Item 7
. Management's Discussion and Analysis of Financial Condition and Results of Operations
Recent Results and Fiscal Year-End Financial Condition
For the fiscal year ended June 30, 2013, total revenue increased 2.4% to $613.6 million from $599.0 million during fiscal 2012. Freight revenue, which excludes revenue from fuel surcharges, increased 2.9% to $489.0 million in fiscal 2013 from $475.1 million in 2012. We generated net income of $27.3 million, or $1.17 per diluted share, for fiscal 2013 compared with net income of $25.5 million, or $1.12 per diluted share, for fiscal 2012.
We believe that an improving economy and decreased industry-wide trucking capacity in fiscal 2013 compared to fiscal 2012 were the major factors contributing to our increase in net income. Average freight revenue per loaded mile excluding fuel surcharge for 2013 increased 1.8% to $1.563 compared with $1.535 per mile in 2012. Average freight revenue per tractor per week increased 0.8% at $2,891 in 2013 compared with $2,869 for 2012, as an improvement in rates was partially offset by fewer miles per seated tractor. Our operating margin, excluding the effect of fuel surcharge (which is calculated as the percentage of operating expenses net of fuel surcharge over trucking revenue), decreased slightly to 90.0% for 2013 compared with 90.2% for 2012.
At June 30, 2013, our total balance sheet debt was $294.4 million and our total stockholders' equity was $225.7 million, for a total debt to capitalization ratio of 56.6%. At June 30, 2013, we had $125.0 million of available borrowing capacity under our revolving credit facility.
Revenue
We generate substantially all of our revenue by transporting freight for our customers. Generally, we are paid by the mile or by the load for our services. We also derive revenue from fuel surcharges, loading and unloading activities, equipment detention, other trucking related services, and warehousing services. The main factors that affect our revenue are the revenue per mile we receive from our customers, the percentage of miles for which we are compensated, the number of tractors operating, and the number of miles we generate with our equipment. These factors relate to, among other things, the U.S. economy, inventory levels, the level of truck capacity in our markets, specific customer demand, the percentage of team-driven tractors in our fleet, driver and independent contractor availability, and our average length of haul.
We eliminate fuel surcharges from revenue when calculating operating ratios and some of our operating data. We believe that eliminating the impact of this sometimes volatile source of revenue affords a more consistent basis for comparing our results of operations from period to period.
Expenses and Profitability
The main factors that impact our profitability on the expense side are the variable costs of transporting freight for our customers. These costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which we record as purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency, and other factors. Our main fixed cost is the acquisition and financing of long-term assets, primarily revenue equipment. We have other mostly fixed costs, such as our non-driver personnel and facilities expenses. In discussing our expenses as a percentage of revenue, we sometimes discuss changes as a percentage of revenue before fuel surcharges, in addition to absolute dollar changes, because we believe the high variable cost nature of our business makes a comparison of changes in expenses as a percentage of revenue more meaningful at times than absolute dollar changes.
The trucking industry has experienced significant increases in expenses over the past several years, in particular those relating to equipment costs, driver compensation, insurance, and fuel. As the United States economy slowed down, many trucking companies were forced to lower freight rates to maintain satisfactory levels of equipment utilization. As the economy continues to improve, we are increasing rates as contracts expire or as the spot quote market allows. Over the long term, we expect a limited pool of qualified drivers and intense competition to recruit and retain those drivers to constrain overall industry capacity, although we expect our recent efforts related to our driving school to improve our driver recruiting. Assuming a return to economic growth in U.S. manufacturing, retail, and other high volume shipping industries, we expect to be able to raise freight rates in line with or faster than expenses.
Revenue Equipment
We operate 3,303 tractors and 8,425 trailers. Of our tractors at June 30, 2013, 1,432 were owned, 244 were acquired under operating leases, 972 were acquired under capital leases, and 655 were provided by independent contractors including drivers in our lease-purchase program. Of our trailers at June 30, 2013, 993 were owned, 1,234 were acquired under operating leases, and 6,198 were acquired under capital leases.
We use a combination of cash and leases to acquire our new tractors. Most of our new trailers are acquired with leases. These leases generally run for a period of three years for tractors and seven years for trailers. When we finance revenue equipment acquisitions with operating leases, rather than borrowings or capital leases, the interest component of our financing activities is recorded as an "above-the-line" operating expense on our statements of operations.
Independent contractors provide a tractor and a driver and are responsible for all operating expenses in exchange for a fixed payment per mile. When utilizing independent contractors, we do not have the capital outlay of purchasing the tractors. The payments to independent contractors are recorded in purchased transportation and the payments for equipment under operating leases are recorded in revenue equipment rentals. Expenses associated with independent contractors, such as interest, depreciation, driver compensation, fuel, and other expenses are not incurred by the Company. Based on these factors we evaluate our efficiency using our operating ratio as well as income before income taxes.
Outlook
Looking forward, our profitability goal is to achieve and maintain an operating ratio of less than 90%. We expect this to require improvements in rate per mile and miles per tractor and decreased non-revenue miles. Because a large percentage of our costs are variable, changes in revenue per mile affect our profitability to a greater extent than changes in miles per tractor. For fiscal 2014, the key factors that we expect to have the greatest effect on our profitability are our freight revenue per tractor per week (which will be affected by the general freight environment, including the balance of freight demand and industry-wide trucking capacity), our compensation of drivers, our cost of revenue equipment (particularly in light of 2010 EPA engine requirements), our fuel costs, and our insurance and claims. We will seek to continue our strategy of engaging in targeted acquisitions to enhance our operations. To overcome cost increases and improve our margins, we will need to achieve increases in freight revenue per tractor. Operationally, we will seek improvements in safety, driver recruiting, and retention. Our success in these areas primarily will affect revenue, driver-related expenses, and insurance and claims expense.
Results of Operations
The following tables set forth the percentage relationship of revenue and expense items to operating and freight revenue for the periods indicated.
|
|
Fiscal year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Operating revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and employee benefits
|
|
|
27.0
|
|
|
|
26.5
|
|
|
|
26.4
|
|
Fuel
|
|
|
23.4
|
|
|
|
26.1
|
|
|
|
24.4
|
|
Purchased transportation
|
|
|
20.5
|
|
|
|
18.2
|
|
|
|
18.8
|
|
Revenue equipment rentals
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
0.3
|
|
Operations and maintenance
|
|
|
5.3
|
|
|
|
6.5
|
|
|
|
7.2
|
|
Insurance and claims
|
|
|
2.5
|
|
|
|
2.3
|
|
|
|
3.2
|
|
Depreciation and amortization
|
|
|
8.3
|
|
|
|
7.9
|
|
|
|
10.0
|
|
Cost of products and services sold
|
|
|
---
|
|
|
|
---
|
|
|
|
0.6
|
|
Communication and utilities
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
0.7
|
|
Operating taxes and licenses
|
|
|
1.7
|
|
|
|
1.7
|
|
|
|
1.7
|
|
General and other operating
|
|
|
1.4
|
|
|
|
1.2
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
92.1
|
|
|
|
92.2
|
|
|
|
94.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7.9
|
|
|
|
7.8
|
|
|
|
5.4
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
0.8
|
|
|
|
0.9
|
|
|
|
1.4
|
|
Other expense (income), net
|
|
|
(0.2
|
)
|
|
|
(0.0
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
7.3
|
|
|
|
6.9
|
|
|
|
4.8
|
|
Provision for income taxes
|
|
|
2.8
|
|
|
|
2.7
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.4
|
%
|
|
|
4.3
|
%
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight revenue
(1)
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and employee benefits
|
|
|
33.9
|
|
|
|
33.5
|
|
|
|
32.2
|
|
Fuel
|
|
|
3.9
|
|
|
|
6.8
|
|
|
|
8.0
|
|
Purchased transportation
|
|
|
25.7
|
|
|
|
22.9
|
|
|
|
22.8
|
|
Revenue equipment rentals
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
0.3
|
|
Operations and maintenance
|
|
|
6.7
|
|
|
|
8.3
|
|
|
|
8.8
|
|
Insurance and claims
|
|
|
3.1
|
|
|
|
2.9
|
|
|
|
3.9
|
|
Depreciation and amortization
|
|
|
10.4
|
|
|
|
9.9
|
|
|
|
12.2
|
|
Cost of products and services sold
|
|
|
---
|
|
|
|
---
|
|
|
|
0.8
|
|
Communication and utilities
|
|
|
1.1
|
|
|
|
0.9
|
|
|
|
0.9
|
|
Operating taxes and licenses
|
|
|
2.1
|
|
|
|
2.2
|
|
|
|
2.1
|
|
General and other operating
|
|
|
1.7
|
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
90.0
|
|
|
|
90.2
|
|
|
|
93.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
10.0
|
|
|
|
9.8
|
|
|
|
6.6
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
1.0
|
|
|
|
1.2
|
|
|
|
1.8
|
|
Other expense (income), net
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
9.1
|
|
|
|
8.7
|
|
|
|
5.9
|
|
Provision for income taxes
|
|
|
3.6
|
|
|
|
3.4
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5.6
|
%
|
|
|
5.4
|
%
|
|
|
3.3
|
%
|
(1)
|
Freight revenue is total operating revenue less fuel surcharges. In this table, fuel surcharges are eliminated from revenue and subtracted from fuel expense. The amounts were $124.6 million, $123.8 million, and $101.2 million in fiscal 2013, 2012, and 2011, respectively.
|
Fiscal year ended June 30, 2013, compared with fiscal year ended June 30, 2012
Total revenue increased by $14.7 million, or 2.5%, to $613.6 million for fiscal 2013, from $599.0 million for fiscal 2012. Freight revenue increased by $13.9 million, or 2.9%, to $489.0 million for fiscal 2013, from $475.1 million for fiscal 2012. This increase was primarily attributable to an increase in freight rates due to the recovering economy and reduced capacity. Average freight revenue per loaded mile, excluding fuel surcharge, increased to $1.563 in fiscal 2013 from $1.535 for fiscal 2012, or 1.8%. This increase was partially offset by a decrease in loaded miles to 241.8 million in fiscal 2013, compared to 244.2 million in fiscal 2012. We expect our freight rates to maintain an upward trend through the end of the calendar year as industry capacity appears to continue to tighten. While average seated tractor count had little variation between fiscal 2012 and fiscal 2013, we expect average seated tractor count to improve as a result of the driver school and other recruiting efforts.
Fuel surcharge revenue increased to $124.6 million from $123.8 million for fiscal 2013 and 2012, respectively. Fuel surcharge increased as United States Department of Energy ("DOE") fuel prices from which our fuel surcharge is calculated increased, offset slightly by a decrease in loaded miles in fiscal 2013.
Revenue for our asset-light segment increased to $44.0 million in fiscal 2013 compared to $42.2 million in fiscal 2012, or 4.2%. The increase is primarily related to increased revenues in our LTL and warehousing business offset by a decrease in brokerage revenues. TruckersB2B was sold into a joint venture in February 2011. Therefore, our share of the operations of TruckersB2B is recorded as equity in earnings in Other (income) expense for all of fiscal 2013 and 2012.
Salaries, wages, and employee benefits were $165.5 million, or 27.0% of operating revenue and 33.9% of freight revenue, for fiscal 2013, compared to $158.9 million, or 26.5% of operating revenue and 33.5% of freight revenue, for fiscal 2012. This increase in salaries, wages, and benefits is largely due to increased administrative salaries, recruiting expense, and medical benefits expense. There was an increase of approximately $1.6 million for accelerated vesting of Mr. Stephen Russell’s equity compensation in conjunction with his position change from Chief Executive Officer and Chairman of the Board of Directors to solely Chairman of the Board of Directors. The implementation of a driving school in March 2013 increased our recruiting expense. These factors were partially offset by slightly lower driver payroll in the current year as a result of a decrease in company driver miles offset by an increase in pay per mile. If we increase our company driver count as a percentage of our total fleet we expect salaries, wages, and employee benefits will increase as a result of a higher percentage of company drivers in our fleet, offset by reduced recruiting costs.
Fuel expenses, without reduction for fuel surcharge revenue, decreased to $143.8 million, or 23.4% of operating revenue, for fiscal 2013, compared to $156.2 million, or 26.1% of operating revenue, for fiscal 2012. Fuel expenses, net of fuel surcharge revenue of $124.6 million and $123.8 million for fiscal 2013 and fiscal 2012, respectively, decreased to $19.2 million, or 3.9% of freight revenue, for fiscal 2013, compared to $32.4 million, or 6.8% of freight revenue, for fiscal 2012. These decreases were attributable to higher freight and fuel surcharge revenue as noted above and a decrease in gallons purchased due to a decrease in total miles and our continued improvement in our average miles per gallon. Average DOE fuel prices increased 1.8% to $3.97 per gallon for fiscal 2013, from $3.90 per gallon for fiscal 2012. We expect that our continued efforts to reduce idling and operate more fuel-efficient tractors will continue to have a positive impact on our miles per gallon. However, we expect this positive impact to be partially offset by increasing fuel costs per gallon, lower fuel economy on EPA-mandated new engines, and the use of more costly ultra-low sulfur diesel fuel.
Purchased transportation increased to $125.7 million, or 20.5% of operating revenue and 25.7% of freight revenue, for fiscal 2013, from $108.9 million, or 18.2% of operating revenue and 22.9% of freight revenue, for fiscal 2012. The increase is primarily related to increases in our independent contractor expense due to an increase in independent contractor miles for fiscal 2013 compared to fiscal 2012. Independent contractors are drivers who cover all their operating expenses (fuel, driver salaries, maintenance, and equipment costs) for a fixed payment per mile. The number of independent contractors increased to 669 at June 30, 2013, compared with 392 at June 30, 2012. We also had increases in intermodal transportation and third party logistic provider expense offset by a decrease in brokerage expense. We expect purchased transportation to increase as we attempt to increase the number of independent contractors in our fleet and continue to increase our purchased transportation for brokerage and intermodal transportation.
Operations and maintenance consist of direct operating expense, maintenance, physical damage, and tire expense. This category decreased to $32.7 million, or 5.3% of operating revenue and 6.7% of freight revenue, for fiscal 2013, from $39.2 million, or 6.5% of operating revenue and 8.3% of freight revenue, for fiscal 2012. The decrease in fiscal 2013 is primarily related to a decrease in average tractor age to 1.4 years and average trailer age to 2.2 years, as well as a decrease in costs associated with tractor maintenance as the number of tractors covered under warranty has increased and we incurred lower tire expense as we continued to refresh our fleets. We expect our operations and maintenance expense to be similar to the current level going forward, subject to implementation of CSA requirements that may impact these expenses.
Insurance and claims expense increased to $15.3 million, or 2.5% of operating revenue and 3.1% of freight revenue, for fiscal 2013, compared to $13.9 million, or 2.3% of operating revenue and 2.9% of freight revenue, for fiscal 2012. Insurance consists of premiums for liability, physical damage, cargo, and workers' compensation insurance. These increases are attributable to an increase in liability claims and workers' compensation claims due to an increase in the number and/or severity of claims reported including loss development. Our insurance program involves self-insurance at various risk retention levels. Claims in excess of these risk levels are covered by insurance in amounts we consider to be adequate. We accrue for the uninsured portion of claims based on known claims and historical experience. We continually review and adjust our insurance program to maintain a balance between premium expense and the risk retention we are willing to assume. We expect our insurance and claims expense to be consistent with historical average amounts going forward. However, this category will vary based upon the frequency and severity of claims, the level of self-insurance, and premium expense.
Depreciation and amortization, consisting primarily of depreciation of revenue equipment and net gains/losses on the sale of equipment, increased to $50.8 million, or 8.3% of operating revenue and 10.4% of freight revenue, in fiscal 2013, compared to $47.2 million, or 7.9% of operating revenue and 9.9% of freight revenue, for fiscal 2012. These increases are primarily related to a decrease in the gains recognized on the sale of equipment in fiscal 2013 compared to gains recognized on sales in fiscal 2012. Revenue equipment held under operating leases is not reflected on our balance sheet and the expenses related to such equipment are reflected on our statements of operations in revenue equipment rentals, rather than in depreciation and amortization and interest expense, as is the case for revenue equipment that is financed with borrowings or capital leases. We expect minimal gains for 2014 as our tractor and trailer refresh cycle is nearly complete. Accordingly, we expect depreciation and amortization to increase.
All of our other expenses are relatively minor in amount, and there were no significant changes in these expenses. Accordingly, we have not provided a detailed discussion of such expenses.
Our pretax margin, which we believe is a useful measure of our operating performance because it is neutral with regard to the method of revenue equipment financing that a company uses, increased to 7.3% of operating revenue and 9.1% of freight revenue for fiscal 2013, from 6.9% of operating revenue and 8.7% of freight revenue for fiscal 2012.
Income taxes increased to $17.5 million for fiscal 2013, from to $16.0 million for fiscal 2012, resulting from a higher pre-tax income. Due to the non-deductible effects of our driver per diem pay structure, our tax rate will fluctuate from the 35% standard federal rate in future periods as net income fluctuates. Going forward, we expect our effective tax rate will be approximately 38% to 41%.
As a result of the factors described above, net income increased to $27.3 million for fiscal 2013, from $25.5 million for fiscal 2012.
Fiscal year ended June 30, 2012, compared with fiscal year ended June 30, 2011
Total revenue increased by $30.8 million, or 5.4%, to $599.0 million for fiscal 2012, from $568.2 million for fiscal 2011. Freight revenue increased by $8.1 million, or 1.7%, to $475.1 million for fiscal 2012, from $467.0 million for fiscal 2011. This increase was primarily attributable to an increase in freight rates, due to the slowly recovering economy and reduced capacity. Average freight revenue per loaded mile, excluding fuel surcharge, increased to $1.535 in fiscal 2012 from $1.481 for fiscal 2011, or 3.6%. These increases were partially offset by a decrease in loaded miles to 244.2 million in fiscal 2012, compared to 248.5 million in fiscal 2011.
Fuel surcharge revenue increased to $123.8 million from $101.2 million for fiscal 2012 and 2011, respectively. Fuel surcharge increased as cost per gallon of fuel increased offset slightly by a decrease in loaded miles throughout the year.
Revenue for our asset-light segment increased to $42.2 million in fiscal 2012 compared to $40.7 million in fiscal 2011, or 3.7%. The increase is primarily related to increased revenues in our warehousing services. TruckersB2B was sold into a joint venture in February 2011. Therefore, our share of the operations of TruckersB2B is recorded as equity in earnings in Other (income) expense only for March 2011 through June 2011, which does not reflect revenue or operating expenses in the consolidated Statement of Operations. Truckers B2B is recorded as equity in earnings in Other (income) expense for all of fiscal 2012.
Salaries, wages, and employee benefits were $158.9 million, or 26.5% of operating revenue and 33.5% of freight revenue, for fiscal 2012, compared to $150.2 million, or 26.4% of operating revenue and 32.2% of freight revenue, for fiscal 2011. This increase in salaries, wages, and benefits is largely due to increased administrative salaries, driver payroll, recruiting expense, and medical benefits expense. Driver payroll increased in fiscal 2012 as a result of an increase in company driver miles and a decrease in independent contractor miles, in comparison to fiscal 2011.
Fuel expenses, without reduction for fuel surcharge revenue, increased to $156.2 million, or 26.1% of operating revenue in fiscal 2012, compared to $138.5 million, or 24.4% of operating revenue, for fiscal 2011. Fuel expenses, net of fuel surcharge revenue of $123.8 million and $101.2 million for fiscal 2012 and fiscal 2011, respectively, decreased to $32.4 million, or 6.8% of freight revenue, for fiscal 2012, compared to $37.3 million, or 8.0% of freight revenue, for fiscal 2011. These decreases were attributable to higher freight and fuel surcharge revenue as noted above. Gallons purchased for fiscal 2012 were consistent with fiscal 2011, while average fuel prices increased 13.7% to $3.90 per gallon for fiscal 2012, from $3.43 per gallon for fiscal 2011.
Purchased transportation increased to $108.9 million for fiscal 2012, from $106.7 million for fiscal 2011. As a percentage of operating revenue, purchased transportation decreased to 18.2% in fiscal 2012 compared to 18.8% in fiscal 2011, and increased to 22.9% of freight revenue in fiscal 2012, compared to 22.8% of freight revenue in fiscal 2011. The increase in purchased transportation for fiscal 2012 is primarily related to increases in our third party services for brokerage and intermodal transportation as we continue to develop and increase those offerings. Offsetting these increases was a decrease in independent contractor settlements. The number of independent contractors decreased to 392 at June 30, 2012, compared with 423 at June 30, 2011. Independent contractors are drivers who cover all of their operating expenses (fuel, driver salaries, maintenance, and equipment costs) for a fixed payment per mile.
Operations and maintenance consist of direct operating expense, maintenance, physical damage, and tire expense. This category decreased to $39.2 million, or 6.5% of operating revenue and 8.3% of freight revenue, for fiscal 2012, from $41.1 million, or 7.2% of operating revenue and 8.8% of freight revenue, for fiscal 2011. The decrease in fiscal 2012 is primarily related to a decrease in average tractor age to 1.5 years and average trailer age to 2.8 years, as well as a decrease in costs associated with tractor maintenance as tractors covered under warranty have increased, and lower tire expense as we continued to refresh our fleets.
Insurance and claims expense decreased to $13.9 million, or 2.3% of operating revenue and 2.9% of freight revenue, for fiscal 2012, compared to $18.2 million, or 3.2% of operating revenue and 3.9% of freight revenue for fiscal 2011. Insurance consists of premiums for liability, physical damage, cargo, and workers' compensation insurance. These decreases are attributable to a decrease in liability claims, workers' compensation claims, and cargo claims expense, due to a decrease in the number and/or severity of claims reported including loss development. Our insurance program involves self-insurance at various risk retention levels. Claims in excess of these risk levels are covered by insurance in amounts we consider to be adequate. We accrue for the uninsured portion of claims based on known claims and historical experience. We continually review and revise our insurance program to maintain a balance between premium expense and the risk retention we are willing to assume.
Depreciation and amortization, consisting primarily of depreciation of revenue equipment and net gains/losses on the sale of equipment, decreased to $47.2 million, or 7.9% of operating revenue and 9.9% of freight revenue, in fiscal 2012 from $57.0 million, or 10.0% of operating revenue and 12.2% of freight revenue, for fiscal 2011. These decreases are related to lower tractor depreciation expenses and an increase in the gains recognized on the sale of equipment in fiscal 2012 compared to gains recognized on sales in fiscal 2011, partially offset by an increase in trailer depreciation. Revenue equipment held under operating leases is not reflected on our balance sheet and the expenses related to such equipment are reflected on our statements of operations in revenue equipment rentals, rather than in depreciation and amortization and interest expense, as is the case for revenue equipment that is financed with borrowings or capital leases.
All of our other expenses are relatively minor in amount, and there were no significant changes in these expenses. Accordingly, we have not provided a detailed discussion of such expenses.
Our pretax margin, which we believe is a useful measure of our operating performance because it is neutral with regard to the method of revenue equipment financing that a company uses, increased to 6.9% of operating revenue and 8.7% of freight revenue for fiscal 2012, from 4.8% of operating revenue and 5.9% of freight revenue for fiscal 2011.
Income taxes increased to $16.0 million for fiscal 2012, from $12.2 million for fiscal 2011, resulting from a higher pre-tax income. Due to the non-deductible effects of our driver per diem pay structure, our tax rate will fluctuate from the 35% standard federal rate, in future periods as net income fluctuates.
As a result of the factors described above, net income increased to $25.5 million for fiscal 2012, from $15.3 million for fiscal 2011.
Liquidity and Capital Resources
Trucking is a capital-intensive business. We require cash to fund our operating expenses (other than depreciation and amortization), to make capital expenditures and acquisitions, and to repay debt, including principal and interest payments. We frequently consider potential acquisitions, and if we were to consummate an acquisition, our cash requirements would increase and we may have to modify our expected financing sources for the purchase of tractors. Subject to any required lender approval, we may make additional acquisitions, although we do not have any specific acquisition plans at this time. Our principal sources of liquidity are cash generated from operations, bank borrowings, capital and operating lease financing of revenue equipment, and proceeds from the sale of used revenue equipment. At June 30, 2013, our total balance sheet debt, including capital lease obligations, and current maturities, was $294.4 million, compared $230.6 million at June 30, 2012.
As of June 30, 2013, we had on order 200 trailers for delivery through fiscal 2014. There were no tractor orders as of June 30, 2013. These trailer orders represent a capital commitment of approximately $10.9 million, before considering the proceeds of equipment dispositions. In fiscal 2014, we expect to purchase our trailers with both cash generated from operations and leases.
We believe we will be able to fund our operating expenses, as well as our limited commitments for the acquisition of revenue equipment given our average fleet age, over the next twelve months with a combination of cash generated from operations, borrowings available under secured equipment financing or our primary credit facility, equipment sales, and lease financing arrangements. We will continue to have significant capital requirements over the long term, and the availability of the needed capital will depend upon our financial condition and operating results and numerous other factors over which we have limited or no control, including prevailing market conditions and the market price of our common stock. However, based on our operating results, anticipated future cash flows, current availability under our credit facility, expected capital expenditures, and sources of equipment lease financing that we expect will be available to us, we do not expect to experience significant liquidity constraints in the foreseeable future.
Cash Flows
We generated net cash from operating activities of $86.7 million in fiscal 2013, $77.1 million in fiscal 2012, and $70.1 million in fiscal 2011. The increase in net cash provided by operations in fiscal 2013 from fiscal 2012 is due to an increase in accounts payable and accrued expenses.
Net cash used by investing activities was $103.6 million for fiscal 2013, compared to net cash provided by investing activities of $18.5 million for fiscal 2012, and $20.5 million for fiscal 2011. The outflows of investing cash flow are a result of cash used for acquisitions and purchasing equipment, offset by cash provided by disposal and sale of equipment. Capital expenditures primarily for tractors and trailers totaled $169.5 million in fiscal 2013, $95.5 million in fiscal 2012, and $32.2 million in fiscal 2011. These increases are related to our equipment refresh cycle which was nearly completed during the year. We generated proceeds from the sale of property and equipment of $105.4 million in fiscal 2013, $155.5 million in fiscal 2012, and $47.7 million in fiscal 2011.
Net cash used in financing activities was $15.5 million in fiscal 2013, $86.9 million in fiscal 2012, and $86.5 million in fiscal 2011. Financing activity consists primarily of bank borrowings, bank payments, and payment of the principal component of capital lease obligations.
Primary
Credit Agreement
In December 2010, we entered into a new $50 million five-year revolving credit facility agented by Bank of America, N.A. The facility refinanced our previous credit facility and provides for ongoing working capital needs and general corporate purposes. Bank of America, N.A. served as the lead arranger in the facility and Wells Fargo Bank, N.A. also participated in the new facility. The facility provides for ongoing working capital needs and general corporate purposes. In May 2013, we increased our credit facility and extended the maturity. At June 30, 2013, we were authorized to borrow up to $200.0 million under this credit facility, which expires May 2018. The applicable interest rate under this agreement is based on either a base rate equal to Bank of America, N.A.'s prime rate or LIBOR plus an applicable margin between 0.75% and 1.375% that is adjusted quarterly based on our lease adjusted total debt to EBITDAR ratio. At June 30, 2013, the credit facility had an outstanding balance of $74.3 million and $0.7 million utilized for letters of credit. The facility is collateralized by the assets of all the U.S. and Canadian subsidiaries of the Company. We are obligated to comply with certain financial covenants under our credit agreement and we were in compliance with these covenants at June 30, 2013.
Contractual Obligations and Commitments
As of June 30, 2013, our bank loans, capitalized leases, operating leases, other debts, and future commitments have stated maturities or minimum annual payments as follows:
|
|
Cash Requirements
as of June 30, 2013
(in thousands)
Payments Due by Period
|
|
Contractual Obligations
|
|
Total
|
|
|
Less than
One Year
|
|
|
One to
Three Years
|
|
|
Three
to
Five
Years
|
|
|
More Than
Five
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
26,273
|
|
|
$
|
6,588
|
|
|
$
|
10,190
|
|
|
$
|
5,080
|
|
|
$
|
4,415
|
|
Lease residual value guarantees
|
|
|
22,611
|
|
|
|
---
|
|
|
|
12,666
|
|
|
|
---
|
|
|
|
9,945
|
|
Capital lease obligations
(1)
|
|
|
229,251
|
|
|
|
29,275
|
|
|
|
96,208
|
|
|
|
35,755
|
|
|
|
68,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
278,135
|
|
|
|
35,863
|
|
|
|
119,064
|
|
|
|
40,835
|
|
|
|
82,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future purchase of revenue equipment
|
|
|
10,896
|
|
|
|
1,012
|
|
|
|
2,024
|
|
|
|
2,023
|
|
|
|
5,837
|
|
Employment and consulting agreements
(2)
|
|
|
735
|
|
|
|
735
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
Standby letters of credit
|
|
|
707
|
|
|
|
707
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual and cash obligations
|
|
$
|
290,473
|
|
|
$
|
38,317
|
|
|
$
|
121,088
|
|
|
$
|
42,858
|
|
|
$
|
88,210
|
|
(1)
|
Includes interest.
|
(2)
|
The amounts reflected in the table do not include amounts that could become payable to our Chief Executive Officer and President and Chief Operating Officer, under certain circumstances if their employment by the Company is terminated.
|
Inflation, New Emissions Control Regulations, and Fuel Costs
Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations. During the past three years, the most significant effects of inflation have been on revenue equipment prices and fuel prices. New emissions control regulations and increases in commodity prices, wages of manufacturing workers, and other items have resulted in higher tractor prices. We attempt to limit the effects of inflation through increases in freight rates, certain cost control efforts, and limiting the effects of fuel prices through fuel surcharges.
The engines used in our tractors are subject to emissions control regulations, which have substantially increased our operating expenses since additional and more stringent regulation began in 2002. As of June 30, 2013, our tractor fleet has engines compliant with stricter regulations regarding emissions that became effective in 2010. Compliance with such regulations and newly proposed emission regulations is expected to increase the cost of new tractors and could impair equipment productivity, lower fuel mileage, and increase our operating expenses. These adverse effects combined with the uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values that will be realized from the disposition of these vehicles could increase our costs or otherwise adversely affect our business or operations as the regulations impact our business through new tractor purchases.
Fluctuations in the price or availability of fuel, as well as hedging activities, surcharge collection, the percentage of freight we obtain through brokers, and the volume and terms of diesel fuel purchase commitments may increase our costs of operation, which could materially and adversely affect our profitability. We impose fuel surcharges on substantially all accounts. These arrangements may not fully protect us from fuel price increases and also may result in us not receiving the full benefit of any fuel price decreases. As of June 30, 2013, we had up to 4% of our estimated fuel purchases hedged through December 2013. With the use of these hedges and any additional future hedges, we may be forced to make cash payments under the hedging arrangements. Based on current market conditions, we have decided to limit our hedging and purchase commitments, but we continue to evaluate such measures. The absence of meaningful fuel price protection through these measures could adversely affect our profitability and results of operation.
Critical Accounting Policies
The preparation of our financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that impact the amounts reported in our consolidated financial statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenues, expenses, and associated disclosures of contingent assets and liabilities are affected by these estimates and assumptions. We evaluate these estimates and assumptions on an ongoing basis, utilizing historical experience, consultation with experts, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates and assumptions, and it is possible that materially different amounts would be reported using differing estimates or assumptions. We consider our critical accounting policies to be those that require us to make more significant judgments and estimates when we prepare our financial statements. Our critical accounting policies include the following:
Depreciation of Property and Equipment.
We depreciate our property and equipment using the straight-line method over the estimated useful life of the asset. We generally use estimated useful lives of 3 to 7 years for new tractors and trailers, and estimated salvage values for new tractors and trailers generally range from 35% to 50% of the capitalized cost. Gains and losses on the disposal of revenue equipment are included in depreciation expense in our statements of operations.
We review the reasonableness of our estimates regarding useful lives and salvage values of our revenue equipment and other long-lived assets based upon, among other things, our experience with similar assets, conditions in the used equipment market, and prevailing industry practice. Changes in our useful life or salvage value estimates or fluctuations in market values that are not reflected in our estimates, could have a material effect on our results of operations.
Revenue equipment and other long-lived assets are tested for impairment whenever an event occurs that indicates an impairment may exist. Expected future cash flows are used to analyze whether an impairment has occurred. If the sum of expected undiscounted cash flows is less than the carrying value of the long-lived asset, then an impairment loss is recognized. We measure the impairment loss by comparing the fair value of the asset to its carrying value. Fair value is determined based on a discounted cash flow analysis or the appraised or estimated market value of the asset, as appropriate.
Claims Reserves and Estimates.
The primary claims arising for us consist of cargo liability, personal injury, property damage, collision and comprehensive, workers' compensation, and employee medical expenses. We maintain self-insurance levels for these various areas of risk and have established reserves to cover these self-insured liabilities. We also maintain insurance to cover liabilities in excess of these self-insurance amounts. Claims reserves represent accruals for the estimated uninsured portion of reported claims, including adverse development of reported claims, as well as estimates of incurred but not reported claims. Reported claims and related loss reserves are estimated by third party administrators, and we refer to these estimates in establishing our reserves. Claims incurred but not reported are estimated based on our historical experience and industry trends, which are continually monitored, and accruals are adjusted when warranted by changes in facts and circumstances. In establishing our reserves we must take into account and estimate various factors, including, but not limited to, assumptions concerning the nature and severity of the claim, the effect of the jurisdiction on any award or settlement, the length of time until ultimate resolution, inflation rates in health care, and in general interest rates, legal expenses, and other factors. Our actual experience may be different than our estimates, sometimes significantly. Changes in assumptions as well as changes in actual experience could cause these estimates to change in the near term. Insurance and claims expense will vary from period to period based on the severity and frequency of claims incurred in a given period.
Derivative Instruments and Hedging Activity.
We use derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates and fuel prices. Derivative financial instruments related to currency exchange rates and heating oil (fuel prices) include forward purchase and sale agreements which generally have terms no greater than 18 months.
To account for our derivative financial instruments, we follow the provisions of ASC Topic 815, "Derivatives and Hedging." Derivative financial instruments are recognized on the Consolidated Balance Sheets as either assets or liabilities and are measured at fair value. Changes in the fair value of derivatives are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is designated and effective as part of a hedge transaction, and if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item. These activities have not had a material impact on our financial position or results of operations for the periods presented herein.
Accounting for Income Taxes.
Deferred income taxes represent a substantial liability on our consolidated balance sheet. Deferred income taxes are determined in accordance with ASC Topic 740-10 Income Taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry-forwards. We evaluate our tax assets and liabilities on a periodic basis and adjust these balances as appropriate. We believe that we have adequately provided for our future tax consequences based upon current facts and circumstances and current tax law. However, should our tax positions be challenged and not prevail, different outcomes could result and have a significant impact on the amounts reported in our consolidated financial statements.
The carrying value of our deferred tax assets (tax benefits expected to be realized in the future) assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits. If these estimates and related assumptions change in the future, we may be required to reduce the value of the deferred tax assets resulting in additional income tax expense. We believe that it is more likely than not that the deferred tax assets, net of valuation allowance, will be realized, based on forecasted income. However, there can be no assurance that we will meet our forecasts of future income. We evaluate the deferred tax assets on a periodic basis and assess the need for additional valuation allowances.
Federal income taxes are provided on that portion of the income of foreign subsidiaries that is expected to be remitted to the United States.
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU No. 2013-02, "
Comprehensive Income
(ASC Topic 220):
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
" ("ASU 2013-02"), which amends current comprehensive income guidance. The Company will be required to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required that provide additional detail about those amounts. The amendment is effective prospectively for public entities in fiscal years, and interim periods within those years, beginning after December 15, 2012. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.
Item 8
. Financial Statements and Supplementary Data
The following statements are filed with this report:
Report of Independent Registered Public Accounting Firm;
Consolidated Statements of Operations;
Consolidated Statements of Comprehensive Income;
Consolidated Balance Sheets;
Consolidated Statements of Cash Flows;
Consolidated Statements of Stockholders' Equity; and
Notes to Consolidated Financial Statements.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Celadon Group, Inc.:
We have audited the accompanying consolidated balance sheets of Celadon Group, Inc. and subsidiaries (the "Company") as of June 30, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, cash flows, and stockholders' equity for each of the years in the three-year period ended June 30, 2013. In connection with our audits of the consolidated financial statements, we have also audited the financial statement Schedule II. We also have audited the Company's internal control over financial reporting as of June 30, 2013, based on criteria established in
Internal Control — Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control over Financial Reporting
. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Celadon Group, Inc. and subsidiaries as of June 30, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement Schedule II, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, Celadon Group, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of June 30, 2013, based on criteria established in
Internal Control — Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
Indianapolis, Indiana
September 12, 2013
CELADON GROUP, INC.
CONS
OLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 2013, 2012, and 2011
(Dollars and shares in thousands, except per share amounts)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Freight revenue
|
|
$
|
489,035
|
|
|
$
|
475,116
|
|
|
$
|
467,002
|
|
Fuel surcharges
|
|
|
124,613
|
|
|
|
123,836
|
|
|
|
101,247
|
|
Total revenue
|
|
|
613,648
|
|
|
|
598,952
|
|
|
|
568,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and employee benefits
|
|
|
165,485
|
|
|
|
158,948
|
|
|
|
150,156
|
|
Fuel
|
|
|
143,807
|
|
|
|
156,207
|
|
|
|
138,470
|
|
Purchased transportation
|
|
|
125,741
|
|
|
|
108,866
|
|
|
|
106,676
|
|
Revenue equipment rentals
|
|
|
6,973
|
|
|
|
5,986
|
|
|
|
1,559
|
|
Operations and maintenance
|
|
|
32,669
|
|
|
|
39,189
|
|
|
|
41,108
|
|
Insurance and claims
|
|
|
15,251
|
|
|
|
13,899
|
|
|
|
18,239
|
|
Depreciation and amortization
|
|
|
50,767
|
|
|
|
47,214
|
|
|
|
56,979
|
|
Cost of products and services sold
|
|
|
---
|
|
|
|
---
|
|
|
|
3,537
|
|
Communications and utilities
|
|
|
5,408
|
|
|
|
4,292
|
|
|
|
4,157
|
|
Operating taxes and licenses
|
|
|
10,451
|
|
|
|
10,308
|
|
|
|
9,854
|
|
General and other operating
|
|
|
8,424
|
|
|
|
7,284
|
|
|
|
6,728
|
|
Total operating expenses
|
|
|
564,976
|
|
|
|
552,193
|
|
|
|
537,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
48,672
|
|
|
|
46,759
|
|
|
|
30,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,931
|
|
|
|
5,684
|
|
|
|
8,210
|
|
Interest income
|
|
|
---
|
|
|
|
(56
|
)
|
|
|
(63
|
)
|
Income from sale of majority interest in subsidiary
|
|
|
---
|
|
|
|
---
|
|
|
|
(4,142
|
)
|
Other income, net
|
|
|
(994
|
)
|
|
|
(412
|
)
|
|
|
(643
|
)
|
Income before income taxes
|
|
|
44,735
|
|
|
|
41,543
|
|
|
|
27,424
|
|
Provision for income taxes
|
|
|
17,471
|
|
|
|
16,007
|
|
|
|
12,162
|
|
Net income
|
|
$
|
27,264
|
|
|
$
|
25,536
|
|
|
$
|
15,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.17
|
|
|
$
|
1.12
|
|
|
$
|
0.67
|
|
Basic earnings per share
|
|
$
|
1.20
|
|
|
$
|
1.15
|
|
|
$
|
0.69
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
23,393
|
|
|
|
22,872
|
|
|
|
22,632
|
|
Basic
|
|
|
22,641
|
|
|
|
22,264
|
|
|
|
22,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
CELADON GROUP, INC.
CONSO
LIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended June 30, 2013, 2012, and 2011
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
27,264
|
|
|
$
|
25,536
|
|
|
$
|
15,262
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on fuel derivative instruments, net of tax
|
|
|
104
|
|
|
|
(446
|
)
|
|
|
386
|
|
Unrealized gain (loss) on currency derivative instruments, net of tax
|
|
|
(78
|
)
|
|
|
(96
|
)
|
|
|
297
|
|
Foreign currency translation adjustments
|
|
|
(324
|
)
|
|
|
(3,469
|
)
|
|
|
2,192
|
|
Total other comprehensive income (loss)
|
|
|
(298
|
)
|
|
|
(4,011
|
)
|
|
|
2,875
|
|
Comprehensive income
|
|
$
|
26,966
|
|
|
$
|
21,525
|
|
|
$
|
18,137
|
|
See accompanying notes to consolidated financial statements.
CELADON GROUP, INC.
CONS
OLIDATED BALANCE SHEETS
June 30, 2013 and 2012
(Dollars and shares in thousands except par value amounts)
ASSETS
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,315
|
|
|
$
|
33,646
|
|
Trade receivables, net of allowance for doubtful accounts of $919 and $1,007 in 2013 and 2012, respectively
|
|
|
77,623
|
|
|
|
67,615
|
|
Prepaid expenses and other current assets
|
|
|
13,434
|
|
|
|
10,910
|
|
Tires in service
|
|
|
1,245
|
|
|
|
1,805
|
|
Equipment held for resale
|
|
|
9,923
|
|
|
|
7,908
|
|
Income tax receivable
|
|
|
9,506
|
|
|
|
---
|
|
Deferred income taxes
|
|
|
4,342
|
|
|
|
4,160
|
|
Total current assets
|
|
|
117,388
|
|
|
|
126,044
|
|
Property and equipment
|
|
|
612,236
|
|
|
|
483,327
|
|
Less accumulated depreciation and amortization
|
|
|
115,366
|
|
|
|
112,871
|
|
Net property and equipment
|
|
|
496,870
|
|
|
|
370,456
|
|
Tires in service
|
|
|
1,785
|
|
|
|
2,487
|
|
Goodwill
|
|
|
17,730
|
|
|
|
16,702
|
|
Investment in joint venture
|
|
|
4,604
|
|
|
|
3,491
|
|
Other assets
|
|
|
2,785
|
|
|
|
1,531
|
|
Total assets
|
|
$
|
641,162
|
|
|
$
|
520,711
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,401
|
|
|
$
|
7,734
|
|
Accrued salaries and benefits
|
|
|
11,197
|
|
|
|
13,854
|
|
Accrued insurance and claims
|
|
|
10,092
|
|
|
|
10,138
|
|
Accrued fuel expense
|
|
|
7,461
|
|
|
|
4,896
|
|
Other accrued expenses
|
|
|
20,070
|
|
|
|
19,044
|
|
Income taxes payable
|
|
|
---
|
|
|
|
1,483
|
|
Current maturities of capital lease obligations
|
|
|
25,669
|
|
|
|
45,135
|
|
Total current liabilities
|
|
|
84,890
|
|
|
|
102,284
|
|
Capital lease obligations, net of current maturities
|
|
|
190,625
|
|
|
|
185,436
|
|
Long-term debt
|
|
|
78,137
|
|
|
|
---
|
|
Deferred income taxes
|
|
|
61,821
|
|
|
|
38,210
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.033 par value, authorized 40,000 shares; issued and outstanding 23,887 and 23,984 shares at June 30, 2013 and 2012, respectively
|
|
|
788
|
|
|
|
791
|
|
Treasury stock at cost; 696 and 1,155 shares at June 30, 2013 and 2012, respectively
|
|
|
(4,811
|
)
|
|
|
(7,966
|
)
|
Additional paid-in capital
|
|
|
103,749
|
|
|
|
101,154
|
|
Retained earnings
|
|
|
131,224
|
|
|
|
105,765
|
|
Accumulated other comprehensive loss
|
|
|
(5,261
|
)
|
|
|
(4,963
|
)
|
Total stockholders' equity
|
|
|
225,689
|
|
|
|
194,781
|
|
Total liabilities and stockholders' equity
|
|
$
|
641,162
|
|
|
$
|
520,711
|
|
See accompanying notes to consolidated financial statements.
CONS
OLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2013, 2012, and 2011
(Dollars in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,264
|
|
|
$
|
25,536
|
|
|
$
|
15,262
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
57,812
|
|
|
|
55,777
|
|
|
|
58,304
|
|
(Gain) / loss on sale of equipment
|
|
|
(6,813
|
)
|
|
|
(8,221
|
)
|
|
|
(1,149
|
)
|
Deferred income taxes
|
|
|
20,537
|
|
|
|
6,627
|
|
|
|
(1,053
|
)
|
Provision for doubtful accounts
|
|
|
(1
|
)
|
|
|
10
|
|
|
|
196
|
|
Stock based compensation expense
|
|
|
3,850
|
|
|
|
2,483
|
|
|
|
2,382
|
|
Gain from sale of majority interest in subsidiary
|
|
|
---
|
|
|
|
---
|
|
|
|
(4,142
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
(2,129
|
)
|
|
|
(3,124
|
)
|
|
|
(3,141
|
)
|
Income tax receivable and payable
|
|
|
(11,124
|
)
|
|
|
(410
|
)
|
|
|
(1,077
|
)
|
Tires in service
|
|
|
2,016
|
|
|
|
5,205
|
|
|
|
(2,634
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,058
|
)
|
|
|
2,631
|
|
|
|
(1,007
|
)
|
Other assets
|
|
|
(1,200
|
)
|
|
|
(910
|
)
|
|
|
(440
|
)
|
Accounts payable and accrued expenses
|
|
|
(2,445
|
)
|
|
|
(8,510
|
)
|
|
|
8,583
|
|
Net cash provided by operating activities
|
|
|
86,709
|
|
|
|
77,094
|
|
|
|
70,084
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(169,511
|
)
|
|
|
(95,457
|
)
|
|
|
(32,152
|
)
|
Proceeds on sale of property and equipment
|
|
|
105,444
|
|
|
|
155,528
|
|
|
|
47,689
|
|
Proceeds from sale of majority interest in subsidiary
|
|
|
---
|
|
|
|
---
|
|
|
|
5,000
|
|
Purchase of available for sale securities
|
|
|
---
|
|
|
|
(4,661
|
)
|
|
|
---
|
|
Sale of securities
|
|
|
---
|
|
|
|
4,922
|
|
|
|
---
|
|
Purchase of businesses, net of cash acquired
|
|
|
(39,484
|
)
|
|
|
(41,856
|
)
|
|
|
---
|
|
Net cash provided by (used in) investing activities
|
|
|
(103,551
|
)
|
|
|
18,476
|
|
|
|
20,537
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
1,892
|
|
|
|
548
|
|
|
|
521
|
|
Borrowings on long-term debt
|
|
|
388,009
|
|
|
|
256,667
|
|
|
|
75,340
|
|
Payments on long-term debt
|
|
|
(333,539
|
)
|
|
|
(256,667
|
)
|
|
|
(75,720
|
)
|
Dividends paid
|
|
|
(1,805
|
)
|
|
|
(1,337
|
)
|
|
|
---
|
|
Principal payments on capital lease obligations
|
|
|
(70,066
|
)
|
|
|
(86,115
|
)
|
|
|
(86,690
|
)
|
Net cash used in financing activities
|
|
|
(15,509
|
)
|
|
|
(86,904
|
)
|
|
|
(86,549
|
)
|
Effect of exchange rates on cash and cash equivalents
|
|
|
20
|
|
|
|
(693
|
)
|
|
|
340
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(32,331
|
)
|
|
|
7,973
|
|
|
|
4,412
|
|
Cash and cash equivalents at beginning of year
|
|
|
33,646
|
|
|
|
25,673
|
|
|
|
21,261
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,315
|
|
|
$
|
33,646
|
|
|
$
|
25,673
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
4,927
|
|
|
$
|
5,683
|
|
|
$
|
8,219
|
|
Income taxes paid
|
|
$
|
8,752
|
|
|
$
|
10,692
|
|
|
$
|
14,670
|
|
Obligations incurred under capital lease
|
|
$
|
55,789
|
|
|
$
|
168,983
|
|
|
$
|
30,289
|
|
See accompanying notes to consolidated financial statements.
CELADON GROUP, INC.
CONS
OLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 2013, 2012, and 2011
(Dollars in thousands, except share amounts)
|
|
Common
Stock
No. of Shares
Outstanding
|
|
|
Amount
|
|
|
Additional
Paid-In
Capital
|
|
|
Treasury
Stock
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income/(Loss)
|
|
|
Total
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
|
22,267,021
|
|
|
$
|
788
|
|
|
$
|
98,640
|
|
|
$
|
(11,064
|
)
|
|
$
|
66,303
|
|
|
$
|
(3,826
|
)
|
|
$
|
150,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
15,262
|
|
|
|
---
|
|
|
|
15,262
|
|
Other comprehensive income (loss)
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
1
|
|
|
|
2,874
|
|
|
|
2,875
|
|
Comprehensive income
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
15,263
|
|
|
|
2,874
|
|
|
|
18,137
|
|
Treasury stock issued
|
|
|
---
|
|
|
|
---
|
|
|
|
(1,013
|
)
|
|
|
993
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(20
|
)
|
Restricted stock and options expense
|
|
|
159,083
|
|
|
|
---
|
|
|
|
2,402
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
2,402
|
|
Exercise of incentive stock
options
|
|
|
96,133
|
|
|
|
---
|
|
|
|
(123
|
)
|
|
|
663
|
|
|
|
---
|
|
|
|
---
|
|
|
|
540
|
|
Balance at June 30, 2011
|
|
|
22,522,237
|
|
|
$
|
788
|
|
|
$
|
99,906
|
|
|
$
|
(9,408
|
)
|
|
$
|
81,566
|
|
|
$
|
(952
|
)
|
|
$
|
171,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
25,536
|
|
|
|
---
|
|
|
|
25,536
|
|
Other comprehensive income (loss)
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(4,011
|
)
|
|
|
(4,011
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,536
|
|
|
|
(4,011
|
)
|
|
|
21,525
|
|
Treasury stock issued
|
|
|
---
|
|
|
|
---
|
|
|
|
(1,047
|
)
|
|
|
1,048
|
|
|
|
---
|
|
|
|
---
|
|
|
|
1
|
|
Restricted stock and options expense
|
|
|
249,840
|
|
|
|
3
|
|
|
|
2,141
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
2,144
|
|
Dividends paid
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(1,337
|
)
|
|
|
---
|
|
|
|
(1,337
|
)
|
Exercise of incentive stock options
|
|
|
57,233
|
|
|
|
---
|
|
|
|
154
|
|
|
|
394
|
|
|
|
---
|
|
|
|
---
|
|
|
|
548
|
|
Balance at June 30, 2012
|
|
|
22,829,310
|
|
|
$
|
791
|
|
|
$
|
101,154
|
|
|
$
|
(7,966
|
)
|
|
$
|
105,765
|
|
|
$
|
(4,963
|
)
|
|
$
|
194,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
27,264
|
|
|
|
---
|
|
|
|
27,264
|
|
Other comprehensive income (loss)
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(298
|
)
|
|
|
(298
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,264
|
|
|
|
(298
|
)
|
|
|
26,966
|
|
Treasury stock issued
|
|
|
---
|
|
|
|
---
|
|
|
|
(1,792
|
)
|
|
|
1,801
|
|
|
|
---
|
|
|
|
---
|
|
|
|
9
|
|
Restricted stock and options expense
|
|
|
164,851
|
|
|
|
(3
|
)
|
|
|
3,849
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
3,846
|
|
Dividends paid
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
(1,805
|
)
|
|
|
---
|
|
|
|
(1,805
|
)
|
Exercise of incentive stock options
|
|
|
196,575
|
|
|
|
---
|
|
|
|
538
|
|
|
|
1,354
|
|
|
|
---
|
|
|
|
---
|
|
|
|
1,892
|
|
Balance at June 30, 2013
|
|
|
23,190,736
|
|
|
$
|
788
|
|
|
$
|
103,749
|
|
|
$
|
(4,811
|
)
|
|
$
|
131,224
|
|
|
$
|
(5,261
|
)
|
|
$
|
225,689
|
|
See accompanying notes to consolidated financial statements.
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013, 2012 and 2011
(1)
|
ORGA
NIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Organization
Celadon Group, Inc. (the "Company"), through its subsidiaries, provides transportation services between the United States, Canada, and Mexico. The Company's primary transportation subsidiaries are: Celadon Trucking Services, Inc. ("CTSI"), a U.S. based company; Celadon Logistics Services, Inc. ("CLSI"), a U.S. based company; Servicio de Transportation Jaguar, S.A. de C.V. ("Jaguar"), a Mexican based company; and Celadon Canada, Inc. ("CelCan"), a Canadian based company.
Summary of Significant Accounting Policies
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Celadon Group, Inc. and its wholly and majority owned subsidiaries, all of which are wholly owned except for Jaguar in which the Company owns 75% of the shares. The entity was set up to allow the Company to operate in Mexico. The minority owner of Jaguar has been refunded all initial capital contributions and is not entitled to receive any future earnings or required to fund any losses of the subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation. Unless otherwise noted, all references to annual periods refer to the respective fiscal years ended June 30.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") 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 liability claims and uncollectible accounts receivable. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of trade receivables. The Company performs ongoing credit evaluations of its customers and does not require collateral for its accounts receivable. The Company maintains reserves which management believes are adequate to provide for potential credit losses. Uncollectible accounts receivable are written off against the reserves. 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 any single customer did not total more than 5% of the Company's gross trade receivables at June 30, 2013.
Property and Equipment
Property and equipment are stated at cost. Property and equipment under capital leases are stated at fair value at the inception of the lease.
Depreciation of property and equipment and amortization of assets under capital leases are computed using the straight-line method and are based on the lesser of the life of the lease or the estimated useful lives of the related assets (net of salvage value) as follows:
Revenue and service equipment
|
3-7 years
|
Furniture and office equipment
|
4-5 years
|
Buildings
|
20 years
|
Leasehold improvements
|
Lesser of life of lease (including expected renewals) or useful life of improvement
|
Initial delivery costs relating to placing tractors in service are expensed as incurred. The cost of maintenance and repairs is charged to expense as incurred.
Long-lived assets are depreciated over estimated useful lives based on historical experience and prevailing industry practice. Estimated useful lives are periodically reviewed to ensure they remain appropriate. Long-lived assets are tested for impairment whenever an event occurs that indicates an impairment may exist. Future cash flows and operating performance are used for analyzing potential impairment losses. If the sum of expected undiscounted cash flows is less than the carrying value an impairment loss is recognized. The Company measures the impairment loss by comparing the fair value of the asset to its carrying value. Fair value is determined based on a discounted cash flow analysis or appraised or estimated market values as appropriate. Long-lived assets that are held for sale are recorded at the lower of carrying value or the fair value less costs to sell.
Equipment held for resale
Equipment held for resale is recorded at the lower of carrying value and fair market value less costs to sell. The Company also ceases the depreciation on these assets.
Tires in Service
Replacement tires on tractors and trailers are included in tires in service and are amortized over 18 to 36 months.
Goodwill
The consolidated balance sheets at June 30, 2013 and 2012 included goodwill of acquired businesses of approximately $17.7 million and $16.7 million respectively. Under ASC Topic 350-20
Intangibles – Goodwill and Other,
goodwill is not amortized but is tested for impairment annually (or more often, if an event or circumstance indicates that an impairment loss has been incurred). On April 1, 2013, we completed our most recent qualitative annual impairment test (under ASU 2010-28) for the fiscal year and concluded that there was no indication of impairment.
Insurance Reserves
The primary claims arising for us consist of cargo liability, personal injury, property damage, collision and comprehensive, workers' compensation, and employee medical expenses. We maintain self-insurance levels for these various areas of risk and have established reserves to cover these self-insured liabilities. We also maintain insurance to cover liabilities in excess of these self-insurance amounts. Claims reserves represent accruals for the estimated uninsured portion of reported claims, including adverse development of reported claims, as well as estimates of incurred but not reported claims. Reported claims and related loss reserves are estimated by third party administrators, and we refer to these estimates in establishing our reserves. Claims incurred but not reported are estimated based on our historical experience and industry trends, which are continually monitored, and accruals are adjusted when warranted by changes in facts and circumstances. In establishing our reserves we must take into account and estimate various factors, including, but not limited to, assumptions concerning the nature and severity of the claim, the effect of the jurisdiction on any award or settlement, the length of time until ultimate resolution, inflation rates in health care, and in general interest rates, legal expenses, and other factors. Our actual experience may be different than our estimates, sometimes significantly. Changes in assumptions as well as changes in actual experience could cause these estimates to change. Insurance and claims expense will vary from period to period based on the severity and frequency of claims incurred in a given period. The administrative expenses associated with these reserves are expensed when paid.
Litigation
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Revenue Recognition
Trucking revenue and related direct costs are recognized on the date freight is delivered by the Company to the customer and collectability is reasonably assured. Prior to commencement of shipment, the Company will negotiate an agreed upon price for services to be rendered.
Advertising
Advertising costs are expensed as incurred by the Company. Advertising expense primarily consists of recruiting for new drivers. Advertising expenses for fiscal 2013, 2012, and 2011 were $2.9 million, $2.2 million, and $1.7 million, respectively, and are included in salaries, wages, and employee benefits and other operating expenses in the consolidated statements of operations.
Income Taxes
Deferred taxes are recognized for tax loss and credit carry forwards and the future tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting, based on enacted tax laws and rates. Federal income taxes are provided on the portion of the income of foreign subsidiaries that is expected to be remitted to the United States.
The Company follows ASC Topic 740-10-25
Income Taxes
, in accounting for uncertainty in income taxes. ASC 740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination.
Accounting for Derivatives
The Company has derivative financial instruments in place to reduce exposure to fuel price fluctuations and currency exposure for Canadian Dollars and Mexican Pesos. Derivative gains/(losses), initially reported as a component of other comprehensive income with an offset to accrued liabilities or other assets, are reclassified to earnings in the period when the forecasted transaction affects earnings. ASC Topic 815,
Derivatives and Hedging,
requires that all derivative instruments be recorded on the balance sheet at their respective fair values.
Earnings per Share ("EPS")
The Company applies the provisions of ASC Topic 260,
Earnings per Share
, which requires companies to present basic EPS and diluted EPS. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Dilutive common stock options are included in the diluted EPS calculation using the treasury stock method.
Stock-based Employee Compensation Plans
The Company applies the provisions of ASC Topic 718,
Compensation – Stock Compensation
, which requires companies to recognize the grant date fair value of stock options and other equity-based compensation issued to employees in its income statement.
Foreign Currency Translation
Foreign financial statements are translated into U.S. dollars in accordance with ASC Topic 830,
Foreign Currency Matters
. 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 included in other comprehensive income.
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU No. 2013-02, "
Comprehensive Income
(ASC Topic 220):
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
" ("ASU 2013-02"), which amends current comprehensive income guidance. The Company will be required to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required that provide additional detail about those amounts. The amendment is effective prospectively for public entities in fiscal years, and interim periods within those years, beginning after December 15, 2012. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.
(2)
|
PROPERTY, EQUIPMENT, AND LEASES
|
Property and equipment consists of the following (in thousands):
|
|
2013
|
|
|
2012
|
|
Revenue equipment owned
|
|
$
|
302,052
|
|
|
$
|
171,211
|
|
Revenue equipment under capital leases
|
|
|
249,703
|
|
|
|
268,052
|
|
Furniture and office equipment
|
|
|
9,083
|
|
|
|
5,393
|
|
Land and buildings
|
|
|
46,377
|
|
|
|
34,089
|
|
Service equipment
|
|
|
1,125
|
|
|
|
956
|
|
Leasehold improvements
|
|
|
3,896
|
|
|
|
3,626
|
|
|
|
$
|
612,236
|
|
|
$
|
483,327
|
|
Included in accumulated depreciation was $34.2 million and $38.7 million in 2013 and 2012, respectively, related to revenue equipment under capital leases. Depreciation and amortization expense relating to property and equipment owned and revenue equipment under capital leases, including gains on disposition of equipment, was $50.8 million in fiscal 2013, $47.2 million in fiscal 2012, and $57.0 million in fiscal 2011.
(3) LEASE OBLIGATIONS AND LONG-TERM DEBT
Lease Obligations
The Company leases certain revenue and service equipment under long-term lease agreements, payable in monthly installments.
Equipment obtained under a capital lease is reflected on the Company's balance sheet as owned and the related lease bears interest at rates ranging from 1.4% to 5.4% per annum, maturing at various dates through 2018.
Assets held under operating leases are not recorded on the Company's balance sheet. The Company leases revenue and service equipment under non-cancellable operating leases expiring at various dates through February 2019.
The Company leases warehouse and office space under non-cancellable operating leases expiring at various dates through July 2017. Certain real estate leases contain renewal options.
Total rental expense under operating leases was as follows for 2013, 2012, and 2011 (in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Revenue and service equipment
|
|
$
|
6,973
|
|
|
$
|
5,986
|
|
|
$
|
1,559
|
|
Office facilities and terminals
|
|
|
2,386
|
|
|
|
2,185
|
|
|
|
3,054
|
|
|
|
$
|
9,359
|
|
|
$
|
8,171
|
|
|
$
|
4,613
|
|
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 June 30,
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
2014
|
|
$
|
29,275
|
|
|
$
|
6,588
|
|
2015
|
|
|
73,603
|
|
|
|
20,301
|
|
2016
|
|
|
22,605
|
|
|
|
2,555
|
|
2017
|
|
|
12,870
|
|
|
|
2,540
|
|
2018
|
|
|
22,885
|
|
|
|
2,540
|
|
Thereafter
|
|
|
68,013
|
|
|
|
14,360
|
|
Total minimum lease payments
|
|
$
|
229,251
|
|
|
$
|
48
,884
|
|
Less amounts representing interest
|
|
|
12,957
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
216,294
|
|
|
|
|
|
Less current maturities
|
|
|
25,669
|
|
|
|
|
|
Non-current portion
|
|
$
|
190,625
|
|
|
|
|
|
The Company is obligated for lease residual value guarantees of $26.3 million, with $6.6 million due in fiscal 2014. The guarantees are included in the future minimum lease payments above. To the extent the expected value at lease termination date is lower than the residual value guarantee; we would accrue for the difference over the remaining lease term. As of June 2013, the Company believes the expected value at lease termination date is greater than the residual value guarantee.
Long-Term Debt
The Company had long term debt of $3.8 million at June 30, 2013 related to the Hyndman acquisition. The fair value of the debt remaining as of June 30, 2013 was substantially the same as the book value. Long term debt includes revenue equipment installment notes with an average interest rate of 3.75 percent at June 30, 2013 due in monthly installments with final maturities at various dates ranging from August 2018 to June 2019.
Lines of Credit
In December 2010, we entered into a new $50 million five-year revolving credit facility agented by Bank of America, N.A. The facility refinanced our previous credit facility and provides for ongoing working capital needs and general corporate purposes. Bank of America, N.A. served as the lead arranger in the facility and Wells Fargo Bank, N.A. also participated in the new facility. The facility provides for ongoing working capital needs and general corporate purposes. In May 2013, we increased our credit facility and extended the maturity. At June 30, 2013, we were authorized to borrow up to $200.0 million under this credit facility, which expires May 2018. The applicable interest rate under this agreement is based on either a base rate equal to Bank of America, N.A.'s prime rate or LIBOR plus an applicable margin between 0.75% and 1.375% that is adjusted quarterly based on our lease adjusted total debt to EBITDAR ratio. At June 30, 2013, the credit facility had an outstanding balance of $74.3 million and $0.7 million utilized for letters of credit. The facility is collateralized by the assets of all the U.S. and Canadian subsidiaries of the Company. We are obligated to comply with certain financial covenants under our credit agreement and we were in compliance with these covenants at June 30, 2013.
(4) EMPLOYEE BENEFIT PLANS
401(k) Profit Sharing Plan
The Company has a 401(k) profit sharing plan, which permits U.S. employees of the Company to contribute up to 50% of their annual compensation, up to certain Internal Revenue Service limits, on a pretax basis. The contributions made by each employee are fully vested immediately and are not subject to forfeiture. The Company makes a discretionary matching contribution of up to 50% of the employee's contribution up to 5% of their annual compensation. Employees vest in the Company's contribution to the plan at the rate of 20% per year from the date of employment anniversary. Contributions made by the Company during fiscal 2013, 2012, and 2011 amounted to $202,000, $128,000, and $109,000, respectively.
All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based upon a grant-date fair value of an award.
In January 2006, stockholders approved the 2006 Omnibus Incentive Plan ("2006 Plan") that provides various vehicles to compensate the Company's key employees. The 2006 Plan utilizes such vehicles as stock options, restricted stock grants, and stock appreciation rights ("SARs"). The 2006 Plan authorized the Company to grant 1,687,500 shares. In November 2008, an additional 1,000,000 shares were authorized under an amendment to the 2006 Plan. In fiscal 2013, the Company granted restricted stock grants covering 189,413 shares. In fiscal 2012, the Company granted restricted stock grants covering 252,593 shares. In fiscal 2011, the Company granted stock options covering 87,500 shares and restricted stock grants covering 187,417 shares. The Company is authorized to grant an additional 69,913 shares.
The total compensation cost that has been recorded for such stock-based awards was an expense of $3.9 million in fiscal 2013, $2.4 million in fiscal 2012, and $2.3 million in fiscal 2011. The total income tax benefit recognized in the statement of operations for share-based compensation arrangements was $1.9 million in fiscal 2013, $1.5 million in fiscal 2012, and $1.4 million in fiscal 2011.
The Company has granted a number of stock options under various plans. Options granted to employees have been granted with an exercise price equal to the market price on the grant date and expire on the tenth anniversary of the grant date. The majority of options granted to employees vest 25 percent per year, commencing with the first anniversary of the grant date. Options granted to non-employee directors have been granted with an exercise price equal to the market price on the grant date, vest over three years with regard to the 2006 Plan grants and four years with respect to all other grants, commencing with the first anniversary of the grant date, and expire on the tenth anniversary of the grant date.
A summary of the activity of the Company's stock option plans as of June 30, 2013, 2012, and 2011 and changes during the period then ended is presented below:
Options
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010
|
|
|
1,506,967
|
|
|
$
|
9.91
|
|
|
|
6.65
|
|
|
$
|
6,375,489
|
|
Granted
|
|
|
87,500
|
|
|
$
|
14.42
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(52,751
|
)
|
|
$
|
9.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(109,633
|
)
|
|
$
|
4.74
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2011
|
|
|
1,432,083
|
|
|
$
|
10.60
|
|
|
|
6.06
|
|
|
$
|
4,866,334
|
|
Granted
|
|
|
---
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(12,560
|
)
|
|
$
|
11.21
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(57,233
|
)
|
|
$
|
9.58
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2012
|
|
|
1,362,290
|
|
|
$
|
10.63
|
|
|
|
5.1
|
|
|
$
|
7,829,713
|
|
Granted
|
|
|
---
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(17,925
|
)
|
|
$
|
13.77
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(195,575
|
)
|
|
$
|
9.57
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2013
|
|
|
1,148,790
|
|
|
$
|
10.76
|
|
|
|
4.1
|
|
|
$
|
8,606,841
|
|
Exercisable at June 30, 2013
|
|
|
1,062,790
|
|
|
$
|
10.69
|
|
|
|
3.9
|
|
|
$
|
8,033,826
|
|
The total intrinsic value of options exercised during fiscal 2013, 2012, and 2011 was $2.0 million, $0.3 million, and $1.0 million, respectively.
As of June 30, 2013, we had $0.3 million of total unrecognized compensation expense related to stock options that is expected to be amortized over a remaining 1.8 years and a weighted average period of 0.7 years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants:
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Weighted-average grant date fair value
|
|
|
---
|
|
|
|
---
|
|
|
$
|
7.83
|
|
Dividend yield
|
|
|
---
|
|
|
|
---
|
|
|
|
0
|
|
Expected volatility
|
|
|
---
|
|
|
|
---
|
|
|
|
59.5
|
%
|
Risk-free interest rate
|
|
|
---
|
|
|
|
---
|
|
|
|
1.53
|
%
|
Expected lives
|
|
|
---
|
|
|
|
---
|
|
|
5.7 years
|
|
Expected volatility is based upon the historical volatility of the Company's stock. The risk-free rate is based upon the U.S. Treasury yield curve in effect at the time of grant. Expected lives are based upon the historical experience of the Company.
Restricted Shares
|
|
Number of Shares
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
Unvested at June 30, 2010
|
|
|
340,692
|
|
|
$
|
10.80
|
|
Granted
|
|
|
187,417
|
|
|
$
|
13.93
|
|
Forfeited
|
|
|
(42,084
|
)
|
|
$
|
10.42
|
|
Vested
|
|
|
(130,395
|
)
|
|
$
|
11.40
|
|
Unvested at June 30, 2011
|
|
|
355,630
|
|
|
$
|
12.27
|
|
Granted
|
|
|
252,593
|
|
|
$
|
12.60
|
|
Forfeited
|
|
|
(2,753
|
)
|
|
$
|
11.44
|
|
Vested
|
|
|
(152,045
|
)
|
|
$
|
12.09
|
|
Unvested at June 30, 2012
|
|
|
453,425
|
|
|
$
|
12.36
|
|
Granted
|
|
|
189,413
|
|
|
$
|
18.58
|
|
Forfeited
|
|
|
(24,437
|
)
|
|
$
|
11.33
|
|
Vested
|
|
|
(262,438
|
)
|
|
$
|
12.64
|
|
Unvested at June 30, 2013
|
|
|
355,963
|
|
|
$
|
15.75
|
|
Restricted shares granted to employees have been granted subject to achievement of certain time-based targets and vest 25% each year, commencing with the first anniversary of the grant date.
As of June 30, 2013, we had $4.6 million of total unrecognized compensation expense related to restricted stock that is expected to be recognized over the remaining weighted average period of approximately 2.7 years.
Stock Appreciation Rights
We had no outstanding stock appreciation rights as of June 30, 2013 and 142,593 outstanding stock appreciation rights as of June 30, 2012. These stock appreciation rights were granted at fair value market price of $8.64 based on the closing market price on the date of the grant and are marked to market at the end of each quarter. All stock rights vested and were paid out in the December 2012 quarter.
(6)
|
STOCK REPURCHASE PROGRAMS
|
On
October 24, 2007, the Company's Board of Directors authorized a stock repurchase program pursuant to which the Company purchased 2,000,000 shares of the Company's common stock in open market transactions at an aggregate cost of approximately $13.8 million. We intend to hold repurchased shares in treasury for general corporate purposes, including issuances under stock option plans. We account for treasury stock using the cost method. At June 30, 2013, 696,198 shares remained in treasury stock.
On August 25, 2010, the Company's Board of Directors authorized a stock repurchase program pursuant to which the Company is authorized to repurchase up to 2,000,000 shares of our common stock. The Company has not repurchased any shares of the Company's common stock under this program.
(7) EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators used in computing earnings per share (in thousands except per share amounts):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,264
|
|
|
$
|
25,536
|
|
|
$
|
15,262
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted - average number of common shares outstanding
|
|
|
22,641
|
|
|
|
22,264
|
|
|
|
22,099
|
|
Basic earnings per share
|
|
$
|
1.20
|
|
|
$
|
1.15
|
|
|
$
|
0.69
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted - average number of common shares outstanding
|
|
|
22,641
|
|
|
|
22,264
|
|
|
|
22,099
|
|
Effect of stock options and other incremental shares
|
|
|
752
|
|
|
|
608
|
|
|
|
533
|
|
Weighted-average number of common shares outstanding – diluted
|
|
|
23,393
|
|
|
|
22,872
|
|
|
|
22,632
|
|
Diluted earnings per share
|
|
$
|
1.17
|
|
|
$
|
1.12
|
|
|
$
|
0.67
|
|
The Company has 39,150 options in fiscal 2013, 90,500 options in fiscal 2012, and 293,000 options in fiscal 2011 that could potentially dilute basic earnings per share that were excluded from the EPS calculation as they are anti-dilutive in the current year.
(8)
|
COMMITMENTS AND CONTINGENCIES
|
The Company has outstanding commitments to purchase approximately $10.9 million of revenue equipment at June 30, 2013.
Standby letters of credit, not reflected in the accompanying consolidated financial statements, aggregated approximately $0.7 million at June 30, 2013. In addition, at June 30, 2013, 500,000 treasury shares were held in a trust as collateral for self-insurance reserves.
The Company has an employment agreement with the Chairman of the Board providing for minimum combined annual compensation of $735,000 in fiscal 2014.
The income tax provision for operations in fiscal 2013, 2012, and 2011, consisted of the following (in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,127
|
)
|
|
$
|
7,285
|
|
|
$
|
10,612
|
|
State and local
|
|
|
(2,110
|
)
|
|
|
220
|
|
|
|
1,628
|
|
Foreign
|
|
|
2,180
|
|
|
|
1,900
|
|
|
|
1,292
|
|
Total Current
|
|
|
(3,057
|
)
|
|
|
9,405
|
|
|
|
13,532
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
16,122
|
|
|
|
5,950
|
|
|
|
(1,036
|
)
|
State and local
|
|
|
3,145
|
|
|
|
659
|
|
|
|
(160
|
)
|
Foreign
|
|
|
1,261
|
|
|
|
(7
|
)
|
|
|
(174
|
)
|
Total Deferred
|
|
|
20,528
|
|
|
|
6,602
|
|
|
|
(1,370
|
)
|
Total
|
|
$
|
17,471
|
|
|
$
|
16,007
|
|
|
$
|
12,162
|
|
No benefit or expense has been recognized for U.S. federal income taxes on undistributed earnings of foreign subsidiaries of approximately $4.3 million, $2.4 million, and ($0.1) million at June 30, 2013, 2012, and 2011, respectively. This exception is allowable under ASC 740-30-50-2.
The Company's income tax expense varies from the statutory federal tax rate of 35% applied to income before income taxes as follows (in thousands):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Computed "expected" income tax expense
|
|
$
|
15,484
|
|
|
$
|
14,540
|
|
|
$
|
9,599
|
|
State taxes, net of federal benefit
|
|
|
676
|
|
|
|
571
|
|
|
|
964
|
|
Non-deductible expenses
|
|
|
383
|
|
|
|
1,092
|
|
|
|
1,169
|
|
Other, net
|
|
|
928
|
|
|
|
(196
|
)
|
|
|
430
|
|
Actual income tax expense
|
|
$
|
17,471
|
|
|
$
|
16,007
|
|
|
$
|
12,162
|
|
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June 30, 2013 and 2012 consisted of the following (in thousands):
|
|
2013
|
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Deferred equity compensation
|
|
$
|
1,988
|
|
|
$
|
2,638
|
|
Insurance reserves
|
|
|
3,741
|
|
|
|
3,814
|
|
Other
|
|
|
1,508
|
|
|
|
1,399
|
|
Total deferred tax assets
|
|
$
|
7,237
|
|
|
$
|
7,851
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
(58,513
|
)
|
|
$
|
(35,856
|
)
|
Goodwill
|
|
|
(5,204
|
)
|
|
|
(4,885
|
)
|
Other
|
|
|
(999
|
)
|
|
|
(1,160
|
)
|
Total deferred tax liabilities
|
|
$
|
(64,716
|
)
|
|
$
|
(41,901
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
4,342
|
|
|
$
|
4,160
|
|
Net non-current deferred tax liabilities
|
|
|
(61,821
|
)
|
|
|
(38,210
|
)
|
Total net deferred tax liabilities
|
|
$
|
(57,479
|
)
|
|
$
|
(34,050
|
)
|
As of June 30, 2013, the Company had operating loss carry-forwards for income tax purposes of $2.9 million, which have expiration dates of 2029 and after.
The Company follows ASC Topic 740-10-25
Income Taxes
in accounting for uncertainty in income taxes. Topic 740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of June 30, 2013, the Company recorded a $0.5 million liability for unrecognized tax benefits, a portion of which represents penalties and interest.
(10)
|
SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
|
We have two reportable segments comprised of our two operating segments, an asset-based segment and an asset-light segment. Our asset-based segment includes our asset-based dry van carrier and rail services, which are geographically diversified but have similar economic and other relevant characteristics, as they all provide truckload carrier services of general commodities to a similar class of customers. Our asset-light segment consists of our warehousing, brokerage, and less-than-load ("LTL") operations, as well as our interest in TruckersB2B, which we have determined qualifies as a reportable segment under ASC 280-10 Segment Reporting.
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013, 2012 and 2011
|
|
Fiscal Year Ended
|
|
|
|
June 30,
|
|
|
|
(Dollars in thousands)
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
Asset-based
|
|
$
|
569,688
|
|
|
$
|
556,770
|
|
|
$
|
527,586
|
|
Asset-light
|
|
|
43,960
|
|
|
|
42,182
|
|
|
|
40,663
|
|
|
|
|
613,648
|
|
|
|
598,952
|
|
|
|
568,249
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
|
|
45,190
|
|
|
|
43,723
|
|
|
|
28,044
|
|
Asset-light
|
|
|
3,482
|
|
|
|
3,036
|
|
|
|
2,742
|
|
|
|
|
48,672
|
|
|
|
46,759
|
|
|
|
30,786
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
|
|
50,767
|
|
|
|
47,214
|
|
|
|
56,971
|
|
Asset-light
|
|
|
---
|
|
|
|
---
|
|
|
|
8
|
|
|
|
|
50,767
|
|
|
|
47,214
|
|
|
|
56,979
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
|
|
---
|
|
|
|
(56
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
|
|
4,931
|
|
|
|
5,684
|
|
|
|
8,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
|
|
40,259
|
|
|
|
38,085
|
|
|
|
20,278
|
|
Asset-light
|
|
|
4,476
|
|
|
|
3,458
|
|
|
|
7,146
|
|
|
|
|
44,735
|
|
|
|
41,543
|
|
|
|
27,424
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
|
|
16,362
|
|
|
|
15,334
|
|
|
|
15,334
|
|
Asset-light
|
|
|
1,368
|
|
|
|
1,368
|
|
|
|
1,368
|
|
|
|
|
17,730
|
|
|
|
16,702
|
|
|
|
16,702
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
|
|
635,968
|
|
|
|
516,106
|
|
|
|
411,167
|
|
Asset-light
|
|
|
5,194
|
|
|
|
4,605
|
|
|
|
5,499
|
|
|
|
|
641,162
|
|
|
|
520,711
|
|
|
|
416,666
|
|
Information as to the Company's operations by geographic area is summarized below (in thousands). The Company allocates total revenue based on the country of origin of the tractor hauling the freight.
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Total revenue:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
534,463
|
|
|
$
|
520,951
|
|
|
$
|
496,353
|
|
Canada
|
|
|
48,667
|
|
|
|
46,698
|
|
|
|
41,943
|
|
Mexico
|
|
|
30,518
|
|
|
|
31,303
|
|
|
|
29,953
|
|
Total
|
|
$
|
613,648
|
|
|
$
|
598,952
|
|
|
$
|
568,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
479,852
|
|
|
$
|
371,967
|
|
|
$
|
274,868
|
|
Canada
|
|
|
30,094
|
|
|
|
9,698
|
|
|
|
12,957
|
|
Mexico
|
|
|
13,828
|
|
|
|
13,002
|
|
|
|
13,508
|
|
Total
|
|
$
|
523,774
|
|
|
$
|
394,667
|
|
|
$
|
301,333
|
|
No customer accounted for more than 10% of the Company's total revenue during its three most recent fiscal years.
CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013, 2012 and 2011
(11) FAIR VALUE MEASUREMENTS
ASC 820-10
Fair Value Measurement
defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard establishes a three-level hierarchy for fair value measurements based upon the significant inputs used to determine fair value. Observable inputs are those which are obtained from market participants external to the Company while unobservable inputs are generally developed internally, utilizing management's estimates assumptions, and specific knowledge of the nature of the assets or liabilities and related markets. The three levels are defined as follows:
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc), and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).
Level 3 – Unobservable inputs, only used to the extent that observable inputs are not available, reflect the Company's assumptions about the pricing of an asset or liability (dollar amounts below in thousands)
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
Balance
at
June
30,
2013
|
|
|
Balance
at
June
30,
2012
|
|
|
Balance
at
June
30,
2013
|
|
|
Balance
at
June
30,
2012
|
|
|
Balance
at
June
30,
2013
|
|
|
Balance
at
June
30,
2012
|
|
|
Balance
at
June
30,
2013
|
|
|
Balance
at
June
30,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
|
$
|
(70
|
)
|
|
$
|
8
|
|
|
|
---
|
|
|
|
---
|
|
|
$
|
(67
|
)
|
|
$
|
8
|
|
|
|
---
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel derivatives
|
|
|
45
|
|
|
|
(59
|
)
|
|
|
---
|
|
|
|
---
|
|
|
|
42
|
|
|
|
(59
|
)
|
|
|
---
|
|
|
|
---
|
|
The Company pays a fixed contract rate for foreign currency. The fair value of foreign currency forward contracts is based on the valuation model that discounts cash flows resulting from the differential between the contract price and the market-based forward rate.
(12) FUEL DERIVATIVES
In the Company's day to day business activities we are exposed to certain market risks, including the effects of changes in fuel prices. The Company continually reviews new ways to reduce the potentially adverse effects that the volatility of fuel markets may have on operating results. In an effort to reduce the variability of the ultimate cash flows associated with fluctuations in diesel fuel prices, the Company has begun to enter into futures contracts. These instruments will be heating oil futures contracts as the related index, New York Mercantile Exchange ("NYMEX"), generally exhibits high correlation with the changes in the dollars of the forecasted purchase of diesel fuel. The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes.
As of June 30, 2013, the Company had entered into future contracts pertaining to 756,000 gallons in heating oil through December 2013 (on average 126,000 gallons per month). Under these contracts, we pay a fixed rate per gallon of heating oil and receive the monthly average price of New York heating oil per the NYMEX. The Company has done retrospective and prospective regression analyses that showed the changes in the prices of diesel fuel and heating oil were deemed to be highly effective based on the relevant authoritative guidance. Accordingly, we have designated the respective hedges as cash flow hedges.
We perform both a prospective and retrospective assessment of the effectiveness of our hedge contracts at inception and quarterly. If our analysis shows that the derivatives are not highly effective as hedges, we will discontinue hedge accounting for the period and prospectively recognize changes in the fair value of the derivative being recognized through earnings. As a result of our effectiveness assessment at inception and at June 30, 2013, we believe our hedge contracts have been and will continue to be highly effective in offsetting changes in cash flows attributable to the hedged risk.
We recognize all derivative instruments at fair value on our consolidated condensed balance sheets in other assets or other accrued expenses. The Company's derivative instruments are designated as cash flow hedges, thus the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income and will be reclassified into earnings in the same period during which the hedged transactions affect earnings. The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized in other income or expense on our consolidated condensed statements of operations. The ineffective portion of the hedge was immaterial.
Based on the amounts in accumulated other comprehensive income as of June 30, 2013 and the expected timing of the purchases of the diesel hedged, we expect to reclassify $0.1 million of gain on derivative instruments from accumulated other comprehensive income to the statement of operations, as an offset to fuel expense, during the next three months due to the actual diesel fuel purchases. The amounts actually realized will be dependent on the fair values as of the date of settlement.
Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the companies with which we have these agreements. Our credit exposure related to these financial instruments is represented by the fair value of contracts reported as assets. To evaluate credit risk, we review each counterparty's audited financial statements and credit ratings and obtain references. Any credit valuation adjustments deemed necessary have been reflected in the fair value of the instrument.
(13) DISPOSITION OF MAJORITY INTEREST IN SUBSIDIARY
In February 2011, the Company entered into a joint venture, whereby the Company sold a 65% majority interest, in its TruckersB2B subsidiary to an unrelated third party. TruckersB2B will continue normal daily operations with an expanding sales and marketing team to develop growth. TruckersB2B is controlled by a five person executive committee, of which the Company has two committee seats. In conjunction with the transaction, the Company recognized a pre-tax gain of $4.1 million and de-consolidated the subsidiary.
(14) SELECTED QUARTERLY DATA (Unaudited)
Summarized quarterly data for fiscal 2013 and 2012 follows (in thousands except per share amounts):
|
|
Fiscal Year 2013
|
|
|
|
1
st
Qtr.
|
|
|
2
nd
Qtr.
|
|
|
3
rd
Qtr.
|
|
|
4
th
Qtr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
153,297
|
|
|
$
|
148,112
|
|
|
$
|
149,638
|
|
|
$
|
162,601
|
|
Operating expenses
|
|
|
138,158
|
|
|
|
135,521
|
|
|
|
141,602
|
|
|
|
149,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
15,139
|
|
|
|
12,591
|
|
|
|
8,036
|
|
|
|
12,906
|
|
Other expense, net
|
|
|
1,528
|
|
|
|
856
|
|
|
|
680
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
13,611
|
|
|
|
11,735
|
|
|
|
7,356
|
|
|
|
12,033
|
|
Income tax expense
|
|
|
5,349
|
|
|
|
4,355
|
|
|
|
2,978
|
|
|
|
4,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,262
|
|
|
$
|
7,380
|
|
|
$
|
4,378
|
|
|
$
|
7,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.37
|
|
|
$
|
0.33
|
|
|
$
|
0.19
|
|
|
$
|
0.31
|
|
Diluted income per share
|
|
$
|
0.36
|
|
|
$
|
0.32
|
|
|
$
|
0.19
|
|
|
$
|
0.30
|
|
|
|
Fiscal Year 2012
|
|
|
|
1
st
Qtr.
|
|
|
2
nd
Qtr.
|
|
|
3
rd
Qtr.
|
|
|
4
th
Qtr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
143,960
|
|
|
$
|
144,200
|
|
|
$
|
153,309
|
|
|
$
|
157,483
|
|
Operating expenses
|
|
|
133,552
|
|
|
|
134,387
|
|
|
|
142,706
|
|
|
|
141,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
10,408
|
|
|
|
9,813
|
|
|
|
10,603
|
|
|
|
15,935
|
|
Other expense, net
|
|
|
1,088
|
|
|
|
1,269
|
|
|
|
1,179
|
|
|
|
1,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
9,320
|
|
|
|
8,544
|
|
|
|
9,424
|
|
|
|
14,255
|
|
Income tax expense
|
|
|
3,862
|
|
|
|
3,089
|
|
|
|
3,766
|
|
|
|
5,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,458
|
|
|
$
|
5,455
|
|
|
$
|
5,658
|
|
|
$
|
8,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.40
|
|
Diluted income per share
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.25
|
|
|
$
|
0.39
|
|
|
|
|
|