-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WAj3sWQuezZijgDSzfN6HoTCZ2NJ9uAAkc2HPtVxfUTPKAqI9nZ08qTOOysTpFnW Vgve2KoyxB6wntX8J4CyiA== 0000950137-03-000897.txt : 20030213 0000950137-03-000897.hdr.sgml : 20030213 20030213094209 ACCESSION NUMBER: 0000950137-03-000897 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELADON GROUP INC CENTRAL INDEX KEY: 0000865941 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 133361050 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23192 FILM NUMBER: 03556782 BUSINESS ADDRESS: STREET 1: ONE CELADON DR CITY: INDIANAPOLIS STATE: IN ZIP: 46236-4207 BUSINESS PHONE: 2129774447 MAIL ADDRESS: STREET 1: ONE CELADON DRIVE CITY: INDIIANAPOLIS STATE: IN ZIP: 46236-4207 10-Q 1 c74707e10vq.txt QUARTERLY REPORT 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 DECEMBER 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 (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 February 13, 2003 was 7,693,313. CELADON GROUP, INC. INDEX TO DECEMBER 31, 2002 FORM 10-Q PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of December 31, 2002 and June 30, 2002 .............................................................................. 3 Condensed Consolidated Statements of Income - For the three and six months ended December 31, 2002 and 2001................................................................. 4 Condensed Consolidated Statements of Cash Flows - For the six months ended December 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 ................................................................ 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk ............................... 17 Item 4. Controls and Procedures................................................................... 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................................................... 18 Item 2. Changes in Securities .................................................................... 18 Item 3. Defaults upon Senior Securities........................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders and Procedures........................ 18 Item 5. Other Information......................................................................... 18 Item 6. Exhibits and Reports on Form 8-K.......................................................... 18
2 CELADON GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
December 31 June 30, 2002 2002 ---- ---- ASSETS (unaudited) Current assets: Cash and cash equivalents................................................... $ 798 $ 299 Trade receivables, net of allowance......................................... 43,786 54,796 Accounts receivable -- other................................................ 4,557 5,728 Prepaid expenses and other current assets................................... 8,924 6,222 Tires in service............................................................ 4,517 4,181 Deferred income taxes....................................................... 1,569 1,808 --------- --------- Total current assets.................................................... 64,151 73,034 Property and equipment........................................................... 134,760 140,142 Less accumulated depreciation and amortization.............................. 49,935 45,164 --------- --------- Net property and equipment.............................................. 84,825 94,978 Tires in service................................................................. 2,279 1,982 Goodwill 16,702 16,702 Other assets..................................................................... 3,488 3,335 --------- --------- Total assets................................................................ $171,445 $ 190,031 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................ $ 5,473 $ 4,184 Accrued expenses............................................................ 12,763 12,283 Salaries and benefits accrual............................................... 6,700 7,087 Insurance and claims accrual................................................ 4,308 4,274 Owner-operator expense accrual.............................................. 2,218 3,599 Bank borrowings and current maturities of long-term debt.................... 7,912 7,531 Current maturities of capital lease obligations............................. 18,456 21,120 Income tax payable.......................................................... 341 51 --------- --------- Total current liabilities............................................... 58,171 60,129 Long-term debt, net of current maturities........................................ 33,524 44,178 Capital lease obligations, net of current maturities............................. 15,727 24,193 Deferred income taxes............................................................ 8,209 7,590 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.................................................. 60,046 60,044 Retained deficit............................................................ (2,430) (4,349) Accumulated other comprehensive loss........................................ (1,673) (1,581) Treasury stock, at cost, 101,385 and 112,115 shares at December 31, 2002 and June 30, 2002, respectively......................... (411) (455) --------- --------- Total stockholders' equity.............................................. 55,789 53,916 --------- --------- Total liabilities and stockholders' equity.................................. $ 171,445 $ 190,031 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 CELADON GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
For the three months ended For the six months ended December 31, December 31, 2002 2001 2002 2001 ---- ---- ---- ---- Operating revenue .......................................... $ 90,827 $ 79,349 $ 184,387 $ 162,219 Operating expenses: Salaries, wages and employee benefits .................. 27,862 22,981 56,340 47,205 Fuel ................................................... 11,401 8,181 22,088 17,688 Operating costs and supplies ........................... 7,818 7,380 15,782 14,493 Insurance and claims ................................... 3,132 2,491 6,601 5,470 Depreciation and amortization .......................... 3,051 3,306 6,585 6,595 Rent and purchased transportation ...................... 28,041 26,870 56,881 54,572 Costs of products and services sold .................... 1,293 1,033 2,530 1,766 Professional and consulting fees ....................... 584 413 1,134 777 Communications and utilities ........................... 938 880 2,001 1,903 Permits, licenses and taxes ............................ 1,940 1,672 3,879 3,247 General, administrative and selling .................... 1,615 1,918 3,478 3,792 --------- --------- --------- --------- Total operating expenses .......................... 87,675 77,125 177,299 157,508 --------- --------- --------- --------- Operating income ........................................... 3,152 2,224 7,088 4,711 Other (income) expense: Interest Income ........................................ (14) (24) (38) (54) Interest expense ....................................... 1,456 1,836 3,936 3,945 Other (income) expense, net ............................ (25) 84 (65) 91 --------- --------- --------- --------- Income before income taxes ................................. 1,735 328 3,255 729 Provision for income taxes ................................. 707 129 1,336 389 --------- --------- --------- --------- Net income ........................................ $ 1,028 $ 199 $ 1,919 $ 340 ========= ========= ========= ========= Earnings (loss) per common share: Diluted earnings (loss) per share ...................... $ 0.13 $ 0.03 $ 0.24 $ 0.04 Basic earnings (loss) per share ........................ $ 0.13 $ 0.03 $ 0.25 $ 0.04 Average shares outstanding: Diluted ................................................ 8,061 7,686 8,065 7,625 Basic .................................................. 7,687 7,607 7,683 7,574
See accompanying notes to condensed consolidated financial statements. 4 CELADON GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2002 2001 ---- ---- Cash flows from operating activities: Net Income .......................................................................... $ 1,919 $ 340 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................................... 6,585 6,595 Provision (benefit) for deferred income taxes ................................... 859 (302) Provision for doubtful accounts ................................................. 327 476 Changes in assets and liabilities: Trade receivables .......................................................... 10,683 9,239 Accounts receivable -- other ............................................... 1,171 322 Income tax recoverable ..................................................... -- 597 Tires in service ........................................................... (632) (207) Prepaid expenses and other current assets .................................. (2,702) (1,209) Other assets ............................................................... 203 255 Accounts payable and accrued expenses ...................................... 35 (4,490) Income tax payable ......................................................... 290 129 -------- -------- Net cash provided by operating activities ....................................... 18,738 11,745 Cash flows from investing activities: Purchase of property and equipment .................................................. (2,349) (776) Proceeds on sale of property and equipment .......................................... 5,467 1,759 -------- -------- Net cash provided by investing activities ....................................... 3,118 983 Cash flows from financing activities: Proceeds from issuances of common stock ............................................. 46 415 Proceeds from bank borrowings and debt .............................................. 2,916 80 Payments on bank borrowings and debt ................................................ (13,189) (6,650) Principal payments under capital lease obligations .................................. (11,130) (7,303) -------- -------- Net cash used in financing activities ............................................ (21,357) (13,458) -------- -------- Increase (decrease) cash and cash equivalents ....................................... 499 (730) Cash and cash equivalents at beginning of year ........................................... 299 794 -------- -------- Cash and cash equivalents at end of period ............................................... $ 798 $ 64 ======== ======== Supplemental disclosure of cash flow information: Interest paid ....................................................................... $ 2,919 $ 4,183 Income taxes paid ................................................................... $ 178 $ 120 Supplemental disclosure of non-cash flow investing activities: Lease obligation incurred in the purchase of equipment .............................. -- $ 993
See accompanying notes to condensed consolidated financial statements. 5 CELADON GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 (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, 2002. 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. RECENT ACCOUNTING PRONOUNCEMENTS In 2001, the Financial Accounting Standards Board issued Statement No. 143 (SFAS 143), Accounting for Asset Retirement Obligations. SFAS 143 requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred, which is adjusted to its present value each period. In addition, companies must capitalize a corresponding amount by increasing the carrying amount of the related long-lived asset, which is depreciated over the useful life of the related asset. The Company adopted SFAS 143 on July 1, 2002, and there was no impact on its consolidated financial position or results of operations. In 2001, the Financial Accounting Standards Board issued Statement No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides additional restrictive criteria that would have to be met to classify an asset as held-for-sale. This statement also requires expected future operating losses from discontinued operations to be recorded in the period in which the losses are incurred (rather than as of the date management commits to a formal plan to dispose of a segment, as previously required). In addition, more dispositions will qualify for discontinued operations treatment in the income statement. The Company adopted SFAS 144 on July 1, 2002, and there was no impact on its consolidated financial position or results of operations. 6 CELADON GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 (UNAUDITED) In 2002, the Financial Accounting Standards Board issued Statement No. 145 (SFAS 145), Recession of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13 and Technical Corrections. This SFAS addresses the recording of debt extinguishment costs as extraordinary items and accounting for sale-lease back transactions. Effective July 1 2002, the Company adopted the provisions of SFAS 145. Under this new standard, $0.9 million in expenses associated with the refinancing of the Company's Credit Agreement in September 2002, which under prior standards would have been recorded as an extraordinary item, were recorded in interest expense in the Consolidated Statement of Income. (See Note 3) In 2002, the Financial Accounting Standards Board issued Statement No. 146 (SFAS 146), Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement are required to be applied starting with exit or disposal activities that are initiated after December 31, 2002. Effective December 31, 2002, the Company adopted the provisions of SFAS 146, and there was no impact on its consolidated financial position or results of operations. On December 31, 2002, the Financial Accounting Standards Board issued Statement No. 148 (SFAS 148), Accounting for Stock-Based Compensation -- Transition and Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition to SFAS 123's fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While the SFAS 148 does not amend SFAS 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS 123 or the intrinsic value method of Opinion 25. The Company will adopt the provisions of SFAS 148, effective January 1, 2003, and expects that there will be no material impact on its consolidated financial position or results of operations. 7 CELADON GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 (UNAUDITED) 3. CREDIT AGREEMENT On September 26, 2002, the Company entered into a Loan and Security Agreement ("Credit Agreement") with Fleet Capital Corporation, Fleet Capital Canada Corporation and several other lenders named in the Loan Agreement. The Credit Agreement provides a credit facility in the aggregate amount of $55 million. The facility consists of two revolving loan facilities, two term loan subfacilities and a commitment to issue and guaranty letters of credit. The term loan subfacilities consist of a domestic term loan in the aggregate principal amount of approximately $9.4 million and a Canadian term loan in the aggregate principal amount of approximately $0.8 million. Repayment of the amounts outstanding under the Credit Agreement is secured by a lien on certain assets. The Credit Agreement replaces in full the credit facility the Company entered into with ING (U.S.) Capital, LLC, in August 1999. Proceeds of $39 million from this Credit Agreement were used to satisfy the Company's obligations under its previous credit facility. The Credit Agreement, which is for a term of three years, terminates on September 26, 2005. The Company incurred a one-time non-cash write-off of approximately $0.9 million related to unamortized debt issuance costs from the previous credit facility. 4. 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 SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 ---- ---- ---- ---- Income (loss) available to common shareholders $1,028 $199 $1,919 $340 ====== ==== ====== ==== Basic income (loss) per share: Weighted -- average number of common Shares outstanding 7,687,062 7,607,370 7,683,327 7,573,506 ========= ========= ========= ========= Basic Income (loss) per share $0.13 $0.03 $0.25 $0.04 ===== ===== ===== ===== Diluted income (loss) per share: Weighted -- average number of common Shares outstanding 7,687,062 7,607,370 7,683,327 7,573,506 Effect of stock options and other incremental shares 374,406 79,078 381,398 51,478 ------- ------ ------- ------ Weighted -- average number of common shares Outstanding-diluted 8,061,468 7,686,448 8,064,725 7,624,984 ========= ========= ========= ========= Diluted income (loss per share) $0.13 $0.03 $0.24 $0.04 ===== ===== ===== =====
8 CELADON GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 (UNAUDITED) 5. 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, Celadon Trucking Services, Inc., ("CTSI") and various other subsidiaries. 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 income.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED DECEMBER 31, 2002 DECEMBER 31, 2002 ----------------- ----------------- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) Transportation E-commerce Total Transportation E-commerce Total -------------- ---------- ----- -------------- ---------- ----- Operating revenue $88,836 $1,991 $90,827 $180,466 $3,921 $184,387 Operating income $2,818 $334 $3,152 $6,433 $655 $7,088 FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED DECEMBER 31, 2001 DECEMBER 31, 2001 ----------------- ----------------- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) Transportation E-commerce Total Transportation E-commerce Total -------------- ---------- ----- -------------- ---------- ----- Operating revenue $77,661 $1,688 $79,349 $159,271 $2,948 $162,219 Operating income $2,001 $223 $2,224 $4,377 $334 $4,711
Information as to the Company's operating revenue by geographic area, is allocated based primarily on country of customer origin and summarized below:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 ----------- ----------- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) 2002 2001 2002 2001 ---- ---- ---- ---- Operating revenue: United States $75,054 $62,539 $152,478 $128,472 Canada 11,274 11,782 22,542 23,881 Mexico 4,499 5,028 9,367 9,866 ------- ------- -------- -------- Total $90,827 $79,349 $184,387 $162,219 ======= ======= ======== ========
9 CELADON GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 (UNAUDITED) The Company's largest customer is DaimlerChrysler. 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. Percentage of the total revenue derived from DaimlerChrysler for the periods presented was as follows:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 ----------- ----------- 2002 2001 2002 2001 ---- ---- ---- ---- Percent of revenue from DaimlerChrysler 12% 20% 13% 21%
No other customer accounted for more than 10% of the Company's total revenue during any of its three most recent fiscal years. 6. INCOME TAXES Income tax expense 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 six months ended December 31, 2002 and 2001 were 41% and 53%, respectively. 7. COMPREHENSIVE INCOME Total comprehensive income was $1.0 million and $0.4 million for the three months ended December 31, 2002 and 2001, respectively. Total comprehensive income was $1.8 million and $0.2 million for the six months ended December 31, 2002 and 2001, respectively. The difference between the total comprehensive income and net income relates to the effect of foreign currency translation adjustments. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth the percentage relationship of expense items to operating revenues for the periods indicated:
PERCENTAGE OF OPERATING REVENUES FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------ ------------ 2002 2001 2002 2001 ---- ---- ---- ---- Operating Revenues 100% 100% 100% 100% Operating expenses Salaries, wages and employee benefits........ 30.7% 29.0% 30.6% 29.1% Fuel 12.6% 10.3% 12.0% 10.9% Operating costs and supplies................. 8.6% 9.3% 8.6% 8.9% Insurance and claims......................... 3.4% 3.1% 3.6% 3.4% Depreciation and amortization................ 3.4% 4.2% 3.6% 4.1% Rent and purchased transportation............ 30.9% 33.9% 30.8% 33.6% Communications and utilities................. 1.0% 1.1% 1.1% 1.2% Permits, licenses and taxes.................. 2.1% 2.1% 2.1% 2.0% Other........................................ 3.8% 4.2% 3.8% 3.9% ---- ---- ---- ---- Total operating expenses........................ 96.5% 97.2% 96.2% 97.1% ---- ---- ---- ---- Operating income................................ 3.5% 2.8% 3.8% 2.9% ==== ==== ==== ====
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 2002 TO THREE MONTHS ENDED DECEMBER 31, 2001 Revenue increased by $11.5 million, or 15%, to $90.8 million for the second quarter of fiscal 2003 from $79.3 million for the second quarter of fiscal 2002. This increase is related to a 10% increase in truckload volume and a 4% increase in rate per mile. Non-truckload revenues, which constitute dedicated operations and material handling, increased $2.9 million in the second quarter of fiscal 2003. New dedicated operations represented approximately $1.4 million of this increase. Revenue for TruckersB2B was approximately $2.0 million in the second quarter of fiscal 2003 compared to $1.7 million in the second quarter of fiscal 2002. The TruckersB2B revenue for the December 2002 quarter represents over $43 million in purchases made by its member companies through the TruckersB2B network. Consolidated operating income increased by $1.0 million, or 45%, to $3.2 million in fiscal 2003 from $2.2 million in fiscal 2002. The increase in operating income was primarily a result of increased revenue offset by increased salaries, wages and benefits, increased rent and purchased transportation and increased fuel. The Company's operating ratio, which expresses operating expenses as a percentage of operating revenue improved from 97.2% in fiscal 2002 to 96.5% in fiscal 2003. 11 The Company's fleet increased to 2,663 tractors, including 516 owner-operated tractors and 153 lease-purchase owner operated tractors at December 31, 2002 from 2,276 tractors including 593 owner-operated tractors and 194 lease-purchase owner operated tractors at December 30, 2001. Salaries, wages and benefits were $27.9 million, or 30.7% of operating revenues for the three-month period ending December 31, 2002 compared to $23.0 million, or 29.0% of operating revenues for the same period in 2001. This increase is related to an increase in driver payroll for the additional truckload volume. In addition, the Company has added approximately 85 administrative personnel since December 2001 for the additional volume and the material handling operations. Fuel increased to $11.4 million, or 12.6% of revenue in the second quarter of fiscal 2003 compared to $8.2 million, or 10.3% of revenue in the second quarter of fiscal 2002. The $3.2 million increase relates primarily to the purchase of additional gallons for the additional dispatch miles driven and an increase in cost of approximately $0.18 per gallon. Insurance and claims expense was $3.1 million, or 3.4% of revenue in the second quarter of fiscal 2003 compared to $2.5 million, or 3.1% of revenue for the second quarter of fiscal 2002. 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. Rent and purchased transportation increased to $28.0 million, or 30.9% of revenue in the second quarter of fiscal 2003 from $26.9 million, or 33.9% in the second quarter of fiscal 2002. As a percentage of revenue, rent and purchased transportation dropped 3.0% in fiscal 2003. The percentage of revenue for rent and purchased transportation decreased due to only a slight increase in the owner-operator fleet year over year while increasing the truckload revenue. Additional expense was incurred for the material handling operation of approximately $1.3 million. Also, as the company tractor fleet has grown by approximately 500 tractors, the monthly operating lease rent expense has increased rent and purchased transportation. Net interest expense decreased by $0.3 million, or 17%, to $1.5 million in the second quarter of fiscal 2003 from $1.8 million in the second quarter of fiscal 2002. The decrease was the result of a 1/2 percentage point decrease, or 9% decline in interest rates year over year and reduced capital lease obligations resulting in reduced capital lease related interest expense. The effective income tax rate increased to 41% for fiscal 2003 from 39% for fiscal 2002. The increased tax rate is the effect of the permanent tax differences, which impact the effective tax rate. In addition, taxes for Mexico are based on assets in lieu of income, which has an impact on the effective tax rate. SIX MONTHS ENDED DECEMBER 31, 2002 COMPARED WITH THE SIX MONTHS ENDED DECEMBER 31, 2001 Revenue increased by $22.2 million, or 14%, to $184.4 million for fiscal 2003 from $162.2 million for fiscal 2002. This increase is related to a 9% increase in truckload volume and a 3% increase in rate per mile. Non-truckload revenues, which constitute dedicated operations and material handling, increased $5.6 million in fiscal 2003. New dedicated operations represented approximately $2.9 million of this increase. Revenue for TruckersB2B was approximately $3.9 million in fiscal 2003 compared to $2.9 million in fiscal 2002. The TruckersB2B revenue for the six months ended December 2002 quarter represents over $86 million in purchases made by its member companies through the TruckersB2B network. 12 Consolidated operating income increased by $2.4 million, or 51%, to $7.1 million in fiscal 2003 from $4.7 million in fiscal 2002. The increase in operating income was primarily a result of increased revenue offset by increased salaries, wages and benefits, increased rent and purchased transportation and increased fuel. The Company's operating ratio, which expresses operating expenses as a percentage of operating revenue improved from 97.1% in fiscal 2002 to 96.2% in fiscal 2003. The Company's fleet increased to 2,663 tractors, including 516 owner-operated tractors and 153 lease-purchase owner operated tractors at December 31, 2002 from 2,276 tractors including 593 owner-operated tractors and 194 lease-purchase owner operated tractors at December 30, 2001. Salaries, wages and benefits were $56.3 million, or 30.6% of operating revenues for the six-month period ending December 31, 2002 compared to $47.2 million, or 29.1% of operating revenues for the same period in 2001. This increase is related to an increase in driver payroll for the additional truckload volume. In addition, the Company has added approximately 85 administrative personnel since December 2001 for the additional volume and the material handling operations. Fuel increased to $22.1 million, or 12.0% of revenue in fiscal 2003 compared to $17.7 million, or 10.9% of revenue in fiscal 2002. The $4.4 million increase relates to the purchase of additional gallons for the additional dispatch miles driven and an increase of approximately $0.09 per gallon. Insurance and claims expense was $6.6 million, or 3.6% of revenue in fiscal 2003 compared to $5.5 million, or 3.4% of revenue for fiscal 2002. 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. Rent and purchased transportation increased to $56.9 million, or 30.8% of revenue in the second quarter of fiscal 2003 from $54.6 million, or 33.6% in the second quarter of fiscal 2002. As a percentage of revenue, rent and purchased transportation dropped 2.8% in fiscal 2003. The percentage of revenue for rent and purchased transportation decreased due to maintaining a slightly larger owner-operator fleet year over year while increasing the truckload revenue. Additional expense was incurred for the material handling operation of approximately $2.5 million. Also, as the company tractor fleet has grown by approximately 500 tractors, the monthly operating lease rent expense has increased rent and purchased transportation. Net interest expense remained constant at $3.9 million in fiscal 2003 and 2002. There was an increase as a result of a one-time non-cash write-off of loan origination costs of approximately $0.9 million related to the Company's previous credit facility in September of fiscal 2003. This write-off was offset by a 1 1/2 percentage point decrease, or 20% decline in interest rates year over year and reduced capital lease obligations resulting in reduced capital lease related interest expense. Other income and expense includes approximately $1.1 million of commission income related to a receivables collection agreement entered into between Foothill Capital and the Company. This agreement related to the collection of receivables tied to the bankrupt Burlington Motor Carriers' ("BMC") business. The Company also recognized approximately $1.0 million of other expense related to a write-down of revenue equipment acquired from Foothill Capital for equipment, which has not been located. 13 The effective income tax rate decreased to 41% for fiscal 2003 from 53% for fiscal 2002. The decreased tax rate is the effect of the permanent tax differences being allocated to increased income, which impacts the effective tax rate. In addition, taxes for Mexico are based on assets in lieu of income, which also impact on the effective tax rate. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements in fiscal 2003 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, and equipment lease financing (both capitalized and operating). 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 2003 was provided by operations and the collection of receivables offset by increased prepaid expenses and tires in service. The net cash provided by operations in fiscal 2003 was $18.7 million compared to $11.7 million in fiscal 2002. Net cash provided by investing activities increased to $3.1 million in fiscal 2003 from $1.0 million in fiscal 2002. This relates to the additional proceeds from the sale versus the purchase of revenue equipment. As of December 31, 2002, the Company had on order revenue equipment representing a capital commitment of approximately $8.7 million. Net cash used in financing activities was $21.4 million in fiscal 2003 compared to $13.5 million in fiscal 2002. Financing activity generally represents bank borrowings (payment and proceeds) and payment of capital lease obligations. As of December 31, 2002, the Company had outstanding debt of $75.6 million as compared to $92.4 million as of December 30, 2001. This debt consists of:
DECEMBER 31, ------------ 2002 2001 ---- ---- (Dollars in thousands) Capital lease obligations..................... $34,183 $48,312 Credit agreement.............................. 29,386 37,340 Mortgage debt relating to equipment........... 7,696 3,010 Mortgage debt relating to property............ 3,356 2,870 Other debt.................................... 998 832 ------- ------- Total outstanding debt........................ $75,619 $92,364 ======= =======
The Company continues to reduce obligations owed on capital leased equipment through scheduled monthly payments and end-of-lease residual payments. The Company has been replacing expiring capital leased equipment with operating leased equipment. The increase in mortgage debt for equipment is primarily related to equipment obtained from Foothill Capital, a secured lender for bankrupt Burlington Motor Carriers. 14 As of December 31, 2002, the Company has $116.7 million in future operating lease payments through September 2021. Approximately $36.8 million of these payments are for end-of-lease residual payments. The Company has guaranteed buy-back or trade-back agreements from equipment manufacturers at the end of the leases. The manufacturer buy-back or trade-back agreement values are equivalent to the end-of-lease residual payments. As of December 2001, the Company had $109.5 in future operating lease payments, of which $30.4 million represent residual payments. On September 26, 2002, the Company entered into a credit facility ("Credit Agreement") with Fleet Capital Corporation, which matures September 2005. Borrowings available under the Credit Agreement are secured based on a formula of eligible receivables and owned properties. Borrowings under the Credit Agreement are based on the banks' base rate and/or LIBOR with interest rates at LIBOR plus an applicable margin that is adjusted quarterly based on the Company's fixed charge coverage ratio. At December 31, 2002, the margin was 2.5%. The Credit Agreement has a maximum borrowing limit of $55 million. As of December 31, 2002, the Company had borrowings under the Credit Agreement in the amount of $29.4 million. Proceeds from this facility were used to satisfy the Company's obligations under its previous credit facility. Standby letters of credit, not reflected in the accompanying consolidated financial statements, aggregated approximately $5.7 million at December 31, 2002. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assumptions and estimates that can have a material impact on the reported results of operations. While management applies its judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from those assumptions, and it is possible that materially different amounts would be reported using differing assumptions. The Company is self-insured for most medical insurance claims, workers compensation claims, and general liability and automotive liability losses. Reported claims and related loss reserves are estimated by third party administrators. Claims incurred but not reported are accrued based on historical experience and industry trends, which are continually monitored, and accruals are adjusted when warranted by changes in facts and circumstances. Insurance and claims expense will vary from period to period based on the severity and frequency of claims incurred in a given period. Long-lived assets are depreciated over estimated useful lives based on our historical experience and prevailing industry practice. Estimated useful lives are periodically reviewed to ensure they remain appropriate. Long-lived assets are tested for impairment whenever an event occurs that indicates impairment may exist. Future cash flows and operating performance are used for analyzing impairment losses. If the sum of expected undiscounted cash flows is less than the carrying value an impairment loss is recognized. The Company measures the impairment loss by comparing the fair value of the asset to its carrying value. Fair value is determined based on a discounted cash flow analysis or appraised values as appropriate. Long-lived assets that are held for sale are recorded at the lower of carrying value or the fair value less costs to sell. 15 We seek to reduce the potential adverse effects that fuel markets may have on operating results. All fuel derivatives and hedges are recognized on the balance sheet at fair value in conformance with SFAS No 133, Accounting for Derivative Instruments and Hedging Activities. Adjustments related to adjusting to fair value on the balance sheet, which have historically not been significant, are recorded in fuel expense. 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 2003 and 2002 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. 16 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 the bank's base rate plus a margin ranging from .5% to 3.0%. A hypothetical 10% movement in interest rates would have an impact on income before taxes of approximately $125 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 December 31, 2002, the Company had 6% of estimated fuel purchases hedged through March 2003. The Company had no material impact to the results of operations, for the quarter ended December 31, 2002 related to these derivative contracts. A hypothetical 10% movement on the price of fuel futures would have virtually no impact related to these derivative contracts. 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 reported 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. ITEM 4. CONTROLS AND PROCEDURES As of December 31, 2002, an evaluation was performed under the supervision and with the participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2002. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2002. 17 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. ITEM 2. CHANGES IN SECURITIES - NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Celadon Group, Inc. held its regular Annual Meeting of shareholders on December 6, 2002. Proxies representing 7,163,567 shares of Common Stock or 93% of the total outstanding shares voted as follows: Proposal 1 -- Election of Directors
Voted For Vote Withheld --------- ------------- Stephen Russell 5,692,588 1,470,979 Paul A. Biddelman 6,538,912 624,655 Michael Miller 6,495,412 668,155 Anthony Heyworth 6,560,612 602,955 John Kines 6,560,612 602,955
Proposal II -- Ratification of an amendment to Celadon Group, Inc. Non-Employee Director Stock Option Plan
For 6,179,472 Against 776,179 Abstain 207,916
Proposal III -- Ratification of an amendment to the Celadon Group, Inc. 1994 Stock Option Plan
For 5,082,702 Against 1,872,916 Abstain 207,949
ITEM 5. OTHER INFORMATION - NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -- 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) The Company did not file any reports on form 8-K during the three months ended December 31, 2002. 18 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: February 13, 2002 19 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) I, Stephen Russell, certify that; 1. I have reviewed this quarterly report on Form 10-Q 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registration as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedure to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 20 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Stephen Russell ------------------- Stephen Russell Chairman of the Board and Chief Executive Officer February 13, 2002 21 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) I, Paul A. Will, certify that; 1. I have reviewed this quarterly report on Form 10-Q 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registration as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedure to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): d) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and e) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 22 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Paul A. Will ----------------- Paul A. Will Chief Financial Officer February 13, 2002 23 EX-99.1 3 c74707exv99w1.txt CERTIFICATION EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of Celadon Group, Inc., a Delaware corporation (the "Company"), on Form 10-Q for the quarter ending December 31, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Stephen Russell, Chairman of the Board, President, and Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Stephen Russell ------------------- Stephen Russell Chairman of the Board and Chief Executive Officer February 13, 2002 24 EX-99.2 4 c74707exv99w2.txt CERTIFICATION EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of Celadon Group, Inc., a Delaware corporation (the "Company"), on Form 10-Q for the quarter ending December 31, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Paul A. Will, Chief Financial Officer, Secretary and Assistant Treasurer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Paul A. Will ------------------ Paul A. Will Chief Financial Officer, Secretary and Assistant Treasurer February 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----