New executives are taking the helm of transportation conglomerate Celadon Group Inc. as the motor carrier begins an audit with the help of independent legal and accounting experts regarding “certain transactions” involving revenue equipment held for sale between June and December of 2016.
The company said in a statement that review will impact financial statements for fiscal year 2016 – which ended for Celadon on June 30 that year – as well as for two quarterly reports ending September 30 and December 31 in 2016.
“I am confident the independent audit committee will proceed quickly and thoroughly to investigate the transactions and develop a plan for re-issuing the affected financial statements,” noted Paul Will, Celadon’s chairman and CEO, in a statement.
At issue is revenue equipment held for sale recorded at approximately $45 million (4% of total assets) on June 30, $29 million (3% of total assets) at September 30 and zero at December 31, all in 2016. All revenue equipment held for sale and all revenue equipment received in the related transactions was sold to third parties or was contributed to the 19th Capital Group joint venture prior to December 31 last year and Celadon noted that if there is any adjustment to its books it will be “non-cash” in nature.
The motor carrier’s auditor, BKD LLC, said it determined that it did not obtain “sufficient appropriate audit evidence” related to the carrying values and accounting – as well as the related structure, substance, and disclosure – of those transactions.
As a result, the company's annual report for its 2016 fiscal year, which ended June 30, 2016, as well as reports for fiscal quarters ending September 30 and December 31, 2016, will be deemed “non-compliant” until they are re-issued following the audit.
Meanwhile, in Celadon’s executive suite, Jonathan Russell will be stepping up to be president and COO effective immediately, replacing Eric Meek, who has resigned to pursue other interests, according to the company.
Russell, 45, the son of Stephen Russell, Celadon’s late founder and former chairman and CEO, joined the company in 2002 and most recently served as president of Celadon Logistics, Inc., which includes the Company's asset light business units; a position he’d held since November 2010.
The motor carrier also named Douglas Schmidt as president of Celadon Trucking, the company’s TL division. Schmidt previously served as president and COO at A&S Kinard, which was acquired by Celadon in 2014, and has over 22 years of experience in the TL sector.
"I believe we have substantial opportunity to improve the profitability of our operations by ensuring that a greater percentage of our fleet is actively producing at a higher daily level,” noted Russell in a statement.
“Together with Doug Schmidt, who has been instrumental in operating one of our more profitable business units, and the rest of our team, we expect to build on our great customer relationships and high quality driver corps to deliver improved customer service and financial results,” he added. “While early in the process, we are energized by the potential impact of our plan."
That plan comes at a critical juncture for Celadon as the company noted it expects to include an operating loss of approximately $10 million in its latest financial results, primarily attributed to losses from its irregular route freight operations.
Celadon’s Will noted in a statement that the motor carrier’s regional, dedicated, logistics, and certain specialized businesses – excluding the flatbed and temperature controlled segments – were “solidly profitable” during the its most recent quarter, with only its irregular route operations “significantly” unprofitable.
"We continue to work diligently to improve the productivity of our irregular route fleet, access additional liquidity, and provide world-class customer service,” Will explained.
“While we are disappointed by the preliminary results for the quarter due to poor performance in our irregular route freight business, the recent management changes will strengthen our truckload team, and we are executing a plan to boost operating discipline and achieve positive results,” he emphasized.
Celadon also noted that it also signed a term sheet for a new $225 million asset-based revolving credit facility led by Bank of America that is expected to close during the June quarter this year and an amendment to its existing credit facility to waive potential defaults and provide interim liquidity.
"Our new credit facility, as well as the amendments to our existing facility, will give us the liquidity we need to operate our business assuming we execute against our plan,” Will said.