form10q.htm
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 quarterly period ended December 31, 2008
or
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
|
Commission
file number: 000-23192
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
No.)
|
|
|
9503
East 33rd
Street
|
|
One
Celadon Drive
|
|
Indianapolis,
IN
|
46235-4207
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
(317)
972-7000
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed 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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer [ ]
|
Accelerated
filer [X]
|
Non-accelerated
filer [ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12-b2 of the Exchange Act).
As of
January 30, 2009 (the latest practicable date), 22,117,251 shares of the
registrant’s common stock, par value $0.033 per share, were
outstanding.
CELADON
GROUP, INC.
December
31, 2008 Form 10-Q
Part
I.
|
Financial
Information
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets at December 31, 2008 (Unaudited) and June 30,
2008
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Income for the three and six months ended
December 31, 2008 and 2007 (Unaudited)
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the six months ended December
31, 2008 and 2007 (Unaudited)
|
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
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|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
|
|
|
|
|
Part
II.
|
Other
Information
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings.
|
|
|
|
|
|
|
Item
1A.
|
Risk
Factors.
|
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders.
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
Part
I. Financial Information
Item
I. Financial Statements
CONDENSED
CONSOLIDATED BALANCE SHEETS
December
31, 2008 and June 30, 2008
(Dollars
in thousands except per share and par value amounts)
|
|
December
31,
2008
|
|
|
June
30,
2008
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
82 |
|
|
$ |
2,325 |
|
Trade receivables, net of
allowance for doubtful accounts of $1,217 and $1,194 at December 31, 2008
and June 30, 2008, respectively
|
|
|
48,010 |
|
|
|
69,513 |
|
Prepaid expenses and other
current assets
|
|
|
11,961 |
|
|
|
16,697 |
|
Tires in
service
|
|
|
4,268 |
|
|
|
3,765 |
|
Income tax
receivable
|
|
|
2,441 |
|
|
|
5,846 |
|
Deferred income
taxes
|
|
|
3,904 |
|
|
|
3,035 |
|
Total
current assets
|
|
|
70,666 |
|
|
|
101,181 |
|
Property
and equipment
|
|
|
281,407 |
|
|
|
270,832 |
|
Less
accumulated depreciation and amortization
|
|
|
71,423 |
|
|
|
64,633 |
|
Net
property and equipment
|
|
|
209,984 |
|
|
|
206,199 |
|
Tires
in service
|
|
|
1,430 |
|
|
|
1,483 |
|
Goodwill
|
|
|
19,137 |
|
|
|
19,137 |
|
Other
assets
|
|
|
1,268 |
|
|
|
1,335 |
|
Total
assets
|
|
$ |
302,485 |
|
|
$ |
329,335 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
6,356 |
|
|
$ |
6,910 |
|
Accrued salaries and
benefits
|
|
|
8,906 |
|
|
|
11,358 |
|
Accrued insurance and
claims
|
|
|
9,056 |
|
|
|
9,086 |
|
Accrued fuel
expense
|
|
|
4,788 |
|
|
|
12,170 |
|
Other accrued
expenses
|
|
|
11,532 |
|
|
|
11,916 |
|
Current maturities of
long-term debt
|
|
|
5,831 |
|
|
|
8,290 |
|
Current maturities of capital
lease obligations
|
|
|
6,545 |
|
|
|
6,454 |
|
Total
current liabilities
|
|
|
53,014 |
|
|
|
66,184 |
|
Long-term debt, net of current
maturities
|
|
|
33,199 |
|
|
|
45,645 |
|
Capital lease obligations, net
of current maturities
|
|
|
38,729 |
|
|
|
42,117 |
|
Deferred income
taxes
|
|
|
33,745 |
|
|
|
31,512 |
|
Minority
interest
|
|
|
25 |
|
|
|
25 |
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.033 par
value, authorized 40,000,000 shares; issued 23,889,936 and 23,704,046
shares at December 31, 2008
and June 30,
2008, respectively
|
|
|
788 |
|
|
|
782 |
|
Treasury stock at cost;
1,772,685 and 1,832,386 shares at December 31, 2008 and June 30, 2008,
respectively
|
|
|
(12,221 |
) |
|
|
(12,633 |
) |
Additional paid-in
capital
|
|
|
96,116 |
|
|
|
95,173 |
|
Retained
earnings
|
|
|
65,348 |
|
|
|
60,881 |
|
Accumulated other
comprehensive loss
|
|
|
(6,258 |
) |
|
|
(351 |
) |
Total
stockholders' equity
|
|
|
143,773 |
|
|
|
143,852 |
|
Total
liabilities and stockholders' equity
|
|
$ |
302,485 |
|
|
$ |
329,335 |
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Dollars
in thousands except per share amounts)
(Unaudited)
|
|
For
the three months ended
December
31,
|
|
|
For
the six months ended
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight revenue
|
|
$ |
98,538 |
|
|
$ |
114,525 |
|
|
$ |
207,827 |
|
|
$ |
228,378 |
|
Fuel surcharges
|
|
|
21,108 |
|
|
|
24,084 |
|
|
|
58,687 |
|
|
|
44,010 |
|
|
|
|
119,646 |
|
|
|
138,609 |
|
|
|
266,514 |
|
|
|
272,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and employee
benefits
|
|
|
37,824 |
|
|
|
38,837 |
|
|
|
79,154 |
|
|
|
77,165 |
|
Fuel
|
|
|
29,882 |
|
|
|
37,523 |
|
|
|
77,948 |
|
|
|
71,045 |
|
Operations and
maintenance
|
|
|
8,846 |
|
|
|
9,165 |
|
|
|
18,234 |
|
|
|
17,601 |
|
Insurance and
claims
|
|
|
3,250 |
|
|
|
4,507 |
|
|
|
6,869 |
|
|
|
8,048 |
|
Depreciation and
amortization
|
|
|
8,647 |
|
|
|
7,560 |
|
|
|
16,679 |
|
|
|
15,425 |
|
Revenue equipment
rentals
|
|
|
6,977 |
|
|
|
6,677 |
|
|
|
13,040 |
|
|
|
13,649 |
|
Purchased
transportation
|
|
|
12,759 |
|
|
|
21,595 |
|
|
|
28,520 |
|
|
|
43,565 |
|
Costs of products and services
sold
|
|
|
1,566 |
|
|
|
1,712 |
|
|
|
3,134 |
|
|
|
3,436 |
|
Communications and
utilities
|
|
|
1,131 |
|
|
|
1,252 |
|
|
|
2,348 |
|
|
|
2,483 |
|
Operating taxes and
licenses
|
|
|
2,340 |
|
|
|
2,239 |
|
|
|
4,724 |
|
|
|
4,400 |
|
General and other
operating
|
|
|
2,070 |
|
|
|
2,693 |
|
|
|
4,558 |
|
|
|
4,771 |
|
Total operating
expenses
|
|
|
115,292 |
|
|
|
133,760 |
|
|
|
255,208 |
|
|
|
261,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,354 |
|
|
|
4,849 |
|
|
|
11,306 |
|
|
|
10,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income)
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(5 |
) |
|
|
(6 |
) |
|
|
(12 |
) |
|
|
(25 |
) |
Interest expense
|
|
|
1,022 |
|
|
|
1,197 |
|
|
|
2,124 |
|
|
|
2,511 |
|
Other (income) expense,
net
|
|
|
(13 |
) |
|
|
65 |
|
|
|
(10 |
) |
|
|
109 |
|
Income before income
taxes
|
|
|
3,350 |
|
|
|
3,593 |
|
|
|
9,204 |
|
|
|
8,205 |
|
Provision for income
taxes
|
|
|
1,652 |
|
|
|
1,870 |
|
|
|
4,737 |
|
|
|
3,981 |
|
Net income
|
|
$ |
1,698 |
|
|
$ |
1,723 |
|
|
$ |
4,467 |
|
|
$ |
4,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.20 |
|
|
$ |
0.18 |
|
Basic earnings per
share
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.21 |
|
|
$ |
0.18 |
|
Average shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
22,162 |
|
|
|
22,893 |
|
|
|
22,096 |
|
|
|
23,323 |
|
Basic
|
|
|
21,746 |
|
|
|
22,635 |
|
|
|
21,664 |
|
|
|
23,050 |
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the six months ended December 31, 2008 and 2007
(Dollars
in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,467 |
|
|
$ |
4,224 |
|
Adjustments to reconcile net
income to net cash provided
by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
18,178 |
|
|
|
15,234 |
|
(Gain)\Loss on sale of
equipment
|
|
|
(1,499 |
) |
|
|
191 |
|
Stock based
compensation
|
|
|
1,169 |
|
|
|
575 |
|
Deferred income
taxes
|
|
|
1,364 |
|
|
|
2,583 |
|
Provision for doubtful
accounts
|
|
|
61 |
|
|
|
418 |
|
Realized Loss in Foreign Currency
Contracts
|
|
|
(46 |
) |
|
|
--- |
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
|
21,441 |
|
|
|
564 |
|
Income tax
recoverable
|
|
|
3,404 |
|
|
|
(342 |
) |
Tires in
service
|
|
|
(450 |
) |
|
|
(416 |
) |
Prepaid expenses and other
current assets
|
|
|
4,737 |
|
|
|
(3,497 |
) |
Other
assets
|
|
|
(1,201 |
) |
|
|
15 |
|
Accounts payable and accrued
expenses
|
|
|
(10,610 |
) |
|
|
(767 |
) |
Net cash provided by operating
activities
|
|
|
41,015 |
|
|
|
18,782 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and
equipment
|
|
|
(21,125 |
) |
|
|
(9,276 |
) |
Proceeds on sale of property and
equipment
|
|
|
20,169 |
|
|
|
15,934 |
|
Purchase of business, net of
cash
|
|
|
(24,100 |
) |
|
|
--- |
|
Net cash provided by/(used in)
investing activities
|
|
|
(25,056 |
) |
|
|
6,658 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuances of common
stock
|
|
|
--- |
|
|
|
884 |
|
Purchase of treasury
stock
|
|
|
--- |
|
|
|
(13,848 |
) |
Payments on long-term
debt
|
|
|
(14,906 |
) |
|
|
(7,045 |
) |
Principal payments under capital
lease obligations
|
|
|
(3,296 |
) |
|
|
(3,219 |
) |
Net cash (used in) financing
activities
|
|
|
(18,202 |
) |
|
|
(23,228 |
) |
|
|
|
|
|
|
|
|
|
Increase/(Decrease)
in cash and cash
equivalents
|
|
|
(2,243 |
) |
|
|
2,212 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of
year
|
|
|
2,325 |
|
|
|
1,190 |
|
Cash
and cash equivalents at end of
year
|
|
$ |
82 |
|
|
$ |
3,402 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
2,264 |
|
|
$ |
2,637 |
|
Income taxes
paid
|
|
|
--- |
|
|
$ |
3,053 |
|
The accompanying notes are an integral part of these
unaudited consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008
(Unaudited)
1.
Basis of Presentation
The accompanying unaudited condensed
consolidated financial statements include the accounts of Celadon Group, Inc.
and its majority owned subsidiaries (the "Company"). All material
intercompany balances and transactions have been eliminated in
consolidation.
The unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") in the United States of America pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") for
interim financial statements. Certain information and footnote
disclosures have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments (all of a normal recurring nature), which are
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 for a full
year. These condensed consolidated financial statements and notes
thereto should be read in conjunction with the Company's audited condensed
consolidated financial statements and notes thereto, included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2008.
The preparation of the financial
statements in conformity with GAAP 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. New Accounting
Pronouncements
In September 2006, FASB issued SFAS No.
157, Fair Value Measurements
("SFAS 157"). SFAS 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements required under other accounting pronouncements, but does not change
existing guidance as to whether or not an instrument is carried at fair
value. It also establishes a fair value hierarchy that prioritizes
information used in developing assumptions when pricing an asset or
liability. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. In February 2008, the FASB issued Staff Position
No. 157-2, which provides a one-year delayed application of SFAS 157 for
nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The Company must adopt these new requirements no
later than its first quarter of fiscal 2010. We are currently
assessing the potential impact that adoption of SFAS 157 will have on our
financial statements.
In
December 2007, FASB issued SFAS No. 141R (revised 2007), Business Combinations ("SFAS
141R"), which replaces SFAS No. 141. The statement retains the purchase
method of accounting for acquisitions, but requires a number of changes,
including changes in the way assets and liabilities are recognized in the
purchase accounting. It also changes the recognition of assets acquired
and liabilities assumed arising from contingencies, requires the capitalization
of in-process research and development at fair value, and requires the expensing
of acquisition-related costs as incurred. The impact to the Company
from the adoption of SFAS 141R will depend on the acquisitions at the
time. SFAS 141R is effective for us beginning July 1, 2009 and
will apply prospectively to business combinations completed on or after that
date.
In
December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB 51 ("SFAS 160"),
which changes the accounting and reporting for minority
interests. Minority interests will be recharacterized as
noncontrolling interests and will be reported as a component of equity separate
from the parent's equity, and purchases or sales of equity interests that do not
result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement and, upon a loss of control, the interest sold, as well
as any interest retained, will be recorded at fair value with any gain
or loss recognized in earnings. SFAS 160 is effective for us
beginning July 1, 2009 and will apply prospectively, except for the presentation
and disclosure requirements, which will apply retrospectively. We are
currently assessing the potential impact that adoption of SFAS 160 will have on
our financial statements.
CELADON
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008
(Unaudited)
In
March 2008, FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement
No. 133, ("SFAS 161"). SFAS 161 requires enhanced
disclosures about an entity's derivative and hedging activities, including
(i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under SFAS No.
133, and (iii) how derivative instruments and related hedged items affect
an entity's financial position, financial performance, and cash
flows. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2008. Accordingly, the
Company will adopt SFAS 161 in fiscal year 2010.
3.
Income Taxes
Income tax expense varies from the
federal corporate income tax rate of 35%, primarily due to state income taxes,
net of federal income tax effect and our permanent differences primarily related
to per diem pay structure.
Effective July 1, 2007, we adopted FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109 ("FIN
48'). FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. As of
December 31, 2008, the Company had recorded a $0.7 million liability for
unrecognized tax benefits, a portion of which represents penalties and
interest.
As of December 31, 2008, we are subject
to U.S. Federal income tax examinations for the tax years 2005 through
2007. We file tax returns in numerous state jurisdictions with
varying statutes of limitations.
4. Earnings
Per Share
The difference in basic and diluted
weighted average shares is due to the assumed exercise of outstanding stock
options. A reconciliation of the basic and diluted earnings per share
calculation was as follows (amounts in thousands, except per share
amounts):
|
|
For
three months ended
December
31,
|
|
|
For
six months ended
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,698 |
|
|
$ |
1,723 |
|
|
$ |
4,467 |
|
|
$ |
4,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number
of common shares outstanding
|
|
|
21,746 |
|
|
|
22,635 |
|
|
|
21,664 |
|
|
|
23,050 |
|
Equivalent shares issuable upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
restricted stock vesting
|
|
|
416 |
|
|
|
258 |
|
|
|
432 |
|
|
|
273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
shares
|
|
|
22,162 |
|
|
|
22,893 |
|
|
|
22,096 |
|
|
|
23,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.21 |
|
|
$ |
0.18 |
|
Diluted
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.20 |
|
|
$ |
0.18 |
|
CELADON
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008
(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, primarily by providing truckload-hauling services
through its subsidiaries Celadon Trucking Services Inc. ("CTSI"), Celadon
Logistics Services, Inc ("CLSI"), Servicios de Transportacion Jaguar, S.A. de
C.V., ("Jaguar"), and Celadon Canada, Inc. ("CelCan"). The Company
provides certain services over the Internet through its e-commerce subsidiary
TruckersB2B, Inc. ("TruckersB2B"). TruckersB2B is an Internet based
"business-to-business" membership program, owned by Celadon E-Commerce, Inc., a
wholly owned subsidiary of Celadon Group, Inc. 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 the performance of its operating segments based on operating income
(amounts below in thousands).
|
|
Transportation
|
|
|
E-commerce
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$ |
117,396 |
|
|
$ |
2,250 |
|
|
$ |
119,646 |
|
Operating
income
|
|
|
4,045 |
|
|
|
309 |
|
|
|
4,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$ |
136,162 |
|
|
$ |
2,447 |
|
|
$ |
138,609 |
|
Operating
income
|
|
|
4,497 |
|
|
|
352 |
|
|
|
4,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$ |
262,008 |
|
|
$ |
4,506 |
|
|
$ |
266,514 |
|
Operating
income
|
|
|
10,668 |
|
|
|
638 |
|
|
|
11,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$ |
267,456 |
|
|
$ |
4,932 |
|
|
$ |
272,388 |
|
Operating
income
|
|
|
10,063 |
|
|
|
737 |
|
|
|
10,800 |
|
Information as to the Company's
operating revenue by geographic area is summarized below (in
thousands). The Company allocates operating revenue based on country
of origin of the tractor hauling the freight:
|
|
For
the three months ended
December
31,
|
|
|
For
the six months ended
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Operating
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
104,789 |
|
|
$ |
115,640 |
|
|
$ |
232,988 |
|
|
$ |
226,544 |
|
Canada
|
|
|
8,455 |
|
|
|
14,784 |
|
|
|
19,691 |
|
|
|
29,120 |
|
Mexico
|
|
|
6,402 |
|
|
|
8,185 |
|
|
|
13,835 |
|
|
|
16,724 |
|
Total
|
|
$ |
119,646 |
|
|
$ |
138,609 |
|
|
$ |
266,514 |
|
|
$ |
272,388 |
|
No customer accounted for more
than 5% of the Company's total revenue during any of its two most recent fiscal
years or the interim periods presented above.
CELADON
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008
(Unaudited)
6.
Stock Based Compensation
The
Company accounts for all share-based grants to employees based upon a grant-date
fair value of an award in accordance with SFAS 123(R). In January
2006, stockholders approved the Company's 2006 Omnibus Incentive Plan (the "2006
Plan"), which provides various vehicles to compensate the Company's key
employees. The 2006 Plan utilizes such vehicles as stock options,
restricted stock grants, and stock appreciation rights ("SARs"). The
2006 Plan authorized the Company to grant 1,687,500 shares (adjusted for
the 3-for-2 stock splits declared by the Company's Board of Directors effective
February 15, 2006 and June 15, 2006). At the November 14, 2008 Annual
Meeting of Stockholders, the Company's stockholders approved an amendment to the
2006 Plan, which increased the number of shares of common stock reserved and
available for issuance of stock grants, options, and other equity awards to the
Company's employees, directors, and consultants, by 1,000,000
shares. In fiscal 2009, the Company granted 5,500 stock options and
248,866 shares of restricted stock pursuant to the 2006 Plan. The
Company is authorized to grant an additional 1,014,647 shares pursuant to the
2006 Plan.
The
following table summarizes the expense components of our stock based
compensation program:
|
|
For
three months ended
December 31,
|
|
|
For
six months ended
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options expense
|
|
$ |
299 |
|
|
$ |
317 |
|
|
$ |
630 |
|
|
$ |
399 |
|
Restricted
stock expense
|
|
|
431 |
|
|
|
241
|
|
|
|
725 |
|
|
|
453 |
|
Stock
appreciation rights income
|
|
|
(601 |
) |
|
|
(367 |
) |
|
|
(340 |
) |
|
|
(943 |
) |
Total stock related
compensation expense
|
|
$ |
128 |
|
|
$ |
191 |
|
|
$ |
1,015 |
|
|
$ |
(91 |
) |
The Company has granted a number of
stock options under various plans. Options granted to employees have
been granted with an exercise price equal to the market price on the grant date
and expire on the tenth anniversary of the grant date. The majority of options
granted to employees vest 25 percent per year, commencing with the first
anniversary of the grant date. Options granted to non-employee
directors have been granted with an exercise price equal to the market price on
the grant date, vest over one to four years, commencing with the first
anniversary of the grant date, and expire on the tenth anniversary of the grant
date.
A summary
of the activity of the Company's stock option plans as of December 31, 2008 and
changes during the period then ended is presented below:
Options
|
|
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Weighted-Average
Remaining Contractual Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at July 1, 2008
|
|
|
1,319,898 |
|
|
$ |
9.90 |
|
|
|
7.98 |
|
|
$ |
1,742,049 |
|
Granted
|
|
|
5,500 |
|
|
$ |
12.42 |
|
|
|
--- |
|
|
|
--- |
|
Exercised
|
|
|
(3,375 |
) |
|
$ |
1.71 |
|
|
|
--- |
|
|
|
--- |
|
Forfeited
or expired
|
|
|
(16,231 |
) |
|
$ |
12.84 |
|
|
|
--- |
|
|
|
--- |
|
Outstanding
at December 31, 2008
|
|
|
1,305,792 |
|
|
$ |
9.89 |
|
|
|
7.50 |
|
|
$ |
703,489 |
|
Exercisable
at December 31, 2008
|
|
|
537,929 |
|
|
$ |
9.45 |
|
|
|
6.47 |
|
|
$ |
703,489 |
|
CELADON GROUP,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008
(Unaudited)
The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
|
|
Fiscal 2009
|
|
|
Fiscal 2008
|
|
Weighted
average grant date fair value
|
|
$ |
4.84 |
|
|
$ |
4.60 |
|
Dividend
yield
|
|
|
0 |
|
|
|
0 |
|
Expected
volatility
|
|
|
47.1 |
% |
|
|
41.7 |
% |
Risk-free
interest rate
|
|
|
2.09 |
% |
|
|
4.13 |
% |
Expected
lives
|
|
4.0
years
|
|
|
4.3
years
|
|
Restricted
Shares
|
|
Number of Shares
|
|
|
Weighted
Average Grant Date Fair
Value
|
|
Unvested
at July 1, 2008
|
|
|
156,200 |
|
|
$ |
12.22 |
|
Granted
|
|
|
248,866 |
|
|
$ |
11.40 |
|
Vested
|
|
|
(39,451 |
) |
|
$ |
7.37 |
|
Forfeited
|
|
|
(6,650 |
) |
|
$ |
14.78 |
|
Unvested
at December 31, 2008
|
|
|
358,965 |
|
|
$ |
12.09 |
|
Restricted
shares granted to employees have been granted with a fair value equal to the
market price on the grant date and vest by 25 or 33 percent per year, commencing
with the first anniversary of the grant date. In addition, certain
financial targets must be met for some of these shares to vest. Restricted
shares granted to non-employee directors have been granted with a fair value
equal to the market price on the grant date and vest on the date of the
Company's next annual meeting.
As of
December 31, 2008, the Company had $2.4 million and $3.4 million of total
unrecognized compensation expense related to stock options and restricted stock,
respectively, that is expected to be recognized over the remaining period of
approximately 3.1 years for stock options and 3.6 years for restricted
stock.
Stock
Appreciation Rights
|
|
Number of Shares
|
|
|
Weighted
Average Grant Date Fair
Value
|
|
Unvested
at July 1, 2008
|
|
|
167,202 |
|
|
$ |
8.68 |
|
Paid
|
|
|
(19,322 |
) |
|
$ |
8.92 |
|
Forfeited
|
|
|
(3,036 |
) |
|
$ |
8.64 |
|
Vested
at December 31, 2008
|
|
|
144,844 |
|
|
$ |
8.64 |
|
SARs
granted to employees vest on a three or four year vesting
schedule. During the first quarter of fiscal 2007, the Company gave
SARs grantees the opportunity to enter into an alternative fixed compensation
arrangement whereby the grantee would forfeit all rights to SARs compensation in
exchange for a guaranteed quarterly payment for the remainder of the underlying
SARs term. This alternative arrangement is subject to continued
service to the Company or one of its subsidiaries. These fixed payments
will be accrued quarterly until March 31, 2009. The Company offered this
alternative arrangement to mitigate the volatility to earnings from stock price
variance on the SARs.
CELADON GROUP,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008
(Unaudited)
7. Stock
Repurchase Programs
On October 24, 2007, the
Company's Board of Directors authorized a stock repurchase program pursuant to
which the Company purchased 2,000,000 shares of the Company's common stock at an
aggregate cost of approximately $13.8 million. On December 5, 2007, the
Company's Board of Directors authorized an additional stock repurchase program
pursuant to which the Company could have purchased up to 2,000,000 additional
shares of the Company's common stock through December 3, 2008. We did
not purchase any of these additional shares. We intend to hold
repurchased shares in treasury for general corporate purposes, including
issuances under employee stock option plans. We account for treasury
stock using the cost method.
8. Comprehensive
Income
Comprehensive
income consisted of the following components for the quarter and the six months
ended December 31, 2008 and 2007, respectively (in thousands):
|
|
Three
months ended
December
31,
|
|
|
Six
months ended
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,698 |
|
|
$ |
1,723 |
|
|
$ |
4,467 |
|
|
$ |
4,224 |
|
Available-for-sale
securities and currency hedges
|
|
|
(45 |
) |
|
|
--- |
|
|
|
(45 |
) |
|
|
--- |
|
Foreign
currency translation adjustments
|
|
|
(4,669 |
) |
|
|
167 |
|
|
|
(5,862 |
) |
|
|
535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$ |
(3,016 |
) |
|
$ |
1,890 |
|
|
$ |
(1,440 |
) |
|
$ |
4,759 |
|
9. Commitments
and Contingencies
The
Company has outstanding commitments to purchase approximately $123.4 million of
revenue equipment at December 31, 2008.
Standby
letters of credit, not reflected in the accompanying consolidated financial
statements, aggregated approximately $5.6 million at December 31,
2008.
The
Company has employment and consulting agreements with various key employees
providing for minimum combined annual compensation of $700,000 in fiscal
2009.
There are
various claims, lawsuits, and pending actions against the Company and its
subsidiaries in the normal course of the operation of their businesses with
respect to cargo, auto liability, or income taxes.
On August
8, 2007, the 384th District Court of the State of Texas situated in El Paso,
Texas, rendered a judgment against CTSI, for approximately $3.4 million in the
case of Martinez v. Celadon Trucking Services, Inc., which was originally filed
on September 4, 2002. The case involves a workers' compensation claim
of a former employee of CTSI who suffered a back injury as a result of a traffic
accident. CTSI and the Company believe all actions taken were proper
and legal and contend that the proper and exclusive place for resolution of this
dispute was before the Indiana Worker's Compensation Board. While
there can be no certainty as to the outcome, the Company believes that the
ultimate resolution of this dispute will not have a materially adverse effect on
its consolidated financial position, cash flows, or results of
operations. CTSI filed an appeal of the decision to the Texas Court
of Appeals in October 2007. Trial transcripts have been prepared for
the Court of Appeals and appellate briefing is in process.
CELADON
GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008
(Unaudited)
10. Acquisitions
On
December 4, 2008, the Company acquired certain assets of Continental Express,
Inc. ("Continental"). Pursuant to the asset purchase agreement, our
wholly-owned subsidiary, CTSI, acquired assets of Continental's truckload,
intermodal, and brokerage business, including 400 tractors and 1,100 trailers
for approximately $24.1 million, with the preliminary purchase accounting
allocating $10.3 million to trailers and the remaining balance allocated to
tractors. In connection with the acquisition, we offered employment to
approximately 250 qualified, former Continental drivers, of which approximately
200 became Celadon drivers. We hired 30 non-driver
personnel.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Disclosure
Regarding Forward Looking Statements
This Quarterly Report contains certain
statements that may be considered forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, events, performance, or achievements of the
Company to be materially different from any future results, events, performance,
or achievements expressed in or implied by such forward-looking statements. Such
statements may be identified by the fact that they do not relate strictly to
historical or current facts. These statements generally use words
such as "believe," "expect," "anticipate," "project," "forecast," "should,"
"estimate," "plan," "outlook," "goal," and similar expressions. While
it is impossible to identify all factors that may cause actual results to differ
from those expressed in or implied by forward-looking statements, the risks and
uncertainties that may affect the Company's business, include, but are not
limited to, those discussed in the section entitled Item 1A. Risk Factors set
forth below.
All such forward-looking statements
speak only as of the date of this Form 10-Q. You are cautioned not to
place undue reliance on such forward-looking statements. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in the events, conditions, or circumstances on which any such statement
is based.
References to the "Company," "we,"
"us," "our," and words of similar import refer to Celadon Group, Inc. and its
consolidated subsidiaries.
Business
Overview
We are one of North America's twenty
largest truckload carriers as measured by revenue. We generated
$565.9 million in operating revenue during our fiscal year ended June 30,
2008. We have grown significantly since our incorporation in 1986
through internal growth and a series of acquisitions since 1995. As a dry van
truckload carrier, we generally transport full trailer loads of freight from
origin to destination without intermediate stops or handling. Our
customer base includes many Fortune 500 shippers.
In our international operations, we
offer time-sensitive transportation in and between the United States and two of
its largest trading partners, Mexico and Canada. We generated approximately
one-half of our revenue in fiscal 2008 from international movements, and we
believe our annual border crossings make us the largest provider of
international truckload movements in North America. We believe that
our strategically located terminals and experience with the language, culture,
and border crossing requirements of each North American country provide a
competitive advantage in the international trucking marketplace.
We believe our international
operations, particularly those involving Mexico, offer an attractive business
niche. The additional complexity of and need to establish
cross-border business partners and to develop strong organization and adequate
infrastructure in Mexico affords some barriers to competition that are not
present in traditional U.S. truckload services.
Our success is dependent upon the
success of our operations in Mexico and Canada, and we are subject to risks of
doing business internationally, including fluctuations in foreign currencies,
changes in the economic strength of the countries in which we do business,
difficulties in enforcing contractual obligations and intellectual property
rights, burdens of complying with a wide variety of international and United
States export and import laws, and social, political, and economic
instability. Additional risks associated with our foreign operations,
including restrictive trade policies and imposition of duties, taxes, or
government royalties by foreign governments, are present but largely mitigated
by the terms of NAFTA.
In addition to our international
business, we offer a broad range of truckload transportation services within the
United States, including long-haul, regional, dedicated, intermodal, and
logistics. With six different asset-based acquisitions from 2003 to
2008, we
expanded our operations and service offerings within the United States and
significantly improved our lane density, freight mix, and customer
diversity.
We also operate
TruckersB2B, a profitable marketing business that affords volume purchasing
power for items such as fuel, tires, and equipment to approximately 21,000
trucking fleets representing approximately 470,000 tractors. TruckersB2B
represents a separate operating segment under generally accepted accounting
principles.
Recent
Results and Financial Condition
For
the second quarter of fiscal 2009, operating revenue decreased 13.7% to $119.6
million, compared with $138.6 million for the second quarter of fiscal
2008. Excluding fuel surcharge, operating revenue decreased 14.0% to
$98.5 million for the second quarter of fiscal 2009, compared with $114.5
million for the second quarter of fiscal 2008. Net income was
unchanged at $1.7 million in both the 2009 and 2008
quarters. Earnings per diluted share were unchanged at $0.08 in both
the 2009 and 2008 quarters. We believe that a weakened freight market
and weakened economy in the second quarter of fiscal 2009 compared to the second
quarter of fiscal 2008 resulted in our revenue reductions. This was
partially offset by a decrease in fuel prices and reduction in capacity in the
truckload industry.
At
December 31, 2008, our total balance sheet debt (including capital lease
obligations less cash) was $84.2 million, and our total stockholders' equity was
$143.8 million. At December 31, 2008, our debt to capitalization ratio was
37.5%. At December 31, 2008, we had $32.3 million of available
borrowing capacity under our revolving credit facility.
Revenue
We
generate substantially all of our revenue by transporting freight for our
customers. Generally, we are paid by the mile or by the load for our
services. We also derive revenue from fuel surcharges, loading and
unloading activities, equipment detention, brokerage, other trucking related
services, and from TruckersB2B. We believe that eliminating the
impact of the sometimes volatile fuel surcharge revenue affords a more
consistent basis for comparing our results of operations from period to
period. The main factors that affect our revenue are the revenue per mile
we receive from our customers, the percentage of miles for which we are
compensated, the number of tractors operating, and the number of miles we
generate with our equipment. These factors relate to, among other things,
the U.S. economy, inventory levels, the level of truck capacity in our markets,
specific customer demand, the percentage of team-driven tractors in our fleet,
driver availability, and our average length of haul.
Expenses
and Profitability
The main
factors that impact our profitability on the expense side are the variable costs
of transporting freight for our customers. These costs include fuel expense,
driver-related expenses, such as wages, benefits, training, and recruitment, and
independent contractor costs, which we record as purchased transportation.
Expenses that have both fixed and variable components include maintenance and
tire expense and our total cost of insurance and claims. These expenses
generally vary with the miles we travel, but also have a controllable component
based on safety, fleet age, efficiency, and other factors. Our main fixed
cost is the acquisition and financing of long-term assets, primarily revenue
equipment. Other mostly fixed costs include our non-driver personnel
and facilities expenses. In discussing our expenses as a percentage of
revenue, we sometimes discuss changes as a percentage of revenue before fuel
surcharges, in addition to absolute dollar changes, because we believe the high
variable cost nature of our business makes a comparison of changes in expenses
as a percentage of revenue more meaningful at times than absolute dollar
changes.
The
trucking industry has experienced significant increases in expenses over the
past three years, in particular those relating to equipment costs, driver
compensation, insurance, and fuel. Until recently many trucking
companies had been able to raise freight rates to cover the increased costs
based primarily on an industry-wide tight capacity of drivers. As
freight demand has softened, carriers have been willing to accept rate decreases
to utilize assets in service.
Revenue
Equipment and Related Financing
For the
remainder of fiscal 2009, we expect to obtain tractors primarily for
replacement, and we expect to maintain the average age of our tractor fleet at
approximately 1.7 years and the average age of our trailer fleet at
approximately 4.0 years. At December 31, 2008, we had future
operating lease obligations totaling $174.0 million, including residual value
guarantees of approximately $83.1 million.
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
Tractors
|
|
|
Trailers
|
|
|
Tractors
|
|
|
Trailers
|
|
Owned
equipment
|
|
|
1,737 |
|
|
|
3,251 |
|
|
|
1,328 |
|
|
|
2,488 |
|
Capital
leased equipment
|
|
|
--- |
|
|
|
3,723 |
|
|
|
--- |
|
|
|
3,738 |
|
Operating
leased equipment
|
|
|
1,166 |
|
|
|
3,101 |
|
|
|
1,218 |
|
|
|
2,622 |
|
Independent
contractors
|
|
|
206 |
|
|
|
--- |
|
|
|
370 |
|
|
|
--- |
|
Total
|
|
|
3,109 |
|
|
|
10,075 |
|
|
|
2,916 |
|
|
|
8,848 |
|
Independent
contractors are utilized through a contract with us to supply one or more
tractors and drivers for our use. Independent contractors must pay their
own tractor expenses, fuel, maintenance, and driver costs and must meet our
specified guidelines with respect to safety. A lease-purchase program that
we offer provides independent contractors the opportunity to lease-to-own a
tractor from a third party. As of December 31, 2008, there were 206
independent contractors providing a combined 6.6% of our tractor
capacity.
Outlook
Looking
forward, our profitability goal is to achieve an operating ratio of
approximately 90%. We expect this to require improvements in rate per mile
and miles per tractor and decreased non-revenue miles. Because a
large percentage of our costs are variable, changes in revenue per mile affect
our profitability to a greater extent than changes in miles per tractor.
For the remainder of fiscal 2009, the key factors that we expect to have
the greatest effect on our profitability are our freight revenue per tractor per
week (which will be affected by the general freight environment, including the
balance of freight demand and industry-wide trucking capacity), our compensation
of drivers, our cost of revenue equipment (particularly in light of the 2007 and
2010 EPA engine requirements), our fuel costs, and our insurance and claims.
To overcome cost increases and improve our margins, we will need to
achieve increases in freight revenue per tractor. Operationally, we will
seek improvements in safety, driver recruiting, and retention. Our success in
these areas primarily will affect revenue, driver-related expenses, and
insurance and claims expense. Given the difficult freight market
confronting our industry, we believe achieving our profitability goal during
fiscal 2009 is unlikely, although we continue to strive toward that
goal.
Results
of Operations
The following table sets forth the
percentage relationship of expense items to freight revenue for the periods
indicated:
|
|
For
the three months ended
December 31,
|
|
|
For
the six months ended
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Freight
revenue(1)
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and employee
benefits
|
|
|
38.4 |
% |
|
|
33.9 |
% |
|
|
38.1 |
% |
|
|
33.8 |
% |
Fuel(1)
|
|
|
8.9 |
% |
|
|
11.7 |
% |
|
|
9.3 |
% |
|
|
11.8 |
% |
Operations and
maintenance
|
|
|
9.0 |
% |
|
|
8.0 |
% |
|
|
8.8 |
% |
|
|
7.7 |
% |
Insurance and
claims
|
|
|
3.3 |
% |
|
|
3.9 |
% |
|
|
3.3 |
% |
|
|
3.5 |
% |
Depreciation and
amortization
|
|
|
8.8 |
% |
|
|
6.6 |
% |
|
|
8.0 |
% |
|
|
6.8 |
% |
Revenue equipment
rentals
|
|
|
7.1 |
% |
|
|
5.8 |
% |
|
|
6.3 |
% |
|
|
6.0 |
% |
Purchased
transportation
|
|
|
12.9 |
% |
|
|
18.9 |
% |
|
|
13.7 |
% |
|
|
19.1 |
% |
Costs of products and services
sold
|
|
|
1.6 |
% |
|
|
1.5 |
% |
|
|
1.5 |
% |
|
|
1.5 |
% |
Communications and
utilities
|
|
|
1.1 |
% |
|
|
1.1 |
% |
|
|
1.1 |
% |
|
|
1.1 |
% |
Operating taxes and
licenses
|
|
|
2.4 |
% |
|
|
2.0 |
% |
|
|
2.3 |
% |
|
|
1.9 |
% |
General and other
operating
|
|
|
2.1 |
% |
|
|
2.4 |
% |
|
|
2.2 |
% |
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating
expenses
|
|
|
95.6 |
% |
|
|
95.8 |
% |
|
|
94.6 |
% |
|
|
95.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
4.4 |
% |
|
|
4.2 |
% |
|
|
5.4 |
% |
|
|
4.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1.0 |
% |
|
|
1.1 |
% |
|
|
1.0 |
% |
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income
taxes
|
|
|
3.4 |
% |
|
|
3.1 |
% |
|
|
4.4 |
% |
|
|
3.6 |
% |
Provision
for income
taxes
|
|
|
1.7 |
% |
|
|
1.6 |
% |
|
|
2.3 |
% |
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
1.7 |
% |
|
|
1.5 |
% |
|
|
2.1 |
% |
|
|
1.8 |
% |
(1)
|
Freight
revenue is total revenue less fuel surcharges. In this table,
fuel surcharges are eliminated from revenue and subtracted from fuel
expense. Fuel surcharges were $21.1 million and $24.1 million
for the second quarter of fiscal 2009 and 2008, respectively, and $58.7
million and $44.0 million for the six months ended December 31, 2008 and
2007, respectively.
|
Comparison
of Three Months Ended December 31, 2008 to Three Months Ended December
31, 2007
Operating revenue decreased by
$19.0 million, or 13.7%, to $119.6 million for the second quarter of
fiscal 2009, from $138.6 million for the second quarter of fiscal
2008. Going forward, we expect the addition of Continental's assets
and intermodal operations to have some affect on our operating
revenue. However, for the foreseeable future we don't expect
incremental growth in our fleet size following the Continental
acquisition.
Freight revenue decreased by $16.0
million, or 14.0%, to $98.5 million for the second quarter of fiscal 2009, from
$114.5 million for the second quarter of fiscal 2008. This decrease
was primarily attributable to a decrease in freight demand. Freight
from Mexico into the U.S. declined dramatically, causing us to reduce the number
of trucks we put into Mexico. Domestic freight levels were also down
significantly. Accordingly, billed miles decreased to 55.7 million
for the second quarter of fiscal 2009, from 63.4 million for the second quarter
of fiscal 2008, and average miles per tractor per week decreased from 2,023
miles to 1,762 miles. Other factors included an increase in
non-revenue miles from 10.3% to 11.9% of total miles, and a slight reduction in
average freight revenue per loaded mile to $1.49 from $1.50 for the second
quarters of fiscal 2009 and 2008, respectively. As the economy and
freight market weakened, we took on additional broker freight, at lower rates,
to fill the resulting void. This led to an increase in non-revenue
miles as we repositioned tractors for the next load. Average revenue
per tractor per week, net of fuel surcharge, which is our primary measure of
asset productivity, decreased 15.3% to $2,306 in the second quarter of fiscal
2009, from $2,721 for the second quarter of fiscal 2008.
Revenue for TruckersB2B was $2.3
million in the second quarter of fiscal 2009, compared to $2.4 million for
the second quarter of fiscal 2008. The decrease was primarily related
to a decrease in fuel rebates due to lower general freight demand. To
the extent small and mid size carriers continue to be affected adversely by
lagging freight demand, limited financing availability, and licensing,
insurance, and other costs, we anticipate the revenue for TruckersB2B to be
negatively impacted as well.
Salaries, wages, and employee benefits
were $37.8 million, or 38.4% of freight revenue, for the second quarter of
fiscal 2009, compared to $38.8 million, or 33.9% of freight revenue, for
the second quarter of fiscal 2008. The dollar decrease in salaries,
wages, and benefits is largely due to decreased driver payroll related to
decreased miles. Additionally, decreases in administrative payroll
resulting from a strategic corporate plan to consolidate and/or eliminate
several functions into Indianapolis from various terminals, which plan reduced
our non-driver administrative workforce by approximately 5%, also decreased our
salaries, wages, and benefits. Also a factor was the decrease in the
value of stock appreciation rights, which was due, in large part, to a reduction
in stock prices caused by the lagging economy. However, these factors
were largely offset by reduced freight revenue resulting in an increase in
salaries, wages, and employee benefits as a percentage of freight
revenue.
Fuel expenses, net of fuel surcharge
revenue of $21.1 million and $24.1 million for the second quarter of fiscal 2009
and 2008, respectively, decreased to $8.8 million, or 8.9% of freight
revenue, for the second quarter of fiscal 2009, compared to $13.4 million,
or 11.7% of freight revenue, for the second quarter of fiscal
2008. These decreases were attributable to a 17.0% decrease in
average fuel prices to $2.58 per gallon in the second quarter of fiscal 2009,
from $3.11 per gallon in the second quarter of fiscal 2008, and a decrease in
the gallons purchased due to fewer miles driven and increased miles per gallon
related to reducing idling and more efficient tractors.
Operations and maintenance expense
decreased to $8.8 million, or 9.0% of freight revenue, for the second
quarter of fiscal 2009, from $9.2 million, or 8.0% of freight revenue, for the
second quarter of fiscal 2008. Operations and maintenance consist of
direct operating expense, maintenance, and tire expense. These
decreases in the second quarter of fiscal 2009 are primarily related to a
decrease in costs associated with physical damage expense, due to fewer
accidents in the second quarter of fiscal 2009.
Insurance and claims expense decreased
to $3.3 million, or 3.3% of freight revenue, for the second quarter of fiscal
2009, from $4.5 million, or 3.9% of freight revenue, for the second quarter
of fiscal 2008. Insurance consists of premiums for liability,
physical damage, cargo damage, and workers compensation insurance, in addition
to claims expense. These decreases resulted from decreases in our
worker's compensation expense and cargo claims expense, related to the decreased
number of claims and severity of those claims in the quarter, and a decrease in
other insurance expense. Our insurance program involves
self-insurance at various risk retention levels. Claims in excess of
these risk levels are covered by insurance in amounts we consider to be
adequate. We accrue for the uninsured portion of claims based on
known claims and historical experience. We continually revise and
change our insurance program to maintain a balance between premium expense and
the risk retention we are willing to assume. Insurance and claims
expense will vary based primarily on the frequency and severity of claims, the
level of self-retention, and the premium expense.
Depreciation and amortization,
consisting primarily of depreciation of revenue equipment, increased to $8.6
million, or 8.8% of freight revenue, for the second quarter of fiscal 2009,
compared to $7.6 million, or 6.6% of freight revenue, for the second
quarter of fiscal 2008. These increases are primarily related to the
net addition of approximately 400 owned tractors, which has increased our
tractor depreciation. These increases were partially offset by gains
on sales of equipment in the quarter. Revenue equipment held under
operating leases is not reflected on our balance sheet and the expenses related
to such equipment are reflected on our statements of operations in revenue
equipment rentals, rather than in depreciation and amortization and interest
expense, as is the case for revenue equipment that is financed with borrowings
or capital leases.
Revenue equipment rentals increased to
$7.0 million, or 7.1% of freight revenue, for the second quarter of fiscal
2009, compared to $6.7 million or 5.8% of freight revenue for the second quarter
of fiscal 2008. The majority of these increases are related to the
net addition of approximately 480 trailers under operating lease, which has
increased our trailer rents.
Purchased transportation decreased
significantly to $12.8 million, or 12.9% of freight revenue, for the second
quarter of fiscal 2009, from $21.6 million, or 18.9% of freight revenue,
for the second quarter of fiscal 2008. The majority of these
decreases are related to fewer miles by our independent contractor fleet which
reduced from 370 at December 31, 2007 to 206 at December 31,
2008. The decreases also related to the reduction of the fuel
surcharge component of their payments by $0.16 per mile. Independent
contractors are drivers who cover all their operating expenses (fuel, driver
salaries, maintenance, and equipment costs) for a fixed payment per
mile.
General and other operating expense
decreased to $2.1 million or 2.1% of freight revenue, for the six months ended
December 31, 2008, from $2.7 million or 2.4% of freight revenue, for the six
months ended December 31, 2007. These decreases are primarily
attributable to our recording approximately $400,000 in bad debt expense in the
December 2007 quarter in response to a major write-off of one uncollectible
account.
All of our other operating expenses are
relatively minor in amount, and there were no significant changes in such
expenses. Accordingly, we have not provided a detailed discussion of
such expenses.
Our pretax margin, which we believe is
a useful measure of our operating performance because it is neutral with regard
to the method of revenue equipment financing that a company uses, increased 30
basis points to 3.4% of freight revenue for the second quarter of fiscal 2009,
from 3.1% of freight revenue for the second quarter of fiscal 2008.
In addition to other factors described
above, Canadian exchange rate fluctuations principally impact salaries, wages,
and benefits and purchased transportation and, therefore, impact our pretax
margin and results of operations.
Income taxes decreased to
$1.7 million, with an effective tax rate of 49.3%, for the second quarter
of fiscal 2009, from $1.9 million, with an effective tax rate of 52.1%, for the
second quarter of fiscal 2008. The effective tax rate decreased as a
result of the decrease in non-deductible expenses related to our per diem pay
structure. As per diem is a partially non-deductible expense, our
effective tax rate will fluctuate as net income and per diem fluctuates in the
future.
As a result of the factors described
above, net income remained steady at $1.7 million for the second quarter of
fiscal 2009 and 2008, respectively.
Comparison
of Six Months Ended December 31, 2008 to Six Months Ended
December 31, 2007
Operating
revenue decreased by $5.9 million, or 2.2%, to $266.5 million for the
six months ended December 31, 2008, from $272.4 million for the
six months ended December 31, 2007. Going forward, we expect the
addition of the Continental assets and intermodal operations to have some affect
on our operating revenue. However, for the foreseeable future we
don't expect incremental growth in our fleet size following the Continental
acquisition.
Freight
revenue decreased by $20.6 million, or 9.0%, to $207.8 million for the six
months ended December 31, 2008, from $228.4 million for the six months ended
December 31, 2007. This decrease was primarily attributable to a
decrease in freight demand. Accordingly, billed miles decreased by
9.8 million, from 126.0 million for the six months ended December 31, 2007, to
116.2 million for the six months ended December 31, 2008, average miles per
tractor per week decreased from 2,007 miles to 1,862 miles, and non-revenue
miles increased from 10.4% to 10.8% of total miles. As the freight
market weakened, we took on additional freight, at lower rates, to fill the
resulting void. In turn, non-revenue miles increased as we
repositioned tractors for the next load. Average revenue per tractor
per week, net of fuel surcharge, which is our primary measure of asset
productivity, decreased 8.2% to $2,478 in the six months ended December 31,
2008, from $2,700 for the six months ended December 31, 2007.
Revenue
for TruckersB2B was $4.5 million for the six months ended
December 31, 2008, compared to $4.9 million for the six months
ended December 31, 2007. The decrease was related to decreases in
fuel and tire rebate revenue due to small and mid size carriers being adversely
affected by the lagging freight demand. To the extent small and mid
size carriers continue to be affected adversely by lagging freight demand,
limited financing availability, and licensing, insurance, and other costs, we
anticipate the revenue for TruckersB2B to be negatively impacted as
well.
Salaries,
wages, and benefits were $79.2 million, or 38.1% of freight revenue, for
the six months ended December 31, 2008, compared to $77.2 million, or
33.8% of freight revenue, for the six months ended December 31,
2007. These increases in salaries, wages, and employee benefits are
primarily due to increased driver payroll, related to an increase in company
driver miles, in correlation with a corresponding decrease in independent
contractor miles, and increased expenses related to equity and bonus
compensation.
Fuel
expenses, net of fuel surcharge revenue of $58.7 million and $44.0 million for
the six months ended December 31, 2008 and 2007 respectively, decreased to
$19.3 million, or 9.3% of freight revenue, for the six months ended
December 31, 2008, compared to $27.0 million, or 11.8% of freight
revenue, for the six months ended December 31, 2007. These decreases
were primarily attributable to a new company wide fuel use reduction
plan. This plan involves purchasing new, more fuel efficient
equipment, adjusting the specifications to allow for less idle time and reduced
speed in order to obtain greater fuel efficiency, and counseling drivers on
their idle time, which has decreased 12.1%. These efforts were offset
by a 15.8% increase in average fuel prices to $3.29 per gallon in fiscal 2009,
from $2.94 per gallon in fiscal 2008.
Operations
and maintenance increased to $18.2 million, or 8.8% of freight revenue, for
the six months ended December 31, 2008, from $17.6 million, or 7.7% of
freight revenue, for the six months ended December 31,
2007. Operations and maintenance consist of direct operating expense,
maintenance, physical damage, and tire expense. These increases in
fiscal 2009 are primarily related to an increase in costs associated with
various direct expenses such as tolls expense, driver layover expense, and an
increase in tire expense.
Insurance
and claims expense was $6.9 million, or 3.3% of freight revenue, for the
six months ended December 31, 2008, compared to $8.0 million, or 3.5% of
freight revenue, for the six months ended December 31,
2007. Insurance consists of premiums for liability, physical damage,
cargo damage, and workers compensation insurance. This decrease is
attributed to a decrease in workers compensation claims and cargo claims, due to
a decrease in number and severity of accidents in fiscal 2009, offset by a
slight increase in our liability claims. Our insurance program
involves self-insurance at various risk retention levels. Claims in
excess of these risk levels are covered by insurance in amounts we consider to
be adequate. We accrue for the uninsured portion of claims based on
known claims and historical experience. We continually revise
and change our insurance program to maintain a balance between premium expense
and the risk retention we are willing to assume.
Depreciation and amortization,
consisting primarily of depreciation of revenue equipment, increased to
$16.7 million, or 8.0% of freight revenue, for the six months ended
December 31, 2008, from $15.4 million, or 6.8% of freight
revenue, for the six months ended December 31, 2007. The majority of these
increases are related to the net addition of approximately 400 owned tractors,
which has increased our tractor depreciation. These increases were
partially offset by gains on sales of equipment in the
quarter. Revenue equipment held under operating leases is not
reflected on our balance sheet and the expenses related to such equipment are
reflected on our statements of operations in revenue equipment rentals, rather
than in depreciation and amortization and interest expense, as is the case for
revenue equipment that is financed with borrowings or capital
leases.
Revenue equipment rentals were
$13.0 million, or 6.3% of freight revenue, for the six months ended
December 31, 2008, compared to $13.6 million, or 6.0% of freight revenue
for the six months ended December 31, 2007. The dollar decrease is
attributable to a decrease in our tractor fleet. At December 31,
2008, 1,166 tractors, or 40.2% of our company tractors, were held under
operating leases, compared to 1,218 tractors, or 47.8% of our company tractors,
at December 31, 2007. This was offset by the net addition of
approximately 480 trailers under operating lease, which has increased our
trailer rents.
Purchased
transportation decreased significantly to $28.5 million, or 13.7% of
freight revenue, for the six months ended December 31, 2008, from
$43.6 million, or 19.1% of freight revenue, for the six months ended December
31, 2007. The majority of these decreases are related to fewer miles
by our independent contractor fleet which was reduced to 206 at December 31,
2008, from 370 at December 31, 2007.
All of
our other operating expenses are relatively minor in amount, and there were no
significant changes in such expenses. Accordingly, we have not
provided a detailed discussion of such expenses.
Our
pretax margin increased 80 basis points to 4.4% of freight revenue for the six
months ended December 31, 2008, from 3.6% of freight revenue for the six months
ended December 31, 2007.
In
addition to other factors described above, Canadian exchange rate fluctuations
primarily impact salaries, wages and benefits, and purchased transportation,
and, therefore impact our pretax margin and results of operations.
Income taxes increased to $4.7 million
for the six months ended December 31, 2008, compared to $4.0 million, for the
six months ended December 31, 2007, while the effective tax rate increased from
48.5% to 51.5%. Income tax expense for the fiscal 2009 included an
adjustment of approximately $300,000 related to per diem calculations for prior
years. As per diem is a partially non-deductible expense, our
effective tax rate will fluctuate as net income and per diem fluctuates in the
future.
As a
result of the factors described above, net income increased by $0.3 million
to $4.5 million for the six months ended December 31, 2008, from a net income of
$4.2 million for the six months ended December 31, 2007.
Liquidity
and Capital Resources
Trucking
is a capital-intensive business. We require cash to fund our operating expenses
(other than depreciation and amortization), to make capital expenditures and
acquisitions, and to repay debt, including principal and interest payments.
Other than ordinary operating expenses, we anticipate that capital
expenditures for the acquisition of revenue equipment will constitute our
primary cash requirement over the next twelve months. We frequently
consider potential acquisitions, and if we were to consummate an acquisition,
our cash requirements would increase and we may have to modify our expected
financing sources for the purchase of tractors. Subject to any required
lender approval, we may make acquisitions in the future. Our principal
sources of liquidity are cash generated from operations, bank borrowings,
capital and operating lease financing of revenue equipment, and proceeds from
the sale of used revenue equipment.
As of
December 31, 2008, we had on order 1,284 tractors and 87 trailers for delivery
through fiscal 2010. These revenue equipment orders represent a capital
commitment of approximately $123.4 million, before considering the proceeds of
equipment dispositions. We are using a mixture of cash and operating
leases to purchase our new tractors and are using operating leases to acquire
most of the new trailers. At December 31, 2008, our total balance
sheet debt, including capital lease obligations and current maturities less
cash, was $84.2 million, compared to $81.0 million at December 31, 2007.
Our debt-to-capitalization ratio (total balance sheet debt as a percentage of
total balance sheet debt plus total stockholders' equity) was 37.5% at December
31, 2008, and 36.7% at December 31, 2007.
We
believe we will be able to fund our operating expenses, as well as our current
commitments for the acquisition of revenue equipment over the next twelve months
with a combination of cash generated from operations, borrowings available under
our primary credit facility and lease financing
arrangements. Although we expect to maintain the approximate size of
our fleet, we will continue to have significant capital requirements over the
long term, and the availability of the needed capital will depend upon our
financial condition and operating results and numerous other factors over which
we have limited or no control, including prevailing market conditions and the
market price of our common stock. However, based on our operating results,
anticipated future cash flows, current availability under our credit facility,
and sources of equipment lease financing that we expect will be available to us,
we do not expect to experience significant liquidity constraints in the
foreseeable future.
Cash
Flows
For
the six months ended December 31, 2008, net cash provided by operations was
$41.0 million, compared to cash provided by operations of $18.8 million for the
six months ended December 31, 2007. Cash provided by operations
increased primarily due to decreases in trade receivables, other current assets,
income tax receivable, and accounts payable and accrued expenses.
Net cash
used in investing activities was $25.1 million for the six months ended December
31, 2008, compared to net cash provided by investing activities of $6.7 million
for the six months ended December 31, 2007. Cash provided by or used
in investing activities includes the net cash effect of acquisitions and
dispositions of revenue equipment during each period. Capital
expenditures for new equipment totaled $21.1 million for the six months ended
December 31, 2008, and $9.3 million for the six months ended December 31,
2007. In December 2008, we used $24.1 million to purchase the assets
of Continental. We generated proceeds from the sale of property and
equipment of $20.2 million for the six months ended December 31, 2008, compared
to $15.9 million in proceeds for the six months ended December 31,
2007.
Net cash used in financing activities
was $18.2 million for the six months ended December 31, 2008, compared to net
cash provided by financing activities of $23.2 million for the six months ended
December 31, 2007. The decrease in cash used for financing activities
was primarily due to the purchase of treasury stock in the six months ended
December 31, 2007, offset by increased payment on our revolving debt line in the
six months ended December 31, 2008. Financing activity represents
borrowings (new borrowings, net of repayment) and payments of the principal
component of capital lease obligations.
Off-Balance
Sheet Arrangements
Operating
leases have been an important source of financing for our revenue equipment.
Our operating leases include some under which we do not guarantee the
value of the asset at the end of the lease term ("walk-away leases") and some
under which we do guarantee the value of the asset at the end of the lease term
("residual value"). Therefore, we are subject to the risk that equipment
value may decline, in which case we would suffer a loss upon disposition and be
required to make cash payments because of the residual value guarantees. We were
obligated for residual value guarantees related to operating leases of $83.1
million at December 31, 2008 compared to $65.7 million at December 31,
2007. We believe that any residual payment obligations that are not covered by
the manufacturer will be satisfied by the value of the related equipment at the
end of the lease. To the extent the expected value at the lease termination date
is lower than the residual value guarantee; we would accrue for the difference
over the remaining lease term. We anticipate that going forward we will use a
combination of cash generated from operations and operating leases to finance
tractor purchases and operating leases to finance trailer
purchases.
Primary Credit Agreement
On September 26, 2005, Celadon Group,
Inc., Celadon Trucking Services, Inc., and TruckersB2B entered into an unsecured
Credit Agreement (the "Credit Agreement") with LaSalle Bank National
Association, as administrative agent, and LaSalle Bank National Association,
Fifth Third Bank (Central Indiana), and JPMorgan Chase Bank, N.A., as
lenders. The Credit Agreement was amended on December 23, 2005, by
the First Amendment to Credit Agreement, pursuant to which Celadon Logistics
Services, Inc. was added as a borrower to the Credit Agreement. The
Credit Agreement, as amended by the Third Amendment on January 22, 2008, matures
on January 23, 2013. The Credit Agreement is intended to provide for
ongoing working capital needs and general corporate
purposes. Borrowings under the Credit Agreement are based, at the
option of the Company, on a base rate equal to the greater of the federal funds
rate plus 0.5% and the administrative agent's prime rate or LIBOR plus an
applicable margin between 0.75% and 1.125% that is adjusted quarterly based on
cash flow coverage. The Credit Agreement is guaranteed by Celadon
E-Commerce, Inc., CelCan, and Jaguar, each of which is a subsidiary of the
Company.
The Credit Agreement, as amended by the
Third Amendment, has a maximum revolving borrowing limit of $70.0 million, and
the Company may increase the revolving borrowing limit by an additional $20.0
million, to a total of $90.0 million. In order to use the accordion
feature of our credit facility, we may be required to renegotiate the terms of
such feature. However, we believe we will be able to fund our
operating expenses without using the accordion feature of our credit facility
and do not anticipate needing to use or renegotiate the accordion feature in the
foreseeable future. Letters of credit are limited to an aggregate
commitment of $15.0 million and a swing line facility has a limit of $5.0
million. A commitment fee that is adjusted quarterly between 0.15%
and 0.225% per annum based on cash flow coverage is due on the daily unused
portion of the Credit Agreement. The Credit Agreement contains
certain restrictions and covenants relating to, among other things, dividends,
tangible net worth, cash flow, mergers, consolidations, acquisitions and
dispositions, and total indebtedness. We were in compliance with
these covenants at December 31, 2008, and expect to remain in compliance for the
foreseeable future. At December 31, 2008, $32.3 million of our credit
facility was utilized as outstanding.
Contractual
Obligations
As of December 31, 2008, our
operating leases, capitalized leases, other debts, and future commitments have
stated maturities or minimum annual payments as follows:
|
|
Annual
Cash Requirements
as
of December 31, 2008
(in
thousands)
Payments
Due by Period
|
|
|
|
Total
|
|
|
Less
than
1 year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
More
than
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$ |
90,876 |
|
|
$ |
26,102 |
|
|
$ |
28,739 |
|
|
$ |
14,199 |
|
|
$ |
21,836 |
|
Lease
residual value guarantees
|
|
|
83,111 |
|
|
|
13,271 |
|
|
|
49,782 |
|
|
|
11,036 |
|
|
|
9,022 |
|
Capital
leases(1)
|
|
|
50,093 |
|
|
|
8,493 |
|
|
|
27,460 |
|
|
|
14,140 |
|
|
|
--- |
|
Long-term
debt(1)(1)
|
|
|
40,626 |
|
|
|
7,385 |
|
|
|
916 |
|
|
|
32,325 |
|
|
|
--- |
|
Sub-total
|
|
$ |
264,706 |
|
|
$ |
55,251 |
|
|
$ |
106,897 |
|
|
$ |
71,700 |
|
|
$ |
30,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
purchase of revenue equipment
|
|
$ |
123,395 |
|
|
$ |
27,312 |
|
|
$ |
62,126 |
|
|
$ |
32,749 |
|
|
$ |
1,208 |
|
Employment
and consulting agreements(2)
|
|
|
700 |
|
|
|
700 |
|
|
|
--- |
|
|
|
--- |
|
|
|
--- |
|
Standby
Letters of Credit
|
|
|
5,632 |
|
|
|
5,632 |
|
|
|
--- |
|
|
|
--- |
|
|
|
--- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
394,433 |
|
|
$ |
88,895 |
|
|
$ |
169,023 |
|
|
$ |
104,449 |
|
|
$ |
32,066 |
|
(1)
|
Includes
interest.
|
(2)
|
The
amounts reflected in the table do not include amounts that could become
payable to our Chief Executive Officer and Chief Financial Officer
under certain circumstances if their employment by the Company is
terminated.
|
Critical
Accounting Policies
The
preparation of our financial statements in conformity with U.S. generally
accepted accounting principles requires us to make estimates and assumptions
that impact the amounts reported in our consolidated financial statements and
accompanying notes. Therefore, the reported amounts of assets, liabilities,
revenues, expenses, and associated disclosures of contingent assets and
liabilities are affected by these estimates and assumptions. We
evaluate these estimates and assumptions on an ongoing basis, utilizing
historical experience, consultation with experts, and other methods considered
reasonable in the particular circumstances. Nevertheless, actual results may
differ significantly from our estimates and assumptions, and it is possible that
materially different amounts would be reported using differing estimates or
assumptions. We consider our critical accounting policies to be those that
require us to make more significant judgments and estimates when we prepare our
financial statements. Our critical accounting policies include the
following:
Depreciation of Property and
Equipment. We depreciate our property and equipment using the
straight-line method over the estimated useful life of the asset. We generally
use estimated useful lives of two to seven years for tractors and trailers, and
estimated salvage values for tractors and trailers generally range from 35% to
50% of the capitalized cost. Gains and losses on the disposal of revenue
equipment are included in depreciation expense in our statements of
operations.
We review
the reasonableness of our estimates regarding useful lives and salvage values of
our revenue equipment and other long-lived assets based upon, among other
things, our experience with similar assets, conditions in the used equipment
market, and prevailing industry practice. Changes in our useful life or
salvage value estimates or fluctuations in market values that are not reflected
in our estimates, could have a material effect on our results of
operations.
Revenue
equipment and other long-lived assets are tested for impairment whenever an
event occurs that indicates an impairment may exist. Expected future cash flows
are used to analyze whether an impairment has occurred. If the sum of expected
undiscounted cash flows is less than the carrying value of the long-lived asset,
then an impairment loss is recognized. We measure 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 the appraised or
estimated market value of the asset, as appropriate.
Operating leases. We have
financed a substantial percentage of our tractors and trailers with operating
leases. These leases generally contain residual value guarantees,
which provide that the value of equipment returned to the lessor at the end of
the lease term will be no lower than a negotiated amount. To the extent that the
value of the equipment is below the negotiated amount, we are liable to the
lessor for the shortage at the expiration of the lease. For all equipment, we
are required to recognize additional rental expense to the extent we believe the
fair market value at the lease termination will be less than our obligation to
the lessor.
In accordance with SFAS 13, "Accounting for Leases,"
property and equipment held under operating leases, and liabilities related
thereto, are not reflected on our balance sheet. All expenses related to revenue
equipment operating leases are reflected on our statements of operations in the
line item entitled "Revenue equipment rentals." As such, financing revenue
equipment with operating leases instead of bank borrowings or capital leases
effectively moves the interest component of the financing arrangement into
operating expenses on our statements of operations.
Claims Reserves and
Estimates. The primary claims arising for us consist of cargo liability,
personal injury, property damage, collision and comprehensive, workers'
compensation, and employee medical expenses. We maintain self-insurance levels
for these various areas of risk and have established reserves to cover these
self-insured liabilities. We also maintain insurance to cover liabilities in
excess of these self-insurance amounts. Claims reserves represent accruals for
the estimated uninsured portion of reported claims, including adverse
development of reported claims, as well as estimates of incurred but not
reported claims. Reported claims and related loss reserves are estimated by
third party administrators, and we refer to these estimates in establishing our
reserves. Claims incurred but not reported are estimated based on our historical
experience and industry trends, which are continually monitored, and accruals
are adjusted when warranted by changes in facts and circumstances. In
establishing our reserves we must take into account and estimate various
factors, including, but not limited to, assumptions concerning the nature and
severity of the claim, the effect of the jurisdiction on any award or
settlement, the length of time until ultimate resolution, inflation rates in
health care, and in general interest rates, legal expenses, and other factors.
Our actual experience may be different than our estimates, sometimes
significantly. Changes in assumptions as well as changes in actual experience
could cause these estimates to change in the near term. Insurance and claims
expense will vary from period to period based on the severity and frequency of
claims incurred in a given period.
Derivative Instruments and Hedging
Activity. We use derivative
financial instruments to manage the economic impact of fluctuations in currency
exchange rates. Derivative financial instruments related to currency
exchange rates include forward purchase and sale agreements which generally have
terms no greater than 12 months.
To
account for our derivative financial instruments, we follow the provisions of
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, SFAS No. 138 and SFAS No. 161. Derivative
financial instruments are recognized on the Consolidated Balance Sheets as
either assets or liabilities and are measured at fair value, changes in the fair
value of derivatives are recorded each period in earnings or accumulated other
comprehensive income, depending on whether a derivative is designated and
effective as part of a hedge transaction, and if it is, the type of hedge
transaction. Gains and losses on derivative instruments reported in
accumulated other comprehensive income are subsequently included in earnings in
the periods in which earnings are affected by the hedged item. These
activities have not had a material impact on our financial position or results
of operations for the periods presented herein.
Accounting for Income Taxes.
Deferred income taxes represent a substantial liability on our consolidated
balance sheet. Deferred income taxes are determined in accordance with SFAS No.
109, "Accounting for Income Taxes." Deferred tax assets and
liabilities are recognized for the expected future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and operating loss and
tax credit carry-forwards. We evaluate our tax assets and liabilities on a
periodic basis and adjust these balances as appropriate. We believe that we have
adequately provided for our future tax consequences based upon current facts and
circumstances and current tax law. However, should our tax positions be
challenged and not prevail, different outcomes could result and have a
significant impact on the amounts reported in our consolidated financial
statements.
The
carrying value of our deferred tax assets (tax benefits expected to be realized
in the future) assumes that we will be able to generate, based on certain
estimates and assumptions, sufficient future taxable income in certain tax
jurisdictions to utilize these deferred tax benefits. If these estimates and
related assumptions change in the future, we may be required to reduce the value
of the deferred tax assets resulting in additional income tax expense. We
believe that it is more likely than not that the deferred tax assets, net of
valuation allowance, will be realized, based on forecasted income.
However, there can be no assurance that we will meet our forecasts of
future income. We evaluate the deferred tax assets on a periodic basis and
assess the need for additional valuation allowances.
Federal
income taxes are provided on that portion of the income of foreign subsidiaries
that is expected to be remitted to the United States.
Seasonality
We have substantial operations in the
Midwestern and Eastern United States and Canada. In those geographic regions,
our tractor productivity may be adversely affected during the winter season
because inclement weather may impede our operations. Moreover, some shippers
reduce their shipments during holiday periods as a result of curtailed
operations or vacation shutdowns. At the same time, operating expenses generally
increase, with fuel efficiency declining because of engine idling and harsh
weather creating higher accident frequency, increased claims, and more equipment
repairs.
Inflation
Many of our operating expenses,
including fuel costs, revenue equipment, and driver compensation, are sensitive
to the effects of inflation, which result in higher operating costs and reduced
operating income. The effects of inflation on our business during the
past three years were most significant in fuel. The effects of
inflation on revenue were not material in the past three years. We
have limited the effects of inflation through increases in freight rates and
fuel surcharges.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk
We experience various market risks,
including changes in interest rates, foreign currency exchange rates, and fuel
prices. We do not enter into derivatives or other financial
instruments for trading or speculative purposes, nor when there are no
underlying related exposures.
Interest Rate
Risk. We are exposed to interest rate risk principally from
our primary credit facility. The credit facility carries a maximum
variable interest rate of either the bank's base rate or LIBOR plus
1.125%. At December 31, 2008 the interest rate for revolving
borrowings under our credit facility was LIBOR plus 1.0%, an effective rate of
2.73%. At December 31, 2008, we had $32.3 million variable rate term
loan borrowings outstanding under the credit facility. A hypothetical
10% increase in the bank's base rate and LIBOR would be immaterial to our net
income.
Foreign Currency Exchange Rate
Risk. We are subject to foreign currency exchange rate risk,
specifically in connection with our Canadian operations. While
virtually all of the expenses associated with our Canadian operations, such as
independent contractor costs, Company driver compensation, and administrative
costs, are paid in Canadian dollars, a significant portion of our revenue
generated from those operations is billed in U.S. dollars because many of our
customers are U.S. shippers transporting goods to or from Canada. As
a result, increases in the Canadian dollar exchange rate adversely affect the
profitability of our Canadian operations. Assuming revenue and
expenses for our Canadian operations identical to that in the first six months
of fiscal 2009 (both in terms of amount and currency mix), we estimate that a
$0.01 decrease in the Canadian dollar exchange rate would reduce our annual net
income by approximately $109,000. We have mitigated some of this risk
through currency exchange agreements. We currently have contracts for
$750,000 Canadian dollars per month over the next 12 months, representing
approximately 75% of our Canadian currency exposure. Derivative
gains/(losses), initially reported as a component of other comprehensive income,
are reclassified to earnings in the period when the forecasted transaction
affects earnings.
We generally do not
face the same magnitude of foreign currency exchange rate risk in connection
with our intra-Mexico operations conducted through our Mexican subsidiary,
Jaguar, because our foreign currency revenues are generally proportionate to our
foreign currency expenses for those operations. For purposes of
consolidation, however, the operating results earned by our subsidiaries,
including Jaguar, in foreign currencies are converted into United States
dollars. As a result, a decrease in the value of the Mexican peso
could adversely affect our consolidated results of
operations. Assuming revenue and expenses for our Mexican operations
identical to that in the first six months of fiscal 2009 (both in terms of
amount and currency mix), we estimate that a $0.01 decrease in the Mexican peso
exchange rate would reduce our annual net income by approximately $54,000. We
currently have contracts for 4.5 million Mexican pesos per month over the next
12 months, representing approximately 75% of our Mexican currency
exposure. Derivative gains/(losses), initially reported as a
component of other comprehensive income, are reclassified to earnings in the
period when the forecasted transaction affects earnings.
Commodity Price
Risk. Shortages of fuel, increases in prices, or rationing of
petroleum products can have a materially adverse effect on our operations and
profitability. Fuel is subject to economic, political, climatic, and market
factors that are outside of our control. Historically, we have sought to recover
a portion of short-term increases in fuel prices from customers through the
collection of fuel surcharges. However, fuel surcharges do not always fully
offset increases in fuel prices. In addition, from time-to-time we may enter
into derivative financial instruments to reduce our exposure to fuel price
fluctuations. In accordance with SFAS 133 and SFAS 138, we adjust any such
derivative instruments to fair value through earnings on a monthly basis. As of
December 31, 2008, we had no derivative financial instruments in place to reduce
our exposure to fuel price fluctuations.
Item 4. Controls and Procedures
As required by Rules 13a-15 and 15d-15
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Company has carried out an evaluation of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures as of the end of
the period covered by this Quarterly Report on Form 10-Q. This evaluation was
carried out under the supervision and with the participation of the Company’s
management, including our Chief Executive Officer and our Chief Financial
Officer. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this Quarterly Report on
Form 10-Q. There were no changes in the Company’s internal control
over financial reporting that occurred during the six months ended December 31,
2008 that have materially affected, or that are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed in the Company’s reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Disclosure controls and procedures include controls and procedures
designed to ensure that information required to be disclosed in Company reports
filed under the Exchange Act is accumulated and communicated to management,
including the Company's Chief Executive Officer and Chief Financial Officer as
appropriate, to allow timely decisions regarding disclosures.
The Company
has confidence in its disclosure controls and procedures. Nevertheless, the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures will
prevent all errors or intentional fraud. An internal control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of such internal controls are
met. Further, the design of an internal control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all internal control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the
Company have been detected.
Part
II. Other
Information
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.
On August
8, 2007, the 384th District Court of the State of Texas situated in El Paso,
Texas, rendered a judgment against CTSI, for approximately $3.4 million in the
case of Martinez v. Celadon Trucking Services, Inc., which was originally filed
on September 4, 2002. The case involves a workers' compensation claim
of a former employee of CTSI who suffered a back injury as a result of a traffic
accident. CTSI and the Company believe all actions taken were proper
and legal and contend that the proper and exclusive place for resolution of this
dispute was before the Indiana Worker’s Compensation Board. While
there can be no certainty as to the outcome, the Company believes that the
ultimate resolution of this dispute will not have a materially adverse effect on
its consolidated financial position or results of operations. CTSI
filed an appeal of the decision to the Texas Court of Appeals in October
2007. Trial transcripts have been prepared for the Court of Appeals
and appellate briefing is in process.
While we attempt to identify, manage,
and mitigate risks and uncertainties associated with our business, some level of
risk and uncertainty will always be present. Our Form 10-K for the
year ended June 30, 2008, in the section entitled Item 1A. Risk Factors,
describes some of the risks and uncertainties associated with our
business. Please also see our Quarterly Report on Form 10-Q filed
with the SEC on October 30, 2008, for a description of the risks and
uncertainties associated with certain credit factors affecting the trucking
industry. These risks and uncertainties have the potential to
materially affect our business, financial condition, results of operations, cash
flows, projected results, and future prospects.
Item
4. Submission
of Matters to a Vote of Security Holders.
The
Company held its regular Annual Meeting of Stockholders (the "Annual Meeting")
on November 14, 2008. Stockholders representing 18,092,806 shares, or
83.9%, of the total outstanding shares were present in person or by
proxy. At the Annual Meeting, Stephen Russell, Michael Miller,
Anthony Heyworth, Catherine Langham, and Paul Will were elected to serve as
directors for one-year terms. A tabulation of the vote with respect
to each nominee follows:
|
Voted For
|
Vote Withheld
|
|
|
|
|
|
Stephen
Russell
|
17,785,367
|
307,439
|
|
Michael
Miller
|
17,408,864
|
683,942
|
|
Anthony
Heyworth
|
17,376,157
|
716,649
|
|
Catherine
Langham
|
17,421,685
|
671,121
|
|
Paul
Will
|
16,835,742
|
1,257,064
|
|
At the
Annual Meeting, a proposal was voted on to amend the 2006 Plan to increase the
number of shares of common stock reserved and available for issuance of stock
grants, options, and other equity awards to the Company's employees, directors,
and consultants, by 1,000,000 shares. A tabulation of the vote
follows:
|
Voted For
|
Voted Against
|
Vote Withheld
|
|
|
|
|
|
|
Total
Shares Voted
|
16,138,161
|
1,947,296
|
7,349
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the Company, effective
January 12, 2006. (Incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ending
December 31, 2005, filed with the SEC on January 30,
2006.)
|
3.2
|
Certificate
of Designation for Series A Junior Participating Preferred Stock.
(Incorporated by reference to Exhibit 3.3 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2000, filed with
the SEC on September 28, 2000.)
|
3.3
|
Amended
and Restated By-laws of the Company. (Incorporated by reference
to Exhibit 3 to the Company's Current Report on Form 8-K filed with the
SEC on July 3, 2006.)
|
4.1
|
Amended
and Restated Certificate of Incorporation of the Company, effective
January 12, 2006. (Incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ending
December 31, 2005, filed with the SEC on January 30,
2006.)
|
4.2
|
Certificate
of Designation for Series A Junior Participating Preferred Stock.
(Incorporated by reference to Exhibit 3.3 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2000, filed with
the SEC on September 28, 2000.)
|
4.3
|
Rights
Agreement, dated as of July 20, 2000, between Celadon Group, Inc. and
Fleet National Bank, as Rights Agent. (Incorporated by
reference to Exhibit 4.1 to the Company’s Registration Statement on Form
8-A, filed with the SEC on July 20, 2000.)
|
4.4
|
Amended
and Restated By-laws of the Company. (Incorporated by reference
to Exhibit 3 to the Company's Current Report on Form 8-K filed with the
SEC on July 3, 2006.)
|
|
Certification
pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, by Stephen Russell, the
Company's Chief Executive Officer.*
|
|
Certification
pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, by Paul Will, the Company's
Chief Financial Officer.*
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes–Oxley Act of 2002, by Stephen Russell, the Company's Chief
Executive Officer.*
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, by Paul Will, the Company's Chief
Financial Officer.*
|
* Filed
herewith
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 Will
|
|
Paul
Will
|
|
Chief
Financial Officer, Executive Vice President,
Treasurer,
and Assistant Secretary
|
|
|
Date: January
30, 2009
|
|