Alan Petersime/Bloomberg News
Auditors at BKD have withdrawn their support of Celadon Group Inc.’s financial statements for the last three fiscal quarters because the trucking company didn’t produce sufficient documents on the value of used trucks, according to a letter in a filing with the Securities and Exchange Commission.
An internal audit committee wanted accountants to take a second look at the market value of trucks transferred from Celadon to 19th Capital Group, a joint venture between the truckload carrier and Element Fleet Management.
On the balance sheet, Celadon records used trucks as “revenue equipment held for sale,” then transfers the trucks to 19th Capital Group and records it as an “investment in unconsolidated companies.” Based on accounting standards, a company must record the lower of the depreciated value or market value for the used truck, a concept known as the “lower of cost or market” rule.
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“The joint venture represents the combination of the former equipment leasing portfolios of Celadon, Element, and 19th Capital that were managed by [subsidiary Quality Cos.]. The joint venture holds over 10,000 tractors for use in leasing operations, with a business plan focused on leasing to trucking fleets,” Celadon said when it announced the joint venture.
Prescience Point Research Group alleges that Celadon drastically overvalued the used trucks on the balance sheet to artificially inflate its book value. The group further alleges that Celadon and 19th Capital are in dire financial shape and that the truckload carrier will default on its debt and the banks will recall the loans. However, Prescience Point Research Group is short selling Celadon stock and has a financial motive to drive down the stock price of the company.
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