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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
Fiscal Year Ended December 31, 2010
Commission File Number
001-34734
ROADRUNNER TRANSPORTATION
SYSTEMS, INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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20-2454942
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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4900 S. Pennsylvania Ave.
Cudahy,
Wisconsin
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53110
(Zip Code)
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(Address of Principal Executive
Offices)
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(414)
615-1500
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $.01 per share
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The New York Stock Exchange
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of Common Stock held by nonaffiliates
of the registrant (7,978,796 shares), based on the closing
price of the registrants Common Stock as reported on the
New York Stock Exchange on June 30, 2010 of $14.21, was
$113,378,691. For purposes of this computation, all officers,
directors, and 10% beneficial owners of the registrant are
deemed to be affiliates. Such determination should not be deemed
to be an admission that such officers, directors, or 10%
beneficial owners are, in fact, affiliates of the registrant.
As of March 25, 2011, there were outstanding
30,188,167 shares of the registrants Common Stock,
par value $.01 per share.
Documents
Incorporated by Reference
Portions of the registrants definitive Proxy Statement for
the 2011 Annual Meeting of Stockholders are incorporated by
reference into Part III of this
Form 10-K.
ROADRUNNER
TRANSPORTATION SYSTEMS, INC.
ANNUAL
REPORT ON
FORM 10-K
TABLE OF
CONTENTS
Statement
Regarding Forward-Looking Statements
This report on
Form 10-K
contains forward-looking statements regarding future events or
our future financial and operational performance.
Forward-looking statements include statements regarding markets
for our services; trends in revenues, margins, and estimated
expenses; liquidity and anticipated cash needs and availability;
and any statement that contains the words
anticipate, believe, plan,
forecast, foresee, estimate,
project, expect, seek,
target, intend, goal and
other similar expressions. The forward-looking statements
included in this report reflect our current expectations and
beliefs, and we do not undertake publicly to update or revise
these statements, even if experience or future changes make it
clear that any projected results expressed in this annual report
or future quarterly reports, press releases or company
statements will not be realized. In addition, the inclusion of
any statement in this report does not constitute an admission by
us that the events or circumstances described in such statement
are material. Furthermore, we wish to caution and advise readers
that these statements are based on assumptions that may not
materialize and may involve risks and uncertainties, many of
which are beyond our control, that could cause actual events or
performance to differ materially from those contained or implied
in these forward-looking statements. These risks and
uncertainties include the business and economic risks described
in Item 1A, Risk Factors.
Unless otherwise indicated or unless the context requires
otherwise, all references in this document to RRTS,
our company, we, us,
our, and similar names refer to Roadrunner
Transportation Systems, Inc. and its subsidiaries.
PART I
Overview
We are a leading non-asset based transportation and logistics
service provider offering a full suite of solutions, including
customized and expedited
less-than-truckload,
truckload brokerage, transportation management solutions,
intermodal solutions (transporting a shipment by more than one
mode, primarily via rail and truck), and domestic and
international air. We utilize a broad third-party network of
transportation providers, comprised of independent contractors
(ICs) and purchased power providers, to serve a diverse customer
base in terms of end market focus and annual freight
expenditures. ICs are individuals or small teams that own or
lease their own
over-the-road
transportation equipment and provide us with dedicated freight
capacity. Purchased power providers are unrelated asset-based
over-the-road
transportation companies that provide us with freight capacity
under non-exclusive contractual arrangements. Although we
service large national accounts, we primarily focus on small to
mid-size shippers, which we believe represent an expansive and
underserved market. Our business model is highly scalable and
flexible, featuring a variable cost structure that requires
minimal investment in transportation equipment and facilities,
thereby enhancing free cash flow generation and returns on our
invested capital and assets.
We have three reportable operating segments:
Less-than-Truckload. Our
less-than-truckload
(LTL) business involves the pickup, consolidation, linehaul,
deconsolidation, and delivery of LTL shipments throughout the
United States and into Mexico, Puerto Rico, and Canada. With a
network of 17 service centers and over 200 third-party delivery
agents, we employ a
point-to-point
LTL model that we believe serves as a competitive advantage over
the traditional hub and spoke LTL model in terms of faster
transit times, lower incidence of damage, and reduced fuel
consumption. Our LTL segment also includes domestic and
international air transportation services.
Truckload Brokerage. Within our truckload (TL)
brokerage business, we arrange the pickup and delivery of TL
freight through our network of nine company dispatch offices and
71 independent brokerage agents primarily located throughout the
Eastern United States and Canada. We offer
temperature-controlled, dry van, and flatbed services and
specialize in the transport of refrigerated foods, poultry, and
beverages. We believe this specialization provides consistent
shipping volume
year-over-year.
Our TL brokerage segment also includes our intermodal service
offering.
Transportation Management Solutions. Within
our transportation management solutions (TMS) business, we offer
a one-stop transportation and logistics solution,
including access to the most cost-effective and
time-sensitive
modes of transportation within our broad network. Specifically,
our TMS offering includes pricing, contract management,
transportation mode and carrier selection, freight tracking,
freight bill payment and audit, cost reporting and analysis, and
dispatch. Our customized TMS offering is designed to allow our
customers to reduce operating costs, redirect resources to core
competencies, improve supply chain efficiency, and enhance
customer service.
Our
Industry
Over-the-Road
Freight
The
over-the-road
freight sector includes both private fleets and
for-hire carriers (ICs and purchased power
providers). According to the American Trucking Associations
(ATA) the
U.S. over-the-road
freight sector represented revenue of approximately
$665 billion in 2009 and accounted for approximately 82% of
domestic freight transportation spend. The ATA estimates that
U.S. over-the-road
freight transportation will increase to over $1.1 trillion by
2021. Private fleets consist of tractors and trailers owned and
operated by shippers that move their own goods and, according to
the ATA, accounted for revenue of approximately
$260 billion in 2009. For-hire carriers transport freight
belonging to others, including LTL and TL freight, and accounted
for revenue of approximately $285 billion in 2009,
according to the ATA.
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LTL carriers specialize in consolidating shipments from multiple
shippers into truckload quantities for delivery to multiple
destinations. LTL carriers are traditionally divided into two
categories national and regional. National carriers
typically focus on
two-day or
longer service across distances greater than 1,000 miles
and often operate without time-definite delivery, while regional
carriers typically offer time-definite delivery in less than two
days. According to the ATA, the U.S. LTL market generated
revenue of approximately $38.6 billion in 2009.
TL carriers dedicate an entire trailer to one shipper from
origin to destination and are categorized by the type of
equipment they use to haul a shippers freight, such as
temperature-controlled, dry van, tank, or flatbed trailers.
According to the ATA, excluding private fleets, revenue in the
U.S. TL segment was approximately $246.2 billion in
2009.
Third-Party
Logistics
Third-party logistics (3PL) providers offer TMS and distribution
services including the movement and storage of freight. The
U.S. 3PL sector revenue increased from $45.3 billion
in 1999 to $107.1 billion in 2009, according to
Armstrong & Associates, a leading supply chain market
research firm. Although the U.S. 3PL sector declined by
15.7% in 2009 due to the recent economic downturn, Logistics
Quarterly, a transportation logistics publication,
anticipates that reported 2010 U.S. 3PL revenue will
increase 8.0% over 2009 levels. In addition, only 7.9% of global
logistics expenditures by U.S. businesses were outsourced
in 2009, according to Armstrong & Associates. We
believe that market penetration by 3PL providers will increase
in the future as companies increasingly redirect their resources
to core competencies and outsource their transportation and
logistics requirements to 3PL providers in order to realize cost
savings.
Factors
Important to Our Business
Our success principally depends on our ability to generate
revenues through our network of sales personnel and independent
brokerage agents and to deliver freight in all modes safely, on
time, and cost-effectively through a suite of solutions tailored
to the needs of each customer. Customer shipping demand,
over-the-road
freight tonnage levels, and equipment capacity ultimately drive
increases or decreases in our revenues. Our ability to operate
profitably and generate cash is also impacted by purchased
transportation costs, fuel costs, pricing dynamics, customer
mix, and our ability to manage costs effectively.
Agent Network and Sales Personnel. While many
national asset-based LTL providers are encumbered by the fixed
overhead costs associated with owning or leasing most or all of
their de-consolidation and delivery facilities, we maintain our
variable cost structure through the extensive use of delivery
agents. We have a network of over 200 LTL delivery agents
that provide cost-effective delivery coverage throughout North
America. In addition to our agent network, we market and sell
our LTL services through a sales force of over 100 people,
consisting of account executives, sales managers, inside sales
representatives, and commission sales representatives. In our TL
business, we arrange the pickup and delivery of freight either
through our 44 dispatchers in nine offices or through our
network of 71 independent brokerage agents. Brokerage agents
complement our network of dispatch offices by bringing
pre-existing customer relationships, new customer prospects,
and/or
access to new geographic markets. Furthermore, brokerage agents
typically provide immediate revenue and do not require us to
invest in incremental overhead. Brokerage agents own or lease
their own office space and pay for other costs associated with
running their operation. In our TMS business, we have over
50 salespeople and commissioned sales agents. We also
utilize our LTL sales force to cross-sell our TMS services.
Tonnage Levels and Capacity. Competition
intensifies in the transportation industry as tonnage levels
decrease and equipment capacity increases. Our ability to
maintain or grow existing tonnage levels is impacted by overall
economic conditions, shipping demand, and
over-the-road
freight capacity in North America, as well as by our ability to
compete effectively in terms of pricing, safety, and on-time
delivery. We do business with a broad base of third-party
carriers, which include ICs and purchased power providers, which
reduces the impact of tightening capacity on our business.
Purchased Transportation Costs. Purchased
transportation costs within our LTL business represent amounts
we pay to ICs or purchased power providers and are generally
contractually
agreed-upon
rates. Purchased transportation costs within our TL brokerage
business are typically based on negotiated rates for each load
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hauled. We pay commissions to each brokerage agent based on a
percentage of margin generated. Within our TMS business,
purchased transportation costs include payments made to our
purchased power providers, which are generally contractually
agreed-upon
rates. Purchased transportation costs are the largest component
of our cost structure and are generally higher as a percentage
of revenues within our TL brokerage business than within our LTL
and TMS businesses. Our purchased transportation costs typically
increase or decrease in proportion to revenues.
Fuel. The transportation industry is dependent
upon the availability of adequate fuel supplies and the price of
fuel. Fuel prices have fluctuated dramatically over recent
years. The weekly per gallon price of diesel fuel ranged from a
low of $2.02 in 2009 to $3.90 in March 2011, according to the
U.S. Energy Information Administration. Within our LTL
segment, our ICs and purchased power providers pass along the
cost of diesel fuel to us, and we in turn attempt to pass along
some or all of these costs to our customers through fuel
surcharge revenue programs. Although revenues from fuel
surcharges generally offset increases in fuel costs, other
operating costs have been, and may continue to be, impacted by
fluctuating fuel prices. The total impact of higher energy
prices on other nonfuel-related expenses is difficult to
ascertain. We cannot predict future fuel price fluctuations, the
impact of higher energy prices on other cost elements,
recoverability of higher fuel costs through fuel surcharges, and
the effect of fuel surcharges on our overall rate structure or
the total price that we will receive from our customers.
Depending on the changes in the fuel rates and the impact on
costs in other fuel- and energy-related areas, our operating
margins could be impacted. Within our TL brokerage and TMS
businesses, we pass fuel costs through to our customers. As a
result, our operating income in these segments is less impacted
by changes in fuel prices.
Pricing. The pricing environment in the
transportation industry also impacts our operating performance.
Within our LTL business, we typically generate revenues by
charging our customers a rate based on shipment weight, distance
hauled, and commodity type. This amount is typically comprised
of a base rate, a fuel surcharge, and any applicable service
fees. Our LTL pricing is typically measured by billed revenue
per hundredweight, often referred to as yield. Our
LTL pricing is dictated primarily by factors such as shipment
size, shipment frequency and consistency, length of haul,
freight density, and customer and geographic mix. Within our TL
brokerage business, we typically charge a flat rate negotiated
on each loan hauled. Pricing within our TL brokerage business
generally has fewer influential factors than pricing within our
LTL business, but is also typically driven by shipment frequency
and consistency, length of haul, and customer and geographic
mix. Within our TMS business, we typically charge a variable
rate on each shipment, in addition to transaction or service
fees appropriate for the solution we have provided to meet a
specific customers needs. Since we offer both LTL and TL
shipping as part of our TMS offering, pricing within our TMS
segment is impacted by similar factors. The pricing environment
for all of our operations generally becomes more competitive
during periods of lower industry tonnage levels and increased
capacity within the
over-the-road
freight sector.
Our
Strategy
Our goal is to be the leading non-asset based transportation and
logistics service provider in North America. Our strategy
includes continuing to:
Gain New Customers. In 2010, we continued to
expand our customer base, and we will continue to pursue greater
market share in the LTL, TL brokerage, and TMS markets. Our
expansive geographic reach and broad service offering provides
us with the ability to add new customers seeking à la carte
or one-stop transportation and logistics solutions.
We also believe the pool of potential new customers will grow as
the benefits of third-party TMS continue to be embraced.
Increase Penetration with Existing
Customers. With our comprehensive service
offering and large network, we have substantial cross-selling
opportunities and the potential to capture a greater share of
each customers annual transportation and logistics
expenditures. We believe that macroeconomic factors will provide
us with opportunities to further penetrate existing customers.
During the recent economic downturn, existing customers
generally reduced their number of shipments and pounds per
shipment. In 2010, we experienced increased revenue driven by
greater shipment volume, improved load density, and the addition
of new customers.
Pursue Selective Acquisitions. The
transportation and logistics industry is highly fragmented,
consisting of many smaller, regional service providers covering
particular shipping lanes and providing niche services. We built
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our LTL, TL brokerage, and TMS platforms in part by successfully
completing and integrating a number of accretive acquisitions.
We intend to continue to pursue acquisitions that will
complement our existing suite of services and extend our
geographic reach. Our LTL delivery agents also present an
opportunity for growth via acquisition. If we decide to offer
outbound LTL service from a new strategic location, we could
potentially acquire one of our delivery agents. With a scalable,
non-asset based business model, we believe we can execute our
acquisition strategy with minimal investment in additional
infrastructure and overhead.
Expand Truckload Capacity. During the second
quarter and into the third quarter of 2010, TL pricing escalated
dramatically before stabilizing during the fourth quarter. This
occurred as a result of reduced truckload capacity in the
over-the-road
freight sector, coupled with increased shipping demand. While
this pricing escalation increased revenues in our TL segment, it
had an adverse impact on linehaul costs in our LTL segment. In
order to mitigate this impact, we implemented initiatives to
expand our truckload capacity, such as increasing and expanding
utilization of our ICs on lanes most impacted by rising rates,
and expanding the number of purchased power providers in our
carrier base. We will continue efforts to recruit and retain
additional ICs and expand our carrier base in order to reduce
the impact of potential further tightening of industry truckload
capacity. In addition, while we plan to maintain minimum asset
intensity, we may consider investing in transportation equipment
to service select lanes with consistent density if we believe we
can achieve an attractive return on investment.
Continue Generating Free Cash Flows. Our
scalable business model and minimal capital expenditures
enhances our ability to generate strong free cash flows. We
believe an escalation in shipment and tonnage levels as well as
continued expansion of our customer base will drive increased
revenues and greater density throughout our network, thereby
positively affecting our free cash flow generation. During the
second half of 2010, we reduced our long-term debt by
$13.5 million, from $34.0 million at June 30,
2010 to $20.5 million at December 31, 2010.
Our
Services
We are a leading non-asset based transportation services
provider offering a full suite of customized transportation
solutions with a primary focus on serving the specialized needs
of small to mid-size shippers. Because we generally do not own
the transportation equipment used to transport our
customers freight (we own minimal transportation
equipment), we are able to focus solely on providing quality
service rather than on asset utilization. Our customers
generally communicate their freight needs to one of our
transportation specialists on a
shipment-by-shipment
basis via telephone, fax, Internet,
e-mail, or
electronic data interchange. We leverage a diverse group of
third-party carriers to provide scalable capacity and reliable
service to our extensive customer base in North America.
Less-than-Truckload
Based on our industry knowledge, we believe we are the largest
non-asset based provider of LTL transportation services in North
America in terms of revenue. We provide LTL service originating
from points within approximately 150 miles of our service
centers to most destinations throughout the United States and
into Mexico, Puerto Rico, and Canada. Within the United
States, we offer national, long-haul service (1,000 miles
or greater), inter-regional service (between 500 and
1,000 miles), and regional service (500 miles or
less). We serve a diverse group of customers within a variety of
industries, including retail, industrial, paper goods,
manufacturing, food and beverage, health care, chemicals,
computer hardware, and general commodities.
As the diagram below illustrates, we utilize a
point-to-point
LTL model that is differentiated from the traditional,
asset-based hub and spoke LTL model. Our model does not require
intermediate handling at a break-bulk hub (a large terminal
where freight is offloaded, sorted, and reloaded), which we
believe represents a competitive advantage in terms of
timeliness, lower incidence of damage, and reduced fuel
consumption. For example, we can transport LTL freight from
Cleveland, Ohio to Los Angeles, California without stopping at a
break-bulk hub, while the same shipment traveling through a
traditional hub and spoke LTL model would likely be
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unloaded and reloaded at break-bulk hubs in, for example, Akron,
Ohio and Adelanto, California prior to reaching its destination.
Representative Asset-Based
National Hub and Spoke LTL Model versus
Non-Asset Based National
Point-to-Point
LTL Model
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Asset-Based
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Non-Asset-Based
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National Hub and Spoke LTL Model
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National
Point-to-Point
LTL Model
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Shipper to End User
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Shipper to End User
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5 different trucks
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2 to 3 different trucks
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5 different drivers
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2 to 3 different drivers
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4 service centers
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1 to 2 service centers
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10 handlings (loading/unloading)
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4 to 6 handlings (loading/unloading)
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Standard 5 days
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3 to 5 days
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We believe our model allows us to offer LTL average transit
times more comparable to that of deferred air freight service
than to standard national LTL service, yet more cost-effective.
Key aspects of our LTL service offering include the following:
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Pickup. In order to stay as close as possible
to our customers, we prefer to handle customer pickups whenever
cost-effective. We generally pick up freight within
150 miles of one of our service centers, utilizing
primarily city ICs. Although we generally do not own the
tractors or other powered transportation equipment used to
transport our customers freight, we own or lease trailers
for use in local city pickup and delivery (not for linehaul or
our other LTL operations). In 2010, we picked up approximately
82% of our customers LTL shipments. The remainder was
handled by agents with whom we generally have long-standing
relationships.
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Consolidation at Service Centers. Key to our
model is a network of 17 service centers, as illustrated by the
map below, that we lease in strategic markets throughout the
United States. At these service centers, numerous smaller LTL
shipments are unloaded, consolidated into truckload shipments,
and loaded onto a linehaul unit scheduled for a destination
city. In order to continually emphasize optimal load building
and enhance operating margins, dock managers review every load
before it is dispatched from one of our service centers.
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Linehaul. Linehaul is the longest leg of the
LTL shipment process. In dispatching a load, a linehaul
coordinator at one of our service centers uses our technology
system to optimize cost-efficiency and service by assigning the
load to the appropriate third-party transportation provider,
either an IC or purchased power provider. In 2010, ICs handled
approximately 42% of our linehaul shipments. As industry-wide
freight
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capacity tightens with an anticipated market rebound, we believe
our recruitment and retention efforts will allow us to increase
IC utilization in order to maintain service and cost stability.
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De-consolidation and Delivery. Within our
unique model, linehaul shipments are transported to our service
centers, delivery agents, or direct to end users without
stopping at a break-bulk hub, as is often necessary under the
traditional, asset-based hub and spoke LTL model. This generally
reduces physical handling and damage claims, and reduces
delivery times by one to three days on average. In 2010, we
delivered approximately 22% of LTL shipments through our service
centers, 77% through our delivery agents, and 1% direct to end
users.
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Benefits of a Delivery Agent Network. While
many national asset-based LTL providers are encumbered by the
fixed overhead associated with owning or leasing most or all of
their de-consolidation and delivery facilities, we maintain our
variable cost structure through the extensive use of delivery
agents.
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As the LTL Service Center and Delivery Agent Network
map illustrates, we use over 200 LTL delivery agents to
complement our service center footprint and to provide
cost-effective full state, national, and North American delivery
coverage. Delivery agents also enhance our ability to handle
special needs of the final consignee, such as scheduled
deliveries and specialized delivery equipment.
We believe a sustained recovery in the
over-the-road
freight sector would provide greater freight density and
increased shipping volumes, thereby allowing us to build full
trailer loads more quickly and deliver freight faster under our
point-to-point
model. We believe this will further distinguish our LTL service
offering as even more comparable in speed to deferred air
freight service, leading to enhanced market share and improved
operating margins.
LTL
Service Center and Delivery Agent Network
Truckload
Brokerage
We are a leading TL brokerage operation in North America in
terms of revenue. We provide a comprehensive range of TL
solutions for our customers by leveraging our broad base of
third-party carriers who operate temperature-controlled, dry
van, and/or
flatbed capacity. Although we specialize in the transport of
refrigerated
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foods, poultry, and beverages, we also provide a variety of TL
transportation solutions for dry goods ranging from paper
products to steel, as well as flatbed service for larger
industrial load requirements. Our intermodal capabilities, which
are included in our TL segment, include drayage, which is the
transport of freight between ocean ports or rail ramps and
shipping docks. We arrange the pickup and delivery of TL freight
either through our nine company dispatch offices (operated by
our employees) or through our network of 71 independent
brokerage agents. Our dispatch offices and brokerage agents are
located primarily throughout the Eastern United States and
Canada, as illustrated on the map below.
TL
Dispatcher and Agent Network
Company Dispatchers. Our 44 company
brokers, whom we refer to as dispatchers, not only engage in the
routing and selection of our transportation providers, but also
serve as our internal TL sales force, responsible for managing
existing customer relationships and generating new customer
relationships. Because the performance of these individuals is
essential to our success, we offer attractive incentive-based
compensation packages that we believe keep our dispatchers
motivated, focused, and service-oriented.
Dispatch Office Expansion. We have
traditionally expanded our dispatch operations based upon the
needs of our customers. Going forward, we plan to open new
dispatch offices, particularly in geographic areas where we lack
coverage of the local freight market. Importantly, opening a new
dispatch office requires only a modest amount of
capital it usually involves leasing a small amount
of office space and purchasing communication and information
technology equipment. Typically the largest investment required
is in working capital as we generate revenue from new customers.
While the majority of growth within our dispatch operations has
been organic, we will continue to evaluate selective
acquisitions that would allow us to quickly penetrate new
customers and geographic markets.
Independent Brokerage Agents. In addition to
our dispatchers, we also maintain a network of independent
brokerage agents that have partnered with us for a number of
years. Brokerage agents complement our network of dispatch
offices by bringing pre-existing customer relationships, new
customer prospects,
and/or
access to new geographic markets. Furthermore, they typically
provide immediate revenue and do not require us to invest in
incremental overhead. Brokerage agents own or lease their own
office space and pay for their own communications equipment,
insurance, and
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any other costs associated with running their operation. We only
invest in the working capital required to execute our quick pay
strategy and generally pay a commission to our brokerage agents
ranging from
40-70% of
the margin we earn on a TL shipment. Similar to our dispatchers,
our brokerage agents engage in the routing and selection of
transportation providers for our customer base and perform sales
and customer service functions on our behalf.
Brokerage Agent Expansion. We believe we offer
brokerage agents a very attractive partnership opportunity. We
offer access to our reliable network of over 175 ICs (operating
over 300 power units) and broad base of purchased power
providers and invest in the working capital required to pay
these carriers promptly and assume collection responsibility. We
believe this has contributed to our reputation for quality and
reliable service, as well as to the consistent growth of our
brokerage agent network. During 2010, we have expanded our TL
brokerage agent network from 42 agents to 71 agents.
Additionally, 20 of our brokerage agents each generated more
than $1 million in revenue in 2010. We believe our
increased development efforts and attractive value proposition
will allow us to further expand our brokerage agent network and
enhance the growth of our TL brokerage business.
Transportation
Management Solutions
Our TMS offering is designed to provide comprehensive or à
la carte 3PL services. We provide the necessary operational
expertise, information technology capabilities, and
relationships with third-party transportation providers to meet
the unique needs of our customers. For customers that use the
most comprehensive service plans, we complement their internal
logistics and transportation management personnel and
operations, enabling them to redirect resources to core
competencies, reduce internal transportation management
personnel costs and, in many cases, achieve substantial annual
freight savings. Key aspects of our TMS capabilities include the
following:
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Procurement. After an in-depth consultation
and analysis with our customer to identify cost savings
opportunities, we develop an estimate of our customers
potential savings and cultivate a plan for implementation. If
necessary, we manage a targeted bid process based on a
customers traffic lanes, shipment volumes, and product
characteristics, and negotiate rates with reputable carriers. In
addition to a cost-efficient rate, the customer receives a
summary of projected savings as well as our carrier
recommendation.
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Shipment Planning. Utilizing our technology
systems and an expansive multi-modal network of third-party
transportation providers, we determine the appropriate mode of
transportation and select the ideal provider. In addition, we
provide load optimization services based on freight patterns and
consolidation opportunities. We also provide rating and routing
services, either
on-site with
one of our transportation specialists, off-site through our
centralized call center, or online through our website. Finally,
we offer
merge-in-transit
coordination to synchronize the arrival and pre-consolidation of
high-value components integral to a customers production
process, enabling them to achieve reduced cycle times, lower
inventory holding costs, and improved supply chain visibility.
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Shipment Execution. Our transportation
specialists are adept at managing time-critical shipments. Our
technology system prompts a specialist to hold less
time-sensitive shipments until other complementary freight can
be found to complete the shipping process in the most
cost-effective manner. We maintain constant communication with
third-party transportation providers from dispatch through final
delivery. As a result, our expedited services are capable of
meeting virtually any customer transit or delivery requirement.
Finally, we provide the ability to track and trace shipments
either online or by phone through one of our transportation
specialists.
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Audit and Payment Services. We capture and
consolidate our customers entire shipping activity and
offer weekly electronic billing. We also provide freight bill
audit and payment services designed to eliminate excessive or
incorrect charges from our customers bills.
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Performance Reporting and Improvement
Analysis. Customers utilizing our web reporting
system have the ability to query freight bills, develop
customized reports online, and access data to assist in
financial and operational reporting and planning. Our
specialists are also actively driving process improvement,
continually using our technology to identify incremental savings
opportunities and efficiencies for our customers.
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With a broad TMS offering, we believe we can accommodate a
shippers unique needs with any combination of services
along our entire spectrum, and cater to their preferred means of
shipment processing and communication.
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We believe our comprehensive service approach and focus on
building long-term customer relationships lead to greater
retention of existing business compared to a more short-term
gain sharing model employed by many 3PL providers. We believe
our approach is more sustainable in the event freight capacity
tightens and it becomes more difficult for 3PL providers
employing the gain sharing model to generate substantial
incremental savings for shippers after the first year of
implementation. Before becoming fully operational with a
customer, we conduct thorough feasibility and cost savings
analyses and collaborate with the customer to create a project
scope and timeline with measurable milestones. We believe this
approach enables us to identify any potential issues, ensure a
smooth integration process, and set the stage for long-term
customer satisfaction. Within our TMS operation, we have
consistently met customer implementation deadlines and achieved
anticipated levels of freight savings.
Capacity
We offer scalable capacity and reliable service to our extensive
customer base in North America through a diverse third-party
network of transportation providers. Our various transportation
modes include LTL, TL and intermodal, and domestic and
international air. No single carrier accounted for more than 4%
of our 2010 purchased transportation costs. We ensure that each
carrier is properly licensed and we regularly monitor their
capacity, reliability, and pricing trends. Enhanced visibility
provided by our technology systems allows us to leverage the
competitive dynamics within our network to renegotiate freight
rates and provide our customers with more cost-effective
transportation solutions while enhancing our operating margins.
We continually focus on building and enhancing our relationships
with reliable transportation providers to ensure that we not
only secure competitive rates, but that we also gain access to
consistent capacity, especially during peak shipping seasons.
Because we own minimal transportation equipment used to deliver
our customers freight, these relationships are critical to
our success. We typically pay our third-party carriers either a
contracted per mile rate or the cost of a shipment less our
contractually
agreed-upon
commission, and generally pay within seven to ten days from the
delivery of a shipment. We pay our third-party carriers promptly
in order to drive loyalty and reliable capacity.
Our third-party network of transportation providers can be
divided into the following groups:
Independent Contractors. Independent
contractors are a key part of our long-term strategy to maintain
service and provide cost stability. In selecting our ICs, we
adhere to specific screening guidelines in terms of safety
records, length of driving experience, and personnel
evaluations. In the event of tightening of
over-the-road
freight capacity, we believe we are well positioned to increase
our utilization of ICs as a cost-effective and reliable solution.
To enhance our relationship with our ICs, we offer per mile
rates that we believe are highly competitive and often above
prevailing market rates. In addition, we focus on keeping our
ICs fully utilized in order to limit the number of
empty miles they drive. We regularly communicate
with our ICs and seek new ways to enhance their quality of life.
We believe our efforts increase IC retention which, in our
opinion, ultimately leads to better service for our customers.
Purchased Power. In addition to our large base
of ICs, we have access to a broad base of purchased power
providers. We have established relationships with carriers of
all sizes, including large national trucking companies and small
to mid-size regional fleets. With the exception of safety
incentives, purchased power providers are generally paid under a
similar structure as ICs within our LTL and TL brokerage
businesses. In contrast to contracts established with our ICs,
however, we do not cover the cost of liability insurance for our
purchased power providers.
Delivery Agents. For the de-consolidation and
delivery stages of our LTL shipment process, our network of 17
service centers is complemented by over 200 delivery agents. The
use of delivery agents is also a key part of our long-term
strategy to maintain a variable cost, scalable operating model
with minimal overhead.
Intermodal Capabilities. We maintain
intermodal capability within our TL brokerage segment and
through relationships with third-party carriers who rent
capacity on Class 1 railroads throughout North America.
Intermodal transportation rates are typically negotiated between
us and the capacity provider on a customer-specific basis.
Domestic/International Air Carriers. For our
customers domestic/international air freight needs, we
operate under an exclusive arrangement with FreightCo Logistics,
a third-party provider, to provide such services to our
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customers. Under our arrangement, FreightCo Logistics is
responsible for all services, and we receive a commission based
on a percentage of the total bill. In 2010, our
domestic/international air freight services represented less
than 1% of our LTL revenues.
Customers
Our goal is to establish long-term customer relationships and
achieve
year-over-year
growth in recurring business by providing reliable, timely, and
cost-effective transportation and logistics solutions. While we
possess the scale, operational expertise, and capabilities to
serve shippers of all sizes, we focus primarily on small to
mid-size shippers, which we believe represent a large and
underserved market. We serve an extensive customer base within a
variety of end markets, with no customer accounting for more
than 3.0% of 2010 revenue and no industry sector accounting for
more than 18.0% of 2010 revenue. Our growth was driven by our
sales team and a focus on shippers seeking to reduce their
exposure to asset-based logistics providers. We believe this
reduces our exposure to a decline in shipping demand from any
customer and a cyclical downturn within any end market.
Sales and
Marketing
In addition to our 71 TL brokerage agents, we currently market
and sell our transportation and logistics solutions through over
160 sales personnel located throughout the United States and
into Canada. We are focused on actively expanding our sales
force to new geographic markets where we lack a strong presence.
Our objective is to leverage our collective, national sales
force to sell our full suite of transportation services. We
believe this will allow us to capture a greater share of a
shippers annual transportation and logistics expenditures.
Our sales force can be categorized by primary service offering:
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Less-than-Truckload. Our
LTL sales force of over 100 people consists of account
executives, sales managers, inside sales representatives, and
commission sales agents.
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Truckload Brokerage. We have 44 dispatchers
and 71 independent brokerage agents located primarily in the
Eastern United States and Canada. We believe that this
decentralized structure enables our salespeople to better serve
our customers by developing an understanding of local and
regional market conditions, as well as the specific
transportation and logistics issues facing individual customers.
Our dispatchers and brokerage agents seek additional business
from existing customers and pursue new customers based on this
knowledge and an understanding of the value proposition we can
provide.
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Transportation Management Solutions. We have
50 TMS salespeople and agents. We will also utilize our LTL
sales force to enhance the market reach and penetration of our
TMS offering and to capitalize on the opportunity to cross-sell
a broader menu of services to new and existing customers.
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Competition
We compete in the North American transportation and logistics
services sector. Our marketplace is extremely competitive and
highly fragmented. We compete with a large number of other
non-asset based logistics companies, asset-based carriers,
integrated logistics companies, and third-party freight brokers,
many of whom have larger customer bases and more resources than
we do.
In our markets, we compete with global asset-based integrated
logistics companies such as FedEx Corporation and United Parcel
Service, Inc., against whom we compete in all of our service
lines; asset-based freight haulers, such as Arkansas Best
Corporation, Con-Way, Inc., Old Dominion Freight Line Inc., and
YRC Worldwide, Inc., against whom we compete in our core LTL and
TL service offerings; non-asset based freight brokerage
companies, such as C.H. Robinson Worldwide, Inc. and Landstar
System, Inc., against whom we compete in our core LTL and TL
service offerings; third-party logistics providers that offer
comprehensive TMS, such as Echo Global Logistics, Inc.,
Schneider Logistics, Inc., and Transplace, Inc., against whom we
compete in our TMS offering; and smaller, niche transportation
and logistics companies that provide services within a specific
geographic region or end market.
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We believe we compete favorably by offering shippers attractive
transportation and logistics solutions designed to deliver the
optimal combination of cost and service. To that end, we believe
our most significant competitive advantages include:
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our comprehensive suite of transportation and logistics
services, which allow us to offer à la carte or a
one-stop value proposition to shippers of varying
sizes and accommodate their diverse needs and preferred means of
processing and communication;
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our non-asset based, variable cost business model, which allows
us to generate strong free cash flows and focus greater
attention on providing optimal customer service than on
maintaining high levels of asset utilization;
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our focus on an expansive market of small to mid-size shippers
who often lack the internal resources necessary to manage
complex transportation and logistics requirements and whose
freight volumes may not garner the same level of attention and
customer service from many of our larger competitors;
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our technology systems, which allow us to provide scalable
capacity and high levels of customer service across a variety of
transportation modes; and
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our knowledgeable management team with experience leading
high-growth logistics companies
and/or
business units, which allows us to benefit from a collective
entrepreneurial culture focused on growth.
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Seasonality
Our operations are subject to seasonal trends that have been
common in the North American
over-the-road
freight sector for many years. Our results of operations for the
quarter ending in March are on average lower than the quarters
ending in June, September, and December. Typically, this pattern
has been the result of factors such as inclement weather,
national holidays, customer demand, and economic conditions.
Technology
We believe the continued development and innovation of our
technology systems is important to providing our customers with
the most cost-effective, timely, and reliable transportation and
logistics solutions. Our objective is to allow our customers and
vendors to easily do business with us via the Internet. Our
customers have the ability, through a paperless process, to
receive immediate pricing, place orders, track shipments,
process remittance, receive updates on arising issues, and
review historical shipping data through a variety of reports
over the Internet.
Our LTL operation utilizes web-based servers with customized
software applications to improve every aspect of our LTL model
and manage our broad carrier base from pickup through final
delivery. Our corporate headquarters and service centers are
completely integrated, allowing real-time data to flow between
locations. Additionally, we make extensive use of electronic
data interchange, or EDI, to allow our service centers to
communicate electronically with our carriers and
customers internal systems. We offer our EDI-capable
customers a paperless process, including document imaging and
shipment tracking and tracing. As part of our ongoing initiative
to enhance our information technology capabilities, our LTL
operation has developed a proprietary carrier selection tool
used to characterize carriers based on total cost to maximize
usage of the lowest available linehaul rates.
Our TL brokerage operation uses a customized technology system
to broker our customers freight. Our software enhances our
ability to track our third-party drivers, tractors, and
trailers, which provides customers with visibility into their
supply chains. Additionally, our systems allow us to operate as
a paperless operation through electronic order entry, resource
planning and dispatch.
We continually enhance our TMS technology system and have
integrated other proven transportation management software
packages with the goal of providing customers with broad-based,
highly competitive solutions. Through an extensive use of
database configuration and integration techniques, hardware and
software applications, communication mediums, and security
devices, we are able to design a customized solution to address
each customers unique shipping needs and preferred method
of processing. Our web-based technology allows us to process and
service customer orders, track shipments in real time, select
optimal modes of transportation, execute
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customer billing, provide carrier rates, establish customer
specific profiles, and retain critical information for analysis.
We use this system to maximize supply chain efficiency through
mode, carrier, and route optimization.
Employees
As of December 31, 2010, we employed 1,054 personnel,
which included 14 management personnel, 157 sales and marketing
personnel, 578 operations and other personnel, and 305 LTL dock
personnel. None of our employees are covered by a collective
bargaining agreement and we consider relations with our
employees to be good.
Regulation
The federal government has substantially deregulated the
provision of ground transportation and logistics services via
the enactment of the Motor Carrier Act of 1980, the Trucking
Industry Regulatory Reform Act of 1994, the Federal Aviation
Administration Authorization Act of 1994, and the ICC
Termination Act of 1995. Prices and services are now largely
free of regulatory controls, although states have the right to
require compliance with safety and insurance requirements, and
interstate motor carriers remain subject to regulatory controls
imposed by the Department of Transportation (DOT), and its
agencies, such as the Federal Motor Carrier Safety
Administration (FMCSA). Motor carrier, freight forwarding, and
freight brokerage operations are subject to safety, insurance,
and bonding requirements prescribed by the DOT and various state
agencies. Any air freight business is subject to commercial
standards set forth by the International Air Transport
Association and federal regulations issued by the Transportation
Security Administration.
We are also subject to various environmental and safety
requirements, including those governing the handling, disposal
and release of hazardous materials, which we may be asked to
transport in the course of our operations. If hazardous
materials are released into the environment while being
transported, we may be required to participate in, or may have
liability for response costs and the remediation of such a
release. In such case, we also may be subject to claims for
personal injury, property damage, and damage to natural
resources. Our business is also subject to changes in
legislation and regulations, which can affect our operations and
those of our competitors. For example, new laws and initiatives
to reduce and mitigate the effects of greenhouse gas emissions
could significantly impact the transportation industry. Future
environmental laws in this area could adversely affect our
ICs costs and practices and our operations.
We are also subject to the Comprehensive Safety Analysis 2010
(CSA), which is a new FMCSA safety program designed to improve
large truck and bus safety and ultimately reduce crashes. CSA is
an enforcement and compliance model that involves evaluations of
individual motor carriers for a
24-month
period involving safety-based roadside inspection violations,
out-of service violations, and safety performance in the
following categories: unsafe driving, fatigued driving
(hours-of-service
rules), driver fitness, controlled substances/alcohol, vehicle
maintenance, cargo-related, and crash indicator. The evaluations
are then used by the FMCSA to select carriers for audit and
other interventions.
We are also subject to regulations to combat terrorism that the
Department of Homeland Security (including Customs and Border
Protection agencies) and other agencies impose.
We believe that we are in compliance with current laws and
regulations. Our failure to maintain compliance could result in
substantial fines or revocation of our permits or licenses.
Insurance
We insure our ICs against third-party claims for accidents or
damaged shipments and we bear the risk of such claims. We
maintain insurance for vehicle liability, general liability, and
cargo damage claims. We maintain an aggregate of
$40.0 million of vehicle liability and general liability
insurance. The vehicle liability insurance has a $500,000
deductible. We carry aggregate insurance against the first
$1.0 million of cargo claims, with a $100,000 deductible.
Because we maintain insurance for our ICs, if our insurance does
not cover all or any portion of the claim amount, we may be
forced to bear the financial loss. We attempt to mitigate this
risk by carefully selecting carriers with quality control
procedures and safety ratings.
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In addition to vehicle liability, general liability, and cargo
claim coverage, our insurance policies also cover other standard
industry risks related to workers compensation and other
property and casualty risks. We believe our insurance coverage
is comparable in terms and amount of coverage to other companies
in our industry. We establish insurance reserves for anticipated
losses and expenses and periodically evaluate and adjust the
reserves to reflect our experience.
Executive
Officers
The following table sets forth certain information regarding our
executive officers as of December 31, 2010:
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Name
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Age
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Position
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Mark A. DiBlasi
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55
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President, Chief Executive Officer, and Director
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Peter R. Armbruster
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52
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Vice President Finance, Chief Financial Officer,
Treasurer, and Secretary
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Brian J. van Helden
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42
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Vice President Operations
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Scott L. Dobak
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48
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Vice President Sales and Marketing
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Mark A. DiBlasi has served as our President and Chief
Executive Officer since January 2006. Mr. DiBlasi has
served as a director of our company since July 2006. Prior to
joining our company, Mr. DiBlasi served as Vice
President Southern Division for FedEx Ground, Inc.,
a division of FedEx Corporation, from July 2002 to January 2006.
Mr. DiBlasi was responsible for all operational matters of
the $1.2 billion-revenue Southern Division, which
represented one-fourth of FedEx Ground, Inc.s total
operations. From February 1995 to June 2002, Mr. DiBlasi
served as the Managing Director of two different regions within
the FedEx Ground, Inc. operation network. From August 1979 to
January 1995, Mr. DiBlasi held various positions in
operations, sales, and terminal management at Roadway Express
before culminating as the Chicago Breakbulk Manager.
Peter R. Armbruster has served as our Vice
President Finance, Chief Financial Officer,
Treasurer, and Secretary since December 2005. From March 2005 to
December 2005, Mr. Armbruster served as our Vice
President Finance. Mr. Armbruster held various
executive positions at Dawes Transport from August 1990 to March
2005. Prior to joining Dawes Transport, Mr. Armbruster was
with Ernst & Young LLP from June 1981 to July 1990,
where he most recently served as Senior Manager.
Brian J. van Helden has served as our Vice
President Operations since April 2007. Prior to
joining our company, Mr. van Helden held various leadership
positions over ten years with FedEx Ground while most recently
serving as a Regional Managing Director for FedEx Ground, Inc.,
a division of FedEx Corporation, from July 2003 to April 2007,
where he was responsible for operational matters in the Midwest
and New England. Prior to that, Mr. van Helden held various
operations positions with UPS and Roadway Express.
Scott L. Dobak has served as our Vice
President Sales and Marketing since January 2007.
Prior to joining our company, Mr. Dobak served as Vice
President Corporate Sales for Yellow Transportation,
Inc. where he was responsible for the $1.5 billion-revenue
Corporate Sales Division from December 2000 to January 2007.
Mr. Dobak was the Regional Vice President of Sales and
Marketing Chicago from July 1997 to December 2000
with Yellow Transportation, Inc. Prior to that, Mr. Dobak
served as an Area General Manager for Yellow Transportation,
Inc. from January 1995 to July 1997.
Available
Information
Our website is www.rrts.com. Through our website, we make
available free of charge all of our Securities and Exchange
Commission (SEC) filings, including our annual reports on
Form 10-K,
our proxy statements, our quarterly reports on
Form 10-Q,
and our current reports on
Form 8-K
as well as Form 3, Form 4, and Form 5 Reports for
our directors, officers, and principal stockholders, together
with amendments to those reports. These reports are available as
soon as reasonably practicable after their electronic filing
with the SEC. Our website also includes corporate governance
information, including our Code of Conduct, our Code of Ethics
for the CEO and Senior Financial Officers, and our Board
Committee Charters. Information included on our website is not
incorporated by reference into this report.
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You should carefully consider the following factors, together
with all the other information included in this report, in
evaluating our company and our business. Various factors exist
that could cause our actual results to differ materially from
those projected in any forward-looking statement. In addition to
the factors discussed elsewhere in this report, we believe the
following are some of the important risk factors that could
materially affect our business, financial condition, or results
of operations:
Fluctuations
in the price or availability of fuel, a prolonged continuation
in the upward trend of fuel prices, and limitations on our
ability to collect LTL fuel surcharges may adversely affect our
results of operations.
We are subject to risks associated with fuel charges from our
ICs and purchased power providers in our LTL and TL businesses.
The tractors operated by our ICs and purchased power providers
require large amounts of diesel fuel, and the availability and
price of diesel fuel are subject to political, economic, and
market factors that are outside of our control. The weekly
per-gallon price of diesel fuel has been on an upward trend
since 2009. The weekly per-gallon price of diesel fuel ranged
from a low of $2.02 in 2009 to $3.90 in March 2011, according to
the U.S. Energy Information Administration. Our ICs and
purchased power providers pass along the cost of diesel fuel to
us, and we in turn attempt to pass along some or all of these
costs to our customers through fuel surcharge revenue programs.
There can be no assurance that our fuel surcharge revenue
programs will be effective in the future. Market pressures may
limit our ability to assess our fuel surcharges. At the request
of our customers, we have at times temporarily capped the fuel
surcharges at a fixed percentage pursuant to contractual
arrangements that vary by customer. Currently, less than 1% of
our customers have contractual arrangements with varying levels
of capped fuel surcharges. If fuel surcharge revenue programs,
base freight rate increases, or other cost-recovery mechanisms
do not offset our exposure to rising fuel costs, our results of
operations could be adversely affected.
A
decrease in levels of capacity in the
over-the-road
freight sector could have an adverse impact on our
business.
Based on our research, we believe the
over-the-road
freight sector has experienced levels of excess capacity. The
current operating environment in the
over-the-road
freight sector resulting from an economic downturn, fluctuating
fuel costs, industry-specific regulations such as CSA and
hours-of-service
rules, and other economic factors are causing a tightening of
capacity in the sector generally, and in our carrier network
specifically, which could have an adverse impact on our ability
to execute our business strategy and on our business.
A
significant or prolonged economic downturn, particularly the
recent downturn in the
over-the-road
freight sector, or a substantial downturn in our customers
business, could adversely affect our revenue and results of
operations.
The
over-the-road
freight sector has historically experienced cyclical
fluctuations in financial results due to, among other things,
economic recession, downturns in business cycles, increasing
costs and taxes, fluctuations in energy prices, price increases
by carriers, changes in regulatory standards, license and
registration fees, interest rate fluctuations, and other
economic factors beyond our control. All of these factors could
increase the operating costs of a vehicle and impact capacity
levels in the
over-the-road
freight sector. Carriers may charge higher prices to cover
higher operating expenses, and our operating income may decrease
if we are unable to pass through to our customers the full
amount of higher purchased transportation costs. Additionally,
economic conditions may adversely affect our customers, their
need for our services, or their ability to pay for our services.
If the current economic downturn causes a reduction in the
volume of freight shipped by our customers, our results of
operations could be adversely affected.
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We
operate in a highly competitive industry and, if we are unable
to adequately address factors that may adversely affect our
revenue and costs, our business could suffer.
Competition in the transportation services industry is intense.
Increased competition may lead to revenue reductions, reduced
profit margins, or a loss of market share, any one of which
could harm our business. There are many factors that could
impair our ability to maintain our current profitability,
including the following:
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competition with other transportation services companies, some
of which have a broader coverage network, a wider range of
services, and greater capital resources than we do;
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reduction by our competitors of their freight rates to gain
business, especially during times of declining growth rates in
the economy, which reductions may limit our ability to maintain
or increase freight rates, maintain our operating margins, or
maintain significant growth in our business;
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solicitation by shippers of bids from multiple carriers for
their shipping needs and the resulting depression of freight
rates or loss of business to competitors;
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development of a technology system similar to ours by a
competitor with sufficient financial resources and comparable
experience in the transportation services industry; and
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establishment by our competitors of cooperative relationships to
increase their ability to address shipper needs.
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If we
are unable to expand the number of our sales representatives and
brokerage agents, or if a significant number of our existing
sales representatives and brokerage agents leave us, our ability
to increase our revenue could be negatively
impacted.
Our ability to expand our business will depend, in part, on our
ability to attract additional sales representatives and
brokerage agents. Competition for qualified sales
representatives and brokerage agents can be intense, and we may
be unable to attract such persons. Any difficulties we
experience in expanding the number of our sales representatives
and brokerage agents could have a negative impact on our ability
to expand our customer base, increase our revenue, and continue
our growth.
In addition, we must retain our current sales representatives
and brokerage agents and properly incentivize them to obtain new
customers and maintain existing customer relationships. If a
significant number of our sales representatives and brokerage
agents leave us, our revenue could be negatively impacted. A
significant increase in the turnover rate among our current
sales representatives and brokerage agents could also increase
our recruiting costs and decrease our operating efficiency.
We may
not be able to successfully execute our acquisition strategy,
and any acquisitions that we undertake could be difficult to
integrate, disrupt our business, dilute stockholder value, and
adversely affect our results of operations.
We plan to increase our revenue and expand our service offerings
in the market regions that we serve through the acquisition of
complementary businesses. In the future, suitable acquisition
candidates may not be available at purchase prices that are
attractive to us. In pursuing acquisition opportunities, we will
compete with other companies, some of which have greater
financial and other resources than we do. We may not have
available funds or common stock with a sufficient market price
to complete a desired acquisition, or acquisition candidates may
not be willing to receive our common stock in exchange for their
businesses. If we are unable to secure sufficient funding for
potential acquisitions, we may not be able to complete strategic
acquisitions that we otherwise find advantageous. Further, if we
make any future acquisitions, we could incur additional debt or
assume contingent liabilities.
Strategic acquisitions involve numerous risks, including the
following:
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failure of the acquired company to achieve anticipated revenues,
earnings, or cash flows;
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assumption of liabilities that were not disclosed to us or that
exceed our estimates;
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problems integrating the purchased operations with our own,
which could result in substantial costs and delays or other
operational, technical, or financial problems;
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|
potential compliance issues with regard to acquired companies
that did not have adequate internal controls;
|
|
|
|
diversion of managements attention or other resources from
our existing business;
|
|
|
|
risks associated with entering markets in which we have limited
prior experience; and
|
|
|
|
potential loss of key employees and customers of the acquired
company.
|
Our
reliance on ICs to provide transportation services to our
customers could limit our expansion.
Our transportation services are conducted in part by ICs, who
are generally responsible for paying for their own equipment,
fuel, and other operating costs. Our ICs are responsible for
providing the tractors and trailers they use related to our
business. Certain factors such as increases in fuel costs,
insurance costs, and the cost of new and used tractors, reduced
financing sources available to ICs for the purchase of
equipment, or the impact of CSA and
hours-of-service
rules could create a difficult operating environment for ICs.
Turnover and bankruptcy among ICs in the
over-the-road
freight sector often limits the pool of qualified ICs and
increases the competition among carriers for their services. If
we are required to increase the amounts paid to ICs in order to
obtain their services, our results of operations could be
adversely affected to the extent increased expenses are not
offset by higher freight rates. Additionally, our agreements
with our ICs are terminable by either party upon short notice
and without penalty. Consequently, we regularly need to recruit
qualified ICs to replace those who have left our pool. If we are
unable to retain our existing ICs or recruit new ICs, our
results of operations and ability to expand could be adversely
affected.
Our
executive officers and key personnel are important to our
business, and these officers and personnel may not remain with
us in the future.
We depend substantially on the efforts and abilities of our
senior management. Our success will depend, in part, on our
ability to retain our current management and to attract and
retain qualified personnel in the future. Competition for senior
management is intense, and we may not be able to retain our
management team or attract additional qualified personnel. The
loss of a member of senior management would require our
remaining executive officers to divert immediate and substantial
attention to fulfilling the duties of the departing executive
and to seeking a replacement. The inability to adequately fill
vacancies in our senior executive positions on a timely basis
could negatively affect our ability to implement our business
strategy, which could adversely impact our results of operations.
Our
third-party carriers must meet our needs and expectations, and
those of our customers, and their inability to do so could
adversely affect our results of operations.
Our business depends to a large extent on our ability to provide
consistent, high quality, technology-enabled transportation and
logistics solutions. We generally do not own or control the
transportation assets that deliver our customers freight,
and we generally do not employ the people directly involved in
delivering the freight. We rely on third parties to provide
less-than-truckload,
truckload and intermodal brokerage, and domestic and
international air services and to report certain information to
us, including information relating to delivery status and
freight claims. This reliance could cause delays in providing
our customers with timely delivery of freight, important service
data, and in the financial reporting of certain events,
including recognizing revenue and recording claims. If we are
unable to secure sufficient transportation services to meet our
customer commitments, or if any of the third parties we rely on
do not meet our needs or expectations, or those of our
customers, our results of operations could be adversely
affected, and our customers could switch to our competitors
temporarily or permanently.
One or
more significant claims, our failure to adequately reserve for
such claims, or the cost of maintaining our insurance for such
claims, could have an adverse effect on our results of
operations.
We use the services of thousands of transportation companies and
their drivers in connection with our transportation operations.
From time to time, these drivers are involved in accidents, and
goods carried by these
16
drivers are lost or damaged, and the carriers may not have
adequate insurance coverage. Such accidents usually result in
equipment damage and, unfortunately, can also result in injuries
or death. Although these drivers are not our employees and all
of these drivers are ICs or work for third-party carriers, from
time to time claims may be asserted against us for their actions
or for our actions in retaining them. Claims against us may
exceed the amount of our insurance coverage, or may not be
covered by insurance at all. A material increase in the
frequency or severity of accidents, claims for lost or damaged
goods, liability claims, or workers compensation claims,
or unfavorable resolutions of any such claims, could adversely
affect our results of operations to the extent claims are not
covered by our insurance or such losses exceed our reserves.
Significant increases in insurance costs or the inability to
purchase insurance as a result of these claims could also reduce
our profitability and have an adverse effect on our results of
operations.
The
cost of compliance with, liability for violations of, or
modifications to existing or future governmental regulations
could adversely affect our business and results of
operations.
Our operations are subject to certain federal, state, and local
regulatory requirements. These regulations and requirements are
subject to change based on new legislation and regulatory
initiatives, which could affect the economics of the
transportation industry by requiring changes in operating
practices or influencing the demand for, and the cost of
providing, transportation services. The DOT and its agencies,
such as the FMCSA, and various state and local agencies exercise
broad powers over our business, generally governing such
activities as engaging in motor carrier operations, freight
forwarding, and freight brokerage operations, as well as
regulating safety. As a motor carrier authorized by the DOT, we
must comply with the safety and fitness regulations promulgated
by the DOT, including those relating to drug and alcohol
testing, driver qualification, and
hours-of-service
requirements. There also are regulations specifically relating
to the trucking industry, including testing and specifications
of equipment, product handling requirements, and hazardous
material requirements. In addition, we must comply with certain
safety, insurance, and bonding requirements promulgated by the
DOT and various state agencies. Compliance with existing, new,
or more stringent measures could disrupt or impede the timing of
our deliveries and our ability to satisfy the needs of our
customers. In addition, we may experience an increase in
operating costs, such as security costs, as a result of
governmental regulations that have been and will be adopted in
response to terrorist activities and potential terrorist
activities. The cost of compliance with existing or future
measures could adversely affect our results of operations.
Further, we could become subject to liabilities as a result of a
failure to comply with applicable regulations.
Our
operations are subject to various environmental laws and
regulations, the violation of which could result in substantial
fines or penalties.
From time to time, we arrange for the movement of hazardous
materials at the request of our customers. As a result, we are
subject to various environmental laws and regulations relating
to the handling, transport, and disposal of hazardous materials.
If our customers or carriers are involved in an accident
involving hazardous materials, or if we are found to be in
violation of applicable laws or regulations, we could be subject
to substantial fines or penalties, remediation costs, or civil
and criminal liability, any of which could have an adverse
effect on our business and results of operations. In addition,
current and future laws and regulations relating to carbon
emissions and the effects of global warming can be expected to
have a significant impact on the transportation sector generally
and the operations and profitability of some of our carriers in
particular, which could adversely affect our business and
results of operations.
If our
ICs are deemed by regulators to be employees, our business and
results of operations could be adversely affected.
Tax and other regulatory authorities have in the past sought to
assert that ICs in the trucking industry are employees rather
than ICs. There can be no assurance that these authorities will
not successfully assert this position or that tax laws and other
laws that currently consider these persons ICs will not change.
If our ICs are determined to be our employees, we would incur
additional exposure under federal and state tax, workers
compensation, unemployment benefits, labor, employment, and tort
laws, including for prior periods, as well as potential
liability for employee benefits and tax withholdings. Our
business model relies on the fact that our ICs are ICs and not
17
deemed to be our employees, and exposure to any of the above
factors could have an adverse effect on our business and results
of operations.
Our
financial results may be adversely impacted by potential future
changes in accounting practices.
Future changes in accounting standards or practices, and related
legal and regulatory interpretations of those changes, may
adversely impact public companies in general, the transportation
industry, or our operations specifically. New accounting
standards or requirements, such as a conversion from
U.S. generally accepted accounting principles to
International Financial Reporting Standards, could change the
way we record revenues, expenses, assets,
and/or
liabilities or could be costly to implement. These types of
regulations could have a negative impact on our financial
position, liquidity, results of operations
and/or
access to capital.
If we
are unable to maintain and enhance our technology systems,
demand for our services and our revenue could
decrease.
Our TMS business relies on our technology systems to track and
store externally and internally generated market data, analyze
the capabilities of our carrier network, and recommend
cost-effective carriers in the appropriate transportation mode.
To keep pace with changing technologies and customer demands in
the future, we must correctly interpret and address market
trends and enhance the features and functionality of our
technology systems in response to these trends. We may be unable
to implement the appropriate features and functionality of our
technology systems in a timely and cost-effective manner, which
could result in decreased demand for our services and a
corresponding decrease in our revenue.
Seasonal
sales fluctuations and weather conditions could have an adverse
impact on our results of operations.
The transportation industry is subject to seasonal sales
fluctuations as shipments generally are lower during and after
the winter holiday season. The productivity of our carriers
historically decreases during the winter season because
companies have the tendency to reduce their shipments during
that time and inclement weather can impede operations. At the
same time, our operating expenses could increase because harsh
weather can lead to increased accident frequency rates and
increased claims. If we were to experience
lower-than-expected
revenue during any such period, our expenses may not be offset,
which could have an adverse impact on our results of operations.
Terrorist
attacks, anti-terrorism measures, and war could have broad
detrimental effects on our business operations.
As a result of the potential for terrorist attacks, federal,
state, and municipal authorities have implemented and continue
to follow various security measures, including checkpoints and
travel restrictions on large trucks. Such measures may reduce
the productivity of our ICs or increase the costs associated
with their operations, which we could be forced to bear. For
example, security measures imposed at bridges, tunnels, border
crossings, and other points on key trucking routes may cause
delays and increase the non-driving time of our ICs, which could
have an adverse effect on our results of operations. War, risk
of war, or a terrorist attack also may have an adverse effect on
the economy. A decline in economic activity could adversely
affect our revenues or restrict our future growth. Instability
in the financial markets as a result of terrorism or war also
could impact our ability to raise capital. In addition, the
insurance premiums charged for some or all of the coverage
currently maintained by us could increase dramatically or such
coverage could be unavailable in the future.
If we
fail to maintain adequate internal control over financial
reporting in accordance with Section 404 of Sarbanes-Oxley,
it could result in inaccurate financial reporting, sanctions, or
securities litigation, or could otherwise harm our
business.
As a public company, are required to comply with the standards
adopted by the Public Company Accounting Oversight Board in
compliance with the requirements of Section 404 of
Sarbanes-Oxley regarding internal control over financial
reporting. Compliance with Section 404 requires dedicated
internal resources and a significant amount of time and effort.
We continue to expand our resources, through efforts such as
recently increasing our
18
finance and compliance staff by adding a corporate controller
and manager of Sarbanes-Oxley compliance. We may experience
higher than anticipated operating expenses, as well as increased
independent auditor fees as we continue our compliance efforts.
We are required to be fully compliant under Section 404 by
the end of fiscal 2011, and at that time our management will be
required to deliver a report that assesses the effectiveness of
our internal control over financial reporting, and we will be
required to deliver an attestation report of our auditors on our
managements assessment of our internal controls.
Completing documentation of our internal control system and
financial processes, remediation of control deficiencies, and
management testing of internal controls will require substantial
effort by us. We cannot assure you that we will be able to
complete the required management assessment by our reporting
deadline. Failure to implement these changes in a timely,
effective or efficient manner could harm our operations,
financial reporting or financial results, and could result in
our being unable to obtain an unqualified report on internal
controls from our independent auditors.
Our
ability to raise capital in the future may be limited, and our
failure to raise capital when needed could prevent us from
achieving our growth objectives.
We may in the future be required to raise capital through public
or private financing or other arrangements. Such financing may
not be available on acceptable terms, or at all, and our failure
to raise capital when needed could harm our business. Additional
equity financing may dilute the interests of our stockholders,
and debt financing, if available, may involve restrictive
covenants and could reduce our profitability. If we cannot raise
funds on acceptable terms, we may not be able to grow our
business or respond to competitive pressures.
Our
growth and profitability may not continue, which may result in a
decrease in our stock price.
There can be no assurance that our long-term growth objectives
will be achieved or that we will be able to effectively adapt
our management, administrative, and operational systems to
respond to any future growth. Future changes in and expansion of
our business, or changes in economic or political conditions,
could adversely affect our operating margins. Slower or less
profitable growth or losses could adversely affect our stock
price.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not applicable.
Our corporate headquarters are located in Cudahy, Wisconsin,
where we lease 28,824 square feet of space. The primary
functions performed at our corporate headquarters are
accounting, treasury, marketing, human resources, linehaul
support, claims, safety and information technology support. We
lease 5,170 square feet of space in Mars Hill, Maine, which
houses our TL brokerage operation headquarters. We lease
24,000 square feet of space in Hudson, Ohio, which houses
our TMS operation.
We lease 17 service centers for our LTL operation, throughout
the United States, each of which is interactively connected.
Each service center manages and is responsible for the freight
that originates in its service area. The typical service center
is configured to perform cross-dock and limited short-term
warehouse operations. Our TL brokerage operation leases
eight of its nine company dispatch offices throughout the
Northeast region of the United States and Canada. In addition,
our TMS segment leases three service centers throughout the
Northeast region of the United States.
We believe that our current facilities are in good working order
and are capable of supporting our operations for the foreseeable
future; however, we will continue to evaluate leasing additional
space as needed to accommodate growth.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
From time to time, we are involved in litigation and proceedings
in the ordinary course of our business. We are not currently
involved in any legal proceeding that we believe would have a
material adverse effect on our business or financial condition.
19
PART II
|
|
ITEM 5.
|
MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information on Common Stock
Our common stock has been trading on the New York Stock Exchange
under the symbol RRTS since May 13, 2010. Prior
to that time, there was no public market for our common stock.
The following table sets forth, for the periods indicated, the
high and low sales prices of our common stock as quoted on the
New York Stock Exchange.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Fiscal 2010:
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
N/A
|
|
|
|
N/A
|
|
Second quarter (May 13 June 30, 2010)
|
|
$
|
14.47
|
|
|
$
|
13.25
|
|
Third quarter
|
|
$
|
15.05
|
|
|
$
|
10.67
|
|
Fourth quarter
|
|
$
|
14.89
|
|
|
$
|
10.34
|
|
Stockholders
As of March 25, 2011, there were approximately 30,188,167
holders of record of our common stock. On March 25, 2011,
the closing sale price of our common stock was $14.94 per share.
Dividends
We have never declared or paid cash dividends on our common
stock. We currently plan to retain any earnings to finance the
growth of our business rather than to pay cash dividends.
Payments of any cash dividends in the future will depend on our
financial condition, results of operations, and capital
requirements, as well as other factors deemed relevant by our
board of directors. Our current debt agreements prohibit us from
paying dividends without the consent of our lenders.
20
Performance
Graph
The following line graph compares cumulative total shareholder
returns for the period from May 13, 2010 through
December 31, 2010 for (1) our common stock;
(2) the Nasdaq Composite Index; and (3) the Nasdaq
Transportation Index. The graph assumes an investment of $100 on
May 13, 2010, which was the first day on which our stock
was listed on the New York Stock Market. The calculations of
cumulative stockholder return on the Nasdaq Composite Index and
the Nasdaq Transportation Index include reinvestment of
dividends. The calculation of cumulative stockholder return on
our common stock does not include reinvestment of dividends
because we did not pay any dividends during the measurement
period. The historical performance shown is not necessarily
indicative of future performance.
The performance graph shall not be deemed filed for
purposes of Section 18 of the Securities Act or the
Exchange Act, or otherwise subject to the liability of that
section. The performance graph will not be deemed incorporated
by reference into any filing of our company under the Exchange
Act or the Securities Act.
COMPARISON
OF 8 MONTH CUMULATIVE TOTAL RETURN*
Among
Roadrunner Transportation Systems Inc., the NASDAQ Composite
Index
and the NASDAQ Transportation Index
|
|
|
* |
|
$100 invested on 5/13/10 in stock or 4/30/10 in index, including
reinvestment of dividends.
Fiscal year ending December 31. |
21
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following presents selected financial data for each fiscal
year in the five-year period ended December 31, 2010. As
our past operating results are not necessarily indicative of our
future operating results, you should read the selected financial
data below in conjunction with Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and our consolidated
financial statements and related notes contained elsewhere in
this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008(1)
|
|
|
2007
|
|
|
2006(2)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
632,018
|
|
|
$
|
483,322
|
|
|
$
|
565,907
|
|
|
$
|
538,007
|
|
|
$
|
399,441
|
|
Purchased transportation costs
|
|
|
494,045
|
|
|
|
378,858
|
|
|
|
453,953
|
|
|
|
425,568
|
|
|
|
302,296
|
|
Personnel and related benefits
|
|
|
61,853
|
|
|
|
52,621
|
|
|
|
58,282
|
|
|
|
55,354
|
|
|
|
49,716
|
|
Other operating expenses
|
|
|
41,168
|
|
|
|
33,988
|
|
|
|
39,099
|
|
|
|
37,311
|
|
|
|
33,033
|
|
Depreciation and amortization
|
|
|
3,114
|
|
|
|
2,967
|
|
|
|
2,465
|
|
|
|
1,840
|
|
|
|
1,072
|
|
Acquisition transaction expenses
|
|
|
569
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and IPO related expenses
|
|
|
1,500
|
|
|
|
|
|
|
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
29,769
|
|
|
|
13,740
|
|
|
|
8,692
|
|
|
|
17,934
|
|
|
|
13,324
|
|
Interest on long-term debt
|
|
|
7,954
|
|
|
|
13,226
|
|
|
|
12,969
|
|
|
|
13,937
|
|
|
|
11,457
|
|
Dividends on preferred stock subject to mandatory redemption
|
|
|
200
|
|
|
|
200
|
|
|
|
200
|
|
|
|
160
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
15,916
|
|
|
|
|
|
|
|
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
5,699
|
|
|
|
314
|
|
|
|
(4,477
|
)
|
|
|
2,229
|
|
|
|
1,867
|
|
Provision (benefit) for income taxes
|
|
|
2,108
|
|
|
|
337
|
|
|
|
(1,139
|
)
|
|
|
1,294
|
|
|
|
1,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
3,591
|
|
|
|
(23
|
)
|
|
|
(3,338
|
)
|
|
|
935
|
|
|
|
683
|
|
Accretion of Series B preferred stock
|
|
|
765
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
2,826
|
|
|
$
|
(1,973
|
)
|
|
$
|
(3,338
|
)
|
|
$
|
935
|
|
|
$
|
683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share available to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
(0.11
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
Diluted
|
|
|
0.11
|
|
|
|
(0.11
|
)
|
|
|
(0.20
|
)
|
|
|
0.06
|
|
|
|
0.05
|
|
Pro Forma diluted earnings per share(3)
|
|
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,779
|
|
|
|
17,656
|
|
|
|
17,061
|
|
|
|
15,114
|
|
|
|
13,205
|
|
Diluted
|
|
|
26,777
|
|
|
|
17,656
|
|
|
|
17,061
|
|
|
|
15,134
|
|
|
|
13,205
|
|
Consolidated Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
348,297
|
|
|
$
|
333,281
|
|
|
$
|
285,883
|
|
|
$
|
255,880
|
|
|
$
|
259,711
|
|
Total debt (including current maturities)
|
|
|
20,500
|
|
|
|
138,935
|
|
|
|
106,254
|
|
|
|
102,420
|
|
|
|
116,306
|
|
Series A preferred stock subject to mandatory redemption
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
Redeemable common stock
|
|
|
|
|
|
|
1,740
|
|
|
|
1,740
|
|
|
|
1,765
|
|
|
|
1,865
|
|
Total stockholders investment
|
|
|
348,297
|
|
|
|
333,281
|
|
|
|
129,987
|
|
|
|
103,870
|
|
|
|
102,317
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(4)
|
|
$
|
16,967
|
|
|
$
|
16,707
|
|
|
$
|
11,157
|
|
|
$
|
18,166
|
|
|
$
|
14,396
|
|
Capital expenditures
|
|
|
2,500
|
|
|
|
2,292
|
|
|
|
1,168
|
|
|
|
1,867
|
|
|
|
1,052
|
|
Working capital current assets less current
liabilities (end of period)
|
|
|
42,383
|
|
|
|
18,038
|
|
|
|
12,537
|
|
|
|
15,539
|
|
|
|
19,946
|
|
Net cash provided by operating activities
|
|
|
2,110
|
|
|
|
778
|
|
|
|
802
|
|
|
|
12,470
|
|
|
|
9,516
|
|
Net cash used in investing activities
|
|
|
(1,080
|
)
|
|
|
(34,216
|
)
|
|
|
(27,208
|
)
|
|
|
(3,187
|
)
|
|
|
(41,857
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(2,210
|
)
|
|
|
34,214
|
|
|
|
27,006
|
|
|
|
(11,535
|
)
|
|
|
34,285
|
|
22
|
|
|
(1) |
|
On February 29, 2008, our controlling stockholder acquired
all the outstanding capital stock of a group of TMS companies
collectively referred to as GTS. On May 18, 2010, we
acquired GTS by way of merger simultaneous with the consummation
of our IPO. As such, because we were under common control with
GTS as of February 29, 2008, the consolidated statements of
operations, consolidated balance sheet, and other data for the
periods presented include the results of GTS from
February 29, 2008. |
|
(2) |
|
On October 4, 2006, our controlling stockholder acquired
all the outstanding capital stock of a group of TL brokerage
companies collectively referred to as Sargent. On March 14,
2007, we acquired Sargent by way of merger. As such, because we
were under common control with Sargent as of October 4,
2006, the consolidated statements of operations, consolidated
balance sheet, and other data for the periods presented include
the results of Sargent from October 4, 2006. |
|
(3) |
|
Pro forma diluted earning per share is computed by dividing
adjusted net income of $18,363, assuming the IPO and the sale of
additional shares upon exercise of the underwriters
overallotment option occurred at the beginning of 2010, and
assuming an effective tax rate of 38%, by the diluted shares
outstanding. |
|
(4) |
|
EBITDA represents earning before interest, taxes, depreciation,
and amortization. Our Management uses EBITDA as a supplement
measure in evaluating our operating performance and when
determining executive incentive compensation. Our management
believes EBITDA is useful to investors in evaluating our
performance compared to other companies in our industry because
it assists in analyzing and benchmarking the performance and
value of business. The calculation of EBITDA eliminates the
effects of financing, income taxes, and the accounting effects
of capital spending. These items may vary for different
companies for reason unrelated to the overall operating
performance of a companys business. EBITDA is not a
financial measure presented in accordance with U.S. generally
accepted accounting principles, or GAAP. Although our management
uses EBITDA as a financial measure to assess the performance of
our business compared to that of others in our industry, EBITDA
has limitations as an analytical tool, and you should not
consider it in isolation, or a substitute for analysis of our
results as reported under GAAP. |
The following is a reconciliation of EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
3,591
|
|
|
$
|
(23
|
)
|
|
$
|
(3,338
|
)
|
|
$
|
935
|
|
|
$
|
683
|
|
Plus: Provision (benefit) for income taxes
|
|
|
2,108
|
|
|
|
337
|
|
|
|
(1,139
|
)
|
|
|
1,294
|
|
|
|
1,184
|
|
Plus: Total interest expense
|
|
|
8,154
|
|
|
|
13,426
|
|
|
|
13,169
|
|
|
|
14,097
|
|
|
|
11,457
|
|
Plus: Depreciation and amortization
|
|
|
3,114
|
|
|
|
2,967
|
|
|
|
2,465
|
|
|
|
1,840
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
16,967
|
|
|
$
|
16,707
|
|
|
$
|
11,157
|
|
|
$
|
18,166
|
|
|
$
|
14,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following expenses have not been added to net income (loss)
in the calculation of EBITDA above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Loss on early extinguishment of debt
|
|
$
|
15,916
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,608
|
|
|
$
|
|
|
Restructuring and IPO related expenses
|
|
|
1,500
|
|
|
|
|
|
|
|
3,416
|
|
|
|
|
|
|
|
|
|
Acquisition transaction expenses
|
|
|
569
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This financial review presents our operating results for each of
our three most recent fiscal years and our financial condition
at December 31, 2010. You should read the following
discussion and analysis in conjunction with our financial
statements and related notes contained elsewhere in this report.
This discussion contains forward-looking statements that involve
risks, uncertainties, and assumptions. Our actual results may
differ materially from those anticipated in these
forward-looking statements as a result of a variety of factors,
including those set forth under Item 1A. Risk
Factors.
Overview
We are a leading non-asset based transportation and logistics
service provider offering a full suite of solutions, including
customized and expedited LTL, TL brokerage, TMS, intermodal
solutions (transporting a shipment by more than one mode,
primarily via rail and truck), and domestic and international
air. We utilize a broad third-party network of transportation
providers, comprised of ICs and purchased power providers, to
serve a diverse customer base in terms of end market focus and
annual freight expenditures. Although we service large national
accounts, we primarily focus on small to mid-size shippers,
which we believe represent an expansive and underserved market.
Our business model is highly scalable and flexible, featuring a
variable cost structure that requires minimal investment in
transportation equipment and facilities, thereby enhancing free
cash flow generation and returns on our invested capital and
assets.
We have three reportable operating segments:
Less-than-Truckload. Our
LTL business involves the pickup, consolidation, linehaul,
deconsolidation, and delivery of LTL shipments throughout the
United States and into Mexico, Puerto Rico, and Canada. With a
network of 17 service centers and over 200 third-party delivery
agents, we employ a
point-to-point
LTL model that we believe serves as a competitive advantage over
the traditional hub and spoke LTL model in terms of faster
transit times, lower incidence of damage, and reduced fuel
consumption. Our LTL segment also includes domestic and
international air transportation services.
Truckload Brokerage. Within our TL brokerage
business, we arrange the pickup and delivery of TL freight
through our network of nine company dispatch offices and 71
independent brokerage agents primarily located throughout the
Eastern United States and Canada. We offer
temperature-controlled, dry van, and flatbed services and
specialize in the transport of refrigerated foods, poultry, and
beverages. We believe this specialization provides consistent
shipping volume
year-over-year.
Our TL brokerage segment also includes our intermodal service
offering.
Transportation Management Solutions. Within
our TMS business, we offer a one-stop transportation
and logistics solution, including access to the most
cost-effective and time-sensitive modes of transportation within
our broad network. Specifically, our TMS offering includes
pricing, contract management, transportation mode and carrier
selection, freight tracking, freight bill payment and audit,
cost reporting and analysis, and dispatch. Our customized TMS
offering is designed to allow our customers to reduce operating
costs, redirect resources to core competencies, improve supply
chain efficiency, and enhance customer service.
Recent
Acquisitions
In December 2009, we acquired certain assets of Bullet Freight
Systems, Inc. through our wholly owned subsidiary, Bullet
Transportation Systems, Inc. (referred to as Bullet). Bullet is
a non-asset based transportation and logistics company that
provides a variety of services throughout the United States and
into Canada. Bullet provides LTL services as well as 3PL
services such as TL and intermodal brokerage and air freight
forwarding. Bullet has operations in California, Oregon,
Washington, and Illinois, and utilizes ICs and an extensive
third-party network of purchased power providers to deliver its
freight. Bullet provides services to a broad range of industries
and customers, including leading manufacturers, retailers, and
wholesalers.
The addition of Bullet increased our market share across all of
our service offerings by providing greater LTL coverage
throughout North America and geographically expanding our TL
brokerage operation. In addition, the
24
integration of shipments from Bullets customer base into
our operations increased the freight density and balance in our
less-than-truckload
network. The additional density and greater balance in our
network resulted in higher operating margins and improved levels
of customer service through reduced transit times.
Simultaneous with the consummation of our IPO in May 2010, we
acquired GTS by way of merger. GTS is a provider of third-party
logistics and TMS based in Hudson, Ohio. Since the addition of
GTS service offering, we have been able to provide
shippers with a one-stop transportation and
logistics solution, including access to the most cost-effective
and time-sensitive modes of transportation within our broad
network of third-party carriers.
In September 2009, we acquired all of the outstanding membership
interests of Mesca Freight Services, LLC (referred to as Mesca)
for purposes of expanding our current market presence and
service offerings in the TMS segment. Mesca operates as a
non-asset based, third-party logistics provider from its
headquarters in Maine.
In December 2009, we acquired all of the outstanding stock of
Great Northern Transportation Services, Inc. (referred to as
GNTS) for purposes of expanding our current market presence and
service offerings in the TMS segment. GNTS is an agent of Mesca
and operates from New Hampshire.
In February 2010, we acquired all the outstanding stock of Alpha
Freight Systems, Inc. (referred to as Alpha) for purposes of
expanding our current market presence and service offerings in
the TMS segment. Alpha is an agent of Mesca and operates from
Ohio.
In February 2011, we acquired all of the outstanding stock of
Morgan Southern, Inc. (referred to as Morgan Southern) for
purposes of expanding our intermodal presence within our TL
segment. Headquartered in Georgia, Morgan Southern provides
primarily intermodal transportation and related services.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires that we make estimates and assumptions. In certain
circumstances, those estimates and assumptions can affect
amounts reported in the accompanying consolidated financial
statements and related footnotes. In preparing our financial
statements, we have made our best estimates and judgments of
certain amounts included in the financial statements, giving due
consideration to materiality. We base our estimates on
historical experience and on various other assumptions that we
believe to be reasonable. Application of the accounting policies
described below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual
results could differ from these estimates. The following is a
brief discussion of our critical accounting policies and
estimates.
Goodwill
and Other Intangibles
Goodwill represents the excess of purchase price over the
estimated fair value assigned to the net tangible and
identifiable intangible assets of a business acquired. Goodwill
is tested for impairment at least annually using a two-step
process that begins with an estimation of the fair value at the
reporting unit level. Our reporting units are our
operating segments as this is the lowest level for which
discrete financial information is prepared and regularly
reviewed by management. The impairment test for goodwill
involves comparing the fair value of a reporting unit to its
carrying amount, including goodwill. If the carrying amount of
the reporting unit exceeds its fair value, a second step is
required to measure the goodwill impairment loss. The second
step includes hypothetically valuing all the tangible and
intangible assets of the reporting unit as if the reporting unit
had been acquired in a business combination. Then, the implied
fair value of the reporting units goodwill is compared to
the carrying amount of that goodwill. If the carrying amount of
the reporting units goodwill exceeds the implied fair
value of the goodwill, we recognize an impairment loss in an
amount equal to the excess, not to exceed the carrying amount.
For purposes of our impairment test, the fair value of our
reporting units are calculated based upon an average of an
income fair value approach and market fair value approach.
Other intangible assets recorded consist of definite lived
customer lists. We evaluate our other intangible assets for
impairment when current facts or circumstances indicate that the
carrying value of the assets to be held and used may not be
recoverable.
25
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial reporting basis and the tax
basis of assets and liabilities at enacted tax rates expected to
be in effect when such amounts are recovered or settled. The use
of estimates by management is required to determine income tax
expense, deferred tax assets and any related valuation allowance
and deferred tax liabilities. The determination of a valuation
allowance is based on estimates of future taxable income by
jurisdiction in which the deferred tax assets will be
recoverable. In making such a determination, all available
positive and negative evidence, scheduled reversals of deferred
tax liabilities, projected future taxable income, tax planning
strategies and recent financial operations, is considered. When
evaluating the need for a valuation allowance as of
December 31, 2010, we considered that we achieved
cumulative net income before provision for income taxes for the
most recent two years. Further, we achieved cost savings from
the restructuring and synergies related to the Bullet
acquisition and a reduction of interest expense related to the
IPO that will further increase our ability to realize the
benefits of the net operating loss carry forwards. The tax
deductibility of the goodwill related to our acquisitions will
reduce taxable income in future years. We estimate that we will
utilize all existing net operating losses carry forwards before
their expiration. These estimates can be affected by a number of
factors, including possible tax audits or general economic
conditions or competitive pressures that could affect future
taxable income. Although management believes that the estimates
are reasonable, the deferred tax asset and any related valuation
allowance will need to be adjusted if managements
estimates of future taxable income differ from actual taxable
income. An adjustment to the deferred tax asset and any related
valuation allowance could materially impact the consolidated
results of operations. At December 31, 2010 and
December 31, 2009, there was no valuation allowance
recorded.
At December 31, 2010 we had $41.6 million of gross
federal net operating losses which are available to reduce
federal income taxes in future years and expire in the years
2025 through 2029. We are subject to federal and state tax
examinations for all tax years subsequent to December 31,
2005. Although the pre-2006 years are no longer subject to
examinations by the Internal Revenue Service and various state
taxing authorities, NOL carryforwards generated in those years
may still be adjusted upon examination by the IRS or state
taxing authorities if they have been or will be used in the
future.
Revenue
Recognition
LTL revenue is recorded when all of the following have occurred:
an agreement of sale exists; pricing is fixed or determinable;
and collection of revenue is reasonably assured. We use a
percentage of completion method to recognize revenue, which
results in an allocation of revenue between reporting periods
based on the distinctive phases of each LTL transaction
completed in each reporting period, with expenses recognized as
incurred. Management believes that this is the most appropriate
method for LTL revenue recognition based on the multiple
distinct phases of a typical LTL transaction, which is in
contrast to the single phase of a typical TL transaction.
TL revenue is recorded when all of the following have occurred:
an agreement of sale exists; pricing is fixed or determinable;
delivery has occurred; and our obligation to fulfill a
transaction is complete and collection of revenue is reasonable
assured. This occurs when we complete the delivery of a shipment.
TMS transportation revenue and related transportation costs are
recognized when the shipment has been delivered by a third-party
carrier. Fee for services revenue is recognized when the
services have been rendered. At the time of delivery or
rendering of services, as applicable, our obligation to fulfill
a transaction is complete and collection of revenue is
reasonably assured. We offer volume discounts to certain
customers. Revenue is reduced as discounts are earned.
We typically recognize revenue on a gross basis, as opposed to a
net basis, because we bear the risks and benefits associated
with revenue-generated activities by, among other things,
(1) acting as a principal in the transaction,
(2) establishing prices, (3) managing all aspects of
the shipping process, and (4) taking the risk of loss for
collection, delivery and returns. Certain TMS transactions to
provide specific services are recorded at the net amount charged
to the client due to the following factors: (A) we do not
have latitude in establishing pricing, and (B) we do not
bear the risk of loss for delivery and returns; these items are
the risk of the carrier.
26
Results
of Operations
The following table sets forth, for the periods indicated,
summary LTL, TL, TMS, corporate, and consolidated statement of
operations data. Such revenue data for our LTL, TL, and TMS
business segments are expressed as a percentage of consolidated
revenues. Other statement of operations data for our LTL, TL,
and TMS business segments are expressed as a percentage of
segment revenues. Total statement of operations data are
expressed as a percentage of consolidated revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except for %)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
409,914
|
|
|
|
64.9
|
%
|
|
$
|
316,119
|
|
|
|
65.4
|
%
|
|
$
|
366,527
|
|
|
|
64.8
|
%
|
TL
|
|
|
158,724
|
|
|
|
25.1
|
%
|
|
|
134,815
|
|
|
|
27.9
|
%
|
|
|
171,419
|
|
|
|
30.3
|
%
|
TMS
|
|
|
65,902
|
|
|
|
10.4
|
%
|
|
|
34,472
|
|
|
|
7.1
|
%
|
|
|
29,848
|
|
|
|
5.3
|
%
|
Eliminations
|
|
|
(2,522
|
)
|
|
|
(0.4
|
)%
|
|
|
(2,084
|
)
|
|
|
(0.4
|
)%
|
|
|
(1,887
|
)
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
632,018
|
|
|
|
100.0
|
%
|
|
|
483,322
|
|
|
|
100.0
|
%
|
|
|
565,907
|
|
|
|
100.0
|
%
|
Purchased transportation costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
|
307,721
|
|
|
|
75.1
|
%
|
|
|
235,602
|
|
|
|
74.5
|
%
|
|
|
279,289
|
|
|
|
76.2
|
%
|
TL
|
|
|
140,380
|
|
|
|
88.4
|
%
|
|
|
119,050
|
|
|
|
88.3
|
%
|
|
|
153,419
|
|
|
|
89.5
|
%
|
TMS
|
|
|
48,466
|
|
|
|
73.5
|
%
|
|
|
26,290
|
|
|
|
76.3
|
%
|
|
|
23,132
|
|
|
|
77.5
|
%
|
Eliminations
|
|
|
(2,522
|
)
|
|
|
(0.4
|
)%
|
|
|
(2,084
|
)
|
|
|
(0.4
|
)%
|
|
|
(1,887
|
)
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
494,045
|
|
|
|
78.2
|
%
|
|
|
378,858
|
|
|
|
78.4
|
%
|
|
|
453,953
|
|
|
|
80.2
|
%
|
Net revenues:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
|
102,193
|
|
|
|
24.9
|
%
|
|
|
80,517
|
|
|
|
25.5
|
%
|
|
|
87,238
|
|
|
|
23.8
|
%
|
TL
|
|
|
18,344
|
|
|
|
11.6
|
%
|
|
|
15,765
|
|
|
|
11.7
|
%
|
|
|
18,000
|
|
|
|
10.5
|
%
|
TMS
|
|
|
17,436
|
|
|
|
26.5
|
%
|
|
|
8,182
|
|
|
|
23.7
|
%
|
|
|
6,716
|
|
|
|
22.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
137,973
|
|
|
|
21.8
|
%
|
|
|
104,464
|
|
|
|
21.6
|
%
|
|
|
111,954
|
|
|
|
19.8
|
%
|
Other operating expenses:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
|
78,856
|
|
|
|
19.2
|
%
|
|
|
69,047
|
|
|
|
21.8
|
%
|
|
|
80,060
|
|
|
|
21.8
|
%
|
TL
|
|
|
11,141
|
|
|
|
7.0
|
%
|
|
|
10,771
|
|
|
|
8.0
|
%
|
|
|
11,781
|
|
|
|
6.9
|
%
|
TMS
|
|
|
11,458
|
|
|
|
17.4
|
%
|
|
|
5,829
|
|
|
|
16.9
|
%
|
|
|
4,479
|
|
|
|
15.0
|
%
|
Corporate
|
|
|
3,635
|
|
|
|
0.6
|
%
|
|
|
2,110
|
|
|
|
0.4
|
%
|
|
|
4,477
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
105,090
|
|
|
|
16.6
|
%
|
|
|
87,757
|
|
|
|
18.2
|
%
|
|
|
100,797
|
|
|
|
17.8
|
%
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
|
1,676
|
|
|
|
0.4
|
%
|
|
|
1,716
|
|
|
|
0.5
|
%
|
|
|
1,410
|
|
|
|
0.4
|
%
|
TL
|
|
|
744
|
|
|
|
0.5
|
%
|
|
|
656
|
|
|
|
0.5
|
%
|
|
|
593
|
|
|
|
0.3
|
%
|
TMS
|
|
|
694
|
|
|
|
1.1
|
%
|
|
|
595
|
|
|
|
1.7
|
%
|
|
|
462
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,114
|
|
|
|
0.5
|
%
|
|
|
2,967
|
|
|
|
0.6
|
%
|
|
|
2,465
|
|
|
|
0.4
|
%
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
|
21,661
|
|
|
|
5.3
|
%
|
|
|
9,754
|
|
|
|
3.1
|
%
|
|
|
5,768
|
|
|
|
1.6
|
%
|
TL
|
|
|
6,459
|
|
|
|
4.1
|
%
|
|
|
4,338
|
|
|
|
3.2
|
%
|
|
|
5,626
|
|
|
|
3.3
|
%
|
TMS
|
|
|
5,284
|
|
|
|
8.0
|
%
|
|
|
1,758
|
|
|
|
5.1
|
%
|
|
|
1,775
|
|
|
|
5.9
|
%
|
Corporate
|
|
|
(3,635
|
)
|
|
|
(0.6
|
)%
|
|
|
(2,110
|
)
|
|
|
(0.4
|
)%
|
|
|
(4,477
|
)
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29,769
|
|
|
|
4.7
|
%
|
|
|
13,740
|
|
|
|
2.8
|
%
|
|
|
8,692
|
|
|
|
1.5
|
%
|
Interest expense
|
|
|
8,154
|
|
|
|
1.3
|
%
|
|
|
13,426
|
|
|
|
2.8
|
%
|
|
|
13,169
|
|
|
|
2.3
|
%
|
Loss on early extinguishment of debt
|
|
|
15,916
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
5,699
|
|
|
|
0.9
|
%
|
|
|
314
|
|
|
|
0.1
|
%
|
|
|
(4,477
|
)
|
|
|
(0.8
|
)%
|
Provision (benefit) for income taxes
|
|
|
2,108
|
|
|
|
0.3
|
%
|
|
|
337
|
|
|
|
0.1
|
%
|
|
|
(1,139
|
)
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
3,591
|
|
|
|
0.6
|
%
|
|
|
(23
|
)
|
|
|
(0.0
|
)%
|
|
|
(3,338
|
)
|
|
|
(0.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series B preferred stock
|
|
|
765
|
|
|
|
0.1
|
%
|
|
|
1,950
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
2,826
|
|
|
|
0.4
|
%
|
|
$
|
(1,973
|
)
|
|
|
(0.4
|
)%
|
|
$
|
(3,338
|
)
|
|
|
(0.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects revenues less purchased transportation costs. |
|
(2) |
|
Reflects the sum of personnel and related benefits, other
operating expenses, acquisition transaction expenses, and
restructuring and IPO related expenses. |
27
Year
Ended December 31, 2010 Compared to Year Ended
December 31, 2009
Revenues
Consolidated revenues increased by $148.7 million, or
30.8%, to $632.0 million in 2010 from $483.3 million
in 2009.
LTL revenues increased by $93.8 million, or 29.7%, to
$409.9 million in 2010 from $316.1 million in 2009.
This reflects
year-over-year
LTL tonnage growth of 21.3%, driven by a 22.1% increase in the
number of LTL shipments, slightly offset by a 0.6% decline in
weight per shipment. Our LTL tonnage increase was driven by new
customer growth and the Bullet acquisition. In addition to
growth in tonnage and shipments, our revenue per hundredweight
including fuel surcharges increased during the year by 7.0%.
This reflects increased fuel prices
year-over-year
and an increase in revenue per hundredweight excluding fuel of
3.6%, which resulted from the stabilization in the LTL pricing
environment, our yield improvement initiatives, and a change in
freight mix that provided an increased revenue per hundredweight.
TL revenues increased by $23.9 million, or 17.7%, to
$158.7 million during 2010 from $134.8 million in
2009, primarily driven by a 5.4% increase in the number of
loads, a
year-over-year
increase in revenue per load of 11.7%, and the expansion of our
TL brokerage agent network.
TMS revenues increased by $31.4 million, or 91.2%, to
$65.9 million in 2010 from $34.5 million in 2009,
primarily as a result of the addition of new customers, as well
as the acquisition of Mesca and GNTS during the second half of
2009 and Alpha during the first quarter of 2010, which are
reflected in our results from their respective acquisition dates.
Purchased
Transportation Costs
Purchased transportation costs increased by $115.1 million,
or 30.4%, to $494.0 million in 2010 from
$378.9 million in 2009.
LTL purchased transportation costs increased by
$72.1 million, or 30.6%, to $307.7 million in 2010
from $235.6 million in 2009, and increased as a percentage
of LTL revenues to 75.1% from 74.5%. This increase was primarily
the result of tighter capacity in the truckload market, which
caused an increase in rates paid to our third-party linehaul
carriers, as well as rising fuel costs. Excluding fuel
surcharges, our average linehaul cost per mile increased to
$1.22 in 2010 from $1.18 in 2009. This increase was partially
offset by our yield improvement initiatives and linehaul cost
reduction initiatives that included the utilization of our ICs
on lanes most impacted by rising rates.
TL purchased transportation costs increased by
$21.3 million, or 17.9%, to $140.4 million in 2010
from $119.1 million in 2009, and increased slightly as a
percentage of TL revenues to 88.4% from 88.3%, primarily due to
rising truckload rates not yet passed on to contract customers,
expansion of our truckload brokerage agent network, and payment
of related commissions to new agents.
TMS purchased transportation costs increased by
$22.2 million, or 84.4%, to $48.5 million in 2010 from
$26.3 million in 2009. This primarily resulted from recent
acquisitions, which expanded the TMS offering to include a
broader range of services. TMS purchased transportation costs as
a percentage of TMS revenues decreased to 73.5% from 76.3%,
primarily as a result of the acquisitions of Mesca, GNTS, and
Alpha, which provide higher margin services.
Other
Operating Expenses
Other operating expenses, which reflect the sum of the personnel
and related benefits, other operating expenses, acquisition
transaction expenses, and IPO related expenses line items shown
in our consolidated statements of operations, increased by
$17.3 million, or 19.8%, to $105.1 million in 2010
from $87.8 million in 2009.
Within our LTL business, other operating expenses increased by
$9.9 million, or 14.2%, to $78.9 million in 2010 from
$69.0 million in 2009, primarily as a result of the Bullet
acquisition and increased dock costs related to
28
revenue growth. Due to our scalable operating model and targeted
cost reduction initiatives, LTL other operating expenses as a
percentage of LTL revenues decreased to 19.2% in 2010 from 21.8%
in 2009.
Within our TL business, other operating expenses increased by
$0.3 million, or 3.4%, to $11.1 million in 2010 from
$10.8 million in 2009. As a percentage of TL brokerage
revenues, this represents a decrease to 7.0% from 8.0% and is
primarily due to increases in market pricing and tonnage, as
well as continued expansion of our TL brokerage agent network
because price per ton increased and we are able to service more
tonnage without adding additional costs.
Within our TMS business, other operating expenses increased by
$5.7 million, or 96.6%, to $11.5 million in 2010 from
$5.8 million in 2009, primarily as a result of the Mesca,
GNTS, and Alpha acquisitions. As a percentage of TMS revenues,
this represents an increase to 17.4% from 16.9%.
Other operating expenses that were not allocated to our LTL, TL,
or TMS businesses increased to $3.6 million in 2010 from
$2.1 million in 2009. The $3.6 million incurred during
2010 resulted from $1.5 million of IPO costs with the
remaining $2.1 million representing corporate salaries,
stock-based compensation expense, acquisition transaction
expenses and management termination fees. The $2.1 million
incurred during in 2009 primarily represents acquisition
transaction expenses and stock-based compensation expense.
Depreciation
and Amortization
Depreciation and amortization was $3.1 million in 2010 and
$3.0 million in 2009, reflecting increases in property,
plant, and equipment. Within our LTL business, depreciation and
amortization was $1.7 million during both 2010 and 2009.
Depreciation and amortization within our TL business was
$0.7 million during both 2010 and 2009. Within our TMS
business, depreciation and amortization was $0.7 million in
2010 and $0.6 million in 2009.
Operating
Income
Operating income increased by $16.1 million, or 116.7%, to
$29.8 million in 2010 from $13.7 million in 2009. As a
percentage of revenues, operating income increased to 4.7% in
2010 from 2.8% in 2009.
Within our LTL business, operating income increased by
$11.9 million, or 122.1%, to $21.7 million from
$9.8 million, and also increased as a percentage of LTL
revenues to 5.3% from 3.1%.
Within our TL business, operating income increased by
$2.2 million, or 48.9%, to $6.5 million from
$4.3 million, and also increased as a percentage of TL
brokerage revenues to 4.1% from 3.2%.
Within our TMS business, operating income increased by
$3.5 million to $5.3 million from $1.8 million,
and also increased as a percentage of TMS revenues to 8.0% from
5.1%.
Interest
Expense
Interest expense decreased by $5.2 million, or 39.3%, to
$8.2 million in 2010 from $13.4 million in 2009,
primarily attributable to the reduction of our outstanding
indebtedness resulting from the application of the net proceeds
from our IPO, partially offset by interest expense attributable
to the Bullet acquisition and the Mesca, GNTS, and Alpha
acquisitions.
Loss on
Early Extinguishment of Debt
In connection with the reduction of our outstanding indebtedness
as a result of our IPO and our entering into a new credit
agreement, we incurred a one-time loss on early extinguishment
of debt of $15.9 million in 2010. This charge consisted of
(i) $10.6 million of prepayment penalties,
(ii) the payment of $2.6 million of unaccreted
discount on our junior subordinated notes, (iii) the
non-cash write-off of $2.2 million of deferred debt
issuance costs, and (iv) the payment of legal and other
miscellaneous fees of $0.5 million.
29
Income
Tax
Income tax provision was $2.1 million in 2010 compared to
$0.3 million in 2009. The effective tax rate was 37.0% in
2010 compared to 107.3% in 2009. The effective income tax rate
varies from the federal statutory rate of 34.0% primarily due to
state and Canadian income taxes as well as the impact of items
causing permanent differences.
Net
Income (Loss) Available to Common Stockholders
Net income available to common stockholders was
$2.8 million in 2010 compared to a net loss of
$2.0 million in 2009. Net income available to common
stockholders during 2010 was impacted by $0.8 million of
accretion of Series B preferred stock dividends compared to
an impact of $2.0 million in 2009. Upon completion of our
IPO, our shares of Series B preferred stock were converted
into shares of our common stock and such accretion was
eliminated as of the date of conversion.
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Revenues
As a result of the economic downturn, consolidated revenues
decreased by $82.6 million, or 14.6%, to
$483.3 million in 2009 from $565.9 million in 2008.
Despite adding over 6,000 new LTL customers in 2009 (excluding
customers added in connection with the Bullet acquisition), LTL
revenues decreased by $50.4 million, or 13.8%, to
$316.1 million in 2009 from $366.5 million in 2008.
This was primarily a result of declines in
over-the-road
freight tonnage, a competitive pricing environment, and declines
in diesel fuel prices. During 2009, LTL tonnage decreased by
4.6% from 2008, driven by a 4.1% decrease in the number of LTL
shipments and a 0.5% decline in weight per shipment. The
economic downturn also drove a 2.3% decline in revenue per
hundredweight excluding fuel surcharges
year-over-year.
As a result of a decline in fuel prices, revenue per
hundredweight including fuel surcharges declined by 9.7%.
TL revenues decreased by $36.6 million, or 21.4%, to
$134.8 million in 2009 from $171.4 million in 2008,
primarily due to market tonnage declines, a competitive pricing
environment, and declines in diesel fuel prices from historic
highs experienced in 2008. We partially offset these market
factors by continuing to expand our TL brokerage agent network
from 24 agents as of June 30, 2008 to 42 agents as of
December 31, 2009.
TMS revenues increased by $4.6 million, or 15.5%, to
$34.5 million in 2009 from $29.9 million in 2008,
primarily as a result of the addition of two TMS businesses
during the second half of 2009, which are not reflected prior to
their respective acquisition dates.
Purchased
Transportation Costs
Purchased transportation costs decreased by $75.1 million,
or 16.5%, to $378.9 million in 2009 from
$454.0 million in 2008.
LTL purchased transportation costs decreased by
$43.7 million, or 15.6%, to $235.6 million in 2009
from $279.3 million in 2008, and decreased as a percentage
of LTL revenues to 74.5% from 76.2%. Lower freight density and
lower revenue per hundredweight were more than offset by our
cost reduction initiatives, such as terminal consolidations and
target rate negotiations with our third-party transportation
network.
TL purchased transportation costs decreased by
$34.3 million, or 22.4%, to $119.1 million in 2009
from $153.4 million in 2008. As a percentage of TL revenues
the decrease represents a modest improvement from 89.5% to 88.3%.
TMS purchased transportation costs increased by
$3.2 million, or 13.7%, to $26.3 million in 2009 from
$23.1 million in 2008, but decreased as a percentage of TMS
revenues to 76.3% from 77.5%. This primarily resulted from TMS
acquisitions during the second half of 2009, which expanded the
TMS offering to include higher margin services.
30
Other
Operating Expenses
Other operating expenses (which reflect the sum of the personnel
and related benefits, other operating expenses, acquisition
transaction expenses, and transaction and restructuring and IPO
related expenses line items shown in our consolidated statements
of operations) decreased by $13.0 million, or 12.9%, to
$87.8 million in 2009 from $100.8 million in 2008.
Within our LTL business, other operating expenses decreased by
$11.1 million, or 13.8%, to $69.0 million in 2009 from
$80.1 million in 2008. Due to our scalable operating model
and targeted cost reduction initiatives, LTL other operating
expenses as a percentage of LTL revenues remain consistent at
21.8% in 2009 and 2008.
Within our TL business, other operating expenses decreased by
$1.0 million, or 8.6%, to $10.8 million in 2009 from
$11.8 million in 2008. As a percentage of TL revenues, this
represents an increase to 8.0% from 6.9% and is primarily due to
revenue declines resulting from declines in TL industry tonnage
and pricing, including fuel costs, as well as increased
investment in our TL brokerage agent recruitment efforts.
Within our TMS business, other operating expenses increased to
$5.8 million in 2009 from $4.5 million in 2008 as a
result of TMS acquisitions during the second half of 2009. As a
percentage of TMS revenues, other operating expenses increased
to 16.9% in 2009 from 15.0% in 2008, primarily due to
acquisitions during the second half of 2009.
Other operating expenses that were not allocated to our LTL, TL,
or TMS businesses decreased to $2.1 million in 2009 from
$4.5 million in 2008. The $2.1 million incurred in
2009 primarily represents acquisition transaction expenses,
management agreement expenses, and stock-based compensation
expense. The $4.5 million incurred in 2008 primarily
represents acquisition transaction expenses, IPO related
expenses, management agreement expenses, and stock-based
compensation expense.
Depreciation
and Amortization
Depreciation and amortization increased to $3.0 million in
2009 from $2.5 million in 2008. Within our LTL business,
depreciation and amortization was $1.7 million in 2009 and
$1.4 million in 2008. Depreciation and amortization within
our TL business was $0.7 million in 2009 and
$0.6 million in 2008. Within our TMS business, depreciation
and amortization was $0.6 million in 2009 and
$0.5 million in 2008.
Operating
Income
Operating income increased by $5.0 million, or 58.1%, to
$13.7 million in 2009 from $8.7 million in 2008. As a
percentage of revenues, operating income increased to 2.8% in
2009 from 1.5% in 2008.
Within our LTL business, operating income increased by
$4.0 million, or 69.1%, to $9.8 million from
$5.8 million, which represents an increase as a percentage
of LTL revenues to 3.1% from 1.6%.
Within our TL business, operating income decreased by
$1.3 million, or 22.9%, to $4.3 million from
$5.6 million, which represents a slight decrease as a
percentage of TL brokerage revenues to 3.2% from 3.3%.
Within our TMS business, operating income was $1.8 million
during both 2009 and 2008, but decreased as a percentage of TMS
revenues to 5.1% from 5.9%.
Interest
Expense
Interest expense increased to $13.4 million in 2009 from
$13.2 million in 2008, primarily attributable to
incremental debt financing to support the Bullet acquisition and
TMS segment acquisitions.
Income
Tax
Income tax provision was $0.3 million in 2009 compared to a
benefit of $1.1 million in 2008. The effective tax rate was
107.3% in 2009 compared to 25.4% in 2008. The effective income
tax rate in each period varies from the federal statutory rate
of 35.0% primarily due to state and Canadian income taxes as
well as the impact of items causing permanent differences.
31
Net Loss
Available to Common Stockholders
Net loss available to common stockholders was $2.0 million
in 2009 compared to a net loss of $3.3 million in 2008. Net
loss available to common stockholders in 2009 was impacted by
$2.0 million of accretion of Series B preferred stock
dividends.
Liquidity
and Capital Resources
Historically, our primary sources of cash have been borrowings
under our revolving credit facility, sale of subordinated notes,
equity contributions, and cash flows from operations. Our
primary cash needs are to fund normal working capital
requirements, finance capital expenditures, and repay our
indebtedness. As of December 31, 2010, we had
$1.0 million in cash and cash equivalents,
$29.2 million of availability under our credit facility,
and $41.4 million in net working capital.
Although we can provide no assurances, amounts available under
our credit facility, net cash provided by operating activities,
and available cash and cash equivalents should be adequate to
finance working capital and planned capital expenditures for at
least the next twelve months. Thereafter, we may find it
necessary to obtain additional equity or debt financing as we
continue to execute our business strategy.
We consummated our IPO in May 2010. The net proceeds we received
from the IPO were approximately $115.0 million, after
deducting underwriting discounts, commissions, and related
expenses. We used the IPO proceeds to prepay $40.4 million
of outstanding debt under our previous credit facility,
$42.8 million to retire subordinated notes and accrued
interest and $31.8 million to retire our junior
subordinated notes and accrued interest, including prepayment
penalties of $10.6 million.
In June 2010, we consummated the sale of an additional
403,286 shares of common stock pursuant to a partial
exercise of the over-allotment option to purchase additional
shares granted to the underwriters of our IPO. The net proceeds
from this exercise were $5.3 million, after deducting
underwriting discounts, commissions and related expenses, all of
which was used to repay $5.3 million of outstanding debt
under our current credit facility.
Our current credit facility consists of a revolving line of
credit, up to a maximum aggregate amount of $55.0 million,
of which up to $5.0 million may be used for Swing Line
Loans (as defined in the credit facility agreement) and up to
$8.0 million may be used for letters of credit. The credit
facility matures on May 18, 2015.
Advances under our credit facility agreement bear interest at
either (a) the Eurocurrency Rate (as defined in the credit
facility agreement), plus an applicable margin in the range of
2.5% to 3.0%, or (b) the Base Rate (as defined in the
credit facility agreement), plus an applicable margin in the
range of 1.5% to 2.0%.
Our credit facility agreement requires us to meet financial
tests, including a minimum fixed charge coverage ratio and a
maximum cash flow leverage ratio. In addition, our credit
facility agreement contains negative covenants limiting, among
other things, additional indebtedness, capital expenditures,
transactions with affiliates, additional liens, sales of assets,
dividends, investments and advances, prepayments of debt,
mergers and acquisitions, and other matters customarily
restricted in such agreements. Our credit facility agreement
also contains customary events of default, including payment
defaults, breaches of representations and warranties, covenant
defaults, events of bankruptcy and insolvency, failure of any
guaranty or security document supporting the credit agreement to
be in full force and effect, and a change of control of our
business. As of December 31, 2010, we were in compliance
with all debt covenants.
We used $43.3 million of borrowings under our credit
facility, together with restricted cash of $4.1 million, to
retire our outstanding debt remaining after the use of our IPO
proceeds, as well as to pay $4.6 million of transaction and
financing expenses.
During the second half of 2010, we have generated substantial
cash from operations and have paid down approximately
$13.0 million in debt. We continually seek acquisitions to
enhance our current service offerings in each of our segments.
We used approximately $20.0 million from our revolving
credit line in connection with the Morgan Southern acquisition.
We anticipate that we will generate enough cash flow from
operations to repay the additional $20.0 million in debt by
the end of 2011.
32
Cash
Flows
A summary of operating, investing and financing activities are
shown in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
2,110
|
|
|
$
|
778
|
|
|
$
|
802
|
|
Investing activities
|
|
|
(1,080
|
)
|
|
|
(34,216
|
)
|
|
|
(27,208
|
)
|
Financing activities
|
|
|
(2,210
|
)
|
|
|
34,214
|
|
|
|
27,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(1,180
|
)
|
|
$
|
776
|
|
|
$
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
Cash provided by our operating activities primarily consists of
net income (loss) adjusted for certain non-cash items, including
depreciation and amortization, deferred interest, share-based
compensation, provision for bad debts, deferred taxes and the
effect of changes in working capital and other activities.
The difference between our $3.6 million 2010 net
income and the $2.1 million cash provided by operating
activities during 2010 was primarily attributable to a
$16.0 million increase in our accounts receivable, a
$1.2 million increase in prepaid expenses and other assets,
partially offset by a $5.7 million increase in accounts
payable, a $1.8 million increase in accrued expenses and
other liabilities, and a variety of non-cash charges, including
$2.7 million of deferred interest, a $2.2 million loss
on early extinguishment of debt, and $3.8 million of
depreciation and amortization.
Cash
Flows from Investing Activities
Cash used in investing activities was $1.1 million during
2010, which primarily reflects the release of restricted cash of
$4.1 million, $2.9 million used for a business
acquisition and $2.5 million of capital expenditures used
to support our operations.
Cash
Flows from Financing Activities
Cash used in financing activities was $2.2 million during
2010, which primarily reflects net payments of
$122.1 million on our credit facilities and other long-term
debt, proceeds from the issuance of common stock of
$120.2 million and payments of $0.4 million for
capital leases.
33
Quarterly
Results of Operations
The following table presents unaudited consolidated statement of
operations data for each of the eight quarters in the period
ended December 31, 2010. We believe that all necessary
adjustments have been included to fairly present the quarterly
information when read in conjunction with our annual
consolidated financial statements and related notes. The
operating results for any quarter are not necessarily indicative
of the results for any subsequent quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter(1)
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(In thousands, except per share data)
|
|
Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
142,762
|
|
|
$
|
159,770
|
|
|
$
|
163,690
|
|
|
$
|
165,796
|
|
Net revenues (total revenues less purchased transportation costs)
|
|
|
32,095
|
|
|
|
35,334
|
|
|
|
35,061
|
|
|
|
35,483
|
|
Income (loss) before income taxes
|
|
|
2,488
|
|
|
|
(10,581
|
)
|
|
|
7,375
|
|
|
|
6,417
|
|
Net income (loss) available to common stockholders
|
|
|
942
|
|
|
|
(6,377
|
)
|
|
|
4,384
|
|
|
|
3,877
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
Diluted
|
|
|
0.05
|
|
|
|
(0.25
|
)
|
|
|
0.14
|
|
|
|
0.12
|
|
Year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
110,524
|
|
|
$
|
120,196
|
|
|
$
|
124,670
|
|
|
$
|
127,932
|
|
Net revenues (total revenues less purchased transportation costs)
|
|
|
23,833
|
|
|
|
26,569
|
|
|
|
26,520
|
|
|
|
27,542
|
|
(Loss) income before income taxes
|
|
|
(997
|
)
|
|
|
1,561
|
|
|
|
987
|
|
|
|
(1,237
|
)
|
Net (loss) income available to common stockholders
|
|
|
(1,210
|
)
|
|
|
381
|
|
|
|
126
|
|
|
|
(1,270
|
)
|
(Loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.07
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
0.07
|
|
Diluted
|
|
|
(0.07
|
)
|
|
|
(0.02
|
)
|
|
|
0.01
|
|
|
|
0.07
|
|
|
|
|
(1) |
|
On February 29, 2008, our controlling stockholder acquired
all the outstanding capital stock of GTS. On May 18, 2010,
we acquired GTS by way of merger simultaneous with the
consummation of our IPO. As such, because we were under common
control with GTS as of February 29, 2008, the consolidated
statements of operations, consolidated balance sheet, and other
data for the periods presented include the results of GTS from
February 29, 2008. |
Contractual
Obligations and Commercial Commitments
The following table sets forth a summary of our material
contractual obligations and commercial commitments as of the end
of 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Long-term debt
|
|
$
|
20,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,500
|
|
|
$
|
|
|
Capital leases
|
|
|
3,270
|
|
|
|
688
|
|
|
|
635
|
|
|
|
561
|
|
|
|
1,389
|
|
Operating leases
|
|
|
30,734
|
|
|
|
6,120
|
|
|
|
10,397
|
|
|
|
8,443
|
|
|
|
5,774
|
|
Preferred stock subject to mandatory redemption
|
|
|
5,142
|
|
|
|
200
|
|
|
|
4,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,646
|
|
|
$
|
7,006
|
|
|
$
|
15,974
|
|
|
$
|
29,504
|
|
|
$
|
7,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Off-Balance
Sheet Arrangements
We do not have any transactions, arrangements, or other
relationships with unconsolidated entities that are reasonably
likely to materially affect our financial condition, changes in
financial condition, revenues or expenses, results of
operations, liquidity, or capital resources. We have no special
purpose or limited purpose entities that provide off-balance
sheet financing, liquidity, or market or credit risk support;
engage in leasing, hedging, or research and development
services; or have other relationships that expose us to
liability that is not reflected in the financial statements.
Seasonality
Our operations are subject to seasonal trends that have been
common in the North American
over-the-road
freight sector for many years. Our results of operations for the
quarter ending in March are on average lower than the quarters
ending in June, September, and December. Typically, this pattern
has been the result of factors such as inclement weather,
national holidays, customer demand, and economic conditions.
Effects
of Inflation
Based on our analysis of the periods presented, we believe that
inflation has not had a material effect on our operating results
as inflationary increases in fuel and labor costs have generally
been offset through fuel surcharges and price increases.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Commodity
Risk
In our LTL, TL, and TMS businesses, our primary market risk
centers on fluctuations in fuel prices, which can affect our
profitability. Diesel fuel prices fluctuate significantly due to
economic, political, and other factors beyond our control. Our
ICs and purchased power providers pass along the cost of diesel
fuel to us, and we in turn attempt to pass along some or all of
these costs to our customers through fuel surcharge revenue
programs. There can be no assurance that our fuel surcharge
revenue programs will be effective in the future. Market
pressures may limit our ability to pass along our fuel
surcharges.
Interest
Rate Risk
We have exposure to changes in interest rates on our revolving
credit facility. The interest rate on our revolving credit
facility fluctuates based on the prime rate or LIBOR plus an
applicable margin. Assuming our $55.0 million revolving
credit facility was fully drawn, a 1.0% increase in the
borrowing rate would increase our annual interest expense by
$0.5 million. We do not use derivative financial
instruments for speculative trading purposes and are not engaged
in any interest rate swap agreements.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Reference is made to the financial statements, the reports of
our independent registered public accounting firm, and the notes
thereto commencing at
page F-1
of this report, which financial statements, reports, and notes
are incorporated herein by reference. For the Quarterly Results
of Operations, see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
35
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, conducted an evaluation of
the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act). Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as
of December 31, 2010, our disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) were effective to ensure that
information required to be disclosed by us in the reports we
file or submit under the Exchange Act is (i) recorded,
processed, summarized, and reported within the time periods
specified in the SEC rules and forms, and (ii) is
accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
Managements
Report on Internal Control Over Financial Reporting
This annual report does not include a report of
managements assessment regarding internal control over
financial reporting or an attestation report of the
companys registered public accounting firm due to a
transition period established by rules of the SEC for newly
public companies.
Changes
in Internal Control Over Financial Reporting
There was no change in our internal control over financial
reporting during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Inherent
Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls
and procedures or our internal controls over financial reporting
will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute
assurance that all control issues, misstatements, errors, and
instances of fraud, if any, within our company have been or will
be prevented or detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and
that breakdowns can occur because of simple error or mistake.
Controls also can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls
is based in part on certain assumptions about the likelihood of
future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time,
internal controls may become inadequate as a result of changes
in conditions, or through the deterioration of the degree of
compliance with policies or procedures.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
There were no items requiring reporting on
Form 8-K
that were not reported on
Form 8-K
during the fourth quarter of the year covered by this
Form 10-K.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
|
The information required by this Item relating to our directors
and corporate governance is incorporated herein by reference to
the definitive Proxy Statement to be filed pursuant to
Regulation 14A of the Exchange Act for our 2011 Annual
Meeting of Stockholders. The information required by this Item
relating to our executive officers is included under the caption
Executive Officers within Item 1.
36
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2011 Annual
Meeting of Stockholders.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2011 Annual
Meeting of Stockholders.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2011 Annual
Meeting of Stockholders.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act for our 2011 Annual
Meeting of Stockholders.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
(a)
|
Financial
Statements and Financial Statement Schedules
|
(1) Financial Statements are listed in the Index to
Consolidated Financial Statements on
page F-1
of this report.
(2) Other schedules are omitted because they are not
applicable, not required, or because required information is
included in the consolidated financial statements or notes
thereto.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation(1)
|
|
3
|
.2
|
|
Second Amended and Restated Bylaws(1)
|
|
4
|
|
|
Second Amended and Restated Stockholders Agreement, dated
as of March 14, 2007, by and among the Registrant and the
stockholders named therein(2)
|
|
10
|
.1
|
|
Employment Letter Agreement, by and between the Registrant and
Mark A. DiBlasi(3)
|
|
10
|
.2
|
|
Employment Letter Agreement, by and between the Registrant and
Peter R. Armbruster(3)
|
|
10
|
.3
|
|
Employment Letter Agreement, by and between the Registrant and
Brian J. van Helden(4)
|
|
10
|
.4
|
|
Employment Letter Agreement, by and between the Registrant and
Scott L. Dobak(4)
|
|
10
|
.5
|
|
2010 Incentive Compensation Plan(1)
|
|
10
|
.6
|
|
Form of Indemnification Agreement(1)
|
|
10
|
.7
|
|
Agreement and Plan of Merger, dated as of May 7, 2010, by
and among the Registrant; GTS Transportation Logistics, Inc.;
and Group Transportation Services Holdings, Inc.(1)
|
|
10
|
.8
|
|
Advisory Agreement, by and between the Registrant and Thayer
| Hidden Creek Management, L.P.(1)
|
|
10
|
.9
|
|
Commitment letter, dated April 19, 2010, from U.S. Bank
National Association to the Registrant(5)
|
|
10
|
.10
|
|
Credit Agreement, dated May 18, 2010, among the Registrant,
the Lenders (as defined therein), and U.S. Bank National
Association, a national banking association, as LC Issuer, Swing
Line Lender, and Administrative Agent(6)
|
37
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
21
|
|
|
List of Subsidiaries
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Exchange
Act
Rules 13a-14(a)
and 15d-14(a)
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Exchange
Act
Rules 13a-14(a)
and 15d-14(a)
|
|
32
|
.1
|
|
Section 1350 Certification of Chief Executive Officer
|
|
32
|
.2
|
|
Section 1350 Certification of Chief Financial Officer
|
|
|
|
(1) |
|
Incorporated by reference to the registrants registration
statement on
Form S-1
(Registration
No. 333-152504)
as filed with the SEC on May 7, 2010. |
|
(2) |
|
Incorporated by reference to the registrants registration
statement on
Form S-1
(Registration
No. 333-152504)
as filed with the SEC on September 11, 2008. |
|
(3) |
|
Incorporated by reference to the registrants registration
statement on
Form S-1
(Registration
No. 333-152504)
as filed with the SEC on March 4, 2010. |
|
(4) |
|
Incorporated by reference to the registrants registration
statement on
Form S-1
(Registration
No. 333-152504)
as filed with the SEC on April 5, 2010. |
|
(5) |
|
Incorporated by reference to the registrants registration
statement on
Form S-1
(Registration
No. 333-152504)
as filed with the SEC on April 30, 2010. |
|
(6) |
|
Incorporated by reference to the registrants Current
Report on
Form 8-K
as filed with the SEC on May 20, 2010. |
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ROADRUNNER TRANSPORTATION SYSTEMS, INC.
Mark A. DiBlasi
President and Chief Executive Officer
Date: March 30, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Mark
A. DiBlasi
Mark
A. DiBlasi
|
|
President, Chief Executive Officer, and Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Peter
R. Armbruster
Peter
R. Armbruster
|
|
Vice President Finance, Chief Financial Officer,
Treasurer, and Secretary (Principal Financial and Accounting
Officer)
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Scott
D. Rued
Scott
D. Rued
|
|
Chairman of the Board
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Christopher
L. Doerr
Christopher
L. Doerr
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Ivor
J. Evans
Ivor
J. Evans
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ James
D. Staley
James
D. Staley
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ William
S. Urkiel
William
S. Urkiel
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Chad
M. Utrup
Chad
M. Utrup
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ Judith
A. Vijums
Judith
A. Vijums
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
/s/ James
L. Welch
James
L. Welch
|
|
Director
|
|
March 30, 2011
|
39
INDEX TO
FINANCIAL STATEMENTS
ROADRUNNER
TRANSPORTATION SYSTEMS, INC.
AND
SUBSIDIARIES
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Roadrunner Transportation Systems, Inc. and subsidiaries
Cudahy, Wisconsin
We have audited the accompanying consolidated balance sheets of
Roadrunner Transportation Systems, Inc. and subsidiaries (the
Company) as of December 31, 2010 and 2009, and
the related consolidated statements of operations,
stockholders investment, and cash flows for each of the
three years in the period ended December 31, 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Roadrunner Transportation Systems, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2010, in conformity with
accounting principles generally accepted in the United States of
America.
Minneapolis, Minnesota
March 30, 2011
F-2
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
996
|
|
|
$
|
2,176
|
|
Accounts receivable, net
|
|
|
73,222
|
|
|
|
57,887
|
|
Deferred income taxes
|
|
|
6,367
|
|
|
|
1,578
|
|
Prepaid expenses and other current assets
|
|
|
10,414
|
|
|
|
8,501
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
90,999
|
|
|
|
70,142
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
6,894
|
|
|
|
7,518
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
246,888
|
|
|
|
244,671
|
|
Other noncurrent assets
|
|
|
3,516
|
|
|
|
10,950
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
250,404
|
|
|
|
255,621
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
348,297
|
|
|
$
|
333,281
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS
INVESTMENT
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
8,768
|
|
Accounts payable
|
|
|
37,241
|
|
|
|
31,184
|
|
Accrued expenses and other liabilities
|
|
|
11,375
|
|
|
|
12,152
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
48,616
|
|
|
|
52,104
|
|
LONG-TERM DEBT, net of current maturities
|
|
|
20,500
|
|
|
|
130,167
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
8,492
|
|
|
|
4,627
|
|
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
82,608
|
|
|
|
191,898
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 9)
REDEEMABLE COMMON STOCK
|
|
|
|
|
|
|
|
|
Redeemable common stock $.01 par value; 260 shares
issued and outstanding
|
|
|
|
|
|
|
1,740
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS INVESTMENT:
|
|
|
|
|
|
|
|
|
Series B convertible preferred stock; 1,792 shares
issued and outstanding
|
|
|
|
|
|
|
13,950
|
|
Class A common stock $.01 par value;
14,567 shares issued and outstanding
|
|
|
|
|
|
|
147
|
|
Class B common stock $.01 par value; 299 shares
authorized; 283 shares issued and outstanding
|
|
|
|
|
|
|
3
|
|
Common stock $.01 par value; 100,000 shares
authorized; 30,147 and 3,092 shares issued and outstanding
|
|
|
301
|
|
|
|
31
|
|
Additional paid-in capital
|
|
|
262,088
|
|
|
|
125,803
|
|
Retained earnings (deficit)
|
|
|
3,300
|
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders investment
|
|
|
265,689
|
|
|
|
139,643
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS
INVESTMENT
|
|
$
|
348,297
|
|
|
$
|
333,281
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
632,018
|
|
|
$
|
483,322
|
|
|
$
|
565,907
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased transportation costs
|
|
|
494,045
|
|
|
|
378,858
|
|
|
|
453,953
|
|
Personnel and related benefits
|
|
|
61,853
|
|
|
|
52,621
|
|
|
|
58,282
|
|
Other operating expenses
|
|
|
41,168
|
|
|
|
33,988
|
|
|
|
39,099
|
|
Depreciation and amortization
|
|
|
3,114
|
|
|
|
2,967
|
|
|
|
2,465
|
|
Acquisition transaction expenses
|
|
|
569
|
|
|
|
1,148
|
|
|
|
|
|
Restructuring and IPO related expenses
|
|
|
1,500
|
|
|
|
|
|
|
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
602,249
|
|
|
|
469,582
|
|
|
|
557,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
29,769
|
|
|
|
13,740
|
|
|
|
8,692
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
7,954
|
|
|
|
13,226
|
|
|
|
12,969
|
|
Dividends on preferred stock subject to mandatory redemption
|
|
|
200
|
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
8,154
|
|
|
|
13,426
|
|
|
|
13,169
|
|
Loss on early extinguishment of debt
|
|
|
15,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
5,699
|
|
|
|
314
|
|
|
|
(4,477
|
)
|
Provision (benefit) for income taxes
|
|
|
2,108
|
|
|
|
337
|
|
|
|
(1,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
3,591
|
|
|
|
(23
|
)
|
|
|
(3,338
|
)
|
Accretion of Series B preferred stock
|
|
|
765
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
2,826
|
|
|
$
|
(1,973
|
)
|
|
$
|
(3,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share available to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
(0.11
|
)
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
(0.11
|
)
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,779
|
|
|
|
17,656
|
|
|
|
17,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
26,777
|
|
|
|
17,656
|
|
|
|
17,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Series B Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Class A Common Stock
|
|
|
Class B Common Stock
|
|
|
Paid-In
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income
|
|
|
Investment
|
|
|
|
(In thousands, except per share amounts)
|
|
|
BALANCE, December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
14,567,522
|
|
|
$
|
147
|
|
|
|
282,502
|
|
|
$
|
3
|
|
|
$
|
100,649
|
|
|
$
|
3,070
|
|
|
$
|
1
|
|
|
$
|
103,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B preferred stock
|
|
|
1,791,768
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
Issuance of Common Stock
|
|
|
|
|
|
|
|
|
|
|
2,358,932
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,606
|
|
|
|
|
|
|
|
|
|
|
|
16,630
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
835
|
|
Purchase and cancellation of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains and losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,338
|
)
|
|
|
|
|
|
|
(3,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2008
|
|
|
1,791,768
|
|
|
$
|
12,000
|
|
|
|
2,358,932
|
|
|
$
|
24
|
|
|
|
14,567,522
|
|
|
$
|
147
|
|
|
|
282,502
|
|
|
$
|
3
|
|
|
$
|
118,081
|
|
|
$
|
(268
|
)
|
|
$
|
|
|
|
$
|
129,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series B preferred stock (15% per annum)
|
|
|
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock
|
|
|
|
|
|
|
|
|
|
|
732,645
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,158
|
|
|
|
|
|
|
|
|
|
|
|
5,165
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
714
|
|
|
|
|
|
|
|
|
|
|
|
714
|
|
Forgiveness of payable to affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
800
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2009
|
|
|
1,791,768
|
|
|
$
|
13,950
|
|
|
|
3,091,577
|
|
|
$
|
31
|
|
|
|
14,567,522
|
|
|
$
|
147
|
|
|
|
282,502
|
|
|
$
|
3
|
|
|
$
|
125,803
|
|
|
$
|
(291
|
)
|
|
$
|
|
|
|
$
|
139,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series B preferred stock (15% per annum)
|
|
|
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock
|
|
|
|
|
|
|
|
|
|
|
10,002,707
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,875
|
|
|
|
|
|
|
|
|
|
|
|
121,973
|
|
Conversion of Series B Convertible Preferred Stock to
Common Stock
|
|
|
(1,791,768
|
)
|
|
|
(14,715
|
)
|
|
|
2,202,497
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class A Common Stock to Common Stock
|
|
|
|
|
|
|
|
|
|
|
14,567,522
|
|
|
|
147
|
|
|
|
(14,567,522
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class B Common Stock to Common Stock
|
|
|
|
|
|
|
|
|
|
|
282,502
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
(282,502
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
482
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,591
|
|
|
|
|
|
|
|
3,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
30,146,805
|
|
|
$
|
301
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
262,088
|
|
|
$
|
3,300
|
|
|
$
|
|
|
|
$
|
265,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
ROADRUNNER
TRANSPORTATION SYSTEMS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,591
|
|
|
$
|
(23
|
)
|
|
$
|
(3,338
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,817
|
|
|
|
3,681
|
|
|
|
2,901
|
|
Gain on disposal of buildings and equipment
|
|
|
(207
|
)
|
|
|
(35
|
)
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
2,224
|
|
|
|
|
|
|
|
|
|
Deferred interest
|
|
|
2,728
|
|
|
|
2,771
|
|
|
|
1,163
|
|
Share-based compensation
|
|
|
482
|
|
|
|
714
|
|
|
|
835
|
|
Provision for bad debts and freight bill adjustments
|
|
|
938
|
|
|
|
1,186
|
|
|
|
737
|
|
Deferred tax benefit
|
|
|
(1,777
|
)
|
|
|
(80
|
)
|
|
|
(1,422
|
)
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(15,967
|
)
|
|
|
(3,998
|
)
|
|
|
5,431
|
|
Prepaid expenses and other assets
|
|
|
(1,166
|
)
|
|
|
(1,305
|
)
|
|
|
(847
|
)
|
Accounts payable
|
|
|
5,659
|
|
|
|
(669
|
)
|
|
|
(5,168
|
)
|
Accrued expenses and other liabilities
|
|
|
1,788
|
|
|
|
(1,464
|
)
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,110
|
|
|
|
778
|
|
|
|
802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
4,066
|
|
|
|
934
|
|
|
|
(5,000
|
)
|
Additional payments for acquisition earnouts
|
|
|
|
|
|
|
|
|
|
|
499
|
|
Acquisition of business, net of cash acquired
|
|
|
(2,910
|
)
|
|
|
(32,957
|
)
|
|
|
(20,604
|
)
|
Capital expenditures
|
|
|
(2,500
|
)
|
|
|
(2,292
|
)
|
|
|
(1,168
|
)
|
Proceeds from sale of buildings and equipment
|
|
|
264
|
|
|
|
99
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,080
|
)
|
|
|
(34,216
|
)
|
|
|
(27,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under old revolving credit facilities
|
|
|
28,810
|
|
|
|
73,400
|
|
|
|
136,155
|
|
Payments under old revolving credit facilities
|
|
|
(64,470
|
)
|
|
|
(66,865
|
)
|
|
|
(136,775
|
)
|
Borrowings under new revolving credit facilities (net of
issuance costs)
|
|
|
58,989
|
|
|
|
|
|
|
|
|
|
Payments under new revolving credit facilities
|
|
|
(39,369
|
)
|
|
|
|
|
|
|
|
|
Long-term debt borrowings
|
|
|
1,184
|
|
|
|
29,000
|
|
|
|
7,827
|
|
Long-term debt payments
|
|
|
(107,213
|
)
|
|
|
(6,475
|
)
|
|
|
(5,600
|
)
|
Proceeds from issuance of common stock (net of issuance costs)
|
|
|
120,232
|
|
|
|
5,165
|
|
|
|
13,430
|
|
Proceeds from issuance of preferred stock
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
Repurchase and retirement of stock
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
Reduction of capital lease obligation
|
|
|
(373
|
)
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(2,210
|
)
|
|
|
34,214
|
|
|
|
27,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(1,180
|
)
|
|
|
776
|
|
|
|
600
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
2,176
|
|
|
|
1,400
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
996
|
|
|
$
|
2,176
|
|
|
$
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOWS INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
9,153
|
|
|
$
|
10,972
|
|
|
$
|
11,221
|
|
Cash paid for income taxes (net of refunds)
|
|
$
|
321
|
|
|
$
|
470
|
|
|
$
|
(71
|
)
|
Noncash issuance of common stock for acquisition
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,200
|
|
Noncash Series B convertible preferred stock dividend
|
|
$
|
765
|
|
|
$
|
1,950
|
|
|
$
|
|
|
Noncash forgiveness of payable to affiliates
|
|
$
|
|
|
|
$
|
800
|
|
|
$
|
|
|
Noncash notes and warrants issued for acquisition of business
(face amount)
|
|
$
|
|
|
|
$
|
3,000
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
F-6
Roadrunner
Transportation Systems, Inc. and Subsidiaries
|
|
1.
|
Organization,
Nature of Business and Significant Accounting Policies
|
Nature of
Business
Roadrunner Transportation Systems, Inc. (the
Company) is headquartered in Cudahy, Wisconsin and
has three operating segments,
less-than-truckload
(LTL), truckload brokerage (TL) and
transportation management solutions (TMS). Within
its LTL business, the Company operates 17 service centers
throughout the United States, complemented by relationships
with over 200 delivery agents. Within its TL business, the
Company operates nine dispatch offices and is augmented by 71
independent agents. The TMS business provides a
one-stop transportation and logistics solution. From
pickup to delivery, the Company leverages relationships with a
diverse group of third-party carriers to provide scalable
capacity and reliable, customized service to customers in North
America. The Company operates primarily in the United States.
On February 29, 2008, Thayer | Hidden Creek Partners
II, L.P. (THCP II), through an indirect
majority-owned subsidiary, GTS Acquisition Sub, Inc.
(GTS), acquired all of the outstanding capital stock
of Group Transportation Services, Inc. and all of the
outstanding membership units of GTS Direct, LLC (the
Transaction). THCP II is an affiliate of Thayer
Equity Investors V, L.P., the controlling shareholder of
the Company. GTS was formed on February 12, 2008 and there
were no substantive operations from date of inception until the
Transaction on February 29, 2008. On May 18, 2010, GTS
merged with a wholly owned subsidiary of the Company (the
GTS Merger).
Principles
of Consolidation
Transfers of net assets or exchanges of equity interests between
entities under common control do not constitute business
combinations. Because the Company and GTS had the same control
group immediately before and after the GTS Merger, the GTS
Merger has been accounted for as a combination of entities under
common control on a historical cost basis in a manner similar to
a pooling of interests. The accompanying consolidated financial
statements have been prepared as if the GTS Merger occurred on
February 29, 2008, the date of common control. Accordingly,
the accompanying consolidated financial statements include the
results of operations of GTS for all periods presented. All
intercompany balances and transactions have been eliminated in
consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Segment
Reporting
The Company determines its operating segments based on the
information utilized by the chief operating decision maker, the
Companys Chief Executive Officer, to allocate resources
and assess performance. Based on this information, the Company
has determined that it has three operating segments, which are
also reportable segments: LTL, TL and TMS.
Cash and
Cash Equivalents
Cash equivalents are defined as short-term investments that have
an original maturity of three months or less at the date of
purchase and are readily convertible into cash. The Company
maintains cash in several banks and, at times, the balances may
exceed federally insured limits. The Company does not believe it
is exposed to any material credit risk on cash. As of
December 31, 2010 and 2009, approximately
$12.3 million and $9.7 million, respectively,
F-7
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
of checks drawn in excess of book balances were classified as
accounts payable in the accompanying consolidated balance
sheets. Cash equivalents consist of overnight investments in an
interest bearing sweep account.
Restricted
Cash
In December 2008, the Company deposited $5.0 million into a
restricted cash account pursuant to the terms of the Keep Well
Agreement entered into in conjunction with the issuance of its
Series B Convertible Preferred Stock. The agreement called for
termination when all funds were used or all senior debt
obligations had been paid in full. On May 18, 2010, the
Company retired all outstanding senior debt obligations and the
Keep Well Agreement was terminated and the restricted cash
balance of $4.1 million was released. At December 31,
2009, restricted cash of $4.1 million was included in other
noncurrent assets in the accompanying consolidated balance
sheets.
Accounts
Receivable
Accounts receivable represent trade receivables from customers
and are stated net of an allowance for doubtful accounts and
pricing allowances of approximately $1.5 million and
$1.2 million as of December 31, 2010 and 2009,
respectively. Management estimates the portion of accounts
receivable that will not be collected and accounts are written
off when they are determined to be uncollectible. Accounts
receivable are uncollateralized and are generally due
30 days from the invoice date.
Valuation
and Qualifying Accounts
The Company provides reserves for accounts receivable. The
rollforward of the allowance for doubtful accounts is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
1,200
|
|
|
$
|
899
|
|
|
$
|
1,447
|
|
Acquisitions
|
|
|
14
|
|
|
|
79
|
|
|
|
|
|
Provision, charged to expense
|
|
|
938
|
|
|
|
1,186
|
|
|
|
737
|
|
Write-offs, less recoveries
|
|
|
(628
|
)
|
|
|
(964
|
)
|
|
|
(1,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,524
|
|
|
$
|
1,200
|
|
|
$
|
899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
Property and equipment are stated at cost. Maintenance and
repair costs are charged to expense as incurred. For financial
reporting purposes, depreciation is calculated using the
straight-line method over the following estimated useful lives:
|
|
|
|
|
Buildings and leasehold improvements
|
|
|
5-15 years
|
|
Furniture and fixtures
|
|
|
5 years
|
|
Equipment
|
|
|
5 years
|
|
Accelerated depreciation methods are used for tax reporting
purposes.
Property and equipment and other long-lived assets are reviewed
periodically for possible impairment. The Company evaluates
whether current facts or circumstances indicate that the
carrying value of the assets to be held and used may not be
recoverable. If such circumstances are determined to exist, an
estimate of undiscounted future cash flows produced by the
long-lived asset, or the appropriate grouping of assets, is
compared to the carrying value to determine whether impairment
exists. If an asset is determined to be impaired, the loss is
measured based on quoted market prices in active markets, if
available. If quoted market prices are not available, the
estimate of fair value is based on various valuation techniques,
including discounted value of estimated future cash flows. The
Company reports an asset to be disposed of at the lower of its
carrying value or its estimated net realizable value.
F-8
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
Goodwill
and Other Intangibles
Goodwill and other intangible assets result from business
acquisitions. The Company accounts for business acquisitions by
assigning the purchase price to tangible and intangible assets
and liabilities. Assets acquired and liabilities assumed are
recorded at their fair values and the excess of the purchase
price over amounts assigned is recorded as goodwill.
Goodwill is tested for impairment at least annually using a
two-step process that begins with an estimation of the fair
value at the reporting unit level. The
Companys reporting units are its operating segments as
this is the lowest level for which discrete financial
information is prepared and regularly reviewed by management.
The impairment test for goodwill involves comparing the fair
value of a reporting unit to its carrying amount, including
goodwill. If the carrying amount of the reporting unit exceeds
its fair value, a second step is required to measure the
goodwill impairment loss. The second step includes
hypothetically valuing all the tangible and intangible assets of
the reporting unit as if the reporting unit had been acquired in
a business combination. Then, the implied fair value of the
reporting units goodwill is compared to the carrying
amount of that goodwill. If the carrying amount of the reporting
units goodwill exceeds the implied fair value of the
goodwill, the Company recognizes an impairment loss in an amount
equal to the excess, not to exceed the carrying amount. For
purposes of the Companys impairment test, the fair value
of its reporting units are calculated based upon an average of
an income fair value approach and market fair value approach.
Based on these tests, the Company concluded that the fair value
for all reporting units is substantially in excess of the
respective reporting units carrying value. Accordingly, no
goodwill impairments were identified in 2010, 2009 or 2008.
Other intangible assets recorded consist of definite lived
customer relationships. The Company evaluates its other
intangible assets for impairment when current facts or
circumstances indicate that the carrying value of the assets to
be held and used may not be recoverable. No indicators of
impairment were identified in 2010, 2009 or 2008.
Debt
Issue Costs
Debt issue costs represent costs incurred in connection with the
financing agreements described in Note 7. The debt issue
costs aggregate to $0.8 million and $2.3 million at
December 31, 2010 and 2009, respectively, and have been
classified in the consolidated balance sheets as other
noncurrent assets. Such costs are being amortized over the
expected maturity of the financing agreements using the
effective interest rate method.
Stock-Based
Compensation
The Companys share based payment awards are comprised of
stock options. Cost for the Companys stock options is
measured at fair value and recognized over the vesting period of
the award.
Income
Taxes
Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. The provision (benefit) for income
taxes is the tax payable or refundable for the period plus or
minus the change during the period in deferred tax assets and
liabilities.
Fair
Value of Financial Instruments
Fair values of cash, accounts receivable, and accounts payable
approximate cost. The estimated fair value of long-term debt has
been determined using market information and valuation
methodologies, primarily discounted cash flow analysis. These
estimates require considerable judgment in interpreting market
data, and changes in assumptions or estimation methods could
significantly affect the fair value estimates. The estimated
fair value of
F-9
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
the senior debt approximates its carrying value at
December 31, 2010 and 2009, respectively. At
December 31, 2009, based on the borrowing rates available
to the Company for loans with similar terms and average
maturities, the estimated fair value of the subordinated debt
was $40.5 million and the estimated fair value of the
preferred stock subject to mandatory redemption was
$4.7 million.
Revenue
Recognition
LTL revenue is recorded when all of the following have occurred:
an agreement of sale exists; pricing is fixed or determinable;
and collection of revenue is reasonably assured. The Company
uses a percentage of completion method to recognize revenue as
the various stages of the sales transaction are completed.
TL revenue is recorded when all of the following have occurred:
an agreement of sale exists; pricing is fixed or determinable;
delivery has occurred; and the Companys obligation to
fulfill a transaction is complete and collection of revenue is
reasonably assured. This occurs when the Company completes the
delivery of a shipment.
TMS revenue is recorded when the shipment has been delivered by
a third-party carrier. Fee for services revenue is recognized
when the services have been rendered. At the time of delivery or
rendering of services, as applicable, the Companys
obligation to fulfill a transaction is complete and collection
of revenue is reasonably assured. The Company offers volume
discounts to certain customers. Revenue is reduced as discounts
are earned.
The Company typically recognizes revenue on a gross basis, as
opposed to a net basis, because it bears the risks and benefits
associated with revenue-generated activities by, among other
things, (1) acting as a principal in the transaction,
(2) establishing prices, (3) managing all aspects of
the shipping process and (4) taking the risk of loss for
collection, delivery and returns. Certain transactions to
provide specific services are recorded at the net amount charged
to the client due to the following factors: (A) the Company
does not have latitude in establishing pricing and (B) the
Company does not bear the risk of loss for delivery and returns;
these items are the risk of the carrier.
Insurance
The Company uses a combination of purchased insurance and
self-insurance programs to provide for the cost of vehicle
liability, cargo damage and workers compensation claims.
The portion of self-insurance accruals which is included in
accrued expenses and other liabilities relates primarily to
vehicle liability and cargo damage claims. The Company
periodically evaluates the level of insurance coverage and
adjusts insurance levels based on risk tolerance and premium
expense.
The measurement and classification of self-insured costs
requires the consideration of historical cost experience,
demographic and severity factors, and judgments about the
current and expected levels of cost per claim and retention
levels. These methods provide estimates of the liability
associated with claims incurred as of the balance sheet date,
including claims not reported. The Company believes these
methods are appropriate for measuring these highly judgmental
self-insurance accruals. However, the use of any estimation
method is sensitive to the assumptions and factors described
above, based on the magnitude of claims and the length of time
from incurrence of the claims to ultimate settlement.
Accordingly, changes in these assumptions and factors can
materially affect actual costs paid to settle the claims and
those amounts may be different than estimates.
Derivative
Financial Instruments
The Company reports all derivative financial instruments on its
balance sheet at fair value and has established criteria for
designation and evaluation of effectiveness of transactions
entered into for hedging purposes. The Company employs, from
time to time, derivative financial instruments to manage its
exposure to interest rate changes and to limit the volatility
and impact of interest rate changes on earnings and cash flows.
The Company does not enter into other derivative financial
instruments for trading or speculative purposes. The Company
faces credit risk if the counterparties to these transactions
are unable to perform their obligations; however, the Company
seeks to minimize this risk by entering into transactions with
counterparties that are major financial institutions with high
credit ratings. The Company has not had any derivative contracts
since 2008.
F-10
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
The Company may, at its discretion, terminate or de-designate
any such hedging instrument agreements prior to maturity. At
that time, any gains or losses previously reported in
accumulated other comprehensive income on termination would be
amortized into interest expense or interest income to correspond
to the recognition of interest expense or interest income on the
hedged debt. If such debt instrument is also terminated, the
gain or loss associated with the terminated derivative included
in accumulated other comprehensive income at the time of
termination of the debt would be recognized in the consolidated
statements of operations.
On September 15, 2009, through GTS, the Company acquired
all of the outstanding membership interests of Mesca Freight
Services, LLC (Mesca) for purposes of expanding its
current market presence and service offerings in the TMS
segment. Mesca operates as a non-asset based, third-party
logistics provider from its headquarters in Maine. Total
consideration was $9.1 million, including $1.8 million
of cash acquired. A working capital adjustment in the amount of
$0.1 million was paid by GTS in 2010. The acquisition price
and related financing fees of approximately $0.1 million
were financed with proceeds from the issuance of common stock by
GTS of $4.2 million and borrowings under a credit facility
of $4.4 million. GTS incurred $0.6 million of
transaction expenses related to this acquisition.
In addition to cash paid at closing, the Mesca purchase
agreement calls for contingent consideration in the form of an
earnout. The former owners of Mesca are entitled to receive a
payment equal to the amount by which Mescas earnings
before income taxes, depreciation and amortization, as defined
in the purchase agreement, exceeds $1.6 million for the
years ending December 31, 2010 and 2011. Approximately
$2.4 million has been included in goodwill and is included
in the TMS segment.
On December 7, 2009, through GTS, the Company acquired all
of the outstanding stock of Great Northern Transportation
Services, Inc. (GNTS) for purposes of expanding its
current market presence and service offerings in the TMS
segment. GNTS is an agent of Mesca and operates from New
Hampshire. Total consideration was $1.7 million, including
$0.2 million of cash acquired. The acquisition price was
financed with proceeds from the issuance of common stock by GTS
of $0.9 million and borrowings under a credit facility of
$0.9 million. GTS incurred $0.2 million of transaction
expenses related to this acquisition.
In addition to cash paid at closing, the GNTS purchase agreement
calls for contingent consideration in the form of an earnout.
The former owner of GNTS is entitled to receive a payment equal
to the amount by which GNTS earnings before income taxes,
depreciation and amortization, as defined in the purchase
agreement, exceeds $0.6 million for the years ending
December 31, 2010 and 2011. Approximately $0.2 million
has been included in goodwill and is included in the TMS segment.
On December 11, 2009, the Company acquired certain assets
of Bullet Freight Systems, Inc. (Bullet) for
purposes of expanding its market presence and service offerings
in the LTL segment. Bullet operates as a common and contract
motor carrier pursuant to U.S. Department of Transportation
authority and is engaged primarily in transportation of
less-than-truckload
shipments. Bullet has operations based out of four service
centers and operates throughout the United States. Total
consideration was $27.2 million. The acquisition price and
related financing fees of approximately $1.1 million were
financed with borrowings under credit facilities of
$8.8 million and the issuance of $19.5 million face
value of junior subordinated notes, including $3.0 million
issued to the selling shareholders. In conjunction with the
issuance of the junior subordinated notes, the Company issued
warrants with a fair value of $3.0 million. The Company
incurred $0.5 million of transaction expenses related to
this acquisition.
On February 12, 2010, through GTS, the Company acquired all
the outstanding stock of Alpha Freight Systems, Inc.
(Alpha) for purposes of expanding its current market
presence and service offerings in the TMS segment. Total
consideration was $2.0 million, including $0.1 million
of cash acquired. The acquisition price was financed with
proceeds from the issuance of common stock by GTS of
$1.0 million and borrowings under a credit facility of
$1.2 million. GTS incurred $0.3 million of transaction
expenses related to this acquisition.
F-11
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
The following is a summary of the allocation of the purchase
price paid to the fair value of the net assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mesca
|
|
|
GNTS
|
|
|
Bullet
|
|
|
Alpha
|
|
|
Accounts receivable
|
|
$
|
1,895
|
|
|
$
|
706
|
|
|
$
|
3,940
|
|
|
$
|
519
|
|
Other current assets
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Property and equipment
|
|
|
170
|
|
|
|
|
|
|
|
170
|
|
|
|
25
|
|
Goodwill
|
|
|
8,986
|
|
|
|
1,643
|
|
|
|
26,068
|
|
|
|
1,869
|
|
Customer relationship intangible assets
|
|
|
246
|
|
|
|
|
|
|
|
800
|
|
|
|
|
|
Other noncurrent assets
|
|
|
1
|
|
|
|
1
|
|
|
|
46
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
(4,010
|
)
|
|
|
(819
|
)
|
|
|
(3,819
|
)
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,357
|
|
|
$
|
1,531
|
|
|
$
|
27,205
|
|
|
$
|
1,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Mesca, GNTS, Bullet and Alpha goodwill is a result of
acquiring and retaining their existing workforces and expected
synergies from integrating their operations into the Company.
On a pro forma basis, assuming the acquisition had closed on
January 1, 2008, Bullet would have contributed revenues to
the Company of $72.9 million for the year ended
December 31, 2008 and $48.0 million for the period
ended December 10, 2009. The impact of Bullet to the
Companys net income during these periods would not have
been material. The Companys results of operations were not
materially impacted by the acquisitions of MESCA, GNTS, or
Alpha, individually or in aggregate. The results of operations
and financial condition of these acquisitions have been included
in our consolidated financial statements since their acquisition
dates.
|
|
3.
|
Property
and Equipment
|
Property and equipment consisted of the following at December 31
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Land and improvements
|
|
$
|
47
|
|
|
$
|
47
|
|
Building and leasehold improvements
|
|
|
2,439
|
|
|
|
2,172
|
|
Furniture and fixtures
|
|
|
5,742
|
|
|
|
5,248
|
|
Equipment
|
|
|
8,031
|
|
|
|
7,282
|
|
|
|
|
|
|
|
|
|
|
Gross property and equipment
|
|
|
16,259
|
|
|
|
14,749
|
|
Less: Accumulated depreciation
|
|
|
(9,365
|
)
|
|
|
(7,231
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
6,894
|
|
|
$
|
7,518
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2010,
2009 and 2008 was $2.5 million, $2.5 million and
$2.0 million, respectively.
Capital
Lease
The Company has a building and certain equipment classified as a
capital lease. The recorded value of the building and the
equipment is included in property and equipment, net as of
December 31 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Building and equipment
|
|
$
|
2,099
|
|
|
$
|
2,074
|
|
Less: Accumulated amortization
|
|
|
(620
|
)
|
|
|
(320
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,479
|
|
|
$
|
1,754
|
|
|
|
|
|
|
|
|
|
|
F-12
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
The following is a schedule of future minimum lease payments
under the capital lease with the present value of the net
minimum lease payments as of December 31, 2010 (in
thousands):
|
|
|
|
|
|
|
Amount
|
|
|
Year Ending:
|
|
|
|
|
2011
|
|
$
|
686
|
|
2012
|
|
|
367
|
|
2013
|
|
|
268
|
|
2014
|
|
|
276
|
|
2015
|
|
|
285
|
|
Thereafter
|
|
|
1,389
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
3,270
|
|
Less: amount representing interest
|
|
|
(1,610
|
)
|
|
|
|
|
|
Present value of net minimum lease payments(1)
|
|
$
|
1,660
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflected in the consolidated balance sheets as current other
liabilities and other long-term liabilities of $0.4 million
and $1.3 million, respectively. |
|
|
4.
|
Goodwill
and Intangible Assets
|
Goodwill represents the excess of the purchase price of all
acquisitions over the estimated fair value of the net assets
acquired. The Company completes an impairment test of goodwill
annually. This impairment test did not result in any impairment
losses. There is no goodwill impairment for any of the periods
presented in our financial statements.
The following is a rollforward of goodwill from
December 31, 2008 to December 31, 2010 by reportable
segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
|
TL
|
|
|
TMS
|
|
|
Total
|
|
|
Goodwill balance as of December 31, 2008
|
|
$
|
159,339
|
|
|
$
|
25,776
|
|
|
$
|
23,208
|
|
|
$
|
208,323
|
|
Acquisition of Bullet
|
|
|
25,719
|
|
|
|
|
|
|
|
|
|
|
|
25,719
|
|
Acquisition of Mesca
|
|
|
|
|
|
|
|
|
|
|
8,986
|
|
|
|
8,986
|
|
Acquisition of GNTS
|
|
|
|
|
|
|
|
|
|
|
1,643
|
|
|
|
1,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance as of December 31, 2009
|
|
|
185,058
|
|
|
|
25,776
|
|
|
|
33,837
|
|
|
|
244,671
|
|
Acquisition of Alpha
|
|
|
|
|
|
|
|
|
|
|
1,869
|
|
|
|
1,869
|
|
Adjustment to the Bullet acquisition
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance as of December 31, 2010
|
|
$
|
185,406
|
|
|
$
|
25,776
|
|
|
$
|
35,706
|
|
|
$
|
246,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
Intangible assets consist of customer relationships acquired
from business acquisitions. Intangible assets at
December 31, 2010 and December 31, 2009 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
TL
|
|
$
|
1,800
|
|
|
$
|
1,530
|
|
|
$
|
270
|
|
|
$
|
1,800
|
|
|
$
|
1,170
|
|
|
$
|
630
|
|
LTL
|
|
|
800
|
|
|
|
160
|
|
|
|
640
|
|
|
|
800
|
|
|
|
|
|
|
|
800
|
|
TMS
|
|
|
546
|
|
|
|
232
|
|
|
|
314
|
|
|
|
546
|
|
|
|
122
|
|
|
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customer relationships
|
|
$
|
3,146
|
|
|
$
|
1,922
|
|
|
$
|
1,224
|
|
|
$
|
3,146
|
|
|
$
|
1,292
|
|
|
$
|
1,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The customer relationships intangible assets are amortized over
their five-year useful life. Estimated amortization expense for
each of the four succeeding fiscal years based on the intangible
assets at December 31, 2010, is as follows (in thousands):
|
|
|
|
|
|
|
Amount
|
|
|
2011
|
|
$
|
540
|
|
2012
|
|
|
270
|
|
2013
|
|
|
219
|
|
2014
|
|
|
195
|
|
|
|
|
|
|
Total
|
|
$
|
1,224
|
|
|
|
|
|
|
|
|
5.
|
Restructuring
and IPO Related Expenses
|
Beginning September 1, 2008, the Company announced and
initiated restructuring initiatives aimed at reducing its fixed
cost structure and rationalizing its footprint. These
initiatives included the announcement of the closure of certain
terminals as well as the reduction in hourly and salaried
headcount of approximately 100 employees. In addition, due
to deterioration in economic conditions and the significant
downturn in the public equity markets, the Company postponed its
pursuit of an initial public offering (IPO) during
the fourth quarter of 2008. The Company initiated its new IPO
process in January 2010 and closed the transaction on
May 18, 2010. Restructuring and IPO related costs included
in operating expenses in the consolidated statements of
operations include costs for management termination fees,
severance and related benefits, write-off of the 2008 IPO costs
and other restructuring costs. In the segment reporting (see
Note 16), all of these costs except for the IPO costs are
reflected in the LTL segment. Restructuring and IPO expenses for
the years ended December 31, 2010, 2009 and 2008,
respectively, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Severance and related costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
220
|
|
Other restructuring costs
|
|
|
|
|
|
|
|
|
|
|
589
|
|
IPO related expenses
|
|
|
1,500
|
|
|
|
|
|
|
|
2,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring and IPO expenses
|
|
$
|
1,500
|
|
|
$
|
|
|
|
$
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
Restructuring accrual activity is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Beginning accrual balance
|
|
$
|
66
|
|
|
$
|
467
|
|
|
$
|
|
|
LTL segment costs incurred
|
|
|
|
|
|
|
|
|
|
|
809
|
|
LTL segment severance and related cost payments
|
|
|
|
|
|
|
|
|
|
|
(220
|
)
|
LTL segment other restructuring cost payments
|
|
|
(66
|
)
|
|
|
(401
|
)
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending accrual balance
|
|
$
|
|
|
|
$
|
66
|
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Fair
Value Measurement
|
Accounting guidance on fair value measurements for certain
financial assets and liabilities requires that assets and
liabilities carried at fair value be classified and disclosed in
one of the following three categories:
Level 1 Quoted market prices in active
markets for identical assets or liabilities.
Level 2 Observable market-based inputs
or unobservable inputs that are corroborated by market data.
Level 3 Unobservable inputs reflecting
the reporting entitys own assumptions or external inputs
from inactive markets.
A financial asset or liabilitys classification within the
hierarchy is determined based on the lowest level of input that
is significant to the fair value measurement.
The following table presents information, as of
December 31, 2010 and December 31, 2009, about the
Companys financial liabilities, the contingent purchase
price related to acquisitions that are measured at fair value on
a recurring basis, according to the valuation techniques the
Company used to determine their fair values (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Contingent purchase price related to acquisitions
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Contingent purchase price related to acquisitions
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In measuring the fair value of the contingent payment liability,
the Company used an income approach that considers the expected
future earnings of the acquired businesses and the resulting
contingent payments, discounted at a risk-adjusted rate.
The table below sets forth a reconciliation of the
Companys beginning and ending Level 3 financial
liability balance year ended December 31, 2010 (in
thousands):
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
2,705
|
|
Adjustment to contingent purchase obligation
|
|
|
272
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
2,977
|
|
|
|
|
|
|
F-15
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
|
|
7.
|
Long-Term
Debt and Interest Rate Caps
|
Long-Term
Debt
Long-term debt consisted of the following at December 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Senior debt:
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
20,500
|
|
|
$
|
|
|
Revolving credit facility RRTS
|
|
|
|
|
|
|
35,660
|
|
Revolving credit facility GTS
|
|
|
|
|
|
|
950
|
|
Term Loans RRTS
|
|
|
|
|
|
|
34,500
|
|
Term loans GTS
|
|
|
|
|
|
|
9,925
|
|
|
|
|
|
|
|
|
|
|
Total senior debt
|
|
|
20,500
|
|
|
|
81,035
|
|
Subordinated notes
|
|
|
|
|
|
|
41,134
|
|
Junior subordinated notes, net of unaccreted discount of
$3.0 million
|
|
|
|
|
|
|
16,766
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
20,500
|
|
|
|
138,935
|
|
Less: Current maturities
|
|
|
|
|
|
|
(8,768
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of current maturities
|
|
$
|
20,500
|
|
|
$
|
130,167
|
|
|
|
|
|
|
|
|
|
|
2010
In connection with the IPO, the Company entered into a new
credit agreement on May 18, 2010 with U.S. Bank
National Association. The credit agreement is five-year,
$55 million revolving credit facility collateralized by all
assets of the Company and is subject to a borrowing base equal
to 85% of the Companys eligible receivables. The credit
agreement contains certain financial covenants, including a
minimum fixed charge coverage ratio and a maximum cash flow
leverage ratio. As of December 31, 2010, the Company was in
compliance with all covenants contained in the credit agreement.
Borrowings under the credit agreement bear interest at either
(a) the Eurocurrency Rate (as defined in the credit
agreement), plus an applicable margin in the range of 2.5% to
3.0%, or (b) the Base Rate (as defined in the credit
agreement), plus an applicable margin in the range of 1.5% to
2.0%. The revolving credit facility also provides for the
issuance of up to $8.0 million in letters of credit. As of
December 31, 2010, the Company had outstanding letters of
credit totaling $5.3 million. Total availability under the
revolving credit facility was $29.2 million as of
December 31, 2010. At December 31, 2010, the interest
rate on the revolving credit facility was 3.0%.
The Company used the IPO proceeds to prepay $40.4 million
of outstanding debt under the RRTS Agreement (defined below),
$42.8 million to retire senior subordinated notes and
accrued interest, and $31.8 million to retire junior
subordinated notes and accrued interest, including prepayment
penalties of $10.6 million. The remaining amount of debt
under the RRTS Agreement and GTS Agreement (as defined below)
was paid with the proceeds from the new credit agreement on
May 18, 2010.
2009
The Companys old senior credit agreement (the RRTS
Agreement) was secured by all assets of the Company and
included a $50.0 million revolving credit facility and a
$40.0 million term loan. The revolving credit facility also
provided for the issuance of up to $6.0 million in letters
of credit. As of December 31, 2009, the Company had
outstanding letters of credit totaling $4.4 million. Total
availability under the revolving credit facility was
$4.4 million as of December 31, 2009. At
December 31, 2009, the interest rate on the revolving
credit facility and term notes was LIBOR (0.2% at
December 31, 2009) plus 5%.
F-16
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
The Company entered into a consent, waiver and second amendment
to the RRTS Agreement effective December 23, 2008, which
made certain changes to the RRTS Agreement, including
modification of the restrictive covenants and a consent to enter
into the Keep Well Agreement. As of December 31, 2009, the
Company was in compliance with all covenants contained in the
second amendment to the RRTS Agreement.
GTS old senior credit agreement (the GTS
Agreement), as amended during 2009, was secured by all
assets of the Company and included a $4.0 million revolving
credit facility and a $10.3 million term loan. The
revolving credit facility also provided for the issuance of up
to $1.0 million in letters of credit. As of
December 31, 2009, the Company had $20,000 outstanding
letters of credit. Total availability under the revolving credit
facility was $3.0 million as of December 31, 2009. At
December 31, 2009, the interest rate on the revolving
credit facility and term loan was LIBOR (0.23% at
December 31, 2009) plus 4.0%. As of December 31,
2009, the Company was in compliance with all covenants contained
in the GTS Agreement.
The subordinated notes included cash interest of 12% plus a
deferred margin, accrued quarterly, that was treated as deferred
interest and added to the principal balance of the note each
quarter. The deferred interest ranged from 3.5% to 7.5%
depending on the Companys total leverage calculation, as
defined, payable at maturity on August 31, 2012. The
subordinated notes were held by American Capital, Ltd.
(American Capital), Sankaty Credit Opportunities,
L.P., Sankaty Credit Opportunities II, L.P. (collectively
Sankaty), and RGIP, LLC. (RGIP), who we
or continue to be stockholders of the Company (see Note 15).
On December 11, 2009, in connection with the Bullet
acquisition, the Company entered into a $16.5 million face
amount junior subordinated notes agreement. The junior
subordinated notes included interest of 20% accrued quarterly
that was deferred and added to the principal balance of the note
each quarter and was payable at maturity on February 28,
2013. The majority ($15.5 million) of the junior
subordinated notes were held by Eos Capital Partners III, L.P.,
Eos Partners, L.P. (collectively, Eos), Sankaty,
RGIP and certain individuals associated with Thayer |
Hidden Creek Partners, L.L.C. (THCP), who are also
stockholders of the Company (see Note 15). Also in
connection with the Bullet acquisition, the former Bullet owners
were issued $3.0 million face amount of junior subordinated
notes in form identical in all material respects as described
above.
In addition, the junior subordinated notes agreement required
the Company to pay a premium upon repayment of the junior
subordinated notes. The applicable premium began at 50% and
decreased to 10% over the life of the note. At maturity, the
premium was equal to 10% of the outstanding balance.
Accordingly, this amount was accreted to interest expense and
the outstanding note balance over the life of the debt.
|
|
8.
|
Stockholders
Investment
|
Common
Stock
On March 14, 2007, the Company increased the total number
of authorized shares of capital stock from 29,121,030 to
44,799,200, of which 44,495,572 were designated Class A
common stock (voting), 298,628 shares were designated
Class B common stock (non-voting), and 5,000 shares
were designated as mandatory redeemable preferred stock.
On May 7, 2010, the Company effected a 149.314-for-one
stock split of all outstanding shares of its Class A common
stock, Class B common stock, Series B preferred stock
and related warrants. The consolidated financial statements
retrospectively restated to reflect this stock split. In
addition, in connection with the IPO all shares of common stock,
Class A common stock, Class B common stock and
Series B preferred stock were converted into a single class
of new common stock. The Companys preferred stock subject
to mandatory redemption were not included in the stock split.
Common stock has voting rights one vote for each
share of common stock. Class A common stock had voting
rights and Class B common stock did not have voting rights.
All classes of common stock participate equally in earnings and
dividends. All common stock is subject to a Shareholders
Agreement which includes restrictions on transferability and
piggyback registration rights. Such agreement
provides that if, at any time after an initial
F-17
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
public offering, the Company files a registration statement
under the Securities Act of 1933, as amended, for any
underwritten sale of shares of any of the Companys equity
securities, the stockholders may request that the Company
include in such registration the shares of common stock held by
them on the same terms and conditions as the securities
otherwise being sold in such registration.
In addition to piggyback registration rights discussed above,
certain of the Companys stockholders have demand
registration rights. In March 2007, the Company entered into a
second amended and restated stockholders agreement,
pursuant to which certain of the Companys stockholders
were granted
Form S-3
registration rights. The amended and restated stockholders
agreement provides that, any time after the Company is eligible
to register its common stock on a
Form S-3
registration statement under the Securities Act, certain of the
Companys stockholders may request registration under the
Securities Act of all or any portion of their shares of common
stock. These stockholders are limited to a total of two of such
registrations. In addition, if the Company proposes to file a
registration statement under the Securities Act for any
underwritten sale of shares of any of its securities,
stockholders party to the amended and restated
stockholders agreement may request that the Company
include in such registration the shares of common stock held by
them on the same terms and conditions as the securities
otherwise being sold in such registration.
The Shareholders Agreement defines certain circumstances,
including a change in control, whereby all stockholders are
obligated to sell their common stock on the same terms as Thayer
Equity Investors V, L.P. (Thayer V), the
majority shareholder of the Company and an affiliate of THCP.
See Note 9 regarding Class A common stock that may be
subject to redemption.
Warrants
to Acquire Common Stock
On March 14, 2007, in connection with the Sargent
Transportation Group, Inc. (STG) Merger, the Company
issued to existing STG stockholders warrants to acquire
2,269,263 shares of Class A common stock at an
exercise price of $13.39 per share. The warrants are exercisable
at the option of the holder any time prior to March 13,
2017.
On December 11, 2009, in connection with the issuance of
the junior subordinated notes discussed in Note 7, the
Company issued warrants to acquire 1,746,971 shares of
Class A common stock at an exercise price of $8.37 per
share. The warrants are exercisable at the option of the holder
any time prior to December 11, 2017. The $3.0 million
fair value of the warrants at the date of issuance has been
reflected as a component of additional paid-in capital in
stockholders investment in the accompanying consolidated
balance sheets. The holders exercised 268,765 warrants during
the year ended December 31, 2010.
|
|
9.
|
Redeemable
Common Stock
|
Certain shares of the Companys outstanding Class A
common stock were issued in 2006 and classified as mezzanine
equity. These shares, all held by current and former employees
of the Company, were subject to redemption at fair value by the
Company in the event of death or disability of the holder, as
defined, during a seven-year period from the date of original
issuance. On June 30, 2010, all of these former and current
employees waived their right to have these shares repurchased by
the Company. As a result, the consolidated financial statements
reflect these shares as common stock as of December 31,
2010.
Series A
Redeemable Preferred Stock
In March 2007, the Company issued and had outstanding
5,000 shares of non-voting Series A Preferred Stock
(Series A Preferred Stock), which are
mandatorily redeemable by the Company at $1,000 per share, in
cash, on November 30, 2012. The Series A Preferred
Stock receives cash dividends annually on April 30 at an annual
rate equal to $40 per share, and if such dividends are not paid
when due, such annual dividend rate shall increase to $60 per
share and continue to accrue without interest until such
delinquent payments are made. At December 31, 2010
F-18
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
and December 31, 2009, $142,000 is recorded as a current
liability, respectively. The holders of the Series A
Preferred Stock are restricted from transferring such shares and
the Company has a first refusal right and may elect to
repurchase the shares prior to the mandatory November 30,
2012 redemption. Upon liquidation and certain transactions
treated as liquidations, as defined in the Companys
Certificate of Incorporation, the Series A Preferred Stock
has liquidation preferences over the Companys common
stock. The number of issued and outstanding shares of
Series A Preferred Stock, the $1,000 per share repurchase
price, and the annual cash dividends are all subject to
equitable adjustment whenever there is a stock split, stock
dividend, combination, recapitalization, reclassification or
other similar event. As long as there is Series A Preferred
Stock outstanding, no dividends may be declared or paid on
common stock of the Company.
Series B
Convertible Preferred Stock
In December 2009, the Company issued and had outstanding
1,791,768 shares of Series B Convertible Preferred
Stock (Series B Preferred Stock), which were
convertible, at the option of the holder, at $6.70 per share
into Class A common stock. The Series B Preferred
Stock was entitled to receive a dividend payable in cash when,
as and if declared by the Board of Directors of the Company at
the rate of 15% per annum on each share of Series B
Preferred Stock outstanding, compounding quarterly. To the
extent not paid, dividends accumulate. The Series B
Preferred Stock, including accumulated dividends, was converted
into 2,082,766 shares of common stock immediately prior to
the closing of the IPO.
|
|
11.
|
Stock-Based
Compensation
|
In 2010, the Company adopted its 2010 Incentive Compensation
Plan (the 2010 Plan), which allows for the issuance
of 2,500,000 shares of common stock. The 2010 Plan provides
for the grant of stock options, restricted stock units and other
awards to our employees and directors. As of December 31,
2010, no awards were granted under the 2010 Plan.
The Company previously maintained a Key Employee Equity Plan
(Equity Plan), a stock-based compensation plan that
permitted the grant of stock options to Company employees and
directors. Stock options under the Equity Plan were granted with
an exercise price equal to or in excess of the fair value of the
Companys stock on the date of grant. Such options vest
ratably over a two or four year service period and are
exercisable ten years from the date of grant, but only to the
extent vested as specified in each option agreement.
GTS previously maintained a Key Employee Equity Plan (GTS
Plan) as well, which permitted the grant of stock options
to employees and directors. Stock options under the Equity Plan
were granted with an exercise price equal to or in excess of the
fair value of the Companys stock on the date of grant.
Such options vest ratably over a two or four year service period
and are exercisable ten years from the date of grant, but only
to the extent vested as specified in each option agreement. In
connection with the Companys merger with GTS effective
upon the IPO, all options granted pursuant to the GTS Equity
Plan outstanding at the effective time of the merger became
options to purchase shares of the Companys common stock.
No options were granted by GTS or by the Company in 2010.
Stock-based compensation expense was $0.5 million,
$0.7 million, and $0.8 million for the years ended
December 31, 2010, 2009, and 2008, respectively. The
related estimated income tax benefit recognized in the
accompanying consolidated statements of operations, net of
estimated forfeitures, was $0.2 million, $0.4 million
and $0.3 million, respectively.
Prior to the Companys IPO, the fair value of such option
award was estimated on the date of grant using the Black-Scholes
valuation model. The fair values of the Companys common
stock for options granted were determined through the
contemporaneous application of a discounted cash flow method.
Because the Companys stock was privately held at the time
the options were granted, it was not practical to determine the
Companys share price volatility. Accordingly, the Company
used the historical share price volatility of publicly traded
companies within the transportation and logistics sector as a
surrogate for the expected volatility of the Companys
stock. The Company currently plans to retain any earnings to
finance the growth of its business rather than to pay cash
F-19
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
dividends. As such, a zero dividend yield has been assumed in
the Companys Black-Scholes valuation model. The expected
life of the options represents the expected time that the
options granted will remain outstanding. The risk-free rate used
to calculate each option valuation is based on the
U.S. Treasury rate at the time of option grants for a note
with similar lifespan. The specific assumptions used to
determine the weighted average fair value of stock options
granted were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
|
2009
|
|
2008
|
|
Risk free interest rate
|
|
|
|
|
|
2.6% - 3.1%
|
|
2.7% - 3.2%
|
Dividend yield
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
|
|
|
36.5% - 42.2%
|
|
33.7% - 33.8%
|
Expected life (years)
|
|
|
|
|
|
6
|
|
6
|
Weighted average fair value of stock options granted
|
|
|
|
|
|
$1.64
|
|
$2.26
|
A summary of the option activity under the Equity Plan for the
year ended December 31, 2010, 2009 and 2008, respectively,
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2007
|
|
|
1,613,244
|
|
|
$
|
11.17
|
|
|
|
8.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
360,464
|
|
|
|
8.61
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(67,190
|
)
|
|
|
6.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
1,906,518
|
|
|
$
|
10.84
|
|
|
|
7.6
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
159,767
|
|
|
|
12.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(7,466
|
)
|
|
|
6.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
2,058,819
|
|
|
$
|
10.98
|
|
|
|
6.8
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(90,834
|
)
|
|
|
7.08
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(24,500
|
)
|
|
|
10.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
1,943,485
|
|
|
$
|
11.16
|
|
|
|
5.8
|
|
|
$
|
6,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 1,638,623, 1,345,394, and 944,832 options exercisable
at December 31, 2010, 2009, and 2008, respectively. At
December 31, 2010, for exercisable options, the
weighted-average exercise price was $11.34, the weighted average
remaining contractual term was 5.5 years and the estimated
aggregate intrinsic value was $3.30. All granted options are
non-qualified options. The amount of options vested or expected
to vest as of December 31, 2010 does not differ
significantly from the amount outstanding.
As of December 31, 2010, there was $0.4 million of
total unrecognized compensation cost related to non-vested
options granted under the Equity Plan. This cost is expected to
be recognized over a period extending four years from each grant
date.
F-20
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
|
|
12.
|
Earnings
(Loss) Per Share
|
Basic earnings (loss) per common share is calculated by dividing
net income (loss) available to common stockholders by the
weighted average number of common stock outstanding during the
period. Diluted earnings per share in 2008 and 2009 did not
assume this same exercise of stock options and conversion of
warrants as they were deemed anti-dilutive due to the net loss
available to common stockholder. In 2010, diluted earnings per
share is calculated by dividing net income by the weighted
average common stock outstanding plus stock equivalents that
would arise from the assumed exercise of stock options and
conversion of warrants using the treasury stock method. There is
no difference, for any of the periods presented, in the amount
of net income (loss) available to common stockholders used in
the computation of basic and diluted earnings per share.
The following table reconciles basic weighted average stock
outstanding to diluted weighted average stock outstanding (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Basic weighted average stock outstanding
|
|
|
25,779
|
|
|
|
17,656
|
|
|
|
17,061
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
453
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average stock outstanding
|
|
|
26,777
|
|
|
|
17,656
|
|
|
|
17,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had additional stock options and warrants
outstanding of 3,123, 4,870 and 3,198 as of December 31,
2010, 2009 and 2008, respectively. These shares were not
included in the computation of diluted earnings per share
because they were not assumed to be exercised under the treasury
stock method or were anti-dilutive.
The components of the Companys provision (benefit) for
income taxes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
(61
|
)
|
|
$
|
(23
|
)
|
Foreign, state and local
|
|
|
331
|
|
|
|
478
|
|
|
|
306
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,859
|
|
|
|
32
|
|
|
|
(1,376
|
)
|
Foreign, state and local
|
|
|
(82
|
)
|
|
|
(112
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
2,108
|
|
|
$
|
337
|
|
|
$
|
(1,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
The Companys income tax provision (benefit) varied from
the amounts calculated by applying the U.S. statutory
income tax rate to the pretax income (loss) as shown in the
following reconciliations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Statutory federal rate
|
|
$
|
1,938
|
|
|
$
|
108
|
|
|
$
|
(1,523
|
)
|
Meals and entertainment
|
|
|
114
|
|
|
|
78
|
|
|
|
142
|
|
State income taxes net of federal benefit
|
|
|
195
|
|
|
|
185
|
|
|
|
(126
|
)
|
Tax credit
|
|
|
(85
|
)
|
|
|
(195
|
)
|
|
|
|
|
Canadian income taxes
|
|
|
50
|
|
|
|
2
|
|
|
|
5
|
|
Preferred dividend
|
|
|
68
|
|
|
|
68
|
|
|
|
68
|
|
Other
|
|
|
(172
|
)
|
|
|
91
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,108
|
|
|
$
|
337
|
|
|
$
|
(1,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax rate effects of temporary differences that give rise to
significant elements of deferred tax assets and deferred tax
liabilities at December 31, 2010 and 2009 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Current deferred income tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
5,100
|
|
|
$
|
|
|
Accounts receivable
|
|
|
605
|
|
|
|
426
|
|
Accounts payable and accrued expenses
|
|
|
662
|
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,367
|
|
|
$
|
1,578
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred income tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
10,513
|
|
|
$
|
14,099
|
|
Goodwill
|
|
|
(15,758
|
)
|
|
|
(12,421
|
)
|
Other, net
|
|
|
551
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4,694
|
)
|
|
$
|
1,872
|
|
|
|
|
|
|
|
|
|
|
The net noncurrent deferred income tax liability of
$4.7 million is classified in the consolidated balance
sheets as a component of other long-term liabilities at
December 31, 2010. The net noncurrent deferred income tax
asset of $1.9 million is classified in the consolidated
balance sheets as a component of other noncurrent assets at
December 31, 2009.
At December 31, 2010, the Company had $41.6 million of
gross federal net operating losses which are available to reduce
federal income taxes in future years and expire in the years
2025 through 2030.
There were no unrecognized tax benefits recorded as of
December 31, 2010 and 2009. It is the Companys policy
to recognize interest and penalties related to unrecognized tax
benefits within the income tax expense line in the accompanying
consolidated statements of operations. No income tax related
interest or penalties were included in accrued income taxes as
of December 31, 2010 or 2009. The Company is subject to
federal and state tax examinations for all tax years subsequent
to December 31, 2005. Although the pre-2006 years are
no longer subject to examinations by the Internal Revenue
Service and various state taxing authorities, NOL carryforwards
generated in those years may still be adjusted upon examination
by the IRS or state taxing authorities if they have been or will
be used in a future period.
F-22
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
|
|
14.
|
Commitments
and Contingencies
|
Employee
Benefit Plans
The Company sponsors a defined contribution profit sharing plan
in which substantially all employees of the Roadrunner
Transportation Services, Inc. are eligible to participate. In
2010, the Company amended the Plan to suspend the safe harbor
provision which ended the a standard employer match but the plan
allows the Company to make a discretionary match as determined
by the board of directors up to an additional 50% of
contribution up to 4% of an employees compensation. In
2009 and 2008 the plan calls for the Company to match 100% of
employee contributions up to 4% of an employees
compensation and allows the Company to make a discretionary
match as determined by the board of directors up to an
additional 50% of contribution up to 4% of an employees
compensation. Total expense under this plan was $0,
$0.8 million, and $0.9 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
The Company sponsors a defined contribution profit sharing plan
for substantially all full-time employees of Sargent. In 2010,
the Company amended the Plan to suspend the safe harbor
provision which ended the standard employer match. In 2009 and
2008 the Company elected the safe harbor match and the plan
called for the Company to match 100% of employee contributions
up to 3% of an employees compensation and 50% of
contributions on the next 2% of an employees compensation.
Total expense under this plan was $0, $0.1 million and
$0.1 million for each of the years ended December 31,
2010, 2009 and 2008, respectively.
The Company sponsors a defined contribution profit sharing plan
for substantially all full-time employees of Group
Transportation Services, Inc. The Company matches employee
contributions up to 100% of the first 3% and 50% for 4% and 5%
of eligible earnings. Matching contributions to the 401(k) Plan
totaled $0.1 million for the years ended December 31,
2010 and 2009, respectively and $0.1 million for the period
from February 29, 2008 to December 31, 2008.
The Company sponsors a defined contribution profit sharing plan
for substantially all full-time employees of Mesca Freight
Services, Inc. The plan matches 3% of eligible employee wages.
Total expense under this plan was $0.1 million for
December 31, 2010 and $0.1 million from
September 15, 2009 through December 31, 2009.
Operating
Leases
The Company leases terminals and office space under
noncancelable operating leases expiring on various dates through
2020. The Company incurred rent expense from operating leases of
$9.3 million, $8.3 million and $9.8 million for
the years ended December 31, 2010, 2009 and 2008,
respectively.
Aggregate future minimum lease payments under noncancelable
operating leases with an initial term in excess of one year were
as follows as of December 31, 2010 (in thousands):
|
|
|
|
|
Year Ending
|
|
Amount
|
|
2011
|
|
$
|
6,120
|
|
2012
|
|
|
5,748
|
|
2013
|
|
|
4,649
|
|
2014
|
|
|
4,336
|
|
2015
|
|
|
4,107
|
|
Thereafter
|
|
|
5,774
|
|
Contingencies
In the ordinary course of business, the Company is a defendant
in several property and other claims. In the aggregate, the
Company does not believe any of these claims will have a
material impact on its consolidated financial statements. The
Company maintains liability insurance coverage for claims in
excess of $500,000 per
F-23
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
occurrence and cargo coverage for claims in excess of $100,000
per occurrence. Management believes it has adequate insurance to
cover losses in excess of the deductible amount. As of
December 31, 2010 and 2009, the Company had reserves for
estimated uninsured losses of $2.6 million and
$2.3 million, respectively.
|
|
15.
|
Related
Party Transactions
|
In 2008, Thayer Capital Management, L.P. (Thayer),
the management company for Thayer V and an affiliate of THCP,
and Eos Management, Inc., an affiliate of Eos, earned
$0.4 million in management fees from RRTS, all of which
remained unpaid as of December 31, 2008. In 2009, this
amount was forgiven by Thayer and Eos Management, Inc., and is
reflected as a capital contribution within the Companys
statement of stockholders investment for the year ended
December 31, 2009. The management fee was terminated as of
January 1, 2009.
Thayer | Hidden Creek Management, L.P. (THC
Management), an affiliate of GTS largest
stockholder, earned management fees of $0.2 million during
both 2009 and the period from February 29, 2008 to
December 31, 2008. Additionally, GTS paid THC Management
$0.3 million in both 2009 and 2008 in conjunction with the
acquisitions of GTS, Mesca and GNTS and related debt financing.
In 2010, the Company paid $3.5 million in aggregate to THC
Management and EOS Management for the termination of the
management agreement of GTS and the initial public offering of
RRTS and related debt refinancing.
As part of the 2007 acquisition of Big Rock Transportation,
Inc., Midwest Carriers, Inc., Sargent Trucking, Inc., B&J
Transportation, Inc., and Smith Truck Brokers, Inc.
(collectively, Sargent), the Company was required to
pay an earnout to the former Sargent owners and now
Series A Preferred Stock holders. At both December 31,
2010 and 2009, $0.8 million related to the amounts earned
in 2006 and 2007 was classified as a long-term liability. The
Companys obligation to make further contingent payments to
the former Sargent owners terminated as of December 31,
2009.
As part of the Bullet acquisition, the Company issued eight-year
warrants exercisable for an aggregate 268,765 shares of
Class A common stock payable to the former Bullet owners.
These warrants were exercised in July of 2010. Additionally,
certain existing stockholders and their affiliates also received
eight-year warrants exercisable for an aggregate
1,388,620 shares of Class A common stock payable to
existing stockholders and their affiliates. These warrants are
still outstanding as of December 31, 2010.
The Company determines its operating segments based on the
information utilized by the chief operating decision maker, the
Companys Chief Executive Officer, to allocate resources
and assess performance. Based on this information, the Company
has determined that it has three operating segments, which are
also reportable segments: LTL, TL and TMS.
These reportable segments are strategic business units through
which the Company offers different services. The Company
evaluates the performance of the segments primarily based on
their respective revenues and operating income. Accordingly,
interest expense and other non-operating items are not reported
in segment results. In addition, the Company has disclosed a
corporate segment, which is not an operating segment and
includes IPO related expenses, acquisition transaction expenses,
corporate salaries and stock-based compensation expense.
F-24
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
The following table reflects certain financial data of the
Companys reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
409,914
|
|
|
$
|
316,119
|
|
|
$
|
366,527
|
|
TL
|
|
|
158,724
|
|
|
|
134,815
|
|
|
|
171,419
|
|
TMS
|
|
|
65,902
|
|
|
|
34,472
|
|
|
|
29,848
|
|
Eliminations
|
|
|
(2,522
|
)
|
|
|
(2,084
|
)
|
|
|
(1,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
632,018
|
|
|
$
|
483,322
|
|
|
$
|
565,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
21,661
|
|
|
$
|
9,754
|
|
|
$
|
5,768
|
|
TL
|
|
|
6,459
|
|
|
|
4,338
|
|
|
|
5,626
|
|
TMS
|
|
|
5,284
|
|
|
|
1,758
|
|
|
|
1,775
|
|
Corporate
|
|
|
(3,635
|
)
|
|
|
(2,110
|
)
|
|
|
(4,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
29,769
|
|
|
$
|
13,740
|
|
|
$
|
8,692
|
|
Interest expense
|
|
|
8,154
|
|
|
|
13,426
|
|
|
|
13,169
|
|
Loss on early extinguishment of debt
|
|
|
15,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
$
|
5,699
|
|
|
$
|
314
|
|
|
$
|
(4,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
1,676
|
|
|
$
|
1,716
|
|
|
|
1,410
|
|
TL
|
|
|
744
|
|
|
|
656
|
|
|
|
593
|
|
TMS
|
|
|
694
|
|
|
|
595
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,114
|
|
|
$
|
2,967
|
|
|
$
|
2,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
1,323
|
|
|
$
|
1,840
|
|
|
$
|
812
|
|
TL
|
|
|
987
|
|
|
|
406
|
|
|
|
286
|
|
TMS
|
|
|
90
|
|
|
|
46
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,500
|
|
|
$
|
2,292
|
|
|
$
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
LTL
|
|
$
|
259,706
|
|
|
$
|
245,508
|
|
TL
|
|
|
49,533
|
|
|
|
45,967
|
|
TMS
|
|
|
44,905
|
|
|
|
42,520
|
|
Corp.
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
(5,847
|
)
|
|
|
(714
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
348,297
|
|
|
$
|
333,281
|
|
|
|
|
|
|
|
|
|
|
F-25
Roadrunner
Transportation Systems, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements (Continued)
On February 3, 2011, the Company acquired all of the
outstanding stock of Morgan Southern for approximately
$20.0 million in cash. Morgan Southern is a privately-held
provider of intermodal transportation and related services. With
19 terminals located throughout the United States, Morgan
Southern serves the majority of the key intermodal markets in
the United States. Its customer base consists primarily of
direct shippers, intermodal marketing companies, steamship lines
and other port and rail related transportation industries. The
acquisition was financed with borrowings under the
Companys existing revolving credit facility.
F-26