2000 176,346
2001 133,172
2002 30,784
--------
Total $543,022
NOTE 6 - EMPLOYEE BENEFIT PLAN
The Company has established a 401k retirement savings plan. Any employee
who has completed 90 days of services and has reached their twenty-first
birthday is eligible to participate. The Company contributes a matching
contribution equal to 25% of the first 6% of the deferred compensation. In
addition, the Company may, at the discretion of its Board of Directors,
contribute an additional amount. No such discretionary contributions were made
in 1998 and 1997. Contributions made by the Company were $38,702 in 1998 and
$23,920 in 1997.
NOTE 7 - MAJOR CUSTOMER
The Company has a major customer in the automotive industry that accounted
for 15% of its total revenue for 1998 and 1997. In 1998, the Company entered
into a three-year contract to provide transportation services to this customer.
15
NOTE 8 - NOTE RECEIVABLE-STOCKHOLDER
The Company had a note receivable from a stockholder of $314,831 and
$329,809 at December 31, 1998 and 1997, respectively. The note requires monthly
installment payments of $2,863 through July 2012. The note bears interest at 6%
and is unsecured.
NOTE 9 - CHANGE IN ACCOUNTING ESTIMATE
During 1998, the Company increased its estimate of the salvage value of
certain revenue equipment to reflect changes in the utilization of revenue
equipment. This change had the effect of decreasing depreciation expense and
increasing net income for 1998 by $1,041,437.
NOTE 10 - SUBSEQUENT EVENT
Effective August 10, 1999, the Company sold substantially all of its assets
to Celadon Group, Inc. The Company received cash of $15,225,000 and a promissory
note of $500,000. Additionally, Celadon Group, Inc. assumed $9,982,455 of the
Company's liabilities. The transaction resulted in a gain of approximately $8.9
million that will be included in 1999 operations.
16
ZIPP EXPRESS, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
(in thousands)
June 30,
1999
----
A S S E T S
Current assets:
Cash and cash equivalents $ 350
Marketable securities 765
Trade receivables, (net of allowance of $75) 4,590
Accounts receivable other 96
Prepaid expenses and other current assets 530
Tires in service 38
------
Total current assets 6,369
Property and equipment 25,654
Accumulated depreciation (9,848)
-------
Property (Net) 15,806
Total assets $ 22,175
========
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:
Bank borrowings and current maturities of long-term debt $ 3,245
Accounts payable 2,841
Accrued expenses 1,010
Total current liabilities 7,096
Long-term debt, net of current maturities 6,738
Total liabilities 13,834
Stockholders' equity :
Common stock and additional paid-in capital 33
Retained earnings 8,308
Total stockholders' equity 8,341
--------
Total liabilities and stockholders' equity $ 22,175
========
17
ZIPP EXPRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands)
Six months ended June 30,
1999 1998
---- ----
Revenue $ 21,084 $ 19,134
-------- --------
Expenses:
Operating Expense 15,499 14,062
Depreciation Expense 1,311 1,799
Administrative, general and selling 1,842 1,999
Interest and other Expense 231 174
---------- -----------
Total Expenses: 18,883 18,034
--------- ---------
Income before income taxes 2,201 1,100
39 ---
---------- --------------
Provision for income taxes
Net Income $ 2,162 $ 1,100
========= =========
18
ZIPP EXPRESS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Six months ended June 30,
1999 1998
---- ----
OPERATING ACTIVITIES:
Net Income $ 2,162 $ 1,100
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,311 1,799
Changes in assets and liabilities:
Accounts receivable (380) (53)
Prepaid expenses and other current assets (328) (631)
Accounts payable 1,012 242
Accrued expenses (488) 158
--------- --------
Net Cash Provided by Operating Activities 3,289 2,615
--------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (1,885) (2,202)
Proceeds from sales of property and equipment 11 36
Collections on note receivable-stockholder 370 ---
Proceeds from sales of marketable securities 335 496
Purchases of marketable securities (58) (662)
--------- ---------
Net Cash (Used) by Investing Activities (1,227) (2,332)
--------- ---------
FINANCING ACTIVITIES
Proceeds of line of credit borrowings 9,654 8,335
Repayments of line of credit borrowings (9,590) (7,961)
Proceeds from long-term debt 1,532 2,270
Principal payments on long-term debt (1,751) (2,680)
Distributions to stockholders (1,623) (250)
--------- ---------
Net Cash (Used) by Financing Activities (1,778) (286)
--------- ---------
NET INCREASE (DECREASE IN CASH AND EQUIVALENTS 284 (3)
CASH AND EQUIVALENTS
Beginning of Period 66 37
----------- ----------
End of Period $ 350 $ 34
=========== ==========
19
ZIPP EXPRESS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and include all adjustments (consisting only of
normal recurring adjustments) which Zipp Express, Inc. considers necessary for a
fair presentation of the financial position, operating results and cash flows
for those periods. Results for the interim periods are not necessary indicative
of the results for the entire year. These condensed consolidated financial
statements, and notes thereto, should be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 1998.
20
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
In August 1999, Celadon Group, Inc. ("Celadon") acquired certain assets and
assumed certain limited liabilities of Zipp -- Express, Inc., an Indiana
corporation ("Zipp") and Zipp Logistics, LLC, an Indiana limited liability
company ("Logistics") and other acquisition related costs.
The following Pro Forma Financial information is based on the historical
financial statements of Celadon and adjusted to give effect to the acquisition.
The Pro Forma Combined Statement of Income for the year ended June 30, 1999,
give effect to the acquisition as if it had occurred on July 1, 1998. The Pro
Forma Combined Balance Sheet gives effect to the acquisition as if it had
occurred on June 30, 1999. In opinion of management, the historical consolidated
financial statements of Celadon and Zipp reflect all adjustments, which are of a
normal recurring nature, to present fairly Celadon and Zip p's financial
position and results of operations as of and for the twelve months ended June
30, 1999. The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable.
Zipp's fiscal year end differs from the Celadon's fiscal year end.
Celadon's fiscal year end is June 30 and Zipp's fiscal year end is December 31.
However, the unaudited pro forma Combined Income Statement for all periods have
been combined using the same periods for both Celadon and Zipp.
The unaudited pro forma condensed financial statements are not necessarily
indicative of the actual financial position or results of operations that would
have occurred had the acquisition been consummated as of the dates or for the
periods presented, or of future financial positions or results of operations of
the combined companies.
The acquisition was accounted for using the purchase method of accounting.
The total purchase price for the acquisition has been allocated to tangible and
identifiable intangible assets and liabilities based upon management's
preliminary estimates of their fair value with the excess of purchase price over
fair value of assets acquired allocated to goodwill. The allocation of the
purchase price for the acquisition is subject to revision when additional
information concerning asset and liabilities valuations is obtained. In
management's opinion, the asset and liability valuations for the acquisition
will not be materially different from the pro forma information presented. For
purposes of presenting pro forma results, no changes in revenues and expenses
have been made to reflect the results of any modification to operations that
might have been made had the acquisition been consummated on the assumed
effective date of the Acquisition. The pro forma expenses include the recurring
cost, which are directly attributable to the acquisition, such as interest
expense, depreciation expense and amortization of goodwill.
21
CELADON GROUP, INC. AND ZIPP EXPRESS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
June 30, 1999
(in thousands)
PRO FORMA
ADJUSTMENT
A S S E T S CELADON (1) ZIPP (2) ENTRIES COMBINED
-------- ----- ------- --------
Current assets:
Cash and cash equivalents 695 350 (196) (3) 849
Marketable securities --- 765 (765) (3) ---
Trade receivables, net of allowance 43,884 4,590 --- 48,474
Accounts receivable - other 5,336 96 --- 5,432
Prepaid expenses and other current assets 6,941 530 (121) (3) 7,350
Tires in service 4,179 38 --- 4,217
Income tax recoverable 29 --- --- 29
Deferred income taxes 4,847 --- --- 4,847
------------- -------------- -------------- ---------
Total current assets 65,911 6,369 (1,082) 71,198
Property and equipment, net of accumulated depreciation 107,584 15,806 (937) (4) 122,453
Tires in service 2,331 --- --- 2,331
Goodwill, net of accumulated amortization 10,967 --- 10,103 (5) 21,070
Other assets 1,966 --- --- 1,966
------------- -------------- -------------- ---------
Total assets $ 188,759 $ 22,175 $ 8,084 $ 219,018
========== ========= ========== =========
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 $ 5,505 $ 2,841 --- $ 8,346
Accrued expenses 17,953 1,010 700 (7) 19,663
Bank borrowings and current maturities of long-term debt 7,239 3,245 (3,053)(7) 7,431
Current maturities of capital lease obligations 15,099 --- --- 15,099
------------ -------------- -------------- ---------
Total current liabilities 45,796 7,096 (2,353) (7) 50,539
Long-term debt, net of current maturities 18,613 6,738 18,778 (7) 44,129
Capital lease obligations, net of current maturities 52,967 --- --- 52,967
Deferred income taxes 14,065 --- --- 14,065
------------ -------------- -------------- ---------
Total liabilities 131,441 13,834 16,425 161,700
Minority interest 12 --- --- 12
Stockholders' equity :
Common stock 257 3 (3)(6) 257
Additional paid-in capital 56,679 30 (30)(6) 56,679
Retained earnings 1,319 8,308 (8,308)(6) 1,139
Accumulated other comprehensive income (605) --- --- (605)
Treasury stock (344) --- --- (344)
------------- -------------- -------------- ---------
Total stockholders' equity 57,306 8,341 (8,341)(6) 57,419
------------ ----------- ----------- ---------
$ 188,759 $ 22,175 $ 8,084 $ 219,018
========== ========= ========== =========
Total liabilities and stockholders' equity
22
NOTES TO PRO FORMA COMBINED BALANCE SHEET
(1) As reported in Celadon Group Inc.'s June 30, 1999 Form 10K.
(2) Reflects the Zipp's balance sheet as of June 30, 1999. Certain
reclassifications have been made to present Zipp on a basis consistent with
Celadon.
(3) To eliminate certain assets from Zipp's June 30, 1999 balance sheet which
are not included in the net assets acquired.
(4) To adjust Zipp acquired property and equipment to fair value as of June 30,
1999.
(5) Represents the excess of the purchase price over the net assets acquired,
as reflected in Zipp's historical financial statements.
(6) To eliminate Zipp's historical stockholder's equity.
(7) To record debt and other liabilities incurred to finance the acquisition.
23
CELADON GROUP, INC. AND ZIPP EXPRESS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
TWELVE MONTHS ENDED JUNE 30, 1999
(dollars in thousands except per share amounts)
PRO FORMA
CELADON (1) ZIPP (2) ADJUSTMENTS COMBINED
-------- ----- ----------- --------
Revenue $281,829 $39,695 --- $321,524
Depreciation and amortization 13,161 2,130 (3) (100) 15,191
Other Operating Expense 253,377 33,140 (4) 83 286,600
------- ------- -- -------
Operating Income 15,291 4,425 17 19,733
Interest Expense (Net) 7,385 779 1,406 (5) 9,570
Other Expense (Income) 85 (29) --- 56
---------- ------- ----------- ----------
Total Other Expense (Income) 7,470 750 1,406 9,626
Income Before Income Tax 7,821 3,675 (1,389) 10,107
Provision For Income Tax 2,980 39 830 (6) 3,849
---------- -------- --------- -----
Net Income $ 4,841 $3,636 $ (2,219) $ 6,258
========= ====== ========= ========
Average Dilutive Shares 7,784 7,784
EPS $ 0.62 $ 0.80
========= =========
NOTES TO PRO FORMA COMBINED INCOME STATEMENT
(1) Represents the years ended June 30, 1999 as reported in Celadon Group
Inc.'s Form 10K.
(2) Represents the twelve months ended June 30, 1999 (unaudited) as reported by
Zipp Express Inc.
(3) The above pro-form adjustment represents the following two items: (c)a To
record amortization of the goodwill related to the acquisition ($674). (c)b
To adjust Zipp depreciation expense as a result of applying fair value
purchase accounting ($574).
(4) Represents elimination of rental expense and related utilities for Laredo
facilities owned by Zipp and not acquired by Celadon through the
acquisition.
(5) Represents interest expense for borrowings ($1,142) and amortization of
deferred financing fees ($264) incurred in connection with the acquisition.
(6) To record tax effect of pro forma adjustments.
24
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Form 8K of Celadon Group, Inc. of our report dated
March 4, 1999 and August 10, 1999, on our audits of the financial statements of
Zipp Express, Inc. as of and for the years ended December 31, 1998 and 1997.
/s/ KATZ, SAPPER & MILLER, LLP
Certified Public Accountants
Indianapolis, Indiana
October 22, 1999
24