INDIANAPOLIS, Ind. – Celadon Group announced yesterday that its financial statements for the fiscal year 2016 and the quarters ended Sept. 30, 2016 and Dec. 31, 2016 remain under internal investigation.
The company also reviewed its current and historical accounting policies and procedures. An internal investigation and management review identified errors that will require adjustments.
The investigation revealed transactions involving revenue equipment held for sale by the Quality Companies subsidiary included undisclosed arrangements that overstated the values of the equipment traded in those transactions. The company sold equipment at above market prices and in return the company paid amounts substantially in excess of the fair value of the equipment, the investigation found.
Financial dealings with Element Financial Corp., and 19th Capital were also called into question. The arrangements “did not sufficiently transfer the risks of ownership to qualify for sales accounting.” Instead, the transactions should have been listed as borrowings, which would require Celadon to continue to recognize the equipment assets on its books. Balance sheet adjustments related to those transactions are expected to total about US$500 million.
The company also determined that a portion of its equipment leases accounted for as operating leases should be restated as capitalized leases. Other accounting areas also remain under review.
“Celadon’s past several quarters have been consumed with four main activities: supporting the internal investigation, evaluating more broadly the appropriateness of historical accounting under prior management, executing our strategic turnaround plan while replacing substantially all of the prior senior leadership team, and pursuing a refinancing of our existing credit facility. We have made significant progress on all four priorities and, although much remains to be done, I am encouraged by the progress,” said Celadon CEO Paul Svindland.
“Since starting the turnaround process in April of 2017, we have replaced most of our executive and accounting leadership, sold our flatbed division, outsourced our driver school, and reduced our domestic truckload division’s fleet by approximately 20% to approximately 1,900 seated tractors (excludes A&S, Taylor, FTL, and Buckler U.S. subsidiaries) to concentrate on the most attractive lanes and freight. In the currently strong freight environment, we are allocating our fleet capacity to targeted customers and geographies at improved productivity.
“Improvements in our revenue per loaded mile, miles per seated tractor, and load ratio in our U.S. over-the-road fleet have contributed to revenue per seated tractor per week (excluding fuel surcharges) increasing approximately 20% between April 2017 and February 2018. In addition, we have exited our Quality Equipment Leasing business altogether, which we view as highly beneficial to our overall truckload operations because the previous strategy of elevating management attention and other resources to Quality over the core trucking business had highly negative effects on our operations and sales efforts as well as draining our capital resources.”
The company announced it has amended a credit agreement. It also warned that it will likely be delisted from the NYSE, since it will be unable to cure its financial reporting delinquencies by the deadline of May 2.