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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23192
CELADON GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3361050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9503 East 33rd Street
Indianapolis, IN 46236
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 972-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($0.033 par value)
Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes No X
_____ _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
As of September 17, 1996, the aggregate market value of the Common Stock held by
non-affiliates of the Registrant (4,402,888 shares) was approximately
$36,323,826 (based upon the closing price of such stock on September 17, 1996).
The number of shares outstanding of the Common Stock ($0.033 par value) of the
Registrant as of the close of business on September 17, 1996 was 7,632,580.
CELADON GROUP, INC
FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. Business...............................................................3
ITEM 2. Properties............................................................14
ITEM 3. Legal Proceedings.....................................................15
ITEM 4. Submission of Matters to a Vote of Security Holders...................15
PART II
ITEM 5. Market for Registrant's Common Stock and Related
Stockholder Matters.................................................16
ITEM 6. Selected Financial Data...............................................17
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................18
ITEM 8. Financial Statements and Supplementary Data...........................25
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures................................58
PART III
ITEM 10. Directors and Executive Officers of the Registrant....................59
ITEM 11. Executive Compensation................................................63
ITEM 12. Security Ownership Principal Stockholders
and Management......................................................69
ITEM 13. Certain Relationships and Related Transactions........................72
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................................75
SIGNATURES..................................................................................80
2
PART I
ITEM 1. BUSINESS
GENERAL
Celadon Group, Inc. (collectively with its subsidiaries, the "Company"), is
an international transportation company primarily offering full truckload and
flatbed trucking services. The Company specializes in providing long-haul, full
truckload service between the United States and Mexico. In fiscal 1996, the
Company's truckload division transported approximately 101,800 full truckload
shipments, of which approximately 57,000 were shipments to and from the United
States - Mexican border. The flatbed division moved approximately 24,100 loads
primarily within the United States.
The Company, a Delaware corporation headquartered in Indianapolis, Indiana,
was formed on July 24, 1986 through the combination of two companies, Celadon
Trucking Services, Inc. and Celadon Logistics, Inc., both owned by the same
principal stockholders. The Company was traditionally engaged primarily in the
long-haul, full truckload business. The Company expanded its trucking presence
in Mexico during May 1995 by making an investment in Transportes RQF, S.A. de
C.V. ("RQF"), a Mexican company formed to provide trucking services. In June
1995, the Company acquired Cheetah Transportation Company and CLK, Inc.,
including its subsidiary Cheetah Brokerage, Inc. (collectively "Cheetah").
Cheetah provides flatbed trucking and brokerage services principally in the
United States.
The Company entered the freight forwarding business in July 1990 by
acquiring (the "Randy Acquisition Corp.") International Freight Holding Corp.
and its subsidiaries (collectively, "Randy International, Inc."). On October 31,
1994, the Company expanded its freight forwarding business by entering into a
partnership agreement with Jacky Maeder, Ltd. (the United States subsidiary of
Jacky Maeder AG), for the purpose of combining their respective United States
freight forwarding business operating as Celadon/Jacky Maeder Company ("CJM").
In March 1995, the Company broadened its United Kingdom freight forwarding
business through the acquisition of Guestair, Ltd. In December 1995, following
an analysis of results to date and an assessment of future prospects, the Board
of Directors authorized the disposal of the freight forwarding division.
In the fourth quarter of 1996, the Company continued its program to
concentrate on its core business in truckload and flatbed trucking services by
reducing unrelated activities. In March 1994, the Company had started the
operation of a package delivery business. This business operated in the
Logistics segment, under the name Celadon Express, Inc. ("Express") and was sold
in June 1996. In May 1995, the Company's logistics division commenced the
operation of Celsur, Inc. ("Celsur"), a warehousing, logistics and distribution
business operating in South America. In July 1996, Celsur was sold to the former
President of Celadon Group, Inc. for $3.1 million payable in a combination of
cash and 100,000 shares of common stock of the Company. Following the sale of
the two subsidiaries the Company determined that it would discontinue offering
logistics services as a separate product line.
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TRUCKING
The Company's trucking strategy is driven by a keen focus on service,
technology, and logistics.
Service. The Company specializes in providing premium truckload service
principally to and from the United States-Mexican border. The Company targets
large service-sensitive customers with time-definite delivery requirements and
develops tailored programs to customer specific needs within the United States
and Mexico. Service to these customers is enhanced by the Company's strategy of
team-driver service, a high trailer-to-tractor ratio, the use of well
maintained, late-model tractors and trailers, and 24-hour a day, seven-day a
week dispatch and reporting services. In order to supplement its premium
cross-border service, the Company has also developed strategic relationships
with several key Mexican companies, and in May 1995, further strengthened its
position with the investment in RQF. These relationships allow the Company to
more effectively monitor shipper-to-consignee movements between the United
States and Mexico, balance its northbound and southbound freight flows, and
increase the productivity and utilization of its trailers.
Technology. The Company has invested in technological applications to
provide a strong platform for enhanced service and future growth. In particular,
the Company has integrated information systems with QUALCOMM, Inc. ("QUALCOMM")
satellite communication system (installed in all of the Company's over the road
fleet including RQF). This technology provides numerous competitive advantages
in the area of customer service, driver satisfaction, time-definite service, and
reduced maintenance costs. Additionally, management believes the linkage of the
Company's trucking system with RQF may provide it with a distinct advantage over
many of its competitors, especially in the area of logistics management.
Logistics. While the long-haul truckload market remains competitive, the
Company attempts to differentiate itself by offering value-added services,
including a full service approach to managing, tracking and reporting the
transportation of goods across borders and within the United States. This
expertise permits customers to rely on the Company to provide many services that
were previously performed by the customer. Moreover, the Company's relationships
with RQF, and several of the other Mexican trucking companies, allow the Company
to offer full service logistics management of cross-border shipments. The
Company's logistic management service provides an opportunity for the Company to
realize greater revenue per truck mile as well as an opportunity to
differentiate itself when competing for new customer contracts.
TRUCKLOAD DIVISION
The truckload division which includes RQF accounted for approximately 87%,
100%, and 100% of the Company's operating income from continuing operations
(before corporate expenses) for fiscal 1996, 1995, and 1994, respectively. The
truckload division, based in Indianapolis, Indiana, operates a fleet, which as
of June 30, 1996 consisted of 1,164 tractors and 3,963 trailers based in the
United States, using non-union, Company-employed drivers. The truckload division
derived approximately 62% of its revenue in fiscal 1996 from shipments
transported to and from the United States-Mexican border. In order to maintain
and strengthen its position in this market, the Company maintains a high
trailer-to-tractor ratio compared to the industry average enabling
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it to provide trailer availability in Mexico for northbound freight; it operates
nine terminal locations, including facilities in Laredo and El Paso, Texas,
which are the two largest inland freight gateway cities between the United
States and Mexico; and it provides services between the United States and Mexico
through operating arrangements and utilization of approximately 16 Mexican
truckload carriers. In addition, through RQF, the Company operated 49 tractors
at June 30, 1996 and had terminal facilities in Mexico City and Nuevo Laredo,
Mexico.
Chrysler Corporation ("Chrysler") is the Company's largest customer and
accounted for approximately 54% of the truckload division's revenue in fiscal
1996. The Company transports Chrysler original equipment automotive parts
primarily between the United States and Mexico and Chrysler after-market
replacement parts and accessories within the United States.
FLATBED TRUCKING DIVISION
The flatbed segment of the truckload division was purchased on June 29, 1995
for approximately $5 million. The flatbed segment operates under the name of
Cheetah Transportation Company ("Cheetah") and is headquartered in Mooresville,
N.C. Cheetah operates through a network of agents and approximately 200
independent owner-operators to provide flatbed services to a wide range of
customers. The segment's largest customer is the U.S. Government. Flatbed
services are typically characterized by unique, special purpose freight such as
military vehicles, large machinery, pipe and steel coils. Special permitting for
the transportation of high-wide or overweight loads is occasionally required.
INDUSTRY OVERVIEW
The full truckload market in the United States is defined by the quantity of
goods, generally over 10,000 pounds, shipped by a single customer and is divided
into several segments by the type of trailer carrying goods. These segments
include dry van, temperature-controlled, flatbed, and tank carriers.
The full truckload market is further segmented by the level of service and
pricing demanded by customers. The Company primarily competes in the dry van and
flatbed, service-sensitive segment of this market. Shippers of high value and
time-sensitive goods tend to be more concerned with the service capability of
the carrier rather than simply obtaining the lowest priced transportation. In
many cases, carriers choose either to provide premium service and charge rates
consistent with that service or to compete primarily on the basis of price. In
general, the trucking industry experienced a slowdown as a consequence of the
United States economy in the spring of 1995 and continuing through the first
half of 1996.
The Company transports general commodity goods in the United States, to and
from destinations in Canada (primarily eastern Canada), and to and from the
United States-Mexican border. The volume of truckload freight shipped between
the United States and Mexico had increased significantly, primarily as a result
of significant market-oriented economic reform in Mexico and increasing North
American economic interdependence. On December 20, 1994, the Mexican peso was
devalued. Subsequently, imports into Mexico of United States manufactured
consumer goods declined, while exports increased as a result of the weaker peso
which improved the Company's balance of northbound freight movements.
5
According to current United States and Mexican law, tractors registered in
the United States or Mexico may be operated only in their country of
registration, whereas trailers are permitted to cross the border. Thus, most
cross-border shipments between the United States and Mexico are shipped to drop
off points near the United States-Mexican border where either a Mexican or
United States company picks them up and transports them into Mexico or the
United States, as the case may be.
The Company focuses on transporting freight for customers with long-haul,
time-sensitive delivery requirements. These requirements often include the need
to have cargo transported by two-person driver teams rather than solo drivers
and in certain high volume dedicated traffic lanes relay teams of solo drivers.
The use of driver teams or relay teams permits freight to be moved with fewer
interruptions, allowing shipments to move more quickly and increasing the
utilization of tractors. The need to have shipments move as rapidly as possible
has increased with the rise of just-in-time inventory control. Competition in
this segment of the market is generally based more on the ability of the carrier
to consistently deliver the shipments on time, rather than on the basis of
price.
6
OPERATIONS
The following table sets forth certain unaudited operating data relating to
the trucking revenue and operations of the Company for the periods and at the
dates indicated:
Fiscal year ended June 30,
------------------------------
1996 1995 1994
---- ---- ----
Truckload:(2)
Operating ratio (1) ......................... 96.5% 89.1% 87.6%
Average miles per trip ...................... 1,230 1,199 1,183
Average revenue per revenue mile ............ $1.15 $1.17 $1.15
Empty miles as a percent of revenue miles ... 9.1% 9.7% 7.8%
Total tractors operated at period end ....... 1,213 923 742
Total trailers operated at period end ....... 3,973 2,738 2,586
Flatbed:(3)
Operating ratio (1) ......................... 95.8%
Average miles per trip ...................... 553
Average revenue per revenue mile ............ $1.38
Total tractors operated at period end ....... 201
Total trailers operated at period end ....... 221
- ---------
(1) Represents operating expenses as a percentage of operating revenue.
(2) Prior to 1996 excludes data related to RQF which was acquired in the fourth
quarter of fiscal 1995.
(3) Reflects the operations of Cheetah which was acquired in June 1995.
7
In order to maximize its equipment utilization, the Company seeks customers
that regularly ship multiple loads from locations along the Company's primary
existing traffic lanes. Customer shipping patterns are regularly monitored and,
as they expand or change, the Company attempts to obtain additional customers
that will complement the new traffic lane.
The Company's primary traffic lane is between the Midwest United States and
the Mexican border, principally through Laredo and El Paso, Texas. To facilitate
its operation in its primary traffic lane, the Company provides service between
the United States and Mexico utilizing RQF and approximately 15 other Mexican
carriers. In fiscal 1994, the Company entered into a five-year marketing and
operating arrangement with Hercel for the purpose of coordinating the movement
of equipment, the follow up on sales leads and marketing opportunities and the
settlement of amounts due between the two companies. In June 1996, this
agreement was amended and the Company now has relationships with several Mexican
carriers.
In May 1995, the Company made an investment in Transportes RQF, S.A. de C.V.
("RQF"), a previously inactive entity. RQF operated 49 tractors at June 30, 1996
and has terminals in Mexico City and Nuevo Laredo, Mexico. For its investment,
the Company acquired 75% of the stock of RQF.
In June 1995, the Company acquired all of the issued and outstanding Common
Stock of Cheetah Transportation Company ("Cheetah") and CLK, Inc. ("CLK"). CLK,
through its wholly owned subsidiary Cheetah Brokerage Company, operates as a
freight broker. Operating since 1984, Cheetah is located in Mooresville, N.C.
and provides primarily flatbed services exclusively through owner operators. At
June 30, 1996, Cheetah's fleet of owner operators totaled approximately 200. The
principal products handled by Cheetah include equipment, building materials, and
wire cable. The Company's strategy is to provide its truckload customer base
with flatbed services in the continental United States and, through the
operations of RQF, to and from United States and Mexico.
CUSTOMERS
The principal types of freight transported by the Company include automotive
parts, paper products, manufacturing parts, semi-finished products, appliances,
and toys. The Company's customers frequently ship in the North-South trade
lanes. The Company's truckload division currently services in excess of 3,000
trucking customers. Its largest customer is Chrysler, which accounted for
approximately 54%, 45%, and 48% of the Company's truckload revenue for fiscal
1996, 1995, and 1994, respectively. Of the total revenue received in fiscal 1996
from Chrysler, approximately 31% was derived from the Company's transportation
of after-market replacement parts and accessories within the United States and
approximately 69% was derived from shipments of original equipment automotive
parts between the Unites States and Mexico. Chrysler business is covered by two
agreements, one of which covers the United States-Mexico business and the other
of which covers domestic business. The international contract was extended for
three years and now expires on December 31, 1999. The contract applicable to
domestic movements is being renegotiated. No other customer accounted for more
than 5% of the Company's trucking revenue during any of its three most recent
fiscal years.
8
REVENUE EQUIPMENT
The Company's fleet is comprised of premium tractors manufactured by
Freightliner, Kenworth, and Peterbilt to the Company's specifications, which the
Company believes helps it to attract and retain drivers in the truckload
division and minimize maintenance and repair costs. The Company leases or owns
all of its tractors and trailers in its truckload division and utilizes
independent owner-operators in its flatbed division. The flatbed division,
Cheetah, does not own or lease revenue equipment.
As of June 30, 1996, the average age of the Company's tractors was
approximately 1.9 years. The Company utilizes a comprehensive maintenance
program to minimize downtime, enhance the resale value of its revenue equipment,
and control its maintenance costs. Centralized purchasing of spare parts and
tires, and centralized control of on-road repairs are also used to control
costs. The Company generally replaces its tractors every five years, although it
retains some older tractors for use on shorter haul routes where they can be
operated more efficiently. The Company further attempts to avoid declines in the
resale value of the Company's equipment by entering into agreements with certain
manufacturers providing for pre-established resale values.
The following table shows the type and model year of the Company's,
including RQF, revenue equipment at June 30, 1996:
Model Year Tractors Trailers
---------- -------- --------
1996................................ 328 1,159
1995................................ 424 1,216
1994................................ 226 300
1993................................ 169 275
1992................................ 42 75
1991................................ 11 51
1990................................ 4 157
Pre-1990............................ 9 740
----- -----
Total 1,213 3,973
===== =====
Approximately 750 of the tractors are subject to operating leases and the
remainder either are owned by the Company or subject to capital leases.
Approximately 55% of the Company's trailers are 48 foot units, and the remainder
are 53 foot units which have become the standard for the larger United States
truckload carriers but which currently may be operated legally in Mexico only in
limited circumstances. Additionally, the Company believes that its 3.3-to-1
trailer-to-tractor ratio is higher than the average industry ratio. The Company
maintains a high trailer-to-tractor ratio in order to provide trailer
availability in Mexico and to allow it to leave extra trailers with its high
volume shippers to load and unload at their convenience. As of June 30, 1996,
approximately three-quarters of the Company's trailers had an "air ride" system.
As of June 30, 1996, the Company had on order 250 tractors and 450 trailers for
delivery in fiscal 1997 and 1998. Management believes that there are presently
adequate sources of secured equipment financing together with its existing
credit facility and cash flow from operations to provide sufficient funds to
purchase the tractors and trailers presently on order. Additional growth in the
tractor and trailer fleet beyond the Company's existing orders will require
additional sources of financing. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
9
COMPUTER CONTROL SYSTEM
The Company utilizes a computerized management control system at its
Indianapolis facility to monitor all aspects of its operations. This system
provides the Company with current information regarding drivers, shipment status
and location. The computer and communication system enables tracking and
monitoring with RQF and certain other Mexican carriers.
The Company completed a technology upgrade program during fiscal 1995. As
part of this program, all of the Company's over the road tractors have been
equipped with a QUALCOMM satellite tracking and communications system. By
tracking the location of revenue equipment and providing two-way communications
with drivers, the QUALCOMM system simplifies equipment control and permits
timely and efficient communication of critical operating data, such as shipment
orders, loading instructions, routing, mileage operated, payroll, safety,
traffic and maintenance information. The QUALCOMM system permits transmission of
load assignments directly to the on-board display unit, and will even signal a
driver when an assignment is available, so he or she may sleep in the tractor
pending an assignment. The QUALCOMM system is integrated with the Company's
operations and payroll systems. This fully integrated computer network allows
the Company's dispatchers to be able to better match revenue equipment to
available loads and schedule regular maintenance and fueling at Company
terminals, thereby minimizing empty miles and improving productivity through
better equipment utilization. Dispatchers in Indianapolis schedule, monitor, and
coordinate shipments on a 24-hour a day, seven-day a week basis.
During 1996, additional features were added to the system including the QTOP
(R) computer system which enables computerized analysis of dispatching options
and consideration of maintenance intervals, driver home-time and other factors.
This implementation caused a disruption in ongoing operations with a significant
adverse impact on functional performance. Further enhancements are planned to
fully realize the benefits of the Company's technology investment. "See
Managements Discussion and Analysis of Financial Condition and Results of
Operations."
FUEL
Fuel is a significant expense, and the Company has little or no control over
the market price. The Company utilizes several techniques to manage its fuel
expense. The Company purchases fuel in bulk for storage at the Company's
terminals. The Company utilizes fuel efficient equipment and has equipped
approximately 47% of its fleet with 300-gallon and 400-gallon fuel capacity with
the balance of the fleet maintaining the standard 280-gallon capacity. This
extra capacity permits the Company to maximize the use of bulk-purchased fuel
stored at the Company's terminals. Additionally, the Company purchases fuel
futures contracts from time to time for its projected fuel needs. Although the
Company has in the past been able to assess fuel surcharges to customers,
shortages of fuel or increases in fuel prices such as those experienced in March
and April 1996 which were not passed along by the Company to its customers until
early May, had an adverse effect on the Company's profitability.
The Company's storage of fuel at its terminals is subject to governmental
laws and regulations with respect to the protection of the environment. The
Company believes that its fuel storage operations and facilities have been and
are being operated in compliance in all material respects with all applicable
environmental and health and safety laws and regulations, many of which provide
for substantial fines and criminal sanctions for violations. However, such
storage of fuel by the Company at its terminals entails risks in these areas,
and there can be no assurance that material costs or liabilities will not be
incurred in the future. For example, the Company
10
could be required to take remedial measures in connection with its storage of
fuel at its terminals. Although the Company maintains insurance against
liability for environmental cleanup and compliance costs, there can be no
assurances that such amounts would be adequate in the event of an accident.
DRIVERS
At June 30, 1996, the Company employed 1,669 including drivers on vacation
and inactive status. Drivers are selected in accordance with specific
guidelines, relating primarily to safety records, driving experience, and
personal evaluations, including a physical examination and mandatory drug
testing. All drivers attend an orientation program and ongoing driver efficiency
and safety programs.
The truckload industry, and thus the Company, is subject to occasional
driver shortages. In the fourth quarter of the 1995 fiscal year and periodically
throughout fiscal 1996, some driver shortages were experienced by the Company as
a consequence of fleet growth. Management believes the Company's ability to
avoid severe driver shortages results from the measures it takes to attract and
retain highly qualified drivers and promote safe operations. The Company tracks
each driver's location on its computer system, allowing him or her to return
home on an average of once every two weeks. The Company also purchases or leases
premium quality tractors and equips them with optional comfort and safety
features, such as air ride suspension and seats, stereo systems, air
conditioners, and oversized sleeper cabs. Drivers are compensated on the basis
of miles driven and number of stops or deliveries made, plus bonuses relating to
performance and compliance with the Company's safety policies. In the first
quarter of fiscal 1995, to enhance its ability to retain and attract drivers,
the Company increased driver compensation by an average of approximately 2.5
cents per mile, or approximately 9% of total driver compensation. In the second
quarter of fiscal 1996, the Company again modified its pay structure. The
changes reflect the value assigned to longer service and experienced employees.
Drivers also are eligible to participate in the Company's 401(k) profit sharing
plan, employee stock ownership plan, and health insurance plans. None of the
Company's drivers is represented by a collective bargaining unit.
As of June 30, 1996, approximately 22% of the Company's tractors were
operated as two-person teams. Two-person driver teams permit freight to be
moved with fewer interruptions and more profitably. The Company has attempted to
increase its number of two-person tractor driving teams by increasing
compensation to team drivers relative to solo drivers, and is attempting to
further increase its number of two-person driving teams by purchasing a number
of "condo unit" tractors designed to afford team members a higher degree of
privacy and comfort. Use of two-person teams is balanced against the number of
available trucks. In certain circumstances, the Company has split two-person
teams to improve utilization of available equipment.
COMPETITION
The full truckload industry is extremely competitive and fragmented.
Competition in the premium long-haul, time-sensitive portion of the market is
based primarily on service and price, although the Company primarily competes on
the level of service it provides to its customers rather than price. The Company
primarily competes with other long-haul truckload carriers and, to a lesser
extent, with medium-haul truckload carriers and railroads. The Company
11
believes there is a large number of other full long-haul truckload carriers with
which it competes, many of which have greater financial resources, operate more
revenue equipment, and carry a larger volume of freight than the Company.
FREIGHT FORWARDING
The Company entered the international freight forwarding business through
the acquisition in fiscal 1991 of an air freight forwarder, Randy International,
which has been in operation since 1969 and whose services subsequently were
expanded to include ocean freight forwarding and customs brokerage. Effective
October 31, 1994, the Company formed a partnership pursuant to the Partnership
Agreement with Jacky Maeder, Ltd., a freight forwarding company wholly owned by
Swissair, for the purpose of combining the respective United States freight
forwarding operations of Randy International and Jacky Maeder, Ltd.
During fiscal 1995, the freight forwarding division reported a loss from
operations of $7.0 million. This loss was partially attributable to the
write-off of $2.0 million in computer costs related to the conversion of
substantially all of its United States freight forwarding operations to an
integrated system, and $0.8 million of costs associated with the formation of
Celadon/Jacky Maeder Company. The balance of the loss ($4.2 million) was
principally attributed to lower gross profit.
During December, 1995 the Board of Directors of Celadon Group, Inc.
authorized the disposal of the Company's freight forwarding business. In
connection with the Company's plan of disposition effective February 1, 1996,
the U.S. customer list together with certain assets and liabilities of Celadon's
U.S. freight forwarding business, operating under the name Celadon/Jacky Maeder
Company, were sold to the Harper Group, Inc.'s primary operating subsidiary,
Circle International, Inc. Pursuant to the terms of the transaction, the total
purchase price for these assets and liabilities will be paid in cash and will
equal the net revenue derived from such customer list during the twelve-month
period following February 1, 1996. The Harper Group, Inc. made an initial down
payment of $9.5 million at closing with the balance of the purchase price to be
paid in quarterly installments as earned by the Harper Group, Inc. It is now
estimated that there will be no additional payments by Harper Group, Inc. to the
Company.
Also in May 1996, the Company became the sole owner of the freight
forwarding operations conducted in the New York area by acquiring the minority
interest of Swissair. This step was taken to facilitate the ultimate disposition
of this operation.
In June 1996, the Company concluded the sale of the United Kingdom freight
forwarding operation to a subsidiary of the Fritz Companies.
LOGISTICS
In the past, the Company coordinated and expedited the worldwide movement of
cargo for special projects such as trade shows and specialized plant moves in
its Logistics division.
In the quarter ended June 30, 1996, the decision was made to sell certain
businesses previously included in the Logistics division and to discontinue
offering logistics services as a separate activity of the Company. Consequently
in June 1996, the net assets of the Company's package delivery business
headquartered in New York City and operating under the name Celadon Express,
Inc. was sold.
12
On July 3, 1996, the Company concluded the sale of its South American
warehousing logistics and distribution business operating under the name of
Celsur, Inc. for approximately $3.1 million. The sales price was paid with
100,000 shares of the Company's common stock, and an interest bearing promissory
note for $2.4 million due October 3, 1996.
REGULATION
The Company's continuing operations are regulated and licensed by various
federal, state, and foreign agencies, including the Department of Transportation
("DOT") and the Quebec, Ontario, and Manitoba Ministries of Transportation and
Communications. The trucking industry is subject to regulatory and legislative
changes which can affect the economics of the industry by requiring changes in
operating practices or influencing the demand for, and the costs of providing,
services to customers.
Interstate motor carrier operations are subject to safety requirements
prescribed by DOT. Such matters as weight and equipment dimensions are also
subject to federal and state regulations. The Company operates in the United
States throughout the 48 contiguous states pursuant to operating authority
granted by the ICC and in Canada throughout the provinces of Quebec, Ontario,
and Manitoba pursuant to operating authority granted by the Quebec, Ontario, and
Manitoba Ministries of Transportation and Communications.
PERSONNEL
At June 30, 1996, the Company employed 2,118 persons, of whom 1,669 were
drivers, 102 were truck maintenance personnel and 347 were administrative
personnel. None of the Company's drivers or other employees is represented by a
union. In the opinion of management, the Company's relationship with its drivers
and other employees is satisfactory.
CARGO LIABILITY, INSURANCE, AND LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injury or property damage incurred in
the transportation of freight. In its trucking division, the Company assumes
responsibility from its customers for the safe delivery of the cargo. Other
carriers of the Company's shipments are liable to the Company in the same manner
and to the same extent as the Company is liable to its customers. The Company
maintains insurance in an amount which management believes is conservative for
the industry.
The Company currently is self-insuring to $10,000 per occurrence for
liability resulting from physical damage claims and $50,000 per occurrence for
personal injury and property damage claims, $100,000 for workers' compensation
and $10,000 per occurrence for cargo loss.
13
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information in Items 1, 2, 3, 7
and 8 of this Form 10-K include information that is forward looking, such as the
Company's opportunities to increase revenue from its truckload and flatbed
services, its exposure to fluctuations in foreign currencies, its anticipated
liquidity and capital requirements and the results of legal proceedings. The
matters referred to in forward looking statements could be affected by the risks
and uncertainties involved in the Company's business. These risks and
uncertainties include, but are not limited to, the effect of economic and market
conditions, the availability of drivers and fuel and the Company's successful
wind-down of its freight forwarding division, as well as certain other risks
described above in this Item under "Competition" and "Regulation", and below in
Item 3 in "Legal Proceedings" and in Item 7 in "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Subsequent written
and oral forward looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the cautionary
statements in this paragraph and elsewhere in this Form 10-K.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-Based Compensation." The Company believes that it
will continue to use Accounting Principle Board Opinion No. 25 to measure and
recognize employee stock-based transactions and will provide required additional
disclosures commencing in fiscal year 1997.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
establishes the accounting and reporting requirements for recognizing and
measuring impairment of long-lived assets to be either held and used or held for
disposal. The Company is currently evaluating the financial impact of adopting
this standard, however, the impact is not anticipated to be significant.
ITEM 2. PROPERTIES
TRUCKING
The Company as well the truckload division is headquartered in Indianapolis,
Indiana within four buildings located on 30 acres of property owned by the
Company. Dispatch, customer service, maintenance, truck washing, fuel storage
and administrative functions for the truckload division are centralized at this
location. Additionally, the facility includes driver training space, lounge and
sleeping areas for drivers and a large parking area. The Company also owns 10
acres of property in Laredo, Texas on which a facility was built in July 1992.
The Laredo facility includes administrative functions, lounge and sleeping
facilities for drivers, parking, fuel storage, and truck washing facilities.
Routine maintenance of the Company's tractors and trailers is primarily
performed at these facilities. The Company's flatbed operation is located in
Mooresville, North Carolina.
14
The Company also maintains eight other regional terminals in Taylor,
Michigan; Ontario, Canada; El Paso, Dallas and Houston, Texas; Chicago,
Illinois; West Memphis, Arkansas and Los Angeles, California for parking and
customer support. In addition, the Company maintains terminal locations in Nuevo
Laredo and Mexico City, Mexico. All of these facilities currently are leased.
The Company believes that as current leases expire, it will be able to renew
them or find comparable facilities without incurring any material adverse effect
on service to customers or its operating results.
ITEM 3. LEGAL PROCEEDINGS
See discussion under "Cargo Liability, Insurance, and Legal Proceedings."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Celadon Group, Inc. held its regular Annual Meeting of shareholders on May
17, 1996. Proxies representing 6,702,918 shares of Common Stock or 86.48% of the
total outstanding shares voted as follows:
Proposal I - (Elections of Directors)
Voted For Vote Withheld
--------- -------------
Stephen Russell 6,697,947 4,970
Leonard R. Bennett 6,697,646 5,271
Paul A. Biddelman 6,698,062 4,855
Michael Miller 6,698,262 4,655
Kilin To 6,698,062 4,855
Proposal II - (Ratification of appointment of Ernst & Young LLP as Auditors)
For Against Abstain Non-Vote
--- ------- ------- --------
6,689,289 9,927 3,700 0
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Since January 21, 1994, the date of the initial public offering of the
Company's Common Stock, the Common Stock has been quoted through the National
Association of Security Dealers, Inc. National Market (the "Nasdaq National
Market") under the symbol "CLDN". The following table sets forth the high and
low reported sales price for the Common Stock as quoted through the Nasdaq
National Market for the periods indicated.
Fiscal 1994 High Low
---------- ---- ----
Quarter ended March 31, 1994 $19.00 $13.50
(from January 21, 1994)
Quarter ended June 30, 1994 $17.50 $12.00
Fiscal 1995
----------
Quarter ended September 30, 1994 $21.00 $13.00
Quarter ended December 31, 1994 $20.50 $14.25
Quarter ended March 31, 1995 $16.75 $11.75
Quarter ended June 30, 1995 $17.00 $11.75
Fiscal 1996
----------
Quarter ended September 30, 1995 $18.75 $ 8.38
Quarter ended December 31, 1995 $12.25 $ 7.75
Quarter ended March 31, 1996 $12.25 $ 8.75
Quarter ended June 30, 1996 $13.875 $ 7.75
On September 17, 1996, there were approximately 1,100 holders of the
Company's Common Stock, and the closing price of the Company's Common Stock was
$8.25.
DIVIDEND POLICY
Although the Company has paid cash dividends on its the Common Stock from
time to time, it has not paid any dividend on its Common Stock in 1995 and 1996
and has no present intention of paying cash dividends on its Common Stock in the
foreseeable future. Moreover, pursuant to its credit agreements, the Company and
certain of its subsidiaries may pay cash dividends only up to certain specified
levels and if certain financial ratios are met.
16
ITEM 6. SELECTED FINANCIAL DATA
The statement of operations data and balance sheet data presented below have
been derived from the Company's consolidated financial statements and related
notes thereto. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and related
notes thereto.
Fiscal year ended June 30,
------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands except per share data)
Statement of Operations Data :
Operating revenue:
Truckload ............................. $148,167 $116,360 $94,746 $76,558 $67,314
Flatbed ............................... 18,377 -- -- -- --
-------- -------- ------- ------- -------
Total operating revenue ........ $166,544 $116,360 $94,746 $76,558 $67,314
Operating income :
Truckload ............................. 5,205 12,690 11,740 7,999 4,544
Flatbed ............................... 768 -- -- -- --
-------- -------- ------- ------- -------
Total operating income ........... 5,973 12,690 11,740 7,999 4,544
Corporate expenses ...................... 4,236 3,511 3,410 2,837 3,662
Interest expenses ....................... 3,672 3,171 4,342 4,250 4,385
Equity loss in unconsolidated affiliate . -- -- -- 343 --
Gain on sale of investment in
unconsolidated affiliate .............. -- -- (189) -- --
Other expense (income) .................. 72 103 (6) 21 142
-------- -------- ------- ------- -------
Income (loss) from continuing operations
before income taxes .................. (2,007) 5,905 4,183 548 (3,645)
Provision for income taxes .............. (411) 3,690 1,711 252 (953)
-------- -------- ------- ------- -------
Net income (loss) continuing operations . (1,596) 2,215 2,472 296 (2,692)
Net income (loss) discontinued operations (15,203) (2,606) 731 (288) 2,804
-------- -------- ------- ------- -------
Net income (loss) ..................... (16,799) (391) 3,203 8 112
Preferred stock dividends and
redemption premium (1) ................ -- -- 262 317 244
-------- -------- ------- ------- -------
Net income (loss) attributable to
common stockholders ................... $(16,799) $ (391) $ 2,941 $ (309) $ (132)
======== ======== ======= ======= =======
Earnings (loss) per common share:
Continuing operations ................. $ (.20) $ .31 $ .46 $ (.01) $ (.93)
Discontinued operations ............... $ (1.93) $ (.36) $ .15 $ (.09) $ .89
-------- -------- ------- ------- -------
Net income (loss) (2) ................. $ (2.13) $ (.05) $ . 61 $ (.10) $ (.04)
======== ======== ======= ======= =======
Dividends per common share (3) .......... $ -- $ -- $ -- $ .02 $ .02
======== ======== ======= ======= =======
Weighted average number of common
shares and common share equivalents
outstanding ........................... 7,879 7,192 4,853 3,263 3,180
17
Fiscal year ended June 30,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Amounts in thousands)
Balance Sheet Data:
Working capital (deficit) $ 17,291 $ 23,801 $ 17,491 $ (305) $ (3,515)
Total assets ............. 141,921 151,624 99,265 80,227 68,422
Long-term debt ........... 57,822 39,557 29,234 44,028 32,535
Redeemable preferred stock -- -- -- 2,000 2,000
Redeemable common stock .. -- 3,614 -- -- --
Stockholders' equity ..... 41,962 57,839(5) 42,079(4) 1,538 2,150
- ---------------
(1) Represents (i) dividends and redemption premium on the Series I
Preferred Stock which was redeemed in fiscal 1994, (ii) dividends on the
Series F 12% Convertible Preferred Stock which was converted into Common
Stock in fiscal 1993, and (iii) dividends on previously redeemed
issuances of preferred stock.
(2) Calculation of fully-diluted net income (loss) per common share for all
periods are anti-dilutive. All share and per share amounts have been
adjusted to reflect the one-for-3.3 reverse stock split in January 1994.
(3) See "Dividend Policy" under Part II Item 5 of this Annual Report .
(4) Includes the effect of the net proceeds ($29.9 million) from the
Company's initial offering and the conversion of the senior subordinated
debt ($7.6 million) to Common Stock.
(5) Includes the effect of the net proceeds ($15.9 million) from the
issuance of Common Stock in a public offering.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
On July 3, 1996, the Company concluded the sale of its South American
warehousing logistics and distribution business for approximately $3.1 million.
The sales price was paid with 100,000 shares of the Company's common stock
valued at $7.25 per share, the low trading price on July 3, 1996, and an
interest bearing promissory note for $2.4 million due October 3, 1996.
18
RESULTS OF OPERATIONS
The following table illustrates certain information with respect to the
operating revenue, operating income, identifiable assets, and operating margin
of the Company's truckload and flatbed operations for the periods indicated. The
flatbed division was acquired in June 1995. In general, revenue from the flatbed
division has a lower operating profit than revenue from the truckload division
as the flatbed division utilizes mainly independent owner operators. For
operating revenue, the percentage of consolidated revenue columns indicate the
respective division's revenue as a percentage of the Company's consolidated
revenue for each period. Operating income by division reflects revenue less
direct costs and does not reflect an allocation of corporate expenses or
interest expense. For operating margin, the percentage of a division's revenue
columns represent operating income of a particular division as a percentage of
revenue of such division for each period. See Note 2 of "Notes to Consolidated
Financial Statements" appearing elsewhere in this Annual Report.
Fiscal year ended June 30,
--------------------------
1996 1995 1994
----- ----- -----
Operating revenue as a percentage of total
operating revenue:
Truckload ...................................... 89.0% 100.0% 100.0%
Flatbed ........................................ 11.0 -- --
----- ----- -----
Total operating revenue ........................ 100.0% 100.0% 100.0%
===== ===== =====
Operating income as a percentage of total
operating income (before corporate
expenses):
Truckload ...................................... 87.1% 100.0% 100.0%
Flatbed ........................................ 12.9 -- --
----- ----- -----
Total operating revenue .................... 100.0% 100.0% 100.0%
===== ===== =====
Identifiable assets as a percentage of total assets:
Truckload ...................................... 75.9% 57.3% 66.0%
Flatbed ........................................ 5.0 0.4 --
Corporate ...................................... 4.6 5.6 9.3
----- ----- -----
Continuing subtotal ........................ 85.5 63.3 75.3
----- ----- -----
Logistics ..................................... 2.7 2.1 1.7
Freight forwarding............................. 11.8 34.6 23.0
----- ----- -----
Discontinued subtotal ...................... 14.5 36.7 24.7
----- ----- -----
Total assets ............................... 100.0% 100.0% 100.0%
===== ===== =====
Operating income as a percentage of
division's revenue:
Truckload ...................................... 3.5% 10.9% 12.4%
Flatbed ........................................ 4.2 -- --
Corporate expenses as a percentage of total
operating revenue ............................ (2.6) (3.0) (3.6)
Total operating income less corporate
expenses as a percentage of total operating
revenue ...................................... 1.1% 7.9% 8.8%
19
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1995
Revenue. Consolidated revenue from continuing operations of the Company
increased by $50.1 million, or 43.0%, to $166.5 million for the year ended June
30, 1996 ("fiscal 1996") from $116.4 million for the year ended June 30, 1995
("fiscal 1995"). Revenue from the truckload division increased by $31.8 million,
or 27.3%, to $148.2 million in fiscal 1996 from $116.4 million in fiscal 1995.
This increase was attributable principally to higher demand for the Company's
transportation services between the United States and Mexico as well as domestic
markets. The number of tractors operated by the truckload division increased to
1,213, including 49 operated by RQF, at June 30, 1996 from 923 at June 30, 1995.
During fiscal 1996, RQF, which was acquired in May 1995, reported revenues
of $4.5 million and at the end of fiscal 1996 RQF operated 49 tractors.
Revenue for the flatbed division which operates under the name of Cheetah
Transportation Company was $18.4 million in fiscal 1996. The division was
acquired in June of 1995 and accordingly no prior year results are presented.
Operating income. The truckload division operating income decreased by
$7.5 million, or 59% to $5.2 million in fiscal 1996 from $12.7 million in fiscal
1995. The operating ratio, which relates expenses to revenue, increased to 96.5%
in fiscal 1996 from 89.1% in fiscal 1995. The increase in the operating ratio is
principally related to a decrease in tractor utilization and higher salaries and
wages, principally driver pay, resulting from an increase in pay rates at the
beginning of fiscal 1996 and higher fuel costs particularly in the second half
of fiscal 1996. Also, operating efficiency was adversely affected in the fourth
quarter of fiscal 1996 as a result of the disruption caused by installing a new
computerized operating system at the truckload division. These factors were
partially offset by a gain on the sale of revenue equipment.
The flatbed division operating income was $0.8 million in fiscal 1996
representing an operating ratio of 95.8%. The operating ratio of the flatbed
division is typically higher than the truckload division due to reliance on
independent owner operators to provide the transportation service. In 1996, the
flatbed division payment to owner-operators contributed $14.3 million to the
increase in rent and purchased transportation expense and payments to brokers of
$1.4 million are included in selling expense.
Corporate expenses increased from $3.5 million in fiscal 1995 to $4.1
million in fiscal 1996, primarily due to increased administration compensation,
including $0.8 million recorded in the fourth quarter for executive officer
separation costs, and professional fees.
Interest expense. Interest expense in fiscal 1996 was $3.7 million,
compared to $3.2 million in fiscal 1995. The increase was the result of higher
borrowings and increased interest rates.
20
Income taxes. Income taxes decreased from 62.5% of pre-tax income in 1995
to a tax benefit of 20.5% of pre-tax loss in 1996. The decrease in the effective
tax rate for 1996 reflects a decrease in the non-deductible portion of expense
allowances paid to drivers offset by the company's lower pretax income.
DISCONTINUED OPERATIONS
During December, 1995 the Board of Directors of Celadon authorized the
disposal of the Company's freight forwarding business. In the quarter ended June
30, 1996, the decision was also made to sell the Company's package express
business headquartered in New York City, as well as the South American
warehousing logistics and distribution business. Both of these businesses were
included in the logistics and other business segment. The remaining logistics
business will no longer be conducted as a separate activity. As a result, the
logistics and other segment is also shown as discontinued operations. Revenues
attributable to discontinued operations prior to discontinuance were $132.4
million in fiscal 1996 and $133.9 million in fiscal 1995.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1994
Revenue. Consolidated revenue from continuing operations of the Company
increased by $21.7 million, or 22.9%, to $116.4 million for the year ended June
30, 1995 ("fiscal 1995") from $94.7 million for the year ended June 30, 1994
("fiscal 1994"). This increase was attributable principally to higher demand for
the Company's transportation services between the United States and Mexico and
within the United States. The number of tractors operated by the Company rose to
923 at June 30, 1995 from 742 at June 30, 1994.
Operating income. Truckload division operating income increased by $.9
million, or 7.6% to $12.7 million in fiscal 1995 from $11.8 million in fiscal
1994. The operating ratio, which relates expenses to revenue, increased to 89.1%
in fiscal 1995 from 87.6% in fiscal 1994. The increase in the operating ratio is
principally related to a decrease in tractor utilization and higher salaries and
wages, principally driver pay, resulting from an increase in pay rates at the
beginning of fiscal 1995. These factors were partially offset by a gain on the
sale of revenue equipment and proportionately lower fuel costs.
Corporate expenses increased from $3.4 million in fiscal 1994 to $3.5
million in fiscal 1995, primarily due to increased administration compensation
and professional fees.
Interest expense. Interest expense in fiscal year 1995 was $3.2 million,
compared to $4.3 million in fiscal 1994. The decrease was the result of lower
borrowings and reduced interest rates.
Income taxes. Income taxes increased from 40.9% of pre-tax income in 1994
to 62.5% of pre-tax income in 1995. The increase in the effective tax rate for
1995 reflects tax expense related to the non-deductible portion of expense
allowances paid to drivers as well as higher state income taxes as a percentage
of pre-tax income during fiscal 1995.
21
DISCONTINUED OPERATIONS
As a result of the fiscal year 1996 decisions to discontinue operations
relating to freight forwarding and logistics business segments, financial data
has been restated in the 1995 and 1994 financial statements. Compared with 1994,
revenues for freight forwarding in 1995 increased by 52.1% to $126.5 million
from $83.2 million in 1994 primarily as a result of the combination in 1994 of
the Company's existing freight forwarding operations with Jacky Maeder on
October 31, 1994. Expenses associated with the integration of the two freight
forwarding businesses including elimination of duplicate facilities and computer
systems resulted in a decline in operating income to a $4.2 million loss in 1995
from a $1.1 million profit in 1994. The Logistics segment reported revenue in
1995 of $7.4 million compared with $3.0 million in fiscal 1994 primarily as a
result of including a full year of operations for the package express business
which started operations in the fourth quarter of 1994. The increase in
logistics operating income to $0.9 million in 1995 from $0.5 million in 1994 was
attributable to higher income from package express as well as improved margins
on coordination of U.S.-Mexico freight movements.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's initial public offering in January, 1994, its primary
capital requirements have been funding the acquisition of revenue equipment for
the trucking division, the acquisitions of Guestair, Ltd. and Cheetah, a 70%
interest in the business previously operated by Jacky Maeder, Ltd., and the
investments in RQF and Celsur as well as construction of the Company
headquarters in Indianapolis, IN. These requirements have been met primarily by
internally generated funds, bank financing, equipment leasing arrangements, and
issuances of the Company's securities. Upon the conclusion of the withdrawal
from certain businesses shown as discontinued operations in the financial
statements the Company's ongoing capital requirements for continuing operations
will be reduced. At June 30, 1996, the Company had a credit facility aggregating
$35.0 million from its banks of which $29.5 million was utilized as outstanding
borrowings and $2.1 million was utilized for standby letters of credit.
The credit facilities bear interest at either a margin over LIBOR or the
bank's prime rate, at the option of the Company. The weighted average interest
rate charged on outstanding borrowings was 6.60% at June 30, 1996. The standby
letter of credit portion of the Company's facility collaterizes the Company's
obligations under insurance policies for liability coverage relating to its
trucking operations.
Subsequent to June 30, 1996, the Company entered into a sale/leaseback
transaction relating to its new headquarters facility in Indianapolis, IN. The
proceeds from the transaction were used to reduce by approximately $6 million
the borrowings outstanding under its bank credit facility.
The trucking division also has financed its capital requirements by
obtaining lease financing and notes payable on revenue equipment. At June 30,
1996, the Company had an aggregate of $31.1 million in such financing at
interest rates ranging from 7.2% to 11.5%, maturing at various dates through
2002. Of this amount, $7.6 million is due prior to June 30, 1997.
22
As of June 30,1996, the Company had on order 250 tractors and 450 trailers
representing an aggregate capital commitment of $28.5 million. All of the new
equipment has been or will be financed using a combination of operating and
capital leases and the Company's credit facility.
The Company's accounts receivable balance relating to continuing
operations at June 30, 1996 increased $9.2 million to $24.9 million from $15.7
million at June 30, 1995. The truckload division accounted for $8.3 million of
the increase and the flatbed division, which was acquired on June 30, 1995,
accounted for the remaining $0.9 million of the increase. The 59% increase in
accounts receivable for the truckload division reflects the 27% increase in
revenues for fiscal 1996 and a delay in billing and collection associated with
the implementation of the new computer system. This increase should decline as
the new system transition issues are resolved.
The Company purchases fuel contracts from time to time for a portion of
its projected fuel needs. At June 30, 1996, the Company had no outstanding
futures contracts or commitments for fixed price delivery of fuel. Subsequent to
June 30, 1996, the Company did contract to purchase for future delivery
approximately 35% of its fuel requirements. The Company's fuel hedging program
has not significantly impacted the Company's recent operating results and has
not adversely impacted the Company's liquidity.
In October 1992, the Company consummated the sale to Hanseatic Corporation
of a 9.25% Senior Subordinated Convertible Note due September 30, 1998 in the
principal amount of $8.0 million. This note was converted into 739,371 shares of
Common Stock in February 1994. In connection with this transaction, the Company
issued to Hanseatic Corporation warrants to purchase 12,121 shares of Common
Stock.
In January 1994, the Company effected an initial public offering of
2,297,938 shares of its Common Stock to the public. Net proceeds from the
offering, which were approximately $29.9 million, were used to pay down debt, to
redeem preferred stock, to purchase revenue equipment and for working capital
purposes.
On January 23, 1995, a warrant holder exercised an option to purchase
35,851 shares of Common Stock for $250,000.
On January 31, 1995, the Company issued 1,000,000 shares of Common Stock
pursuant to an underwritten public offering. On February 2, 1995, the Company
issued an additional 154,399 shares of Common Stock pursuant to an over
allotment option exercised by the underwriters of the public offering. The net
proceeds from these issuances of Common Stock were approximately $15.9 million,
all of which was used to repay debt, in order to increase availability under the
Company's credit facility, principally to purchase additional revenue equipment.
During December, 1995, the Company decided to discontinue the operation of
its freight forwarding segment and has accounted for this as a discontinued
operation. As such, the Company has made certain estimates as to the ultimate
amount to be realized on the sale of its customer list and other assets related
to this operation and has provided for certain costs expected to be incurred in
the discontinuance of these activities. The actual amounts may differ from these
estimates. See Note 15 - "Discontinued Operations".
23
Effective February 1, 1996, the Company sold certain of the Company's
U.S. freight forwarding business assets to a subsidiary of the Harper Group Inc.
This resulted in the receipt of an initial $9.5 million down payment which was
used to repay $6.5 million of debt associated with the freight forwarding
business and fund ongoing wind-down operations.
On February 7, 1996, the Company's Board of Directors ("the Board")
authorized the purchase of the 200,000 shares of the Company's Common Stock from
Swissair Associated Companies, Ltd. presented as redeemable Common Stock in the
Company's consolidated balance sheet at June 30, 1995. On February 21, 1996,
these shares were purchased at a negotiated price of $13.75 per share. The Board
also authorized the repurchase of up to $2 million of the Company's Common Stock
on the open market from time to time as market conditions warrant.
In May 1996, the Company became the sole owner of the freight forwarding
operations conducted in the New York area by acquiring the minority interest of
Swissair Associated Companies, Ltd. This step was taken to facilitate the
ultimate disposition of this operation.
In June 1996, the Company concluded the sale of the United Kingdom freight
forwarding operation to a subsidiary of the Fritz Companies.
On June 17, 1996, the Company closed the sale of the assets and
liabilities of Celadon Express, Inc., the New York based package delivery
business, to Consolidated Delivery and Logistics, Inc., ("CDL") for a
combination of cash and stock of CDL.
On July 3, 1996, the Company concluded the sale of its South American
warehousing logistics and distribution business for approximately $3.1 million.
The sales price was paid with 100,000 shares of the Company's Common Stock
valued at $7.25 per share, the low trading price on July 3, 1996, and an
interest bearing promissory note for $2.4 million due October 3, 1996.
Management believes that there are presently adequate sources of secured
equipment financing together with its existing credit facilities and cash flow
from operations to provide sufficient funds to meet the Company's anticipated
working capital requirements, and purchase the tractors and trailers presently
on order. Additional growth in the tractor and trailer fleet beyond the
Company's existing orders will require additional sources of financing.
SEASONALITY
To date, the Company's revenues have not shown any significant seasonal
pattern. However, because the Company's trucking subsidiary's primary traffic
lane is between the Midwest United States and Mexico, a severe winter generally
may have an unfavorable impact upon the Company's results of operations.
24
INFLATION
Many of the Company's operating expenses, including fuel costs and fuel taxes,
are sensitive to the effects of inflation, which could result in higher
operating costs. The effects of inflation on the Company's businesses during
fiscal 1996, 1995 and 1994 generally were not significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements," which is Item 14(a), and the
consolidated financial statements and schedules included as a part of this
Annual Report.
25
CELADON GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Three years ended June 30, 1996 with
Report of Independent Auditors
Contents
Reports of Independent Auditors.............................................................27
Audited Consolidated Financial Statements:
Consolidated Balance Sheets...............................................................28
Consolidated Statements of Operations.....................................................29
Consolidated Statements of Cash Flows.....................................................30
Consolidated Statements of Stockholders' Equity...........................................31
Notes to Consolidated Financial Statements................................................32
26
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Celadon Group, Inc.
We have audited the accompanying consolidated balance sheets of Celadon Group,
Inc. as of June 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended June 30, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Celadon
Group, Inc. at June 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Indianapolis, Indiana
September 26, 1996
27
CELADON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
(Dollars in thousands)
1996 1995
---- ----
A S S E T S
Current assets:
Cash and cash equivalents .......................................................... $ 5,246 $ 1,809
Trade receivables, net of allowance for doubtful accounts of $5,432
and $1,330 in 1996 and 1995, respectively ..................................... 33,642 50,376
Accounts receivable -- other ....................................................... 4,338 4,904
Prepaid expenses and other current assets .......................................... 3,247 3,606
Tires in service ................................................................... 2,814 1,956
Income tax recoverable ............................................................. 3,926 --
Assets held for resale ............................................................. 2,548 2,711
Deferred income tax assets ......................................................... 3,404 807
--------- ---------
Total current assets .......................................................... 59,165 66,169
--------- ---------
Property and equipment, at cost ........................................................ 95,003 81,054
Less accumulated depreciation and amortization ................................... 22,715 19,660
--------- ---------
Net property and equipment .................................................... 72,288 61,394
--------- ---------
Deposits ............................................................................... 809 1,208
Tires in service ....................................................................... 2,234 2,115
Intangible assets ...................................................................... 875 2,311
Goodwill, net of accumulated amortization .............................................. 4,980 15,630
Other assets ........................................................................... 1,570 2,797
--------- ---------
Total assets .................................................................. $ 141,921 $ 151,624
========= =========
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
Current liabilities:
Accounts payable ................................................................. $ 8,707 $ 18,483
Accrued expenses ................................................................. 20,122 11,986
Bank borrowings and current maturities of long-term debt ......................... 4,029 4,530
Notes payable .................................................................... 1,200 --
Current maturities of capital lease obligations .................................. 7,356 6,446
Income taxes payable ............................................................. 527 823
Current maturities of ESOP loan .................................................. 185 100
--------- ---------
Total current liabilities ..................................................... 42,126 42,368
--------- ---------
Long-term debt, net of current maturities .............................................. 26,552 18,323
Capital lease obligations, net of current maturities ................................... 23,473 17,314
Note payable to Jacky Maeder AG ........................................................ -- 3,735
ESOP loan, net of current maturities ................................................... -- 185
Deferred income tax liabilities ........................................................ 7,796 5,089
--------- ---------
Total liabilities ............................................................. 99,947 87,014
--------- ---------
Minority interest ...................................................................... 12 3,157
Commitments and contingencies
Redeemable common stock; issued and outstanding, zero at June 30, 1996 and
200,000 shares at June 30, 1995 ................................................... -- 3,614
Stockholders' equity :
Preferred stock, $1.00 par value, authorized 179,985 shares; issued and outstanding
zero shares ................................................................... -- --
Common stock, $0.033 par value, authorized 12,000,000;
issued and outstanding 7,750,580 and 7,741,247 shares in
1996 and 1995, respectively ................................................... 256 256
Additional paid-in capital ........................................................ 56,281 55,282
Retained earnings (deficit) ....................................................... (14,035) 2,764
Equity adjustment for foreign currency translation ................................ (355) (178)
--------- ---------
42,147 58,124
Less:
Debt guarantee for ESOP ............................................................ (185) (285)
--------- ---------
Total stockholders' equity .................................................... 41,962 57,839
--------- ---------
Total liabilities and stockholders' equity .................................... $ 141,921 $ 151,624
========= =========
See accompanying notes to consolidated financial statements.
28
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1996, 1995 and 1994
(Dollars in thousands except per share amounts)
1996 1995 1994
---- ---- ----
Operating revenue ........................................ $ 166,544 $ 116,360 $ 94,746
--------- --------- ---------
Operating expenses:
Salaries, wages and employee benefits ................ 64,352 47,351 35,717
Fuel ................................................. 26,991 19,528 16,959
Operating costs and supplies ......................... 11,289 11,246 10,442
Insurance and claims ................................. 8,182 5,271 4,033
Depreciation and amortization ........................ 7,365 5,744 4,892
Rent and purchased transportation .................... 33,039 9,194 6,564
Professional and consulting fees ..................... 2,001 1,292 1,230
Communications and utilities ......................... 2,544 1,793 1,403
Permits, licenses and taxes .......................... 4,327 3,469 2,692
Employee stock ownership plan contribution ........... 100 25 50
Loss (gain) on sale of revenue equipment ............. (1,085) (490) 23
Selling expenses ..................................... 3,123 1,409 1,344
General and administrative ........................... 2,579 1,349 1,067
--------- --------- ---------
Total operating expenses ........................... 164,807 107,181 86,416
--------- --------- ---------
Operating income ......................................... 1,737 9,179 8,330
Other (income) expense:
Interest expense ..................................... 3,672 3,171 4,342
Minority interest in loss ............................ -- (5) --
Other (income) expense net ........................... 72 108 (195)
--------- --------- ---------
Income (loss) from continuing operations before income
taxes ............................................. (2,007) 5,905 4,183
Provision for income taxes (benefit) ................. (411) 3,690 1,711
--------- --------- ---------
Income (loss) from continuing operations .......... (1,596) 2,215 2,472
--------- --------- ---------
Discontinued operations:
Income (loss) from operations of freight forwarding
division (net of tax) ............................. (2,306) (3,142) 462
Loss on disposal of freight forwarding division
(net of tax) ...................................... (12,815) -- --
Income (loss) from operations of logistics
division (net of tax) ............................. (149) 536 269
Gain on disposal of logistics division (net of tax) .. 67 -- --
--------- --------- ---------
Income (loss) from discontinued operations ........... (15,203) (2,606) 731
--------- --------- ---------
Net income (loss) ................................. (16,799) $ (391) $ 3,203
Preferred Stock dividends and
redemption premium ................................... -- -- 262
--------- --------- ---------
Net income (loss) attributable to
common stockholders .................................. $ (16,799) $ (391) $ 2,941
========= ========= =========
Earnings (loss) per Common Share:
Continuing operations ................................ ($ 0.20) $ 0.31 $ 0.46
Discontinued operations .............................. ($ 1.93) ($ 0.36) $ 0.15
--------- --------- ---------
Net income (loss) ................................. ($ 2.13) ($ 0.05) $ 0.61
========= ========= =========
Weighted average number of common shares and
common share equivalents outstanding ................. 7,879 7,192 4,853
========= ========= =========
See accompanying notes to consolidated financial statements.
29
CELADON GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30 ,1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
---- ---- ----
Continuing operations:
Cash flows from operating activities:
Net Income (loss) from continuing operations .................... $ (1,596) $ 2,215 $ 2,472
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ................................. 7,365 5,744 4,892
Provision for deferred income taxes ........................... 2,295 876 901
Provision for doubtful accounts ............................... 120 90 100
Net (gain) loss on sale of property and equipment ............. (1,085) (490) 23
Net (gain) loss other ......................................... 73 (5) (347)
Changes in assets and liabilities:
(Increase) decrease in trade receivables ................... (9,328) (3,340) (3,788)
(Increase) decrease in accounts receivable -- other ........ 5,982 (5,239) (394)
Increase in income tax recoverable ......................... (2,790) (350) --
Increase in tires in service ............................... (699) (565) (212)
Increase in prepaid expenses and other current assets ..... (107) (1,023) (348)
Increase in other assets ................................... (3,031) (4,948) (5,711)
Increase (decrease) in accounts payable and accrued expenses 9,749 1,380 (385)
Increase (decrease) in income taxes payable ................ (539) 522 343
-------- -------- --------
Net cash provided by (used for) operating activities ....... 6,409 (5,133) (2,454)
-------- -------- --------
Cash flows used for investing activities:
Purchase of property and equipment ............................ (9,578) (14,081) (7,061)
Proceeds from sale of property and equipment .................. 2,602 3,290 136
Proceeds from sale of investment in unconsolidated affiliate .. -- (6,036) 500
(Increase) decrease in deposits ............................... 388 (195) (90)
-------- -------- --------
Net cash used for investing activities ..................... (6,588) (17,022) (6,515)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuances of common stock ....................... 136 16,127 29,904
Redemption of preferred stock ................................. -- -- (263)
Proceeds from issuance of redeemable common stock ............. -- 3,614 --
Payment for redemption of redeemable common stock ............. (1,550) -- (2,000)
Proceeds from bank borrowings and debt ........................ 41,626 38,625 15,993
Payments of bank borrowings and debt .......................... (29,951) (43,138) (23,953)
Principal payments under capital lease obligations ............ (7,782) (6,788) (8,199)
-------- -------- --------
Net cash provided by (used for) financing activities ....... 2,479 8,440 11,482
-------- -------- --------
Net cash provided by (used for) continuing operations ...... 2,300 (13,715) 2,513
-------- -------- --------
Discontinued Operations:
Income (loss) from operations, net of income taxes ............ (15,203) (2,606) 731
Change in net operating assets ................................ 20,836 9,885 1,863
-------- -------- --------
Operating activities .......................................... 5,633 7,279 2,594
Investing activities .......................................... 3,286 (1,911) (3,222)
Financing activities .......................................... (7,782) 7,710 72
-------- -------- --------
Net cash provided by (used for) discontinued operations .... 1,137 13,078 (556)
-------- -------- --------
Increase (decrease) in cash and cash equivalents .................... 3,437 (637) 1,957
Cash and cash equivalents at beginning of year ...................... 1,809 2,446 489
-------- -------- --------
Cash and cash equivalents at end of year ............................ $ 5,246 $ 1,809 $ 2,446
======== ======== ========
See accompanying notes to consolidated financial statements.
30
CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 1996, 1995 and 1994
(Dollars in thousands except per share amount)
Equity
Adjustment
for
Common Stock Additional Foreign Treasury
No. of Paid-in Retained Currency Stock-
Shares Amount Capital Earning Translation Common
Balance at June 30, 1993 .................. 3,514,807 $ 116 $ 1,815 $ 215 $ (215) $ (8)
Dividends declared and paid,
including redemption premium on
Preferred Stock ......................... -- -- -- (263) -- --
Equity adjustment for foreign
currency translation .................... -- -- -- -- 38 --
Reduction of ESOP guarantee ............... -- -- -- -- --
Issuance of Common Stock in public
offering, net of $1,084 of
issuance costs .......................... 2,297,938 76 29,828 -- -- --
Conversion of senior subordinated
debt to Common Stock .................... 739,371 24 7,560 -- -- --
Net income ................................ -- -- -- 3,203 -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1994 .................. 6,552,116 216 39,203 3,155 (177) (8)
Equity adjustments for foreign
currency translation .................... -- -- -- -- (1) --
Issuance of Common Stock in public
offering, net of $763 of
issuance costs .......................... 1,154,399 38 15,834 -- -- --
Exercise of warrant ....................... 35,851 1 249 -- -- --
Exercise of Incentive Stock Options ....... 334 -- 5 -- -- --
Retirement of treasury shares ............. (1,453) -- (8) -- -- 8
Reduction of ESOP guarantee ............... -- -- -- -- -- --
Net loss .................................. -- -- -- (391) -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1995 .................. 7,741,247 255 55,283 2,764 (178) --
Equity adjustments for foreign
currency translation .................... -- -- -- -- (177) --
Exercise of Incentive Stock Options ....... 9,333 1 135 -- -- --
Retirement of redeemable common stock ..... -- -- 863 -- -- --
Reduction of ESOP guarantee ............... -- -- -- -- -- --
Net loss .................................. -- -- -- (16,799) -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 .................. 7,750,580 $ 256 $ 56,281 $ (14,035) $ (355) $ --
========== ========== ========== ========== ========== ==========
Total
Debt Stock-
Guarantee holders'
for ESOP Equity
-------- --------
Balance at June 30, 1993 ......................... $ (385) $ 1,538
Dividends declared and paid,
including redemption premium on
Preferred Stock ................................ -- (263)
Equity adjustment for foreign
currency translation ........................... -- 38
Reduction of ESOP guarantee ...................... 75 75
Issuance of Common Stock in public
offering, net of $1,084 of
issuance costs ................................. -- 29,904
Conversion of senior subordinated
debt to Common Stock ........................... -- 7,584
Net income ....................................... -- 3,203
-------- --------
Balance at June 30, 1994 ......................... (310) 42,079
Equity adjustments for foreign
currency translation ........................... -- (1)
Issuance of Common Stock in public
offering, net of $763 of
issuance costs ................................. -- 15,872
Exercise of warrant .............................. -- 250
Exercise of Incentive Stock Options .............. -- 5
Retirement of treasury shares .................... -- --
Reduction of ESOP guarantee ...................... 25 25
Net loss ......................................... -- (391)
-------- --------
Balance at June 30, 1995 ......................... (285) 57,839
Equity adjustments for foreign
currency translation ........................... -- (177)
Exercise of Incentive Stock Options .............. -- 136
Retirement of redeemable common stock ............ -- 863
Reduction of ESOP guarantee ...................... 100 100
Net loss ......................................... -- (16,799)
-------- --------
Balance at June 30, 1996 ......................... $ (185) $ 41,962
======== ========
See accompanying notes to financial statements.
31
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Celadon Group, Inc. (the "Company") was formed on July 24, 1986 through
the combination of two companies, Celadon Trucking Services, Inc. and Celadon
Logistics, Inc., each owned by the same principal stockholders. The Company
entered the freight forwarding business in July 1990 by purchasing International
Freight Holding Corp. ("IFHC") and its subsidiaries (collectively, "Randy
International"). In fiscal year 1996, the Company discontinued its freight
forwarding business and the logistics business. The Company is currently an
international transportation company primarily offering trucking services. The
Company specializes in providing long-haul, full truckload services between the
United States and Mexico. The Company expanded its presence in Mexico during May
1995 by making an investment in Transportes RQF, S.A. de C.V. ("RQF"), a Mexican
company formed to provide trucking services. In June 1995, the Company acquired
Cheetah Transportation Company and CLK, Inc., including its subsidiary Cheetah
Brokerage, Inc. (collectively "Cheetah"). Cheetah provides flatbed trucking and
brokerage services principally in the United States.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Celadon
Group, Inc. and its subsidiaries, which are wholly owned except for RQF in which
the Company has a 75% interest. Discontinued operations relating to freight
forwarding and logistics are set forth in footnote 15. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Unless otherwise noted, all references to annual periods in the footnotes refer
to the respective fiscal year ended June 30.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures at the date of the financial statements and
during the reporting period. Such estimates include provisions for damage and
liability claims, uncollectible accounts receivable and losses associated with
discontinued operations. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
Revenue Recognition
Trucking revenue is recognized as of the date the freight is delivered
by the Company. Amounts payable to drivers for wages and other related trucking
expenses on delivered shipments are accrued.
32
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
Tires in Service
Original tires on tractors and trailers, along with replacement tires,
are included in tires in service and are amortized over 36 months.
Fuel
Fuel is generally expensed when purchased, except for the fuel supplies
at terminals and in truck tanks, which are classified as prepaid expenses.
Property and Equipment
Property and equipment are stated at cost. Property and equipment under
capital leases are stated at the lower of the present value of minimum lease
payments at the beginning of the lease term or fair value at the inception of
the lease.
Depreciation of property and equipment and amortization of assets under
capital leases is generally computed using the straight-line method and is based
on the estimated useful lives (net of salvage value) of the related assets as
follows:
Revenue and service equipment................ 4-10 years
Furniture and office equipment............... 4-15 years
Buildings.................................... 20 - 40 years
Leasehold improvements....................... Lesser of life of lease or useful
life of improvement
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in income for the period. The cost of maintenance and
repairs, including tractor overhauls, is charged to expense as incurred; costs
incurred to place assets in service and betterments are capitalized and
depreciated over the remaining life of each respective asset.
Initial delivery costs relating to placing tractors and trailers in
service, which are included in revenue and service equipment, are being
amortized on a straight-line basis over the lives of the assets and, in the case
of leased equipment, over the respective lease.
33
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
Intangibles
Intangibles reflect the amounts assigned to various assets of businesses
acquired. Amortization of intangibles is generally computed using the straight
line method for financial reporting purposes and is based on the estimated
useful lives of the related assets. Intangibles consist of customer lists
related to the Cheetah acquisition which is being amortized over an eight year
period. The net intangibles balance was $875 thousand and $1 million with
related accumulated amortization of $125 thousand and $0 at June 30, 1996 and
1995 respectively.
Goodwill
Goodwill reflects the excess of cost over net assets of businesses
acquired and is being amortized by the straight-line method over 40 years. The
carrying value of the goodwill is reviewed if the facts and circumstances
suggest that it may be permanently impaired. Such review is based upon the
undiscounted expected future operating profit derived from such businesses and,
in the event such result is less than the carrying value of the goodwill, the
carrying value of the goodwill is reduced to an amount that reflects the
expected future benefit.
Investment in Unconsolidated Affiliate
As discussed in Note 12 - "Investment in Unconsolidated Affiliate" prior
to September 1993, the Company owned 40% of a Mexican company which provided
services to a Mexican transportation company. This investment had been accounted
for under the equity method of accounting and was sold in September 1993.
Insurance Reserves
The Company self insures the per occurrence deductible for (i) personal
injury and property damage claims up to $50,000, (ii) physical damage claims up
to $10,000 per unit, (iii) workers compensation claims up to $100,000 and (iv)
cargo loss up to $10,000 per occurrence, in each case at June 30, 1996 and 1995.
Reserves for known claims and incurred but not reported claims up to these
limits are accrued based upon information provided by insurance adjusters and
actuarial factors. Management considers such reserves adequate. Such amounts are
included in accrued expenses.
34
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
Income Taxes
Income taxes are accounted for using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables.
Concentrations of credit risk with respect to trade receivables are generally
limited due to the Company's large number of customers and the diverse range of
industries which they represent. Accounts receivable balances due from Chrysler
Corporation ("Chrysler") totaled $7.5 million or 21.2% and $3.7 million or 7.4%
of the total gross trade receivables at June 30, 1996 and 1995, respectively.
The Company had no other significant concentrations of credit risk.
Foreign Currency Translation
Foreign financial statements are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Assets and liabilities of the Company's foreign
operations are translated into U.S. dollars at year-end exchange rates. Income
statement accounts are translated at the average exchange rate prevailing during
the year. Resulting translation adjustments are reported as a separate component
of stockholders' equity.
Common Stock Dividend Policy
Although the Company has paid cash dividends on the Common Stock from
time to time, it has no present intention of paying cash dividends on the Common
Stock in the foreseeable future. Moreover, pursuant to its credit agreements,
the Company and certain of its subsidiaries may pay cash dividends only up to
certain specified levels and if certain financial ratios are met.
35
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
Net Income (Loss) per Common Share
The net income (loss) per common share is based upon the weighted
average number of shares of common stock and common stock equivalents, when
dilutive, outstanding during the period, adjusted to reflect the one-for-3.3
reverse stock split in January 1994.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements in order to conform to the 1996 presentation.
Recent Account Pronouncements
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation." The Company believes
that it will continue to use Accounting Principle Board Opinion No. 25 to
measure and recognize employee stock-based transactions and will provide
required additional disclosures commencing in fiscal year 1997.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which establishes the accounting and reporting requirements for recognizing and
measuring impairment of long-lived assets to be either held and used or held for
disposal. The Company is currently evaluating the financial impact of adopting
this standard, however, the impact is not anticipated to be significant.
(2) SEGMENT AND GEOGRAPHICAL INFORMATION; SIGNIFICANT CUSTOMER
The Company's continuing business is operated through two divisions:
truckload and flatbed and the Company generates revenue from its operations in
the United States and Mexico. Revenue from Chrysler accounts for a significant
amount of the Company's trucking revenue.
The flatbed segment was acquired in June 1995 in a transaction accounted
for as a purchase. Consequently, there is no financial data presented for this
division for periods prior to fiscal 1996.
36
CELADON GROUP, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
Information as to the Company's operations by division is summarized below (in
thousands) :
1996 1995 1994
----- ---- ----
Operating revenue:
Truckload ................................ $ 148,167 $ 116,360 $ 94,746
Flatbed .................................. 18,377 -- --
--------- --------- ---------
Total ................................ $ 166,544 $ 116,360 $ 94,746
========= ========= =========
Operating income (loss):
Truckload ................................... $ 5,205 $ 12,690 $ 11,740
Flatbed ..................................... 768 -- --
--------- --------- ---------
Total from operating segments ........ 5,973 12,690 11,740
Corporate expenses .......................... 4,236 3,511 3,410
Interest expense ............................ 3,672 3,171 4,342
Gain on sale of investment in unconsolidated
affiliate ................................. -- -- (189)
Other expense (income) ...................... (72) 103 (6)
--------- --------- ---------
Income (loss) from continuing operations
before income taxes .................... $ (2,007) $ 5,905 $ 4,183
========= ========= =========
Total assets:
Truckload ................................... $ 107,737 $ 86,884 $ 65,502
Flatbed ..................................... 7,021 645 --
--------- --------- ---------
Total from operating segments .......... 114,758 87,529 65,502
Corporate ................................... 6,553 8,439 9,198
Discontinued operations ..................... 20,610 55,656 24,565
--------- --------- ---------
Total .................................. $ 141,921 $ 151,624 $ 99,265
========= ========= =========
Capital expenditures (including capital leases):
Truckload ................................... $ 24,131 $ 26,248 $ 10,734
Flatbed ..................................... 18 -- --
Corporate ................................... 3 37 34
--------- --------- ---------
Total .................................. $ 24,152 $ 26,285 $ 10,768
========= ========= =========
Depreciation and amortization:
Truckload ................................... $ 7,108 $ 5,733 $ 4,890
Flatbed ..................................... 238 -- --
Corporate ................................... 19 11 2
--------- --------- ---------
Total .................................. $ 7,365 $ 5,744 $ 4,892
========= ========= =========
37
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
(Dollars in thousands)
Information as to the Company's continuing operations by geographic area is
summarized below (in thousands):
1996 1995 1994
---- ---- ----
Operating revenue:
United States .............. $ 161,605 $ 115,438 $ 94,746
Mexico (i) ................. 4,939 922 --
--------- --------- ---------
Total ................. $ 166,544 $ 116,360 $ 94,746
========= ========= =========
Income (loss) before income taxes:
United States .............. $ (2,435) $ 5,799 $ 4,183
Mexico (i) ................. 428 106 --
--------- --------- ---------
Total ............... $ (2,007) $ 5,905 $ 4,183
========= ========= =========
Total assets:
United States .............. $ 118,815 $ 94,908 $ 65,502
Mexico (i) ................. 2,496 1,059 --
--------- --------- ---------
Total ............... $ 121,311 $ 95,967 $ 65,502
========= ========= =========
- ----------
(i) Relates to the Company's trucking operations in Mexico.
Revenue from Chrysler accounted for 54%, 45%, and 48% of the Company's
truckload revenue for 1996, 1995, and 1994, respectively. The Company transports
Chrysler after-market replacement parts and accessories within the United States
and Chrysler original equipment automotive parts primarily between the United
States and the Mexican border, which accounted for 31% and 69%, respectively, of
the Company's revenue from Chrysler in 1996 and 46% and 54%, respectively, in
1995. Chrysler business is covered by two agreements, one of which covers the
United States-Mexican business and the other of which covers domestic business.
The international contract was extended for three years and now expires on
December 31, 1999. The contract applicable to domestic movements is being
renegotiated.
(3) PROPERTY, EQUIPMENT AND LEASES
Property, Equipment and Revenue Equipment Under Capital Leases
Property and equipment, at cost, consists of the following (in thousands):
1996 1995
---- ----
Revenue equipment......................... $40,413 $35,138
Revenue equipment under capital leases 41,423 33,539
Furniture and office equipment............ 2,729 7,439
Land and buildings........................ 9,920 3,232
Service equipment......................... 362 898
Leasehold improvements.................... 156 808
------- -------
$95,003 $81,054
======= =======
38
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
Revenue and service equipment and revenue equipment under capital
leases include positioning costs which are amortized over the shorter of the
useful lives of the assets or the terms of the leases.
Included in accumulated depreciation was $7.0 million and $6.1 million
in 1996 and 1995, respectively, related to revenue equipment under capital
leases.
Depreciation and amortization expense relating to property and
equipment and revenue equipment under capital leases was $7.0 million in 1996,
$5.6 million in 1995, $4.8 million in 1994.
Lease Obligations
The Company leases certain revenue and service equipment under
long-term lease agreements, payable in monthly installments with interest at
rates ranging from 7.21% to 10.74% per annum, maturing at various dates through
2001.
The Company leases warehouse and office space under noncancellable
operating leases expiring at various dates through August 2001. Certain leases
contain renewal options.
Future minimum lease payments relating to capital leases and to
operating leases with initial or remaining terms in excess of one year are as
follows (in thousands):
YEAR ENDED CAPITAL OPERATING
JUNE 30 LEASES LEASES
------- ------ ------
1997......................................... $8,988 $14,656
1998......................................... 6,502 19,052
1999......................................... 6,685 15,419
2000......................................... 6,484 12,565
2001......................................... 6,141 10,661
Thereafter................................... 788 14,015
------- -------
Total minimum lease payments .......... 35,588 $86,368
=======
Less amounts representing interest 4,758
-------
Present value of net minimum lease
payments............................... 30,830
Less current maturities................ 7,356
-------
Non-current portion.................... $23,473
=======
Total rental expense for operating leases is as follows (in thousands):
1996 1995 1994
---- ---- ----
Revenue, service equipment and purchased transportation $32,579 $ 8,856 $ 6,367
Office facilities and terminals ....................... 460 338 197
------- ------- -------
$33,039 $ 9,194 $ 6,564
======= ======= =======
39
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
(4) BANK BORROWINGS AND LONG-TERM DEBT
1996 1995
---- ----
(in thousands)
Outstanding amounts under lines of credit (collateralized
by certain trade receivables and revenue equipment) ........... $29,500 $21,350
Long-term notes entered into for the purchase of tractors,
trailers and various equipment. The notes, collateralized
by equipment with an aggregate net book value of approximately
$506,041 at June 30, 1996, mature at various dates through
1997 and bear interest at rates ranging from
9.06% to 11.47% ............................................... 251 784
Other borrowings ............................................... 830 719
------- -------
30,581 22,853
Less current maturities ........................................ 4,029 4,530
------- -------
$26,552 $18,323
======= =======
Lines of Credit
The Company's line of credit for continuing operations for the periods
presented are as follows (in thousands):
Total Lines of Credit Amount Borrowed Amount Available (iii)
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
(i) $35,000 $35,000 $29,500 $17,350 $3,375 $14,600
(ii) 0 6,500 0 4,000 0 2,500
------- -------- ------- ------- ------ -------
$35,000 $41,500 $29,500 $21,350 $3,375 $17,100
------- -------- ------- ------- ------ -------
- -----------------
(i) Represents the Company's Revolving Line of Credit with NBD Bank, N.A. and
The First National Bank of Boston commencing June 1, 1994 (the "1994
Credit Agreement").
(ii) Represents the Celadon/Jacky Maeder Company's Revolving Line of Credit
with NBD Bank, N.A. and The First National Bank of Boston commencing
October 31, 1994 (the "CJM Revolving Credit Agreement").
(iii) Represents unused portion of Revolving Line of Credit net of standby
letters of credit not reflected in accompanying consolidated
financial statements of $2,125 thousand and $3,050 thousand at June 30,
1996 and 1995, respectively.
40
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
In June 1994, the Company refinanced the outstanding borrowings under
the 1994 Credit Agreement. Terms of the 1994 Credit Agreement (Credit Agreement)
provide for successive one year renewals, at the option of the banks, commencing
June 30, 1996 with an automatic conversion to a three year term loan if the
Credit Agreement is not extended by the banks. Interest is based, at the
Company's option, upon either the bank's prime rate or the London Interbank
Offered Rate ("LIBOR") plus a margin ranging from .625% to 1.375% depending upon
performance by the Company. At June 30, 1996 the interest rate charged on
outstanding borrowings was 6.60%. In addition, the Company pays a commitment fee
of .5% on the unused portion of the Credit Agreement.
Amounts available under the Credit Agreement are determined based upon
the Company's borrowing base, as defined. In addition, there are certain
covenants which restrict, among other things, the payment of cash dividends, and
require the Company to maintain certain financial ratios and certain other
financial conditions. Such borrowings are collateralized by the Company's
truckload trade receivables (approximately $22.1 million at June 30, 1996) and
certain revenue equipment (with a net book value of approximately $21.1 million
at June 30, 1996).
At June 30, 1996, the Company was not in compliance with several of the
financial ratios and other requirements specified in the Credit Agreement. On
September 13, 1996, the lenders agreed to waive the covenant defaults at June
30, 1996 and modified, effective as of June 30, 1996, the financial ratios and
covenants for the remaining term of the agreements. In connection with such
amendments, the lenders charged fees aggregating $88 thousand and changed the
margins above LIBOR charged on the outstanding borrowings under these agreements
to a range of .625% to 2.0% depending upon the Company's performance. The
September 13, 1996 amendment extended the Credit Agreement to April 1, 1997.
Maturities of long-term debt, assuming the Company exercises the
conversion feature within its Credit Agreement as modified at September 13,
1996, for the years ending June 30 are as follows (in thousands):
1997................................ $4,029
1998................................ 5,902
1999................................ 20,650
-------
$30,581
=======
No compensating balance requirements exist at June 30, 1996.
41
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
(5) EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan
In July 1990, the Company established an Employee Stock Ownership Plan
(the "ESOP") for employees of certain of the Company's subsidiaries. The ESOP
borrowed $1 million from a lending institution which is guaranteed by the
Company. The ESOP used the proceeds to purchase 129,500 shares of the Company's
Common Stock, par value $.033 per share, from stockholders.
The Company recognizes expense based on an amount equal to the ESOP's
cost of the shares allocated to the participants. The expense is in proportion
to annual principal and interest payments.
During 1996, 1995 and 1994, the Company did not pay the ESOP dividends
and made $100 thousand, $25 thousand and $50 thousand, respectively, in Company
contributions. In turn, the ESOP trustee made debt service payments of $100
thousand, $25 thousand and $50 thousand, respectively.
The loan from the lending institution bears interest at the bank's
floating prime rate (8.25% at June 30, 1996). The Company pays a 1% annual
commitment fee on the outstanding principal balance of the loan. The loan is
secured by the shares purchased by the ESOP and is guaranteed by the Company.
The loan agreement contains certain restrictive covenants and requires the
Company, among other things, to maintain certain financial ratios. In April
1992, the loan agreement was amended to require principal payments of $25
thousand per quarter commencing June 30, 1992, with the remaining balance due
April 1994. In April 1994, the loan agreement was extended with principal
payments of $25 thousand per quarter required commencing June 30, 1995, and the
remaining balance is due March 30, 1997. Interest costs incurred amounted to
approximately $24 thousand, $29 thousand and $27 thousand during 1996, 1995,
1994, respectively. In connection with such loan, the Company issued to the
lender a warrant to purchase shares of Common Stock. See Note 7 - "Stockholders'
Equity".
401(k) Profit Sharing Plan
In July 1990, the Company established a 401(k) profit sharing plan which
permits employees of the Company to contribute up to 10% of their annual
compensation. The contributions made by each employee are fully vested at all
times and are not subject to forfeiture. The Company contributes 25% of the
employee's contribution and may make
42
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
additional discretionary contributions. The aggregate Company contribution may
not exceed 5% of the employee's compensation. Employees vest in the Company's
contribution to the plan at the rate of 20% per year from the date of
contribution. Contributions made by the Company during 1996, 1995 and 1994
amounted to $83 thousand, $83 thousand, and $56 thousand respectively. No
discretionary contributions were made during 1996, 1995 or 1994.
(6) SENIOR SUBORDINATED CONVERTIBLE NOTE
In October 1992, the Company issued an $8 million, 9.25% Senior
Subordinated Convertible Note (the "9.25% Note") which was due and payable on
September 30, 1998. On February 28, 1994 the holder converted the 9.25% Note
into 739,371 shares of Common Stock. In connection with the issuance of the
9.25% Note, the Company issued a warrant to purchase 12,121 shares of Common
Stock and entered into a registration rights agreement covering shares issued
from the conversion of the 9.25% Note or warrant. See Note 7 - "Stockholders'
Equity".
(7) STOCKHOLDERS' EQUITY
Common and Preferred Stock
In April 1988, the Board of Directors authorized the issuance of up to
1,200,000 shares of preferred stock with a $1.00 per share par value. During
April 1988, the Company issued 1,000,000 shares of Series F 12% Convertible
Preferred Stock, ("Series F Preferred Stock"). The holders of the Series F
Preferred Stock were given certain registration rights as provided by the
Registration Rights Agreement. On March 31, 1993, all of the outstanding shares
of the Series F Preferred Stock were converted into 333,000 shares of Common
Stock.
On June 28, 1991, the Board of Directors authorized the issuance of
20,000 shares of Series I 7.5% Convertible Preferred Stock, par value $1.00 per
share ("Series I Preferred Stock"), for $2 million. The terms of the Series I
Preferred Stock provided that, at the written request of the holder thereof, the
Company was required to redeem all of the outstanding shares of Series I
Preferred Stock on December 31, 1993 at a redemption price equal to the original
purchase price together with accrued and unpaid dividends plus a redemption
premium of 2.5% compounded quarterly from the date of issuance. If any shares of
Series I Preferred Stock requested to be redeemed, were not so redeemed on
December 31, 1993, the dividend rate payable on the Series I Preferred Stock
increased from 7.5% to 12% on January 1, 1994 until the date of redemption. At
the request of the holders, the Company redeemed the Series I Preferred Stock in
February 1994, which resulted in the payment of a redemption premium of $134
thousand.
43
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
On January 13, 1994, the Company effected a one-for-3.3 reverse stock
split of each outstanding share of Common Stock. All options, warrants,
convertible securities and other rights convertible into or exercisable for
shares of Common Stock have been adjusted for the one-for-3.3 reverse stock
split. All references in the accompanying financial statements to the number of
shares of Common Stock, options, warrants, convertible securities and other
rights convertible into or exercisable for shares of Common Stock and all per
share amounts have been restated to reflect the one-for-3.3 reverse stock split.
On January 21, 1994 the Company issued 2,297,938 shares of Common Stock
pursuant to an underwritten public offering. Proceeds from the offering were
$31.0 million. In connection with the offering the Company incurred costs of
$1.1 million.
On October 31, 1994, in connection with the formation of Celadon/Jacky
Maeder Company, Swissair Associated Companies, Ltd. ("Swissair") purchased
200,000 shares of Common Stock, at $18.07 per share. These shares were
classified as redeemable common stock because Swissair could require the Company
to repurchase such shares at $18.07 per share, plus 10% interest and one-half of
the stock appreciation as defined in the agreement, if the Company did not
effect a shelf registration for the benefit of Swissair prior to April 30, 1996.
On February 7, 1996, the Company's Board of Directors ("the Board") authorized
the purchase of the 200,000 shares of the Company's Common Stock from Swissair
Associated Companies, Ltd. On February 21, 1996 these shares were purchased at a
negotiated price of $13.75 per share.
On January 31, 1995, the Company issued 1,000,000 shares of Common Stock
and granted to the underwriters an over-allotment option to issue an additional
154 thousand shares of Common Stock pursuant to an underwritten public offering.
On February 2, 1995 the over-allotment option was exercised by the underwriters
and the Company issued an additional 154,399 shares of Common Stock. The
aggregate proceeds from these issuances of Common Stock were $16.6 million. In
connection with these issuances the Company incurred costs of $763 thousand.
On February 2, 1995, the Company retired 1,453 shares of Common Stock
held in treasury. In addition, on February 2, 1995 the Company amended its
Certificate of Incorporation by reducing the number of authorized shares of
Common Stock from 17,000,000 shares to 12,000,000 shares.
44
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
Warrants
In connection with the establishment of the Unibank Revolving Line of
Credit and related term loan (predecessor to the 1994 Credit Agreement), the
Company issued a warrant entitling the holder to purchase, in the aggregate, 2%
of the Company's outstanding Common Stock, subject to adjustment as defined in
the agreement, for a price of $600 thousand. Under certain conditions, as
defined in the agreement, the holder of the warrant and the Company could
require each to purchase or sell the warrant at a price as set forth in the
agreement. The warrant was exercisable through February 14, 1996 and could have
been extended at the option of the holder to February 14, 2001. The warrant
expired unexercised.
Pursuant to the ESOP loan agreement, the Company issued to the lender a
warrant entitling the holder to purchase, in the aggregate, 2% of the Company's
outstanding Common Stock, subject to adjustment as defined in the agreement, for
a price of $500 thousand. On January 23, 1995 the warrant holder exercised one
half of the warrant by paying to the Company $250 thousand upon the issuance of
35,851 shares by the Company. On October 23, 1995 the Company's Board of
Directors authorized the extension of the expiration date for the warrant issued
pursuant to the ESOP loan agreement to November 1,1996.
In connection with the issuance of the 9.25% Note, the Company issued to
the holder of the 9.25% Note a warrant to purchase 12,121 shares of the Common
Stock at $10.82 per share, subject to certain adjustments for dilution. The
warrant is exercisable through September 30, 1998.
In connection with each of the warrants described above, the Company has
granted certain piggyback and demand registration rights with respect to shares
issued upon the exercise of such warrants.
Stock Options
In January 1994 the Company adopted a Stock Option Plan (the "Plan") which
provides for the granting of stock options, stock appreciations rights and
restricted stock awards to purchase not more than 250,000 shares of Common
Stock, subject to adjustment under certain circumstances, to select management
and key employees of the Company and its subsidiaries. During 1995 the Plan was
amended to increase the number of shares under the Plan from 250,000 to 500,000
shares, which amendment was approved by the shareholders at the 1994 annual
meeting. During 1994 the Company granted options to purchase 240,250 shares of
Common Stock at an average exercise price of $14.59 per share. Of the options
granted during 1994, 35,350 were cancelled resulting in 204,900 outstanding
under the Plan at June 30, 1994. During 1995 the Company granted options to
45
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
purchase 231,000 shares of Common Stock at prices ranging from $12.25 -- $20.00
per share, 20,166 were cancelled and 334 options were exercised. At June 30,
1995 there were options outstanding to purchase 415,400 shares under this plan
of which 217,876 were exercisable at prices ranging from $12.25 to $20.00.
During 1996, the Company granted options to purchase 146,300 shares of Common
Stock at prices ranging from $10.00 to $14.50 per share. During fiscal 1996,
88,900 were cancelled or expired unexercised and 9,333 options were exercised.
At June 30, 1996, there were options outstanding to purchase 463,467 shares
under this plan of which 356,029 were exercisable at prices ranging from $10.00
to $20.00.
In connection with the extension of an employment agreement with the
President and Chief Executive Officer of CJM (the "CJM Executive") in February
1994, an option to purchase 100,000 shares of Common Stock was granted at an
exercise price of $14.50 per share. As of June 30, 1996 and June 30, 1995,
50,000 shares and 30,000 shares, respectively, were exercisable. During 1996 and
1995, three nonemployee directors were each granted options to purchase 8,500
shares at $10.00 per share and 3,000 shares at $13.625 per share, respectively.
As of June 30, 1996 and June 30, 1995, 14,502 shares and zero shares
respectively were exercisable.
(8) RELATED PARTY TRANSACTIONS
In connection with the Company's acquisition of Randy International in
1991, a CJM Executive received $218 thousand and $739 thousand in 1994 and 1993,
respectively, in connection with the sale of his Randy International stock to
the Company. CJM's main warehouse facility in New York is leased from a
corporation owned by the CJM Executive and another employee of CJM. Rent in the
amounts of $148 thousand, $146 thousand, $147 thousand and $162 thousand was
paid by the Company in each of 1996, 1995, 1994 and 1993, respectively, under
the terms of the lease agreement, which expires in 1996.
Additionally, CJM's Israeli freight forwarding agent, which has a profit
sharing arrangement with the Company, is 30% owned by the CJM Executive. The
gross profits (freight forwarding revenue less direct transportation of freight
forwarding) in each of 1996, 1995 and 1994 earned by the Israeli agent were
approximately $302 thousand, $747 thousand, and $893 thousand, respectively. In
connection with this agency agreement, the Company agreed in fiscal 1994 to
advance up to $500 thousand to its Israeli agent for advancing on behalf of
Israeli customers value added taxes and other prepaid charges incurred by such
agent in its business. As of June 30, 1996, there were no advances outstanding.
In connection with the wind-down of the freight forwarding business segment, CJM
and the Company resolved certain disputed items with CJM's Israeli freight
forwarding agent. As a result, the Company recorded a $727,000 bad debt write-
off expense as a component of the loss on discontinued operations.
46
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
The Company's Chief Executive Officer and the Company's President, prior to
his resignation in July 1996, were parties to a stockholders' agreement that
requires the parties thereto to vote their shares of stock for the election as
directors of the Company certain designees of the other party to the agreement.
The Company's Chief Executive Officer and Hanseatic Corporation, a significant
shareholder, are currently parties to a stockholders' agreement that requires
the parties thereto to vote their shares of stock for the election as director
of the Company of one designee of the other party to the agreement.
On July 3, 1996, Leonard R. Bennett, President Chief Operating Officer and
a Director of the Company resigned as an Officer and Director of the Company and
all of its subsidiaries. At that time, he also released the Company from its
obligations under his employment contract. The Company entered into a three year
noncompete and consulting agreement with Mr. Bennett which provided for annual
payments of $268,396, which have been accrued as of June 30, 1996, and
continuation of certain disability and life insurance benefits. The agreement
can be cancelled by either party for cause. Mr. Bennett acquired the Company's
80.5% interest in Celsur Inc. for a total of 100,000 shares of Celadon Group,
Inc. common stock and $2,440,645 in the form of a personal note, bearing
interest at the prime commercial lending rate of The Chase Manhattan Bank, N.A.
New York, New York and payable October 3, 1996.
On July 3, 1996, Peter Bennett, Executive Vice President Administration of
Celadon Trucking Services, Inc., ("CTSI"), the Company's principal operating
subsidiary, resigned as an officer and employee of CTSI. The Company entered
into a one year noncompete and consulting contract with Mr. Bennett providing
for an annual payment of $60,000 which has been accrued for as of June 30, 1996.
In July 1996, the Company guaranteed eight individual one year bank loans
to eight executives aggregating $270,000. The loans range in amount from $9,000
to $54,000, are full recourse to the individual executive and are secured by a
total of 30,000 shares of Celadon Group, Inc. common stock owned by the
executives individually.
(9) COMMITMENTS AND CONTINGENCIES
The Company has outstanding commitments to purchase approximately $28.5
million of revenue equipment at June 30, 1996.
47
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
There are various claims, lawsuits and pending actions against the Company
and its subsidiaries incidental to the operation of its businesses. 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.
The Company has employment and consulting agreements with various key
employees and former employees providing for minimum combined annual
compensation over the next three years ranging from $2 million in 1997 to $0.7
million in 1999.
The Company had no outstanding contracts to acquire fuel at June 30, 1996.
Subsequent to June 30, 1996 the Company entered into a purchase contract to
acquire on a ratable basis approximately 35% of its fuel requirements through
July 1997 at a fixed price. Gains and losses on such contracts are deferred and
included in income in the period when the contracts mature. During the year
ended June 30, 1996, gains of $144 thousand were realized on the contracts and
shown as a reduction of fuel expense.
The Company has been assessed approximately $750 thousand by the State of
Texas for Interstate Motor Carrier Sales and Use Tax for the period from April
1988 through June 1992. The Company disagrees with the State of Texas over the
method used by the state in computing such taxes and intends to vigorously
pursue all of its available remedies, including litigation of this matter. The
Company has accrued an amount that management estimates is due based upon
methods they believe are appropriate. The Company believes that the ultimate
resolution of this matter will not have a material adverse effect on its
consolidated financial position.
48
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
(10) PROVISION FOR INCOME TAXES
The income tax provision for continuing operations in 1996, 1995 and 1994
consisted of the following (in thousands):
1996 1995 1994
---- ----- ----
Current (Credit):
Federal................................. $(1,450) $ 1,958 $342
State and local......................... (171) 772 51
Foreign................................. 146 52 ---
--------- --------- ----------
(1,475) 2,782 393
------- -------- --------
Deferred:
Federal............................... 954 816 1,176
State and local....................... 110 92 142
-------- -------- --------
1,064 908 1,318
------- ------- -------
$ (411) $3,690 $1,711
======= ====== ======
No provision is made for U.S. federal income taxes on undistributed
earnings of foreign subsidiaries of approximately $124 thousand at June 30,
1996, as management intends to permanently reinvest such earnings in the
Company's operations in the respective foreign countries where earned.
The Company's effective tax rate on income (loss) from continuing
operations differs from the statutory federal tax rate of 35% as follows:
1996 1995 1994
---- ---- ----
Statutory federal tax rate ............ 35.00% 35.00% 35.00%
Foreign taxes ......................... .20 .25 --
State taxes, net of federal benefit ... 1.96 9.52 3.00
Non-deductible officers' life insurance 1.04 .56 .55
Non-deductible meals and entertainment (11.72) 15.91 .25
Non-deductible goodwill amortization .. (2.34) .18 1.35
Other, net ............................ (3.67) 1.07 .76
------ ----- -----
Effective tax rate ............. 20.47% 62.49% 40.91%
====== ===== =====
49
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30,1996
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 1996 and 1995
consisted of the following (in thousands):
1996 1995
---- ----
Continuing Operations:
Deferred tax assets:
Allowance for doubtful accounts ................... $ 404 $ 401
Insurance reserves ................................ 595 406
Revenue recognition ............................... 491 715
Tires in service .................................. 616 821
Parts and supplies ................................ 608 491
Accrued expense reserves .......................... 826 346
Other ............................................. 536 354
------- -------
Total deferred tax assets .......... $ 4,076 $ 3,534
======= =======
Deferred tax liabilities:
Excess tax depreciation ........................... $(5,220) $(3,289)
Capital leases .................................... (4,278) (3,343)
------- -------
Total deferred tax liabilities ....... $(9,498) $(6,632)
======= =======
Discontinued Operations:
Net current deferred tax assets ................... $ 2,428 $ 20
Net noncurrent deferred tax liabilities ........... (1,398) (1,204)
------- -------
$ 1,030 $(1,184)
======= =======
Net current deferred tax assets ........................... $ 3,404 $ 807
Net noncurrent deferred tax liabilities ................... (7,796) (5,089)
------- -------
Total net deferred tax liabilities . . $(4,392) $(4,282)
======= =======
50
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30,1996
(11) SUPPLEMENTAL CASH FLOW INFORMATION
In 1996, 1995 and 1994, capital lease obligations in the amount of $14.9
million, $13.0 million and $3.5 million, respectively, were incurred in
connection with the purchase of, or option to purchase, tires in service and
revenue equipment.
For 1996, 1995 and 1994, the Company made interest payments of $3.3
million, $3.3 million and $4.4 million, respectively.
For 1996, 1995 and 1994, the Company made income tax payments of $880
thousand, $1.5 million, and $590 thousand, respectively.
(12) INVESTMENT IN UNCONSOLIDATED AFFILIATE
In April 1992, the Company, along with Grupo Hermes, S.A., a Mexican
company, entered into a joint venture, Grupo Hercel, S.A. ("Hercel"), of which
the Company owned 40% as of June 30, 1993. Hercel provides administrative,
marketing and operating services to Transportadora Hercel, a Mexican company
which is wholly-owned by Grupo Hermes, S.A. Through June 30, 1993, the Company
invested $325 thousand of cash and incurred an aggregate of $393 thousand in
positioning and legal costs in connection with Hercel. On September 28, 1993,
the Company sold its interest in Hercel to Grupo Hermes, S.A. for $500 thousand
resulting in a pre-tax gain of $189 thousand. In addition, the Company entered
into a five-year operating arrangement with Hercel that provides for joint
marketing, sales and operating activities.
(13) ACQUISITIONS
On October 31, 1994, the Company entered into a partnership (the
"Partnership Agreement") with Jacky Maeder, Ltd., a freight forwarding company
wholly owned by Swissair Associated Companies Ltd. ("Swissair"), which
partnership combined the respective United States freight forwarding operations
of the Company (Randy International, Ltd.) with Jacky Maeder, Ltd. The
partnership between the two companies operates under the name "Celadon/Jacky
Maeder Company" and is 70% owned by the Company and 30% owned by Jacky Maeder,
Ltd. The Company accounted for this transaction as a purchase. In December,
1995, the Company's Board of Directors authorized the disposal of the Company's
freight forwarding operations. In addition, Swissair purchased 200,000 shares of
the Company's Common Stock at $18.07 per share. The Company loaned $2.5 million
of the proceeds of this share issuance to Celadon/Jacky Maeder Company.
51
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30,1996
In connection with the formation of Celadon/Jacky Maeder Company and the
acquisition by the Company of a 70% ownership interest in the business
contributed to the partnership by Jacky Maeder, Ltd. (based upon the fair market
value of such ownership interest) in exchange for a 30% ownership interest in
the business contributed to the partnership by Randy International, the Company
realized a gain of $1.5 million net of $400 thousand for professional fees
associated with the transaction. The Company also incurred a charge to
operations of $822 thousand for costs associated with the formation of
Celadon/Jacky Maeder Company.
In connection with the integration of the Company's United States
freight forwarding business with that of Jacky Maeder, the Company wrote-off
costs of $2 million related to the former Randy International computer system.
This system was abandoned as a result of the Company's conversion to a single
integrated computer system for substantially all of the United States freight
forwarding operations of Celadon/Jacky Maeder Company.
During March 1995, the Company, through its wholly owned subsidiary,
Randy UK, acquired Guestair, Ltd., a freight forwarding company based in the
United Kingdom for approximately $2.6 million. The Company accounted for this
transaction as a purchase.
In May 1995, the Company made an investment of approximately $1.1
million in Transportes RQF, S.A. de C.V. ("RQF"), a previously inactive entity.
For its investment, the Company acquired 75% of the stock of RQF. RQF is a
Mexican motor freight carrier. The Company has accounted for this transaction as
a purchase. In connection with the Company's Board authorization to dispose of
its freight forwarding operations, the Company sold substantially all of the
U.K. assets in May 1996.
On June 29, 1995, the Company acquired Cheetah Transportation Company
and CLK, Inc. ("Cheetah"). Cheetah operates in the flatbed segment of the full
truckload market. The purchase price was approximately $5.1 million. The Company
has accounted for this transaction as a purchase.
52
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1996
Assuming the business combinations described above relating to Cheetah
Transportation and investment in RQF were consummated as of the beginning of
each of the respective twelve month periods ended June 30, 1995 and 1994, and
after giving effect to certain pro forma adjustments, the pro forma consolidated
results of operations for the years ended June 30, 1995 and 1994 would be as
follows (in thousands):
1995 1994
---- ----
Operating revenue........................... $150,660 $120,030
Net income (loss)........................... $3,533 $2,815
Net income per common share ................ $0.49 $0.53
In connection with the acquisitions of Cheetah Transportation and the
investment in RQF, as described above, the assets acquired and liabilities
assumed by the Company during 1995 were as follows (in thousands):
Current assets (net of cash acquired) ...... $1,602
Fixed assets ............................... 67
Intangible and other assets................. 1,000
Goodwill.................................... 4,155
Current liabilities......................... (769)
Minority interest........................... (143)
-------
$5,912
=======
In December 1995, the Company discontinued the operations of the freight
forwarding division. See Note 15 - "Discontinued Operations".
(14) FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1996, the Company installed a new computer
system at its principal operating subsidiary, Celadon Trucking Services., Inc.
The installation resulted in an improvement in the ability to measure intransit
shipments. Consequently the Company identified an additional $450 thousand of
revenue net of variable expense attributable to intransit truck movements and
therefore reduced operating income by that amount in the fourth quarter. Also,
adverse decisions in litigation resulted in damage awards in excess of loss
reserves previously recorded. Based on this experience, the Company examined its
loss reserving process and concluded that additional reserves totaling $375
thousand should be recorded for pending claims. The Company entered into a three
year noncompete and consulting agreement with Leonard R. Bennett which provided
for annual payments of $268 thousand of which the Company expensed the entire
$805 thousand.
53
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30,1996
During the fourth quarter of fiscal 1995, the Company wrote-off costs of
$2 million related to the former Randy International computer system. This
system was abandoned as a result of the Company's conversion to an integrated
computer system for substantially all of the United States freight forwarding
operations of Celadon/Jacky Maeder Company. Additionally, during the fourth
quarter the Company reduced by $303 thousand the $1,125 thousand charge for
costs associated with the formation of Celadon/Jacky Maeder Company that had
been recorded on October 31, 1994. See Note 13 - "Acquisitions".
(15) DISCONTINUED OPERATIONS
FREIGHT FORWARDING SEGMENT
During December, 1995 the Board of Directors of Celadon Group, Inc.
authorized the disposal of the Company's freight forwarding business. In
connection with the Company's plan of disposition effective February 1, 1996,
the U.S. customer list together with certain assets and liabilities of the
Company's U.S. freight forwarding business, operating under the name
Celadon/Jacky Maeder Company, were sold to the Harper Group, Inc.'s primary
operating subsidiary, Circle International, Inc. Pursuant to the terms of the
transaction, the total purchase price for these assets and liabilities will be
paid in cash and will equal the net revenue derived from such customer list
during the twelve-month period following February 1, 1996. The Harper Group,
Inc. made an initial down payment of $9.5 million at closing with the balance of
the purchase price to be paid in quarterly installments as earned by the Harper
Group, Inc. It is now estimated that there will be no additional payments by
Harper Group, Inc. to the Company.
In May 1996, the Company became the sole owner of the freight forwarding
operations conducted in the New York area by acquiring the minority interest of
Jacky Maeder, Ltd. This step was taken to facilitate the ultimate disposition of
this operation.
In May 1996, the Company concluded the sale of the United Kingdom
freight forwarding operation to Forwardair Limited a subsidiary of the Fritz
Companies.
54
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30,1996
LOGISTICS SEGMENT
In the quarter ended June 30, 1996, the decision was made to sell
certain businesses previously included in the Logistics division and to
discontinue offering logistics services as a separate activity of the Company.
Consequently in June 1996, the net assets of the Company's package delivery
business headquartered in New York City and operating under the name Celadon
Express was sold.
On July 3, 1996, the Company concluded the sale of its South American
warehousing logistics and distribution business operating under the name of
Celsur, Inc. for approximately $3.1 million. The sales price was paid with
100,000 shares of the Company's common stock, and an interest bearing promissory
note for $2.4 million due October 3, 1996.
55
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30,1996
(Dollar amounts in thousands)
At June 30, 1996 and 1995, assets and liabilities included in the
Company's consolidated balance sheet related to the discontinued freight
forwarding operation are as follows (in thousands):
JUNE 30,
1996 1995
---- ----
Assets:
Cash ............................................ $ 3,142 $ 1,504
Accounts receivable (net of allowance) .......... 8,436 32,414
Accounts receivable other ....................... 2,558 482
Prepaid expenses and other current assets ....... 224 657
Assets held for resale .......................... 69 --
Deferred income tax receivable .................. 2,369 1,118
Net property and equipment ...................... -- 4,405
Intangible assets ............................... -- 1,311
Other assets .................................... -- 1,259
Goodwill ........................................ -- 10,436
-------- --------
Total ................................... $ 16,798 $ 53,586
======== ========
Liabilities and Equity:
Accounts payable ................................ $ 4,805 $ 14,950
Accrued expenses ................................ 6,146 5,927
Note payable to Jacky Maeder AG ................. -- 3,735
Income taxes payable ............................ 105 135
Long term debt .................................. -- 4,000
Deferred income tax liabilities (assets) ........ (11) --
Minority interest ............................... -- 2,948
Equity adjustment for foreign
currency translation ......................... 25 36
-------- --------
Total ................................... $ 11,070 $ 31,731
======== ========
56
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30,1996
(Dollar amounts in thousands)
At June 30,1996 and 1995, assets and liabilities included in the
Company's consolidated balance sheet related to the discontinued logistics
segments are as follows (in thousands):
JUNE 30,
1996 1995
---- ----
Assets:
Cash ....................................... $ 33 534
Accounts receivable (net of allowance) ..... 303 2,267
Accounts receivable other .................. 632 494
Prepaid expenses ........................... -- 33
Income tax receivable ...................... 329 --
Assets held for sale ....................... 2,479(1) --
Deferred income tax receivable ............. 36 --
Net property and equipment ................. -- 243
Goodwill ................................... -- 53
Other assets ............................... -- 409
------- ------
Total ................................. $ 3,812 $ 4,033
======= ======
Liabilities and Equity:
Accounts payable ........................... $ --- $1,337
Accrued expenses ........................... 214 338
Income taxes payable ....................... 276 3
Long term debt ............................. -- 22
Deferred income taxes payable .............. 206 --
Minority interest .......................... -- 196
Equity adjustment for foreign
currency translation ..................... (2) --
------- ------
Total ................................. $ 694 $ 1,896
======= ======
(1) Represents the net investment in Celsur Inc., the stock of which was sold on
July 3, 1996.
- ------------
The anticipated loss on the disposal of the freight forwarding and logistics
segments have been accounted for as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." As such, prior
period financial statements have been reclassified to reflect the
discontinuation of these lines of business.
57
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 30,1996
The Company recorded a charge to earnings of $8.2 million during the
three months ending December 31, 1995 representing the expected loss on the
disposal of the freight forwarding segment. In determining the estimated loss on
disposition in the December 31, 1995 financial statements, management made
certain estimates and assumptions based upon currently available information.
These estimates and assumptions primarily related to the ultimate sales price to
be received from the sale of the U.S. customer list to the Harper Group, Inc.,
the net realizable value of the remaining assets to be disposed of, the
liquidation of trade receivables, and the costs associated with the settlement
of certain leases, severance and other obligations. Based on the results of
wind-down operations through June 30, 1996, a $2.3 million net of tax operating
loss was incurred. This is primarily a result of the reduction in the payment to
be received from the Harper Group, Inc. for revenue attributable to the U.S.
customer list which they acquired. Additionally, based on actual collection and
payment experience and cost to wind-down the operations through June 30, 1996,
the estimated after tax loss on discontinued freight forwarding operations was
increased by $4.2 million. Revenue of the freight forwarding segment for the
years ended June 30, 1996, 1995 and 1994, were $120.5 million and $126.5 million
and $83.2 million, respectively.
In the quarter ended June 30, 1996, the Company also recorded a charge
of $600 thousand relating to the discontinuation of the logistics line of
business. The loss is primarily comprised of the loss on the sale of the net
assets of Celadon Express, Inc. in June 1996, partially offset by the gain on
the sale of the Company's 80.5% ownership interest in Celsur Inc., a warehousing
and logistics operation in Argentina and Brazil. It is not anticipated that
future adjustments to the net assets sold will be material. Revenue for the
logistics segment for the years ended June 30, 1996, 1995 and 1994 were $11.9
million, $7.4 million and $3.0 million, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no changes in or disagreements with accountants on accounting or
financial disclosures within the last three fiscal years.
58
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
On May 17, 1996, five directors were elected to hold office until the
annual meeting of stockholders in fiscal 1997 or until their respective
successors have been elected and qualified. Those directors are Stephen Russell,
Leonard R. Bennett, Paul A. Biddelman, Michael Miller and Kilin To. Effective
July 3, 1996, Leonard R. Bennett resigned as a Director and Officer of the
Company.
The directors, executive officers, and key employees of the Company and its
subsidiaries are as follows:
Name Age Position
----- --- ---------
Stephen Russell 56 Chairman of the Board, President and
Chief Executive Officer of the Company
Don S. Snyder 47 Executive Vice President/Chief Financial Officer and Treasurer
Brian L. Reach 41 Vice President Special Projects
Richard Goldenberg 50 Vice President-Secretary of the Company
Norman G. Greif 57 President and Chief Executive Officer of Randy International
Ltd. (a subsidiary of the Company)
Michael J. Archual 45 Executive Vice President - Sales and Marketing
of Celadon Trucking Services, Inc. (a subsidiary of the Company)
Carl L. Hadley 43 Executive Vice President - Support Operations
of Celadon Trucking Services, Inc. (a subsidiary of the Company)
Michael T. Hodson 49 Executive Vice President - Automotive and Subsidiary Operations
of Celadon Trucking Services, Inc. (a subsidiary of the Company)
Ronald S. Roman 51 Executive Vice President - Fleet Management and Customer Service
of Celadon Trucking Services, Inc. (a subsidiary of the Company)
Paul Biddelman* 50 Director of the Company
Michael Miller* 51 Director of the Company
Kilin To* 53 Director of the Company
- ---------------
* Members of the Audit and Compensation Committees
59
Mr. Russell has been Chairman of the Board and Chief Executive Officer of
the Company since its inception in July 1986. He is also a director of Petro Oil
Company and a member of the North American Transportation Alliance advisory
board. Mr. Russell has been a member of the Board of Advisors of the Cornell
University Johnson Graduate School of Management since 1983.
Mr. Snyder has been Executive Vice President, Chief Financial Officer and
Treasurer of the Company since April 1996. He served as Vice
President-Controller for Burlington Northern Railroad Company, a company engaged
in the railroad transportation business in the United States, from December 1987
to December 1995. Mr Snyder is a certified public accountant.
Mr. Reach has been Vice President-Special Projects of the Company since
April 1996, and, from September 1993 to April 1996, he served as Vice President
and Chief Financial Officer of the Company. He served as Senior Vice President
and Chief Financial Officer for Cantel Industries, Inc., a company engaged in
the business of distributing scientific and consumer products in Canada and
office seating products in the United States, from September 1990 until
September 1993. From January 1989 to September 1990, he was an independent
financial consultant. Mr. Reach is a certified public accountant.
Mr. Goldenberg has been Vice President-Secretary of the Company since April
1996, and, from November 1986 to April 1996, he served as Vice
President-Treasurer and Secretary of the Company.
Mr. Greif has been President and Chief Executive Officer of Randy
International, Ltd., a subsidiary of the Company ("Randy International") since
its formation in 1969. He also became President and Chief Executive Officer of
Celadon/Jacky Maeder Company ("CJM") at its formation in 1994.
Mr. Archual has been Executive Vice President - Sales and Marketing of
Celadon Trucking Services, Inc. since July 1995. From 1987 through June 1995, he
served as Vice President - Sales and Marketing - Western Area and Southern Area
for Schneider National, Inc. a private company providing full truckload,
irregular route trucking services.
Mr. Hadley has been Executive Vice President - Support Operations of
Celadon Trucking Services, Inc. since July 1996. Other positions with Celadon
Trucking Services, Inc. include from July 1995 to July 1996, Vice President -
Safety & Risk Management; August 1994 - July 1995, Assistant Vice President -
Safety & Risk Management; December 1993 to August 1994 - Director of Support
Services & Safety. From September 1989 to December 1993, he was responsible for
safety, workmen's compensation and risk management as Director-Safety
Administration for North American Van Lines, Inc. an over-the-road full,
truckload transportation company.
Mr. Hodson has been Executive Vice President - Automotive and Subsidiary
Operations of Celadon Trucking Services, Inc. since July 1996. For the period
July 1995 to July 1996, he was Vice President Operations for Celadon Trucking
Services, Inc. From November 1993 to June
60
1995, he was President of C.I. Whitten Transfer, a truckload transportation
company specializing in the transportation of munitions. For four years prior to
joining C.I. Whitten, he held a variety of executive positions in the trucking
industry.
Mr. Roman has been Executive Vice President - Fleet Management and Customer
Service of Celadon Trucking Services, Inc. since July 1996. From October 1985 to
July 1996, Mr. Roman was employed by North American Van Lines, Inc., an
over-the-road household goods, and high value product full truckload
transportation company holding executive positions primarily Vice President -
Fleet Services from October 1985 to August 1995.
Mr. Biddelman has been a director of the Company since October 1992. Mr.
Biddelman has been Treasurer of Hanseatic Corporation, a private investment
company, since April 1992 and was a Managing Director of Clements Taee Biddelman
Incorporated, a financial advisory firm, from January 1991 to April 1992. From
prior to 1988 until December 1990, Mr. Biddelman was a Managing Director,
Corporate Finance Department, of Drexel Burham Lambert Incorporated. He is also
a director of Petroleum Heat and Power Co., Inc., Premier Parks, Inc.,
Electronic Retailing Systems International, Inc., Oppenheimer Group, Inc.,
Star Gas Corporation (the General Partner of Star Gas Partnership L.P.), TLC
Beatrice International, Holdings, Inc. and Insituform Technologies, Inc.
Mr. Miller has been a director of the Company since February 1992. Mr.
Miller has been Chairman of the Board and Chief Executive Officer of Aarnel
Funding Corporation, a venture capital/real estate company since 1974, a partner
of Independence Realty, an owner and manager of real estate properties, since
1989, and President and Chief Executive Officer of Miller Investment Company,
Inc., a private investment company, since 1990.
Mr. To has been a director of the Company since 1988. He has been a
managing partner of Citi Growth L.P. since 1995. He also had been a Vice
President of Citicorp Venture Capital, Ltd. ("CVC"), a subsidiary of Citicorp
N.A., from 1984 to 1995. In addition, Mr. To is a director of Condere
Corporation and International Channel Network.
All directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified
or they resign. Mr. Russell and Hanseatic Corporation are parties to a voting
agreement pursuant to which they have agreed to vote their shares of Common
Stock for the other's designee. Those designees are Messrs. Russell and
Biddelman. See "Certain Relationships and Related Transactions--Transactions
with Directors and Stockholders." Executive officers hold office until their
successors are chosen and qualified, subject to their removal by the Board of
Directors, to any employment agreements or their resignation. See "Executive
Compensation--Employment Agreements."
Pursuant to Section 145 of the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that the Company shall, to the
full extent permitted by law, indemnify all directors, officers, incorporators,
employees, or agents of the Company against liability for certain of their acts.
The Company's Certificate of Incorporation provides that, with a number of
exceptions, no director of the Company shall be liable to the Company for
damages for breach of his fiduciary duty as a director.
61
The Audit and Compensation Committees each consist of Paul A. Biddelman,
Michael Miller, and Kilin To. The Compensation Committee reviews general policy
matters relating to compensation and benefits of employees and officers of the
Company and administers the Company's Stock Option Plan. The Audit Committee
meets with management and the Company's independent auditors to determine the
adequacy of internal controls and other financial reporting matters. The Company
does not have a nominating committee.
The Board of Directors of the Company met ten times during the fiscal year
ended June 30, 1996. No director failed to attend at least 75% of those meetings
or any committee of the Board of which he was a member except for Leonard
Bennett who did not attend three meetings held in May and June 1996. Mr. Bennett
resigned as a Director effective July 3, 1996. The Company's Audit Committee met
one time during the year ended June 30, 1996.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's directors,
officers, and any persons owning more than 10 percent of the Common Stock are
required to report their ownership of Common Stock and any changes in that
ownership, on a timely basis, to the Securities and Exchange Commission. Based
on material provided to the Company, all such required reports were filed on a
timely basis in fiscal 1996 except for the initial Form 3 for Don S. Snyder
which was filed late due to an administrative oversight.
62
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by the
Company for services rendered during fiscal 1996, 1995 and 1994 to the Chief
Executive Officer of the Company, the Chief Executive Officer of Randy
International, Ltd. a subsidiary of the Company, and each of the three other
most highly paid executive officers of the Company, each of whose annual cash
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long Term
ANNUAL COMPENSATION Compensation
------------------- Awards
------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ------ ----- ------- ------------
Stephen Russell............. 1996 $438,711 $ --- 20,000 $110,446 (1)(2)
Chairman of the Board 1995 408,103 --- 50,000 130,978 (1)(2)
and Chief Executive 1994 462,308 61,239 --- 145,462 (1)(2)
Officer
Leonard R. Bennett.......... 1996 $438,711 $ --- 20,000 $155,380 (1)(2)
President, Chief 1995 408,103 --- 50,000 172,380 (1)(2)
Operating Officer 1994 462,308 61,239 --- 151,100 (1)(2)
and Director
Norman G. Greif............. 1996 $320,000 $ --- --- $ ---
President and Chief 1995 320,000 --- --- ---
Executive Officer of 1994 320,000 --- 110,000 ---
Randy International , Ltd.
Richard Goldenberg.......... 1996 $113,400 $10,000 --- $ --- (2)
Vice President, Secretary 1995 113,400 10,000 2,500 1,879 (2)
1994 113,400 14,700 5,000 2,301 (2)
Brian L. Reach.............. 1996 $170,000 $26,315 20,000 $2,136
Vice President 1995 170,000 29,584 30,000 2,139 (2)
Special Projects 1994 126,538 --- 30,000 ---
- ------------
63
(1) Includes the premiums paid by the Company for split-dollar insurance for
which the Company has an assignment against the cash value for premiums
paid, as follows: Stephen Russell-- $66,745 in fiscal 1996, $120,123 in
fiscal 1995 and $119,307 in fiscal 1994; and Leonard R. Bennett--
$175,191 in fiscal 1996, $159,572 in fiscal 1995, $132,211 in fiscal 1994
and premiums on long-term disability insurance paid as follows: Stephen
Russell-- $8,484 in fiscal 1996, $8,484 in fiscal 1995 and $23,906 in
fiscal 1994; and Leonard R. Bennett-- $10,436 in fiscal 1996, $10,437 in
fiscal 1995 and $16,640 in fiscal 1994.
(2) Represents the Company's contribution under the Company's 401(k) Profit
Sharing Plan, as follows: Stephen Russell-- $2,375 in fiscal 1996, $2,371
in fiscal 1995, and $2,249 in fiscal 1994; Leonard R. Bennett-- $2,594 in
fiscal 1996, $2,371 in fiscal 1995 and $2,249 in fiscal 1994; and Richard
Goldenberg--$937 in fiscal 1996, $1,417 in fiscal 1995 and $1,406 in
fiscal 1994; Brian L. Reach -- $2,136 in fiscal 1996, $2,139 in fiscal
1995 and none in fiscal 1994.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options to the Chief Executive Officer of the Company, the Chief Executive
Officer of Randy International, Ltd., a subsidiary of the Company, and each of
the other three most highly paid executive officers of the Company whose annual
cash compensation exceeded $100,000 during the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Potential Realizable
Grants Value at Assumed Annual
% of Total Rates of Stock Price
Options Appreciation For
Options Granted to Exercise or Option Term (1)
Granted Employees Base Price Expiration __________________
Name (shares) In Fiscal Year Per Share Date 5% 10%
_______________ _________ ______________ _________ ________ __________________
Stephen Russell...... 20,000 (2) 12% $10.00 03/07/06 $125,800 $318,800
Leonard R. Bennett.. 20,000 (2) 12% $10.00 03/07/06 $125,800 $318,800
Norman G. Greif...... --- --- --- --- --- ---
Richard Goldenberg... --- --- --- --- --- ---
Brian L. Reach....... --- (3) --- --- --- --- ---
64
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of
their term assuming the specified compounded rates of appreciation (5%
and 10%) on the Company's Common Stock over the term of the options.
These numbers are calculated based on rules promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent on the timing
of such exercise and the future performance of the Company's Common
Stock. There can be no assurance that the rates of appreciation assumed
in this table can be achieved or that the amounts reflected will be
received by the option holder.
(2) Options for 6,667 shares are presently exercisable and options for 6,667
shares become exercisable on March 7, 1997 and 6,666 shares become
exercisable on March 7, 1998.
(3) See "Report on Repricing of Options".
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Chief
Executive Officer of the Company, the Chief Executive Officer of Randy
International, Ltd., a subsidiary of the Company and each of the three most
highly paid executive officers of the Company, concerning the exercise of
options during the last fiscal year and unexercised options held at June 30,
1996. There were no options exercised during fiscal 1996 and no unexercised
options were in the money options at June 30, 1996:
AGGREGATED OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT JUNE 30, 1996
----------------------------------
Name Exercisable Unexercisable
-------- -------------- --------------
Stephen Russell........................ 40,001 29,999
Leonard R. Bennett..................... 40,001 29,999
Norman G. Greif........................ 60,000 50,000
Richard Goldenberg..................... 6,667 833
Brian L. Reach......................... 50,001 9,999
DIRECTORS COMPENSATION
Non-employee directors of the Company receive an annual fee of $15,000,
payable quarterly, for serving as a director of the Company and each has been
granted an option to purchase 8,500 shares of Common Stock at an exercise price
of $10.00. Such directors receive $1,250 per quarter for serving on committees.
Board members are reimbursed for their expenses for each meeting attended.
65
REPORT ON REPRICING OF OPTIONS
The following table sets forth information relating to the repricing of
options held by executive officers since the registrant filed its initial public
offering of securities on January 21, 1994.
Option Pricing
January 19, 1994 through June 30, 1996
Length of
Market Exercise Original Term
Number Price at Price at New Remaining at
of Options Time of Time of Exercise Date of
Name Date Repriced Repricing Repricing Price Repricing
---- ---- -------- --------- --------- ------ ---------
Brian L. Reach 4/12/96 20,000 $9.50 $20.00 $10.00 8 yrs, 5 mos
- --------
The repricing was a component of Mr. Reach's renegotiated employment and
consulting agreement. The repricing was in lieu of additional cash compensation
in connection with the agreement. The Compensation Committee considers the
repricing to be consistent with Mr. Reach's continuing relationship with the
Company as a consultant during which time he would not be eligible for
additional stock option grants.
Compensation Committee
Paul A. Biddelman
Michael Miller
Kilin To
EMPLOYMENT AGREEMENTS
The Company has a four-year employment agreement expiring January 21, 1998
with Stephen Russell, Chairman and Chief Executive Officer of the Company,
providing for an initial annual salary of $395,000, which salary will be
increased 7.5% annually during the term of the agreement, plus an annual bonus
equal to three percent of the Company's income before income taxes in excess of
$3 million, not to exceed a total annual bonus of $360,000. The agreement
provides that in the event of termination: (i) as a result of a change in
control of the Company, Mr. Russell, will receive a lump sum severance allowance
in an amount equal to two times his annual compensation; (ii) without cause or
by Mr. Russell for cause, Mr. Russell will be entitled to receive his salary for
the remainder of the term of the agreement or one year, whichever is greater;
and (iii) as a result of the disability of Mr. Russell, he will be entitled to
receive 50% of his salary during the two-year period commencing on the date of
his termination. The agreement also includes a two-year non-compete covenant
commencing on termination of employment. As consideration for such non-compete
covenant, the Company has agreed to pay Mr. Russell 50% of his salary during the
two years following the termination of the employment agreement.
66
The Company has a consulting and non-competion agreement which expires July
3, 1999 with Leonard R. Bennett, the former President and Chief Operating
Officer of the Company. As a consultant, Mr. Bennett will receive $268,395
annually, plus the continuation of one disability and three life insurance
policies provided to him as President of the Company, during the period of his
consulting agreement. At the end of the agreement, Mr. Bennett will purchase the
policies from the Company for the then cash value of the two whole life
policies. Additionally, for purposes of determining the exercisability of stock
options previously granted to Mr. Bennett under the Company's Stock Option Plan,
the expiration of the agreement on July 3, 1999 will be his termination date for
purposes of the Stock Option Plan. The Company's annual premium cost for the
disability policy is approximately $10 thousand and the annual cost of the life
insurance policies net of increases in cash surrender value is approximately
$123 thousand. The agreement also includes a non-compete covenant through July
3, 1999. Upon the execution of the consulting agreement, Mr. Bennett's
employment agreement was terminated.
The Company has an employment agreement with Don S. Snyder, Executive Vice
President, Chief Financial Officer and Treasurer of the Company, expiring April
1, 1998. This agreement is renewed automatically for successive one-year periods
thereafter unless previously terminated by either party. Such employment
agreement provides for an annual salary of $160,000, which will be increased at
least 5% annually, and an annual bonus of not less than $40,000. Pursuant to the
agreement, upon employment by the Company, Mr. Snyder was granted options to
purchase 35,000 shares of Common Stock pursuant to the Stock Option Plan, is
provided a monthly car allowance and is entitled to participate in any insurance
or other benefit plan provided to the Company's executives generally. In
connection with Mr. Snyder's relocation to Indianapolis, the Company is
obligated to acquire Mr. Snyder's personal residence under certain
circumstances. It is undeterminable at this time if these circumstances will
occur. The agreement includes a two-year non-compete covenant commencing on
termination of employment. As consideration for such non-compete covenant, in
the event of termination without cause, Mr. Snyder will receive a severance
payment equal to two times his salary and bonus, payable in biweekly
installments during the two-year non-competition period.
The Company has an employment and consulting agreement with Brian L. Reach,
Vice President Special Projects. The agreement provides for Mr. Reach's
employment through September 30, 1996, at an annual salary of $170,000 plus
benefits available to Company executives generally. Commencing October 1, 1996,
Mr. Reach will be retained as a consultant for a period of 18 months at an
annual compensation rate of $180,000 plus reasonable and necessary out-of-pocket
expenses. Mr. Reach's current benefits will be continued until such time as he
accepts other employment or March 31, 1998, the end of the consulting agreement,
whichever is the first to occur. Additionally, Mr. Reach will be permitted to
exercise stock options previously granted to him through March 31, 1998 or he
ceases to be a consultant whichever is the first to occur. The agreement
includes an 18 month non-compete covenant commencing on termination of
employment.
The Company has an employment and consulting agreement with Richard
Goldenberg, Vice President-Secretary of the Company. Under the terms of the
agreement, Mr. Goldenberg will be employed through March 31, 1997 at his current
rate of compensation plus current benefits, unless he elects earlier separation
from the Company. Following his termination as an employee, Mr.
67
Goldenberg will serve as a consultant to the Company and be compensated at the
rate of $114,000 per year plus continuation of certain benefits which he
currently receives. The agreement further provides that Mr. Goldenberg must
remain as an employee though September 30,1996 and aid in the relocation of the
Company headquarters to be eligible to serve as a consultant and receive the
benefits outlined in the agreement.
Celadon/Jacky Maeder Company had an employment agreement with Norman G.
Grief, such company's President and Chief Executive Officer, pursuant to which
Mr. Greif agreed to serve as a full-time employee through June 30, 1999.
Pursuant to such agreement, Mr. Greif's annual base salary for fiscal 1995 was
$320,000. In addition to such annual base salary, for each of the 1994 through
1999 fiscal years, the Company shall pay Mr. Greif, pursuant to the agreement,
an incentive bonus based upon the consolidated income before income taxes of the
Freight Forwarding Division. Pursuant to the agreement, Mr. Grief is entitled to
the use of a car and to participate in any insurance or benefit plans provided
to Celadon/Jacky Maeder Company employees or executives generally. In addition,
the agreement includes a non-compete covenant lasting through June 30, 1999. As
consideration for such non-compete covenant, the Company has agreed to pay Mr.
Greif in the event of termination: (i) by Celadon/Jacky Maeder Company as a
result of a disability, $320,000 plus $100,000 per year through June 30,1999 if
Mr. Greif is willing and able to renew his position but is not rehired; (ii) by
Celadon/Jacky Maeder Company at any time after June 30, 1996 upon proper notice,
the remainder of the salary due under the agreement plus $100,000 for each year
(or portion of a year) remaining on the agreement up to a maximum of $300,000;
(iii) by Mr. Greif at any time after June 30, 1996 upon proper notice, the
remainder of the salary due under the agreement; (iv) by Mr. Grief if
Celadon/Jacky Maeder Company changes Mr. Greif's title, relocates Mr. Grief
without his consent, fails to comply with payment obligations, terminates Mr.
Grief other than pursuant to the employment agreement or if the Company fails to
comply with its obligations to Mr. Greif under his stock option agreement with
the Company, the remainder of the salary due under the agreement plus $100,000
for each year remaining on the agreement up to a maximum of $300,000.
Effective May 1, 1996 with the acquisition by the Company of the net assets
of the freight forwarding business conducted at the John F. Kennedy Airport in
New York City and the Company's warehouse facility in Kearny, New Jersey, the
Company assumed all of the obligations of Celadon/Jacky Maeder Company pursuant
to the employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, of the Board of Directors determines matters
relating to compensation and benefits of employees and officers of the Company.
The Compensation Committee consists of Paul A. Biddelman, Michael Miller and
Kilin To, all of whom are outside Directors.
The Company and Citicorp Venture Capital, Ltd. ("CVC"), of which Mr. To was
an officer, are parties to a registration rights agreement relating to the
Common Stock owned by CVC. The Company, Mr. Russell, and Mr. Bennett and
Hanseatic, a Corporation of which Paul Biddelman, a director of the Company, is
an officer were all parties to a stockholders' agreement relating to
68
the election of Messrs. Russell and Bennett and a Hanseatic designee to the
Board of Directors. This agreement was terminated as to Mr. Bennett upon Mr.
Bennett's resignation on July 3, 1996.
For a further description of the foregoing transactions, see "Certain
Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth, as of September 17, 1996, certain
information furnished to the Company regarding the beneficial ownership of
Common Stock (i) by each person who is known by the Company to own beneficially
more than five percent of the outstanding shares of the Common Stock, (ii) by
each director of the Company, (iii) by each of the executive officers named in
the Summary Compensation Table, and (iv) by all directors and executive officers
of the Company as a group.
69
BENEFICIAL OWNERSHIP OF COMMON
STOCK AS OF SEPTEMBER 17, 1996 (1)
-----------------------------------
NAME AND SHARES %
POSITION
- --------------------- ------------------ ------------
Stephen Russell............................. 998,315 (2)(3) 13.1%
Chairman of the Board, President and Chief
Executive Officer of the Company
Richard Goldenberg.......................... 6,667 (3) *
Vice President - Secretary of the Company
Brian L. Reach.............................. 50,001 (3) *
Vice President Special Projects
Don S. Snyder............................... 17,667 (3) *
Executive Vice President/Chief Financial
Officer and Treasurer
Norman G. Greif............................. 70,000 (3) *
President and Chief Executive
Officer of Randy International, Ltd.
Paul A. Biddelman........................... 1,011,224 (3)(4) 13.2%
Director of the Company
Michael Miller.............................. 16,168 (3) *
Director of the Company
Kilin To.................................... 40,253 (3) *
Director of the Company
Citicorp Venture Capital Ltd................ 438,358 (5) 5.7%
Hanseatic Corporation....................... 995,056 (4)(6) 13.0%
Wolfgang Traber............................. 995,056 (4) 13.0%
Columbia Funds Management Company........... 580,000 (7)(8) 7.6%
All executive officers and directors as a group
(eight persons)........................... 1,215,239 (9)(10) 15.9%
- -------------
* Represents beneficial ownership of not more than one percent of the
outstanding Common Stock.
70
(1) Based upon 7,632,580 shares of Common Stock outstanding at September 17,
1996.
(2) Stephen Russell is Chairman of the Board, President and Chief Executive
Officer of the Company. His address is One Celadon Drive, 9503 E. 33rd
Street, Indianapolis, IN 46236- 4207.
(3) Includes shares of Common Stock which the directors and executive officers
had the right to acquire through the exercise of options within 60 days of
September 16, 1996, as follows: Stephen Russell - 40,001 shares; Don S.
Snyder - 11,667 shares; Norman G. Greif - 60,000 shares; Richard
Goldenberg - 6,667 shares; Brian L. Reach - 50,001 shares; Paul A.
Biddelman - 16,168 shares; Michael Miller - 16,168 shares; and Kilin To -
16,168 shares.
(4) Of such shares, 946,021 shares of Common Stock are held by Hanseatic
Americas LDC, a Bahamian limited duration company in which the sole
managing member is Hansabel Partners LLC, a Delaware limited liability
company in which Hanseatic Corporation ("Hanseatic") is the sole managing
member. The remaining shares are held by Hanseatic for discretionary
customer accounts, and include 12,121 shares of Common Stock issuable upon
exercise of an outstanding warrant. Mr. Biddelman is the treasurer of
Hanseatic and holds shared voting and investment power with respect to the
shares held by Hanseatic. In addition, Mr. Wolfgang Traber is the holder
of a majority of the shares of capital stock of Hanseatic. The address of
Hanseatic, Mr. Traber and Mr. Biddelman is 450 Park Avenue, New York, New
York 10022.
(5) The address of Citicorp Venture Capital, Ltd. is 399 Park Avenue, New
York, New York.
(6) See "Certain Relationships and Related Transactions -- Transactions with
Directors and Stockholders" for a description of the stockholders'
agreement among the Company, Hanseatic, and Stephen Russell.
(7) The address of Columbia Funds Management Company is 1300 SW Sixth Avenue,
P. O. Box 1350, Portland, Oregon 97207.
(8) This information is based upon Schedules 13f filed with the Securities and
Exchange Commission for the June 30, 1996 reporting period.
(9) See footnotes (3) through (6) above.
(10) Excludes options to acquire 40,001 shares of Common Stock by Leonard R.
Bennett, who resigned from his positions as Director, President and Chief
Operating Officer for the Company effective July 3, 1996.
Except as noted in the footnotes, the Company has been advised that the
beneficial holders listed in the table above have sole voting and investment
power regarding the shares shown as being beneficially owned by them. Except as
noted in the footnotes, none of such shares is known by the Company to be shares
with respect to which the beneficial owner has the right to acquire beneficial
ownership.
71
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND STOCKHOLDERS
Stephen Russell, Chairman and Chief Executive Officer of the Company, and
Leonard R. Bennett, President and Chief Operating Officer of the Company, were
parties to a voting agreement pursuant to which they agreed to vote their shares
of Common Stock for the other's designee or, upon the death of Mr. Russell or
Mr. Bennett, for the designee of the holder of a majority of the decedent's
shares of Common Stock on the date of death, as director of the Company. Messrs.
Russell and Bennett were the designees pursuant to such agreement. The agreement
was terminated upon Mr. Bennett's resignation from the Company on July 3, 1996.
Additionally, during fiscal year 1996, Mr. Bennett's wife, Barbara Bennett, and
his son, Peter Bennett, were executive vice president of the logistics division,
and executive vice president-administration of the Company, respectively. In
that connection, Mr. Bennett's wife was paid $104,111 in fiscal 1996, and his
son was paid $134,895 fiscal 1996. Both Mr. Bennett's wife and son resigned as
officers and employees effective July 3, 1996.
On July 3, 1996, Leonard R. Bennett, President Chief Operating Officer and
a Director of the Company resigned as an Officer and Director of the Company and
all of its subsidiaries. At that time, he also released the Company from its
obligations under his employment contract. The Company entered into a three year
noncompete and consulting agreement with Mr. Bennett which provided for annual
payments of $268,396 and continuation of certain disability and life insurance
benefits. The agreement can be cancelled by either party for cause. Mr. Bennett
acquired the Company's 80.5% interest in Celsur Inc. for a total of 100,000
shares of Celadon Group, Inc. common stock and $2,440,645 in the form of a
personal note, bearing interest at the prime commercial lending rate of the
Chase Manhattan Bank, N.A. New York, New York. and payable October 3, 1996.
On July 3, 1996, Peter Bennett, Executive Vice President Administration of
Celadon Trucking Services, Inc., (CTSI), the Company's principal operating
subsidiary, resigned as an officer and employee of CTSI. The Company entered
into a one year noncompete and consulting contract with Mr. Bennett providing
for an annual payment of $60,000.
The Company and CVC, a principal stockholder of the Company, and of which
Kilin To, a director of the Company, was an officer, entered into a registration
rights agreement, dated as of April 7, 1988, in connection with CVC's purchase
of 1,000,000 shares of Series F Convertible Preferred Stock and warrants (all of
which have been converted or exercised, as the case may be, at a weighted
average price of $3.08 per share into shares of Common Stock). Under the terms
of such agreement, CVC and its permitted transferees have the right to require
the Company to file, subject to certain terms and conditions, a registration
statement for any or all of the 476,894 shares of Common Stock covered by such
agreement which are then held by the requesting holders. In addition, CVC and
its permitted transferees have the right to require the Company to include,
subject to certain exceptions, any or all of the shares of Common Stock covered
by such agreement in any registration statement filed by the Company.
72
The Company and Hanseatic, a corporation of which Paul Biddelman, a
director of the Company, is an officer, entered into a registration rights
agreement, dated as of October 8, 1992, in connection with Hanseatic's purchase
of a 9.25% Senior Subordinated Convertible Note (the "Hanseatic Note") for an
aggregate purchase price of $8,000,000. The Hanseatic Note was converted in
February 1994 into 739,371 shares of Common Stock (equivalent to a conversion
price of $10.82 per share). In connection with the purchase of the Hanseatic
Note, the Company paid Hanseatic a $160,000 facility fee and issued to Hanseatic
a warrant to purchase, at any time prior to September 30, 1998, 12,121 shares of
Common Stock at an exercise price of $10.82 per share. Commencing in July 1996
until October 1998, Hanseatic and its permitted transferees shall have the right
to require the Company to file, subject to certain terms and conditions, a
registration statement in respect of any or all of the shares of Common Stock
(subject to a minimum of 363,636 shares) covered by such agreement which are
then held by the requesting holders. In addition, Hanseatic and its permitted
transferees have the right to require the Company to include, subject to certain
exceptions, any or all shares of Common Stock covered by such agreement in any
registration statement filed by the Company. Such "piggyback" rights, terminate
on the September 30, 2001.
The Company, Hanseatic, Stephen Russell, and Leonard Bennett were parties
to a stockholders' agreement, dated as of October 8, 1992, which was amended on
July 3, 1996 to release Mr. Bennett. The agreement provides that each party
other than Hanseatic must give Hanseatic notice of a proposed sale of any shares
of Common Stock held by it. Hanseatic then has the right to include certain of
its own shares of Common Stock for sale to the prospective purchaser (the "Sale
Option") or, alternatively, Hanseatic has the right to purchase all, but not
less than all, of the shares proposed to be sold, at the same price being
offered by the prospective purchaser (the "Purchase Option"). Hanseatic waived
all of its rights with respect to the Sale Option and the Purchase Option
in connection with the Company's underwritten public offering on January 31,
1995. The agreement also provided that as long as Hanseatic owns, or has the
right to obtain at least 492,282 shares of Common Stock, the Company must
use its best efforts to insure that one member of the Board of Directors is a
designee of Hanseatic. Such voting provisions of this agreement terminated upon
the consummation of the Company's underwritten public offering on January
31, 1995. Prior to January 31, 1995 Mr. Biddelman had been designated by
Hanseatic pursuant to such arrangements. Since July 1996, the agreement has
provided that each party shall vote its shares of Common Stock for the election
as director of one designee of the other party.
Celadon/Jacky Maeder Company leases a 16,000 square foot facility from a
corporation owned by Norman G. Greif, President and Chief Executive Officer of
the Celadon/Jacky Maeder Company and another employee of the Celadon/Jacky
Maeder Company. The current monthly rent is approximately $12,000. The lease
expires on September 30, 1996 and is subject to renewal by Celadon/Jacky Maeder
Company for an additional two-year period. The lessor corporation may terminate
the lease with at least 270 days prior written notice if Mr. Greif's employment
agreement is terminated by the freight forwarding division without cause, or by
Mr. Greif with cause. The lessor received $148,000 in rent from Celadon/Jacky
Maeder Company in fiscal 1996, $146,000 in fiscal 1995, and $147,000 in fiscal
1994.
73
Additionally, CJM's Israeli freight forwarding agent, which has a profit
sharing arrangement with the Company, is 30% owned by Mr. Norman Greif. The
gross profits (freight forwarding revenue less direct transportation of freight
forwarding) in each of 1996, 1995, 1994 and 1993 earned by the Israeli agent
were approximately $302,000, $747,000, $893,000 and $592,000, respectively.
In connection with this agency agreement, the Company agreed in fiscal 1994 to
advance up to $500,000 to its Israeli agent for advancing on behalf of Israeli
customers value added taxes and other prepaid charges incurred by such agent in
its business. As of June 30, 1996, there were no advances outstanding. In fiscal
1995, Randy UK signed an agency agreement with such Israeli agent which expires
in May 2000. Pursuant to the agreement, such Israeli agent will act as Randy
UK's agent and will provide a sales and service representative on behalf
of Randy UK, among other responsibilities. In consideration of this agreement
Randy UK paid to the Israeli agent $47,250. In connection with the wind-down of
the freight forwarding business segment, CJM and the Company resolved certain
disputed items with CJM's Israeli freight forwarding agent. As a result, the
Company recorded a $727,000 bad debt write-off expense as a component of the
loss on discontinued operations.
In connection with the discontinuance of the Company's freight forwarding
line of business the Company has engaged Michael Miller, a director of the
Company, to negotiate termination or restructuring of leases relating to
operating facilities. For his services in this capacity, Mr. Miller received
$60,000 in fiscal year 1996.
In July 1996, the Company guaranteed eight individual one year bank loans
to eight executives aggregating $270,000. The loans range in amount from $9,000
to $54,000, are full recourse to the individual executive and are secured by a
total of 30,000 shares of Celadon Group, Inc. common stock owned by the
executives individually.
74
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE NUMBER OF
ANNUAL REPORT
ON FORM 10-K
------------
(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
Reports of Independent Auditors 27
Consolidated Balance Sheets as of June 30, 1996 and 1995 28
Consolidated Statements of Operations for the years ended
June 30, 1996, 1995 and 1994 29
Consolidated Statements of Cash Flows for the years ended 30
June 30, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1996, 1995 and 1994 31
Notes to Consolidated Financial Statements 32
(2) FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements Schedules as of and for the years
ended June 30, 1996, 1995 and 1994:
Schedule II Valuation and Qualifying Accounts
All other Financial Statements Schedules have been omitted because
they are not required or are not applicable.
75
(3) Exhibits (Numbered in accordance with Item 601 of Regulation S-K).
3.1 --Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 of Form S-1 filed January 20, 1994 (No.
33-72128).
3.2 --Certificate of Amendment of Certificate of Incorporation dated
February 2, 1995 decreasing aggregate number of authorized shares to
12,179,985, of which 179,985 shares of the par value $1.00 per share
shall be designated "Preferred Stock" and 12,000,000 shares of the
par value of $.033 per share shall be designated "Common Stock",
filed herewith.
3.3 --By-laws of the Company. Incorporated by reference to Exhibit 3.2 of
Form S-1 filed January 20, 1994 (No. 33-72128).
10.1 --Amended and Restated Employment Agreement, dated May 13, 1994,
between Norman Greif and Randy International, Ltd., Celadon Group,
Inc. and certain of their affiliates, Incorporated by reference to
Exhibit 10.1 of form 10-K filed October 13, 1994.
10.2 --Employment Agreement, dated September 24, 1993, between Brian Reach
and the Company. Incorporated by reference to Exhibit 10.2 of Form
S-1 filed January 20, 1994 (No. 33-72128).
10.3 --1994 Stock Option Plan of the Company. Incorporated by reference to
Exhibit 10.3 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.4 --401(k) Profit Sharing Plan of the Company. Incorporated by reference
to Exhibit 10.4 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.5 --Employee Stock Ownership Plan and Trust Agreement, effective July 1,
1990. Incorporated by reference to Exhibit 10.5 of Form S-1 filed
January 20, 1994 (No. 33-72128).
10.6 --ESOP Loan Agreement, dated July 2, 1990, among the International
Bank of Commerce, the Company's Employee Stock Ownership Trust, the
Company, and Celadon Trucking Services, Inc. Incorporated by
reference to Exhibit 10.6 of Form S-1 filed January 20, 1994 (No.
33-72128).
10.7 --Stock Purchase Agreement, dated June 30, 1990, among Randy
Acquisition Corp., Norman Greif, Wilfred Lembck, John Rocca, and
Ronald Steele, as amended. Incorporated by reference to Exhibit 10.7
of Form S-1 filed January 20, 1994 (No. 33-72128).
**10.8 --Motor Carrier Transportation Agreement, dated February 1, 1987,
between Chrysler Motors Corporation and the Trucking Division, as
amended. Amendment incorporated by reference to Exhibit 10.8 of Form
10-K filed October 13, 1994.
**10.9 --Motor Carrier Transportation Agreement, effective as of October 1,
1993, between Chrysler Motors Corporation and Celadon Trucking
Services, Inc., as amended. Amendment incorporated by reference to
Exhibit 10.9 of Form 10-K filed October 14, 1994.
10.10 --Registration Rights Agreement, dated February 14, 1991, between
Unibank A/S and the Company. Incorporated by reference to Exhibit
10.21 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.11 --Common Stock Purchase Warrant Agreement, dated February 14, 1991,
between Unibank A/S and the Company. Incorporated by reference to
Exhibit 10.22 of Form S-1 filed January 20, 1994 (No. 33-72128).
76
10.12 --International Bancshares Corporation Warrant to Purchase Shares of
Common Stock, as amended. Incorporated by reference to Exhibit 10.23
of Form S-1 filed January 20, 1994 (No. 33-72128).
10.13 --Registration Rights Agreement, dated April 7, 1988, between
Citicorp Venture Capital, Ltd. and the Company. Incorporated by
reference to Exhibit 10.24 of Form S-1 filed January 20, 1994 (No.
33-72128).
10.14 --Stockholders' Agreement, dated April 7, 1988, among Citicorp
Venture Capital, Ltd., the Company, and the Stockholders set forth
on Schedule I thereto. Incorporated by reference to Exhibit 10.25 of
Form S-1 filed January 20, 1994 (No. 33-72128).
10.15 --Voting Agreement, dated as of October 8, 1992, among the Company,
Stephen Russell, and Leonard R. Bennett. Incorporated by reference
to Exhibit 10.27 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.16 --Registration Rights Agreement, dated October 8, 1992, between the
Company and Hanseatic Corporation. Incorporated by reference to
Exhibit 10.30 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.17 --Stockholders' Agreement, dated October 8, 1992, among the Company,
Stephen Russell, Leonard Bennett, and Hanseatic Corporation.
Incorporated by reference to Exhibit 10.31 of Form S-1 filed January
20, 1994 (No. 33-72128).
10.18 --Warrant Certificate, dated October 8, 1992, to subscribe for and
purchase 12,121 shares of Common Stock of the Company registered in
the name of Deltec Asset Management Corporation, as Custodian for
Hanseatic Corporation. Incorporated by reference to Exhibit 10.33 of
Form S-1 filed January 20, 1994 (No. 33-72128).
10.19 --Lease, dated as of September 13, 1990, between Prime GL Realty
Associates, Inc. and Randy International, Ltd., as amended.
Incorporated by reference to Exhibit 10.34 of Form S-1 filed January
20, 1994 (No. 33-72128). 10.20 -- Joint Venture Operating Agreement,
effective as of September 1, 1993, between the Company and Grupo
Hercel, S.A. de C.V. Incorporated by reference to Exhibit 10.35 of
Form S-1 filed January 20, 1994 (No. 33-72128).
10.21 --Loan and Security Agreement, dated as of June 30, 1992, between
Sanwa General Equipment Leasing, Incorporated and Celadon Trucking
Services, Inc. Incorporated by reference to Exhibit 10.36 of Form
S-1 filed January 20, 1994 (No. 33-72128).
10.22 --Guaranty, dated June 30, 1992, of the Company in favor of Sanwa
General Equipment Leasing, Incorporated. Incorporated by reference
to Exhibit 10.37 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.23 --Lease Agreement, dated November 29, 1989, between Porcelli GMC
Trucks, Inc. and Celadon Trucking Services, Inc. Incorporated by
reference to Exhibit 10.38 of Form S-1 filed January 20, 1994 (No.
33-72128).
10.24 --Lease Agreement, dated February 24, 1993, between Central Jersey
Freightliner and Celadon Trucking Services, Inc. Incorporated by
reference to Exhibit 10.39 of Form S-1 filed January 20, 1994 (No.
33-72128).
10.25 --Lease Agreement, dated October 31, 1991, between Mercedes-Benz
Credit Corp. and Celadon Trucking Services, Inc. Incorporated by
reference to Exhibit 10.40 of Form S-1 filed January 20, 1994 (No.
33-72128).
10.26 --Real Estate Lien Notes made by Celadon Trucking Services, Inc. in
favor of International Bank of Commerce. Incorporated by reference
to Exhibit 10.41 of Form S-1 filed January 20, 1994 (No. 33-72128).
77
10.27 --Promissory Note, dated June 28, 1990, made by the Company in favor
of American National Bank and Trust Company. Incorporated by
reference to Exhibit 10.42 of Form S-1 filed January 20, 1994 (No.
33-72128).
10.28 --Employment Agreement between the Company and Stephen Russell.
Incorporated by reference to Exhibit 10.43 of Form S-1 filed January
20, 1994 (No. 33-72128).
10.29 --Employment Agreement between the Company and Leonard R. Bennett.
Incorporated by reference to Exhibit 10.44 of Form S-1 filed January
20, 1994 (No. 33-72128).
10.30 --Partnership Agreement dated August 24, between Randy International,
Ltd. and Jacky Maeder, Ltd. Incorporated by reference to Exhibit
10.30 of Form 10-K filed October 13, 1994.
10.31 --Global Alliance and Cooperation Agreement dated August 26, 1994
among Celadon Group, Inc; Randy International, Ltd., Jacky Maeder
AG, Jacky Maeder, Ltd. and Celadon-Jacky Maeder Company.
Incorporated by reference to Exhibit 10.31 of Form 10-K filed
October 13, 1994.
10.32 --Non-Qualified Stock Option Agreement dated May 13, 1994, between
Celadon Group, Inc. and Norman Greif. Incorporated by reference to
Exhibit 10.32 of Form 10-K filed October 13, 1994.
10.33 --$35,000,000 Credit Agreement dated June 1, 1994 between Celadon
Group, Inc., Celadon Trucking Services, Inc. and Randy International
Ltd. and NBD Bank N.A. and The First National Bank of Boston.
Incorporated by reference to Exhibit 10.33 of Form 10-K filed
October 13, 1994.
10.34 --First amendment, dated October 31, 1994, to the $35,000,000 Credit
Agreement dated June 1, 1994 between Celadon Group, Inc., Celadon
Trucking Services, Inc. and Randy International, Ltd. and NBD bank
N.A. and the First National Bank of Boston. Incorporated by
reference to Exhibit 10.34 of Form 10-K filed November 30, 1995.
10.35 --Second amendment, dated October 31, 1995, to the $35,000,000 Credit
Agreement dated June 1, 1994 between Celadon Group, Inc., Celadon
Trucking Services, Inc. and Randy International, Ltd. and NBD bank
N.A. and the First National Bank of Boston. Incorporated by
reference to Exhibit 10.35 of Form 10-K filed November 30, 1995.
10.36 --$6,500,000 Credit Agreement dated October 31, 1994 between
Celadon/Jacky Maeder Company and NBD Bank, N.A. and the First
National Bank of Boston. Incorporated by reference to Exhibit 10.36
of Form 10-K filed November 30, 1995.
10.37 --First amendment, dated October 31, 1995, to the $6,500,000 Credit
Agreement dated October 31, 1994 between Celadon/Jacky Maeder
Company and NBD Bank, N.A. Incorporated by reference to Exhibit
10.37 of Form 10-K filed November 30, 1995.
10.38 --Share Purchase Agreement, dated June 30, 1995, between Charles E.
Holland, Michael Kuykendall and Roger Sanderson. Incorporated by
reference to Exhibit 10.38 of Form 10-K filed November 30, 1995.
10.39 --International Bancshares Corporation Warrant extension letter
October 25, 1995. Incorporated by reference to Exhibit 10.39 of Form
10-K filed November 30, 1995.
10.40 --Employment Agreements dated April 1, 1996 and June 28, 1996 between
Don S. Snyder and the Company. Filed herewith.
22 --Subsidiaries.
24.1 --Consent of Ernst & Young LLP.
27 --Financial Data Schedule
- ------------------
** Confidential treatment for portions of this Exhibit has been granted
pursuant to Rule 406 of the Securities Act of 1933, as amended.
78
(4) REPORTS ON FORM 8-K.
On April 3, 1996, the Company filed a Form 8-K reporting the relocation of
the Company headquarters to Indianapolis, IN.
On July 18, 1996, the Company filed a Form 8-K reporting the sale and
purchase of stock of Leonard R. Bennett.
(5) EXHIBITS.
The exhibits required to be filed with this Annual Report on Form-10-K
pursuant to Item 601 of Regulation S-K are listed under "Exhibits" in Part IV,
Item 14(a)(3) of this Annual Report on Form 10-K, and are incorporated herein by
reference.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934 the Registrant has duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized this September 26, 1996.
Celadon Group, Inc.
By: /s/ Stephen Russell
________________________________
STEPHEN RUSSELL,
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1934, this Report on
Form 10-K has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Stephen Russell Chairman of the Board, President September 26, 1996
__________________________ and Chief Executive Officer
(STEPHEN RUSSELL)
/s/ Don S. Snyder Executive Vice President/Chief Financial September 26, 1996
__________________________ Officer of the Company (Principal
(DON S. SNYDER) Financial Officer and Principal
Accounting Officer)
/s/ Paul A. Biddelman Director September 26, 1996
__________________________
(PAUL A. BIDDELMAN)
/s/ Michael Miller Director September 26, 1996
__________________________
(MICHAEL MILLER)
/s/ Kilin To Director September 26, 1996
__________________________
(KILIN TO)
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SCHEDULE II
CELADON GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1996, 1995, and 1994
Balance at Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Additions Deductions Period
- ----------- --------- ---------- --------- ---------- ------
YEAR ENDED JUNE 30, 1994:
Allowance for doubtful
accounts $863,599 $487,415 --- $538,921 (a) $812,093
======== ======== ========== ======== ========
Reserves for claims
payable as self insurer $1,500,000 $3,079,186 --- $3,354,186 (b) $1,225,000
========== ========== ========== ========== ==========
YEAR ENDED JUNE 30, 1995:
Allowance for doubtful
accounts $812,093 $1,069,487 $360,000(c) $911,596 (a) $1,329,984
======== ========== ======== ======== ==========
Reserves for claims
payable as self insurer $1,225,000 $3,237,226 --- $3,142,226 (b) $1,320,000
========== ========== ========= ========== ==========
YEAR ENDED JUNE 30, 1996:
Allowance for doubtful
accounts $1,329,984 $5,124,676 --- $1,023,145 (a) $5,431,515
========== ========== ========== ========== ==========
Reserves for claims
payable as self insurer $1,320,000 $4,387,603 --- $3,737,603 (b) $1,970,000
========== ========== ========== ========== ==========
- -------------------
(a) Represents accounts receivable write-offs.
(b) Represents claims paid.
(c) Represents allowances for uncollectible accounts on books of acquired
companies at dates of acquisitions.
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