"House of Cards" Truck Ownership - the Celadon Way

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Trucking firm Celadon sells tractor portfolio for $13.6 million

Indianapolis Business Journal / October 5, 2015

Trucking company Celadon Group Inc. sold a portfolio of semi tractors and their associated leases for $13.6 million to a joint venture controlled by a private-equity firm, Indianapolis-based Celadon announced late Friday.

Celadon said it made the sale to support its Quality Cos. business unit, which manages tractors.

The purchaser was 19th Capital Group LLC, a joint venture controlled by Wayne, Pennsylvania-based equity firm Larsen MacColl Partners, with a minority investment by Celadon and Celadon management.

Celadon said it made a minority investment in 19th Capital Group as part of the tractor sale, which also includes management participation.

"The structure is expected to allow us to account for the investment under the equity method of accounting," Celadon said in a written statement. "In addition, with this investment, we will record a share of the joint venture's profit or loss on the lease income stream and residual sale value of the tractors, which we currently do not share in under the contract with our current financing partner."

Celadon said it expects to make additional sales to 19th Capital in the future.

Celadon's Quality Cos. unit has grown tractors under management from 750 to about 4,900 since June 30, 2013.

Celadon said it buys the tractors "on favorable terms through our consolidated buying power," then sells them to a third- party financing company, which leases them to independent contractors who provide capacity to Celadon and other trucking companies.

Quality Cos. provides driver recruiting for those tractors, as well as lease-payment remittance, insurance, maintenance and other services for a fee.

The subsidiary has about 13,000 tractors on order from several manufacturers, scheduled to be delivered over the next three years, Celadon said.

Celadon announced the sale after the market closed Friday. Company shares dropped 1 percent earlier in the day, to close at $15.84 each.

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Celadon under investigation by SEC, announces refinancing of debt

James Jaillet, Commercial Carrier Journal (CCJ)  /  October 5, 2017

Celadon Group, one of the country’s largest trucking companies, has notified its shareholders that it is under investigation by the Securities and Exchange Commission, the body that governs publicly traded companies’ financial affairs. The company was notified in May that it was at risk of being delisted from the New York Stock Exchange for not filing required forms with the NYSE for its fiscal 2016.

The Indianapolis-based company operates nearly 5,500 trucks. In an Oct. 2 notice to shareholders, Celadon noted it had been issued a subpoena by the SEC “and is in the process of producing documents pursuant to the subpoena.”

The company said it could not comment further on the investigation.

Celadon says its independent auditor, BKD LLP, filed the missing forms with the NYSE on time but subsequently withdrew them over questions about their accuracy, resulting in the company no longer meeting the exchange’s listing requirements. The withdrawn forms, 10-K and 10-Q forms from recent quarters, are intended to inform investors and potential investors with quarterly financial data.

The SEC’s investigation into Celadon could pertain to questions about unreported equipment sales.

According to an April 25 letter from BKD to Celadon’s board, BKD auditors discovered “additional information [about] transactions involving revenue equipment held for sale. This prompted DKB to deem its NYSE filings as unreliable and withdraw the forms. Celadon spokesperson Joe Weigel confirmed in May the transactions in question involved the sale and transfer of company equipment, but, he says, Celadon gave auditors “a significant amount of information” about the equipment sales and the revenue derived from those sales.

BKD withdrew the forms days after notifying Celadon about the new information, which put Celadon out of compliance with NYSE rules. Celadon notified the NYSE May 1 of its noncompliance, and the NYSE notified Celadon the next day that it was at risk of being delisted.

The company also said Oct. 2 it is facing lawsuits regarding accounting matters that relate to, “among other things, the company’s previously issued financial statements.”

Monday’s announcement comes amid other financial uncertainty for the company, which reported a $10 million operating loss in the second quarter of its fiscal 2017. Celadon announced in May a leadership change, appointing Jon Russell as its new president and Doug Schmidt as its new head of truckload operations.

Last month, Celadon shuttered its driving school operations, and earlier this year it announced it was restructuring its truckload operations to rely less on independent contractors and more on company drivers as a means to drive profitability.

In its notice about the SEC investigation, Celadon also said it is implementing a “new strategic plan…including strengthening [its] capital structure, exiting or downsizing unprofitable or non-core business, restoring the historical operating practices and profitability of our irregular route truckload business and augmenting our senior management team.”

Celadon says it has secured a $22.6 million loan to pay down debts and increase cash flow.

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Celadon under criminal investigation over financial statements

James Jaillet, Commercial Carrier Journal (CCJ)  /  July 25, 2018

The Celadon Group said this month it is facing a criminal investigation into discrepancies within its required earnings filings. Last year, the company’s stock was delisted from the New York Stock Exchange last year over improper reporting of financial statements.

The Indianapolis-based fleet giant, which operates upwards of 5,500 trucks, was already under investigation by the Securities and Exchange Commission over misreported income in its earnings reports for fiscal 2014, 2015 and 2016. The company issued a notice to shareholders in April saying it over-reported its income in those years “by a range of…$200-$250 million” during the three years ended June 30, 2016.

The company said in April it would reissue corrected earnings reports for those years and 2017 in an attempt to have its stock relisted on the NYSE. However, the company’s stock still has not be relisted, and the updated financial reports are not listed on its website or in its SEC filings.

In a press release issued July 3, the company said it “is aware of investigations” by the SEC and “the Criminal Division of the United States Department of Justice into events and circumstances related to the previously announced restatement.”

The errors in its financial filings are due to the sale of used equipment by a Celadon subsidiary, Quality Companies. “Undisclosed arrangements…overstated the values of equipment traded” in those sales, Celadon said then. The sales reported by the company were actually equipment leases.

Read more on the company’s April notice at this link.

The company restructured its leadership following a $10 million loss posted in the second quarter of 2017. It also said it was restructuring its debt and ending its independent contractor program. It also discontinued the Quality Companies business unit.

Celadon in its July 3 release said its earnings this year are better than the same time last year, noting a 20 percent increase in average revenue per mile — in line with the current record-high rates environment. The company didn’t provide any other details on its finances in the release, nor has it posted earnings reports for any quarters since 2017’s second quarter.

“Over the past year, with our new senior management team we have disposed of non-core business units, dramatically improved our operating metrics and made significant progress toward issuing restated financial statements,” said Celadon CEO Paul Svindland. “Our customers, vendors, and financing sources have been highly supportive, in large part due to improved customer service and the ability to deliver substantial asset based and logistics solutions in a market environment of tight capacity.”

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