Indianapolis-based Celadon Group Inc. (NYSE: CGI) says an ongoing internal audit has turned up issues with its accounting and public financial reporting practices going back four years. The transportation logistics company announced last May it was using independent legal and accounting experts to review six previous quarters of earnings reports and says it soon expects to be removed from trading on the New York Stock Exchange. Celadon received a six-month reprieve in October from being delisted by the NYSE if it could remedy its financial reporting issues. The deadline, which company executives say they won’t meet, is May 2.
Once dropped by the NYSE, Celadon anticipates the OTC Pink market electronic quotation service will list the company’s public stock.
The auditing committee and Celadon management said in a news release "annual financial statements for the Company’s 2014 and 2015 fiscal years, the unaudited quarterly reports issued during such periods, and the unaudited quarterly reports issued during fiscal 2016, should no longer be relied upon." It added outside advisors have been brought in to regain control over financial reporting, citing unreliable documentation from June 30, 2014, June 30, 2015 and June 30, 2016.
Chief Executive Officer Paul Svindland, who was hired last July as part of a major upper-management restructuring, said:
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.
Today’s updates concerning the internal investigation and additional accounting restatements come after approximately eleven months of in-depth research and analysis by our audit committee, multiple outside advisors, and the new management team. As described above, the accounting adjustments will be significant to prior period earnings and to our total stockholders’ equity. Nevertheless, we remain confident in our current management team and strategic plan, and we emphasize the following points concerning the accounting issues:
The greatest magnitude of the adjustments relate to the former Quality Equipment Leasing business, which we disposed of in calendar 2017, and our equity investment in 19th Capital, which does not impact our cash flows.
The accounting adjustments relating to assets held for sale and borrowing treatment for the Element transactions, which constitute the greatest portion of the expected adjustments, will be reversed at December 30, 2016, with the assets and liabilities coming back off of our balance sheet.
The officers who (1) directly negotiated or oversaw the Quality Companies’ revenue equipment transactions that are the subject of the restatement, (2) had principal responsibility for the management of the Company’s relationship with Element, or (3) signed certifications included in the Company’s public filings that incorporated the affected financial statements are no longer with the Company.
The company’s turnaround process began even before Svindland was brought in and has included the addition of Chief Financial and Strategy Officer Thom Albrecht and Chief Accounting Officer Vince Donargo. Other efforts designed to re-establish the once financially-thriving company involve selling Celadon’s flatbed division, outsourcing its driver school, reducing its domestic truckload division fleet and dropping its Quality Equipment Leasing business. Celadon is also working with lenders to refinance.
You can connect to more about the company’s financial situation and its response by clicking here.