CELADON GROUP, INC. (NYSE:CGI) Files An 8-K Entry into a Material Definitive Agreement

On March 30, 2018, Celadon Group, Inc. (the “Company”) entered into an Eighth Amendment to Amended and Restated Credit Agreement (the “Amendment”) by and among the Company, certain subsidiaries of the Company as guarantors, Bank of America, N.A., as lender and Administrative Agent, Wells Fargo Bank, N.A., and Citizens Bank, N.A., both as lenders, which amends the Company's existing Amended and Restated Credit Agreement dated December 12, 2014, among the same parties (as amended, the “Credit Agreement”). Among other changes, the Amendment: (i) amended the lease adjusted total debt to EBITDAR ratio and fixed charge coverage ratio financial covenants so that such covenants would not be tested for the twelve-month period ended March 31, 2018 (testing to resume for the twelve-month period ending June 30, 2018); (ii)amended the asset coverage ratio financial covenant so that a ratio of 1.05 to 1.00 is required for periods prior to April 30, 2018, and 1.85 to 1.00 for each week ending thereafter; (iii) increased the value of real estate that can be included for purposes of calculating the asset coverage ratio from $78.2 million to $85.0 million; ^{(iv) reset the other financial covenant levels for the months of March and April 2018; (v) provided additional exceptions to representation and warranties regarding the Company’s financial statements to reflect the matters addressed under Item 4.02 of this Current Report on Form 8-K; (vi) added a prohibition on any single disposition, or series of related dispositions, of assets having a fair market value in excess of $50,000, without obtaining the consent of the required lenders; (vii) added a requirement that the proceeds of any such asset disposition permanently pay down outstanding borrowings; (viii) added a requirement for the Company to deliver to the lenders an updated refinancing plan and financial forecast on or before April 13, 2018; (ix) required the payment of approximately $2.6 million of previously accrued fees; (x) deferred the payment date for $5.95 million of previously accrued fees to April 30, 2018; and (xi) imposed an amendment fee of $2.76 million, payable on April 30, 2018.}

The description of the Amendment does not purport to be complete and is qualified in its entirety by the full text of the Amendment, which is filed herewith as Exhibit 10.1.

On April 2, 2018, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) and the Company’s management concluded that the carrying value of certain equipment held for sale included in the Company’s balance sheet for the fiscal year ended June 30, 2016 should be written down by approximately $20 million. The circumstances leading to this conclusion are discussed in further detail under Item 4.02 of this Current Report on Form 8-K, and the information contained under such Item under the heading “Equipment Held for Sale Transactions” is hereby incorporated by reference. The Company does not expect any future cash expenditures as a result of this impairment charge.

^{The asset coverage ratio calculation still excludes certain assets not consisting of U.S. real property, U.S. rolling stock, and U.S. accounts receivable.}

On May 1, 2017, the Company announced that the Company’s financial statements for fiscal year 2016 (ended June 30, 2016) and the quarters ended September 30, 2016 and December 31, 2016 and related reports of the Company’s independent registered public accounting firm, BKD, LLP (“BKD”) should no longer be relied upon. The Audit Committee immediately commenced an investigation with the assistance of an independent law firm and a leading international auditing, tax, and advisory firm (the “internal investigation”). The internal investigation is nearing completion but remains ongoing.

The Company’s new senior management team, led by the Company's new Chief Financial Officer and new Chief Accounting Officer, also subsequently commenced a review of the Company’s current and historical accounting policies and procedures. The internal investigation and management review have identified errors that will require adjustments to the previously issued 2014, 2015, 2016, and 2017 financial statements (and potentially periods prior thereto). As a result, on April 2, 2018, the Audit Committee and the Company’s management concluded that the 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. In addition, the Company has concluded that there were deficiencies in its internal control over financial reporting that constituted material weaknesses for each of the affected periods and, as a result, management’s reports on its internal control over financial reporting as of June 30, 2014, June 30, 2015, and June 30, 2016, should no longer be relied upon.

The amounts, periods, and adjustments described below are preliminary, have not been subjected to any audit procedures, and are subject to change. The estimated range of amounts and periods described below are being provided to indicate a general sense of the magnitude of the expected changes and should not be considered definitive. Based upon its analysis and assessment of presently available information, the Company presently expects the adjustments to include the following:

The anticipated adjustments identified above are subject to ongoing review and analysis and cannot be precisely quantified with respect to any period at this time. However, the cumulative effect of the adjustments, along with operating losses and other expenses since the Company’s last filed financial reports, are expected to reduce its reported stockholders' equity materially. The adjustments are also anticipated to have a material impact on assets, liabilities, revenue, income (loss), and individual expense items in certain periods.

The Audit Committee and the Company’s management have discussed the matters disclosed in this Item 4.02 with BKD.

Item 7.01Regulation FD Disclosure.

On April 2, 2018, the Company issued a press release discussing the items noted above. A copy of the press release is attached to this report as Exhibit 99.1.

Item 9.01Financial Statements and Exhibits.

The information contained in this report and Exhibit 99.1 hereto contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. Such statements may be identified by their use of terms or phrases, including “expects,” “expected,” “will,” “would,” “could,” “intends,” “believes,” “anticipates,” “future,” and similar terms and phrases. Forward-looking statements are based upon the current beliefs and expectations of the Company’s management and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. In this report and Exhibit 99.1 hereto, statements relating to the restatement of the Company’s financial statements, including, without limitation, the affected periods, the items requiring adjustment, the magnitude, quantification, materiality, and significance of the adjustments and related impacts, the cash flow impacts of the adjustments, cash expenditures resulting from the adjustments, the manner in which the adjustments will be implemented, impacts on stockholders’ equity, the Company’s ability to issue restated financial statements, the period of time necessary to issue restated financial statements, the carrying value of revenue equipment held for sale and property, plant and equipment, accounting for equipment sale transactions as borrowings, the valuation of the Company’s equity interest in 19^th Capital and the factors impacting such valuation, the restatement of operating leases as capitalized leases, the review of other financial statement items as part of the restatement process, and the impact of the adjustments on assets, liabilities, revenue, income (loss), and individual expense items, the Company’s consolidated operating margins, the Company’s reduction of costs, the Company’s future progress and operational performance, the Company’s refinancing effort, the occurrence and expected timing of a refinancing, the existence and terms of future debt and equity investments in the Company, the extension of equipment lease maturities, the Company’s future liquidity, the Company’s expected delisting from the NYSE, and the Company’s expectation that its common stock will be quoted on the OTC Pink market electronic quotation system, among others, are forward-looking statements. Actual results may differ from those set forth in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the risk that the internal investigation or management’s review may identify additional issues or matters requiring adjustment to the Company’s financial statements, the risk that the actual restated financial statements differ materially from any estimates included in this report or Exhibit 99.1 hereto, the risk that the Company is delayed in filing or is unable to file restated financial statements, the risk of negative tax or other implications resulting from the restatement of the Company’s financial statements, the risk that the Company’s operating performance does not improve or deteriorates, the risk that the Company is unable to refinance its existing credit agreement or does so on terms that are more detrimental to it or dilutive to its stockholders than the terms described in this report and Exhibit 99.1 hereto, the risk of potential claims and proceedings relating to the matters described in this report and Exhibit 99.1 hereto, the risk that the Company’s liquidity will be constrained as a result of restrictions placed on it by its debt and lease arrangements or from payments it is required to make under such arrangements, and the risk that the Company’s common stock will not qualify for quotation on the OTC Pink electronic quotation system or that brokers will choose not to quote or otherwise make a market for trading its common stock. Readers should review and consider these and other factors that could impact results as provided in various disclosures by the Company in its press releases, stockholder reports, and filings with the Securities and Exchange Commission.

CELADON GROUP INC ExhibitEX-10.1 2 exhibit101.htm EXHIBIT 10.1 (EIGHTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT DATED MARCH 30,…To view the full exhibit click here
About CELADON GROUP, INC. (NYSE:CGI)
Celadon Group, Inc. (Celadon) is a truckload freight transportation provider. The Company’s segments are asset-based, asset-light, and equipment leasing and services. Its services involve point-to-point shipping for its customers within the United States, between the United States and Mexico, and between the United States and Canada. The Company’s primary asset-based services include the United States domestic dry van, refrigerated and flatbed service; cross-border service between the United States and each of Mexico and Canada; intra-Mexico and intra-Canada service; contract service; regional and specialized short haul service, and rail intermodal service. The Company’s primary asset-light services include freight brokerage, warehousing, less-than truckload consolidation and supply chain logistics services. Celadon’s equipment leasing and services segment consists primarily of leasing activities with independent contractors and other trucking fleets.