Disclosure Regarding Forward Looking Statements

This Quarterly Report contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, events, performance, or achievements of the Company to be materially different from any future results, events, performance, or achievements expressed in or implied by such forward-looking statements. Such statements may be identified by the fact that they do not relate strictly to historical or current facts. These statements generally use words such as "believe," "expect," "anticipate," "project," "forecast," "should," "estimate," "plan," "outlook," "goal," and similar expressions. While it is impossible to identify all factors that may cause actual results to differ from those expressed in or implied by forward-looking statements, the risks and uncertainties that may affect the Company's business, include, but are not limited to, those discussed in the section entitled Item 1A. Risk Factors set forth below.

All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on such forward-looking statements. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.

References to the "Company," "we," "us," "our," and words of similar import refer to Celadon Group, Inc. and its consolidated subsidiaries.

Business Overview

We are one of North America's twenty largest truckload carriers as measured by revenue. We generated $565.9 million in operating revenue during our fiscal year ended June 30, 2008. We have grown significantly since our incorporation in 1986 through internal growth and a series of acquisitions since 1995. As a dry van truckload carrier, we generally transport full trailer loads of freight from origin to destination without intermediate stops or handling. Our customer base includes many Fortune 500 shippers.

In our international operations, we offer time-sensitive transportation in and between the United States and two of its largest trading partners, Mexico and Canada. We generated approximately one-half of our revenue in fiscal 2008 from international movements, and we believe our annual border crossings make us the largest provider of international truckload movements in North America. We believe that our strategically located terminals and experience with the language, culture, and border crossing requirements of each North American country provide a competitive advantage in the international trucking marketplace.

We believe our international operations, particularly those involving Mexico, offer an attractive business niche. The additional complexity of and need to establish cross-border business partners and to develop strong organization and adequate infrastructure in Mexico affords some barriers to competition that are not present in traditional U.S. truckload services.

Our success is dependent upon the success of our operations in Mexico and Canada, and we are subject to risks of doing business internationally, including fluctuations in foreign currencies, changes in the economic strength of the countries in which we do business, difficulties in enforcing contractual obligations and intellectual property rights, burdens of complying with a wide variety of international and United States export and import laws, and social, political, and economic instability. Additional risks associated with our foreign operations, including restrictive trade policies and imposition of duties, taxes, or government royalties by foreign governments, are present but largely mitigated by the terms of NAFTA.

In addition to our international business, we offer a broad range of truckload transportation services within the United States, including long-haul, regional, dedicated, intermodal, and logistics. With six different asset-based acquisitions from 2003 to 2008, we expanded our operations and service offerings within the United States and significantly improved our lane density, freight mix, and customer diversity.

We also operate TruckersB2B, a profitable marketing business that affords volume purchasing power for items such as fuel, tires, and equipment to approximately 21,000 trucking fleets representing approximately 480,000 tractors. TruckersB2B is included in our e-commerce unit, which is a separate operating segment under generally accepted accounting principles.

Recent Results and Financial Condition

For the third quarter of fiscal 2009, revenue decreased 23.0% to $106.9 million, compared with $138.9 million for the third quarter of fiscal 2008. Excluding fuel surcharge, freight revenue decreased 14.4% to $96.2 million for the third quarter of fiscal 2009, compared with $112.4 million for the third quarter of fiscal 2008. In the third quarter of fiscal 2009, we recorded a net loss of $2.1 million compared to a net income of $0.1 million in the third quarter of fiscal 2008. Diluted earnings (loss) per share decreased to $(0.10) in the third quarter of fiscal 2009, from $0.01 in the third quarter of fiscal 2008. A weakened freight market, weakened economy and a surplus of available equipment in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 were the primary factors for our decreasing revenue. This decrease in revenue was partially offset by a decrease in fuel prices.

At March 31, 2009, our total balance sheet debt (including capital lease obligations less cash) was $56.6 million, and our total stockholders' equity was $141.0 million. At March 31, 2009, our debt to capitalization ratio was 28.6%. At March 31, 2009, we had $50.4 million of available borrowing capacity under our revolving credit facility, which does not include the additional borrowing capacity under the accordion feature. For additional information on our credit facility, see the "Liquidity and Capital Resources - Primary Credit Agreement" section below.

Revenue

We generate substantially all of our revenue by transporting freight for our customers. Generally, we are paid by the mile or by the load for our services. We also derive revenue from fuel surcharges, loading and unloading activities, equipment detention, brokerage, other trucking related services, and from TruckersB2B. We believe that eliminating the impact of the sometimes volatile fuel surcharge revenue affords a more consistent basis for comparing our results of operations from period to period. The main factors that affect our revenue are the revenue per mile we receive from our customers, the percentage of miles for which we are compensated, the number of tractors operating, and the number of miles we generate with our equipment. These factors relate to, among other things, the U.S. economy, inventory levels, the level of truck capacity in our markets, specific customer demand, the percentage of team-driven tractors in our fleet, driver availability, and our average length of haul.

Expenses and Profitability

The main factors that impact our profitability on the expense side are the variable costs of transporting freight for our customers. These costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which we record as purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency, and other factors. Our main fixed cost is the acquisition and financing of long-term assets, primarily revenue equipment. Other mostly fixed costs include our non-driver personnel and facilities expenses. In discussing our expenses as a percentage of revenue, we sometimes discuss changes as a percentage of revenue before fuel surcharges, in addition to absolute dollar changes, because we believe the high variable cost nature of our business makes a comparison of changes in expenses as a percentage of revenue more meaningful at times than absolute dollar changes.

The trucking industry has experienced significant increases in expenses over the past three years, in particular those relating to equipment costs, driver compensation, insurance, and variability in fuel prices. Until recently many trucking companies had been able to raise freight rates to cover the increased costs based primarily on an industry-wide tight capacity of drivers. As freight demand has softened, carriers have been willing to accept rate decreases to utilize assets in service.

Revenue Equipment and Related Financing

For the remainder of fiscal 2009, we expect to obtain tractors primarily for
replacement, and we expect to maintain the average age of our tractor fleet at
approximately 1.7 years and the average age of our trailer fleet at
approximately 4.0 years. At March 31, 2009, we had future operating lease
obligations totaling $177.9 million, including residual value guarantees of
approximately $70.2 million.

                                       March 31, 2009               March 31, 2008
                                   Tractors      Trailers       Tractors       Trailers
     Owned equipment                   1,355         2,986          1,569          2,376
     Capital leased equipment            ---         3,719            ---          3,733
     Operating leased equipment        1,616         3,336          1,136          2,818
     Independent contractors             198           ---            305            ---
     Total                             3,169        10,041          3,010          8,927

Independent contractors are utilized through a contract with us to supply one or more tractors and drivers for our use. Independent contractors must pay their own tractor expenses, fuel, maintenance, and driver costs and must meet our specified guidelines with respect to safety. A lease-purchase program that we offer provides independent contractors the opportunity to lease-to-own a tractor from a third party. As of March 31, 2009, there were 198 independent contractors providing a combined 6.2% of our tractor capacity.

Outlook

Looking forward, our profitability goal is to achieve an operating ratio of approximately 90%. We expect this to require improvements in rate per mile and miles per tractor and decreased non-revenue miles. Because a large percentage of our costs are variable, changes in revenue per mile affect our profitability to a greater extent than changes in miles per tractor. For the remainder of fiscal 2009, the key factors that we expect to have the greatest effect on our profitability are our freight revenue per tractor per week (which will be affected by the general freight environment, including the balance of freight demand and industry-wide trucking capacity), our compensation of drivers, our cost of revenue equipment (particularly in light of the 2010 EPA engine requirements), our fuel costs, and our insurance and claims. To overcome cost increases and improve our margins, we will need to achieve increases in freight revenue per tractor. Operationally, we will seek improvements in safety, driver recruiting, and retention. Our success in these areas primarily will affect revenue, driver-related expenses, and insurance and claims expense. Given the difficult freight market confronting our industry and the difficult economy, we believe achieving our profitability goal during fiscal 2009 is unlikely, although we continue to strive toward that goal.

Results of Operations

The following table sets forth the percentage relationship of expense items to
freight revenue for the periods indicated:

                                                  For the three months ended            For the nine months ended
                                                           March 31,                            March 31,
                                                   2009                 2008                 2009           2008
Freight
revenue(1)                                            100.0 %              100.0 %          100.0 %            100.0 %

Operating expenses:
Salaries, wages, and employee benefits                 38.5 %               35.8 %           38.2 %             34.4 %
Fuel(1)                                                11.9 %               13.3 %           10.1 %             12.3 %
Operations and
maintenance                                             9.1 %                8.7 %            8.9 %              8.1 %
Insurance and
claims                                                  3.6 %                3.3 %            3.4 %              3.4 %
Depreciation and
amortization                                           10.5 %                7.5 %            8.8 %              7.0 %
Revenue equipment
rentals                                                 8.1 %                5.7 %            6.8 %              5.9 %
Purchased
transportation                                         13.0 %               17.2 %           13.5 %             18.5 %
Costs of products and services sold                     1.5 %                1.3 %            1.5 %              1.4 %
Communications and
utilities                                               1.4 %                1.2 %            1.2 %              1.1 %
Operating taxes and
licenses                                                2.5 %                2.1 %            2.4 %              2.0 %
General and other
operating                                               1.8 %                1.8 %            2.1 %              2.0 %

Total operating
expenses                                              101.9 %               97.9 %           96.9 %             96.1 %

Operating income
(loss)                                                 (1.9 )%               2.1 %            3.1 %              3.9 %

Other expense:
  Currency exchange (gain)/loss                         0.1 %                ---              ---                ---
Interest
expense                                                 0.8 %                1.1 %            1.0 %              1.2 %

Income (loss) before income
taxes                                                  (2.8 )%               1.0 %            2.1 %              2.7 %
Provision (benefit) for income
taxes                                                  (0.6 )%               0.9 %            1.3 %              1.4 %

Net income
(loss)                                                 (2.2 )%               0.1 %            0.8 %              1.3 %

(1) Freight revenue is total revenue less fuel surcharges. In this table, fuel surcharges are eliminated from revenue and subtracted from fuel expense. Fuel surcharges were $10.7 million and $26.5 million for the third quarter of fiscal 2009 and 2008, respectively, and $69.4 million and $70.5 million for the nine months ended March 31, 2009 and 2008, respectively.

Comparison of Three Months Ended March 31, 2009 to Three Months Ended March 31, 2008

Revenue decreased by $32.0 million, or 23.0%, to $106.9 million for the third quarter of fiscal 2009, from $138.9 million for the third quarter of fiscal 2008. The decrease in our revenue was primarily caused by the weakened freight market and weakened economy in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008. The addition of the Continental assets and intermodal operations had a positive affect on our operating revenue. However, for the foreseeable future we don't expect incremental growth in our fleet size following the Continental acquisition.

Freight revenue decreased by $16.2 million, or 14.4%, to $96.2 million for the third quarter of fiscal 2009, from $112.4 million for the third quarter of fiscal 2008. This decrease was primarily attributable to a decrease in freight demand, due to a weakened economy. Freight from Mexico into the U.S. declined significantly, causing us to reduce the number of shipments to/from Mexico. Domestic freight levels were basically flat due to miles associated with Continental customers and intermodal operations. Accordingly, billed miles decreased to 55.1 million for the third quarter of fiscal 2009, from 62.5 million for the third quarter of fiscal 2008, and average miles per tractor per week decreased from 1,984 miles to 1,652 miles. Other factors included an increase in non-revenue miles from 10.6% to 11.1% of total miles, primarily related to a shift in business between domestic and international freight, and a reduction in average freight revenue per loaded mile to $1.46 from $1.50 for the third quarters of fiscal 2009 and 2008, respectively. As the economy and freight market weakened, rates for both domestic and international freight dropped as customers and third party logistics managers were very aggressive in reducing their costs. Average revenue per tractor per week, net of fuel surcharge, which is our primary measure of asset productivity, decreased 19.7% to $2,136 in the third quarter of fiscal 2009, from $2,661 for the third quarter of fiscal 2008.

Revenue for TruckersB2B was $2.1 million in the third quarter of fiscal 2009, compared to $2.2 million for the third quarter of fiscal 2008. To the extent small and mid size carriers continue to be affected adversely by the weakened economy, lagging freight demand, limited financing availability, and licensing, insurance, and other costs, we anticipate the revenue for TruckersB2B to be negatively impacted as well.

Salaries, wages, and employee benefits were $37.0 million, or 38.5% of freight revenue, for the third quarter of fiscal 2009, compared to $40.2 million, or 35.8% of freight revenue, for the third quarter of fiscal 2008. The dollar decrease in salaries, wages, and benefits is largely due to decreased driver payroll related to decreased miles. Additionally, decreases in administrative payroll resulting from ongoing efforts to consolidate and/or eliminate several functions into Indianapolis from various terminals, which plan reduced our non-driver administrative workforce by approximately 5%, also decreased our salaries, wages, and benefits. Also a factor was the decrease in the value of stock appreciation rights, which was due, in large part, to a reduction in stock prices caused by the lagging economy. However, these factors were more than offset by reduced freight revenue resulting in an increase in salaries, wages, and employee benefits as a percentage of freight revenue.

Fuel expenses, net of fuel surcharge revenue of $10.7 million and $26.5 million for the third quarter of fiscal 2009 and 2008, respectively, decreased to $11.4 million, or 11.9% of freight revenue, for the third quarter of fiscal 2009, compared to $14.9 million, or 13.3% of freight revenue, for the third quarter of fiscal 2008. These decreases were attributable to a 43.7% decrease in average fuel prices to $1.87 per gallon in the third quarter of fiscal 2009, from $3.32 per gallon in the third quarter of fiscal 2008, and a decrease in the gallons purchased due to fewer miles driven and increased miles per gallon related to the Company's strategic plan to reduce idling and operate more efficient tractors.

Operations and maintenance expense decreased to $8.7 million, or 9.1% of freight revenue, for the third quarter of fiscal 2009, from $9.8 million, or 8.7% of freight revenue, for the third quarter of fiscal 2008. Operations and maintenance consist of direct operating expense, maintenance, and tire expense. The dollar decrease in the third quarter of fiscal 2009 is primarily related to a decrease in costs associated with physical damage expense, due to fewer accidents in the third quarter of fiscal 2009, as well as decreased variable maintenance expense due to fewer miles driven in the quarter.

Insurance and claims expense decreased to $3.5 million, or 3.6% of freight revenue, for the third quarter of fiscal 2009, from $3.7 million, or 3.3% of freight revenue, for the third quarter of fiscal 2008. Insurance consists of premiums for liability, physical damage, cargo damage, and workers compensation insurance, in addition to claims expense. This decrease resulted primarily from decreases in our cargo claims expense, related to the decreased number of claims in the quarter. Our insurance program involves self-insurance at various risk retention levels. Claims in excess of these risk levels are covered by insurance in amounts we consider to be adequate. We accrue for the uninsured portion of claims based on known claims and historical experience. We continually revise and change our insurance program to maintain a balance between premium expense and the risk retention we are willing to assume. Insurance and claims expense will vary based primarily on the frequency and severity of claims, the level of self-retention, and the premium expense.

Depreciation and amortization, consisting primarily of depreciation of revenue equipment, increased to $10.1 million, or 10.5% of freight revenue, for the third quarter of fiscal 2009, compared to $8.4 million, or 7.5% of freight revenue, for the third quarter of fiscal 2008. These increases are related to a year over year increase in the number of owned trailers and tractor and trailer costs. The assets purchased from Continental are being depreciated approximately $400,000 per month. These increases also include losses on sales of equipment in the quarter. Revenue equipment held under operating leases is not reflected on our balance sheet and the expenses related to such equipment are reflected on our statements of operations in revenue equipment rentals, rather than in depreciation and amortization and interest expense, as is the case for revenue equipment that is financed with borrowings or capital leases.

Revenue equipment rentals increased to $7.8 million, or 8.1% of freight revenue, for the third quarter of fiscal 2009, compared to $6.4 million or 5.7% of freight revenue for the third quarter of fiscal 2008. This increase is primarily related to the net addition of approximately 480 tractors and 520 trailers under operating lease. We believe this number will continue to grow over the remainder of calendar 2009.

Purchased transportation decreased significantly to $12.5 million, or 13.0% of freight revenue, for the third quarter of fiscal 2009, from $19.4 million, or 17.2% of freight revenue, for the third quarter of fiscal 2008. The majority of this decrease is related to fewer miles by our independent contractor fleet which has decreased to 198 at March 31, 2009 from 305 at March 31, 2008. The decreases also relate to the reduction of the fuel surcharge component of their payments by $0.10 per mile, resulting from decreased fuel costs. Independent contractors are drivers who cover all their operating expenses (fuel, driver salaries, maintenance, and equipment costs) for a fixed payment per mile.

All of our other operating expenses are relatively minor in amount, and there were no significant changes in such expenses. Accordingly, we have not provided a detailed discussion of such expenses.

Our pretax margin, which we believe is a useful measure of our operating performance because it is neutral with regard to the method of revenue equipment financing that a company uses, decreased 380 basis points to (2.8)% of freight revenue for the third quarter of fiscal 2009, from 1.0% of freight revenue for the third quarter of fiscal 2008.

In addition to other factors described above, Canadian exchange rate fluctuations principally impact salaries, wages, and benefits and purchased transportation and therefore impact our pretax margin and results of operations.

Income taxes decreased to a benefit of $0.6 million, with an effective tax rate of 22.8%, for the third quarter of fiscal 2009, from expense of $0.9 million, with an effective tax rate of 86.4%, for the third quarter of fiscal 2008. The effective tax rate decreased as a result of the decreased impact of our non-deductible expenses related to our per diem pay structure on our decreased earnings. As per diem is a partially non-deductible expense, our effective tax rate will fluctuate as net income and per diem fluctuate in the future.

As a result of the factors described above, a net loss of $2.1 million was recorded for the third quarter of fiscal 2009, compared to a net income of $0.1 for the third quarter of fiscal 2008.

Comparison of Nine Months Ended March 31, 2009 to Nine Months Ended March 31, 2008

Revenue decreased by $37.9 million, or 9.2%, to $373.4 million for the nine months ended March 31, 2009, from $411.3 million for the nine months ended March 31, 2008. Going forward, we expect the addition of the Continental assets and intermodal operations to have a positive affect partially offsetting the impact of the current weak economy and reduced Mexico import/export business related to our revenue.

Freight revenue decreased by $36.8 million, or 10.8%, to $304.0 million for the nine months ended March 31, 2009, from $340.8 million for the nine months ended March 31, 2008. This decrease was primarily attributable to a decrease in freight demand, due to a weakened economy and the difficult freight market confronting our industry. Accordingly, billed miles decreased by 17.2 million, from 188.5 million for the nine months ended March 31, 2008, to 171.3 million for the nine months ended March 31, 2009, average miles per tractor per week decreased from 2,000 miles to 1,789 miles, and non-revenue miles increased from 10.5% to 10.9% of total miles. As the economy and freight market continued to weaken, rates for both domestic and international freight dropped as customers and third party logistics managers were very aggressive in reducing their costs. In addition, non-revenue miles increased as we repositioned tractors for the next load. Average revenue per tractor per week, net of fuel surcharge, which is our primary measure of asset productivity, decreased 12.0% to $2,365 in the nine months ended March 31, 2009, from $2,688 for the nine months ended March 31, 2008.

Revenue for TruckersB2B was $6.6 million for the nine months ended March 31, 2009, compared to $7.1 million for the nine months ended March 31, 2008. The decrease was related to decreases in fuel and tire rebate revenue due to small and mid size carriers being adversely affected by the lagging freight demand. To the extent small and mid size carriers continue to be affected adversely by the weakened economy, lagging freight demand, limited financing availability, and licensing, insurance, and other costs, we anticipate the revenue for TruckersB2B to be negatively impacted as well.

Salaries, wages, and benefits were $116.1 million, or 38.2% of freight revenue, for the nine months ended March 31, 2009, compared to $117.4 million, or 34.4% of freight revenue, for the nine months ended March 31, 2008. The dollar decrease in salaries, wages, and benefits is largely due to decreased driver . . .