UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2011
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:001-32172
EXPRESS-1 EXPEDITED SOLUTIONS, INC.XPO Logistics, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 03-0450326 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
3399 South Lakeshore Drive, Suite 225,429 Post Road
Buchanan, MI 49107
(Address of principal executive offices)
(269) 695-2700 (Registrant’s telephone number)
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Title of Each Class: | Name of Each Exchange on Which Registered: | |
Common Stock, par value $.001 per share | NYSE Amex |
Securities registered pursuant to Section 12(g) of the Act:
None
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 Exchange 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 website, 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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 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 Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Smaller reporting company | þ |
Indicate by check mark whether the registrant is a shell company (as defined inRule 126-212b-2 of the act)Act): Yes o¨ No þ
The aggregate market value of the votingregistrant’s common stock, par value $0.001 per share, held by non-affiliates of the Registrantregistrant was approximately $36.9$84.9 million as of June 30, 20082011, the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing price of $1.16$12.44 per share on the NYSE AMEX Equities Exchange (formerly AMEX).
As of March 2, 2009,February 20, 2012, there were 32,035,2188,369,249 shares of the Registrant’s $0.001registrant’s common stock, par value common stock$0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’sregistrant��s proxy statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 20092012 Annual Meeting of Stockholders to be held on June 11, 2009 (the “Proxy Statement”), are incorporated by reference into Part III of this Report.Annual Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Annual Report, the Proxy Statement is not deemed to be filed as part hereof.
XPO LOGISTICS, INC.
Exhibit Index
This annual reportAnnual Report onForm 10-K is for the year ended December 31, 2008.2011. The Securities and Exchange Commission (“SEC”(the “Commission”) allows us to “incorporateincorporate by reference”reference information that we file with the SEC,Commission, which means that we can disclose important information to you by referring you directly to those documents. Information incorporated by reference is considered to be part of this annual report.Annual Report. In addition, information that we file with the SECCommission in the future will automatically update and supersede information contained in this annual report.Annual Report. In this annual report,Annual Report, “Company,” “we,” “us” and “our” refer to Express-1 Expedited Solutions,XPO Logistics, Inc. and its subsidiaries.
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Cautionary Statement Regarding Forward-Looking Statements
This Annual Report onForm 10-K includes and other written reports and oral statements we make from time to time contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company has based these forward-lookingAll statements on the Company’s current expectations and projections about future events. These forward-lookingother than statements of historical fact are, subject to known and unknown risks, uncertainties and assumptions about us and the Company’s subsidiaries thator may cause the Company’s actual results, levels of activity, performance or achievementsbe deemed to be, materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In manysome cases, you can identify forward-looking statements can be identified by terminologythe use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” andor the negative of these terms or other similar words.comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include, but are not limited to, those discussed elsewhere in this Annual Report, including the section entitled “Risk Factors” and, the risks discussed in the Company’s other Securitiesfilings with the Commission and Exchange Commission filings.the following: economic conditions generally; competition; the Company’s ability to find suitable acquisition candidates and execute its acquisition strategy; the Company’s ability to raise capital; the Company’s ability to attract and retain key employees to execute its growth strategy; the Company’s ability to develop and implement a suitable information technology system; the Company’s ability to maintain positive relationships with its network of third-party transportation providers; and governmental regulation. All forward-looking statements set forth in this Annual Report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The following discussion should be read in conjunction with the Company’s audited Consolidated Financial Statements and related Notes thereto included elsewhere in this report.Annual Report. Forward-looking statements set forth in this Annual Report speak only as of the date hereof and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events.
ITEM 1. |
General
XPO Logistics, Inc., a Delaware corporation (the “Company”, “we”, “our” or “us”), is a third party logistics provider of freight transportation services through three non-asset based or asset-light business units: Expedited Transportation, Freight Forwarding and Freight Brokerage. These business units provide services complementary to each other, effectively giving us a platform for expansion in three distinct areas of the transportation industry.
| Subsidiary(ies) | Primary Office Location(s) | Date Initiated or Acquired | |||
Expedited | Express-1 | Buchanan, Michigan | August 2004 | |||
Freight Forwarding | Concert Group Logistics | Downers Grove, Illinois | January 2008 | |||
Freight Brokerage | Bounce Logistics and | South Bend, Indiana and | March 2008 | |||
XPO Logistics | Phoenix, Arizona |
Expedited Transportation—Express-1, Inc. (“Express-1”) was founded in 1989 and acquired in 2004. Express-1 provides time-critical expedited transportation to its customers, most typically through carrier arrangements that assign one truck to a load, with a specified delivery time requirement. Most of the services provided by Express-1 are completed via a fleet of exclusive-use vehicles that are owned and operated by independent contract drivers.
Freight Forwarding—Concert Group Logistics, Inc. (“CGL”) was founded in 2001 and acquired in 2008. CGL provides freight forwarding services through a network of independently owned stations and Company-owned branches located throughout the United States. These stations and branches are responsible for selling and operating freight forwarding transportation services within their geographic area under the authority of CGL. In October 2009, certain assets and liabilities of LRG International Inc. (now known as CGL International) were purchased to complement the operations of CGL through two Florida branches that primarily provide international freight forwarding services. The financial reporting of this operation has been included within CGL.
Freight Brokerage—Through our Freight Brokerage unit, we arrange freight transportation and provide related logistics and supply chain services to customers in North America, ranging from commitments on specific individual shipments to more comprehensive and integrated relationships. From January 2008 until the fourth quarter of 2011, we provided these services solely through our Bounce Logistics, Inc. subsidiary (“Bounce Logistics”). During the fourth quarter of 2011, we opened a sales office in Phoenix, Arizona, which provides freight brokerage services under the name “XPO Logistics”. The Phoenix office is the first of several cold-start sales offices we plan to open during the next two years.
The Company generally does not own its own trucks, ships or planes; instead we use a network of relationships with ground, ocean and air carriers to find the best transportation solutions for our customers. This allows capital to be invested primarily in expanding our workforce of talented people who are adept in the critical areas of competitive selling, price negotiation, carrier relations and customer service.
Growth Strategy
Following a significant equity investment by Jacobs Private Equity, LLC (“JPE”) in the Company in September 2011 (as described below under “Recent Developments”), we began to implement a growth strategy that will leverage our strengths—including management expertise, substantial liquidity and potential access to additional capital—in pursuit of profitable growth. Our strategy anticipates that this will be facilitated by a highly experienced executive team recently put in place, and by new technology that will integrate our operations on a shared platform for cross-company benchmarking and analysis.
Our growth strategy focuses on the following three key areas:
• | Targeted acquisitions—We intend to make selective acquisitions of
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• | Organic growth—We plan to establish new freight brokerage offices in locations across North America, and we are actively recruiting managers with |
• | Optimized operations—We intend to optimize our existing operations, acquired companies and greenfield locations by investing in an expanded sales and service workforce, implementing an advanced information technology infrastructure, incorporating industry best practices, and leveraging scale to share capacity more efficiently and increase buying power. |
Recent Developments
Equity Investment
In September 2011, pursuant to the Investment Agreement, dated as of June 13, 2011 (the “Investment Agreement”), by and among JPE, the other investors party thereto (collectively with JPE, the “Investors”) and the
Company, we issued to the Investors, for $75.0 million in cash: (i) an aggregate of 75,000 shares of our Series A Convertible Perpetual Preferred Stock (the “Series A Preferred Stock”), which are initially convertible into an aggregate of 10,714,286 shares of our common stock, and (ii) warrants initially exercisable for an aggregate of 10,714,286 shares of our common stock at an initial exercise price of $7.00 per common share (the “Warrants”). Our stockholders approved the issuance of the Series A Preferred Stock and the Warrants at the special meeting of our stockholders on September 1, 2011. We refer to this investment as the “Equity Investment.” See Note 10 to our audited Consolidated Financial Statements in Item 8 of this Annual Report.
The conversion feature of the Series A Preferred Stock was determined to be a beneficial conversion feature (“BCF”) based on the effective initial conversion price and the market value of our common stock at the commitment date for the issuance of the Series A Preferred Stock. Generally accepted accounting principles in the United States (“US GAAP”) require that we recognize the BCF related to the Series A Preferred Stock as a discount on the Series A Preferred Stock and amortize such amount as a deemed distribution through the earliest conversion date. The calculated value of the BCF was in excess of the relative fair value of net proceeds allocated to the Series A Preferred Stock. Accordingly, during the third quarter of 2011 we recorded a discount on the Series A Preferred Stock of $44.2 million with immediate recognition of this amount as a deemed distribution because the Series A Preferred Stock is convertible at any time.
Change of Company Name
In connection with the closing of the Equity Investment, our name was changed from “Express-1 Expedited Solutions, Inc.” to “XPO Logistics, Inc.” on September 2, 2011. Our stockholders approved the amendment to our certificate of incorporation effecting the name change at the special meeting of our stockholders on September 1, 2011.
Reverse Stock Split
In connection with the closing of the Equity Investment, we effected a 4-for-1 reverse stock split on September 2, 2011. Our stockholders approved the amendment to our certificate of incorporation effecting the reverse stock split at the special meeting of our stockholders on September 1, 2011. Unless otherwise noted, all share-related amounts in this Annual Report and our audited Consolidated Financial Statements and the related Notes thereto reflect the reverse stock split.
In connection with the reverse stock split, our stockholders received one new share of our common stock for every four shares of common stock held at the effective time. The reverse stock split reduced the number of shares of outstanding common stock from 33,011,561 to 8,252,891. Proportional adjustments were made to the number of shares issuable upon the exercise of outstanding options to purchase shares of common stock and the per share exercise price of those options.
Increase in Authorized Shares of Common Stock
In connection with the closing of the Equity Investment, the number of authorized shares of our common stock was increased from 100,000,000 shares to 150,000,000 shares on September 2, 2011. Our stockholders approved the amendment to our certificate of incorporation effecting the increase in the number of authorized shares of common stock at the special meeting of the Company’s stockholders on September 1, 2011.
Our Business Units
As of December 31, 2011, our operations consisted of three business units: Expedited Transportation, Freight Forwarding and Freight Brokerage. Each of these business units is described more fully below. In accordance with US GAAP, we have summarized business unit financial information under Note 17 in the audited Consolidated Financial Statements included in Item 8 of this Annual Report. Accounting policies for the reportable operating units are the same as those described in the summary of significant accounting policies in Note 1 to the audited Consolidated Financial Statements contained in Item 8 of this Annual Report. The table below contains some basic information relating to our units.
XPO Logistics, Inc.
Business Unit Financial Data
Year | Revenues | Operating Income | Total Assets | |||||||||||||
Expedited Transportation* | 2011 | $ | 87,558,000 | $ | 8,199,000 | $ | 22,448,000 | |||||||||
2010 | 76,644,000 | 7,606,000 | 24,509,000 | |||||||||||||
2009 | 50,642,000 | 3,446,000 | 23,381,000 | |||||||||||||
Freight Forwarding* | 2011 | 65,148,000 | 1,545,000 | 23,394,000 | ||||||||||||
2010 | 65,222,000 | 1,882,000 | 25,106,000 | |||||||||||||
2009 | 41,162,000 | 1,121,000 | 23,509,000 | |||||||||||||
Freight Brokerage* | 2011 | 29,186,000 | 1,305,000 | 4,854,000 | ||||||||||||
2010 | 19,994,000 | 865,000 | 4,836,000 | |||||||||||||
2009 | 10,425,000 | 458,000 | 2,150,000 | |||||||||||||
Express-1 Dedicated (Discontinued) | 2009 | 666,000 | 28,000 | — | ||||||||||||
Consolidated Totals | 2011 | 177,076,000 | 1,724,000 | 127,641,000 | ||||||||||||
2010 | 157,987,000 | 8,446,000 | 56,672,000 | |||||||||||||
2009 | $ | 100,136,000 | $ | 3,171,000 | $ | 49,039,000 |
* | Includes intercompany revenue and assets which are consolidated totals. |
See the Comparative Financial Table for details.
Expedited Transportation (Express-1)
Offering expedited transportation services to thousands of customers from its Buchanan, Michigan facility, Express-1 has become one of the largest ground expedited freight carriers in North America, handling approximately 90,000 shipments during 2011. Expedited transportation services can be characterized as time-critical, time-sensitive or high priority freight shipments, many of which have special handling needs. Expedited transportation providers typically manage a fleet of vehicles, ranging from cargo vans to semi-tractor trailer units. The dimensions for each shipment dictate the size of vehicle used to move the freight in addition to the related revenue per mile. Expedited transportation services are unique and can be differentiated since the movements are typically created due to an emergency or time-sensitive situation. Expediting needs arise due to tight supply chain tolerances, interruptions or changes in the supply chain, or failures within another mode of transportation within the supply chain. Expedited shipments are predominantly direct transit movements offering door-to-door service within tightly prescribed time parameters.
Customers offer loads to Express-1 via telephone, fax, e-mail or the Internet on a daily basis, with only a small percentage of these loads being scheduled for future delivery dates. Contracts, as is common within the transportation industry, typically relate to terms and rates, but not committed business volumes. Customers are free to choose their expedited transportation providers on an at-will basis, which underscores Express-1’s commitment to total customer satisfaction. Express-1 offers an ISO 9001:2008 certified, 24-hour, seven
day-a-week call center allowing its customers immediate communication and status updates relating to their shipments. Express-1’s commitment to excellence was again recognized as Express-1 received the “Carrier of the Year” award from the UPS Freight Urgent Services group in addition to being recognized by Whirlpool Corporation as “Special Services Supplier of the Year” for 2011. Additionally, we were awarded Nasstrac “Expedited Carrier of the Year Award” for the second straight year in 2009 and were also named a top 100 carrier by Inbound Logistics in 2010.
Express-1 is predominantly a non-asset based service provider, meaning that substantially all of the transportation equipment used in its operation is provided by third parties. These third-party owned vehicles are driven by independent contract drivers and by drivers engaged directly by independent owners of multiple pieces of equipment, commonly referred to as fleet owners.
Express-1 serves its customers between points within the United States. In addition, Express-1 arranges for transportation services to be provided to its customers to and within Mexico and Canada by an independent transportation provider. Express-1’s Canadian and Mexican transportation services are provided to customers who are located primarily in the United States. As of December 31, 2011, we employed 122 full-time employees to support our Express-1 operations.
Freight Forwarding (Concert Group Logistics)
Concert Group Logistics (“CGL”), headquartered in Downers Grove, Illinois, is a non-asset based freight forwarding company. The CGL operating model is designed to attract and reward independent owners of freight forwarding operations in various domestic markets. These independent owners operate stations within exclusive geographical regions under contracts with CGL. We believe the use of the independent station owner network provides competitive advantages in the domestic market place, particularly in smaller and mid-size markets. As of December 31, 2011, CGL supported its 23 independently owned stations with 38 full-time employees, including employees at CGL’s owned Tampa and Miami branches.
Through its owned stations and the expertise of its network of independent station owners, CGL has the capability to provide logistics services on a global basis. CGL’s services are not restricted by size, weight, mode or location and can be tailored to meet the transportation requirements of its client base. The major domestic and international services provided by CGL are outlined below.
Domestic Offerings—time critical services including as-soon-as-possible, air charter and expedites; time sensitive services including next day, second day and third day deliveries; and cost sensitive services including deferred delivery, less than truckload (LTL) and full truck load (FTL).
International Offerings—time critical services including on-board courier and air charters; time sensitive services including direct transit and consolidation; and cost sensitive services including less-than-container loads, full-container-loads and vessel charters.
Other Service Offerings—value added services includinginclude: documentation on international loads,shipments, customs clearance and banking support services; andclearance; customized services including trade show shipment management, time definite and customized product distributions, reverse logistics and on siteon-site asset recovery projects, installation coordination, freight optimization and diversity compliance support.
BounceFreight Brokerage (Bounce Logistics and XPO Logistics)
Through our Freight Brokerage business, we arrange freight transportation and related logistics and supply-chain services. We are considered non-asset based and generally do not own any trucks; instead, we rely on our network of subcontracted transportation providers, which typically are independent contract motor carriers. We make a profit on the difference between what we charge our customers for the services we provide and what we pay to the subcontracted transportation providers to transport our customers’ freight. The services we provide
range from commitments on a single shipment to more comprehensive and integrated relationships. Our success depends on our ability to find a suitable transportation provider at the right time, place and price to provide freight transportation services for our customers.
From January 2008 until the fourth quarter of 2011, we provided freight brokerage services solely through our Bounce Logistics, began operationsInc. subsidiary. During the fourth quarter of 2011, we opened a sales office in March 2008 andPhoenix, Arizona, which provides freight brokerage services under the name XPO Logistics. The Phoenix office is headquartered in South Bend, Indiana. Led by an experienced management team,the first of several cold-start sales offices we plan to open during the next two years. Bounce LogisticsLogistics’ operating model is a non-asset based transportation company operationally focused on providingto provide premium freight brokerage services to customers in need of greater customer service levels than those typically offered in the market place.marketplace. Bounce also services other customers in need of non-expeditenon-expedited premium transportation movements. As of December 31, 2008, Bounce Logistics2011, our Freight Brokerage employed 938 full-time associatesemployees within its operations.
Express-1 Dedicated — Dedicated—Discontinued Operations
The operations of our Express-1 Dedicated business unit were classified as discontinued during the fourth quarter of 2008, due to the expirationloss of oura dedicated services contract through which we provided dedicated expedite transportation services to approximately 190with a domestic automotive dealerships within a 250 mile radiuscompany. As of Evansville, Indiana. During the year ended December 31, 2008, Express-1 Dedicated generated revenues of approximately $4,921,000 and income of approximately $339,000, net of tax. Allcontract termination date, February 28, 2009, all operations were ceased during February 2009 and all employees were released from regular service at that time.service. The facility lease was transferred to a third party and all equipment was either sold or redeployed for use elsewhere within our operations. Our management team does not anticipate recording a lossoperations without incurring any material impairments or losses. All revenues and costs associated with this operation have been accounted for, net of taxes, in the line item labeled “Income from discontinued operationsoperations” for all years presented in the full yearConsolidated Statements of 2009, due to this business shutdown activity.
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Our goal is to develop a customized, proprietary software application that is integrated with a packaged base software platform that we license from a third party. We expect this customized IT solution to enable us to integrate our three operating divisions and provide our customers with cost effective, timely and reliable access to carrier capacity, which we expect to give us an advantage as compared to companies against which we compete that use non-customized, or less significantly customized, packaged software systems. By developing a customized, proprietary technology solution, we plan to improve our productivity through automation and process optimization, and to be in position to effectively integrate our anticipated acquisitions and leverage our scale across our multiple business lines. During the first quarter of 2012, we expect to complete the initial development phase of our IT strategy, with subsequent phases of custom-built software upgrades planned over the following two years.
More specific to our Express-1 fleet, we utilize satellite tracking and communication units on the vehicles in our fleet of vehicles to continually update the position of equipment in our Express-1 and Bounce Logistics fleets.equipment. We have the ability to communicate to individual units or to a larger group of units, based upon our specific needs. Information received through our satellite tracking and communication system automatically updates our internal software and provides our customers with real-time electronic updates.
Within our Concert Group LogisticsFreight Forwarding business unit we utilize a freight forwarding software package with customization exclusive to our CGL network.
Technology represents one of our largest categories of investment within our annual capital expenditure budget, and we believe the continual enhancement of our technology platforms is critical to our continued success.
CUSTOMERS, SALES AND MARKETINGCustomers, Sales and Marketing
Our business units provide services to a variety of customers ranging in size from small entrepreneurial organizations to Fortune 500 companies. Each year,In 2011, we collectively serve thousands ofserved more than 4,000 different customers and our customer base routinely changes from year-to-year.customers. Our customers are engaged within industries such as;as: major
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We maintain a staff of external sales representatives and related support staff within Express-1, CGL and Bounce Logistics. Within Concert Group Logistics, servicessales are introduced to customersalso initiated by our network of independent station owners, whoindependent-owned stations, which manage the sales relationships within their exclusive markets. We believe our independent station ownership structure enables salespeople to better serve customers by developing a broad knowledge of logistics, local and regional market conditions, and specific logistics issues facing individual customers. Under the guidance of these experienced entrepreneurs, independent stations are given significant latitude to pursue opportunities and to commit resources to better serve customers.
We consistently seek to establish long-term relationships with new accounts and to increase the amount of business done with our existing customers. We are committed to the strategy of providing our customers with a full range of logistics services and have grown by closely following this strategy.services. Our ability to offer multiple services through each of our business units represents a competitive advantage. advantage within the transportation industry.
During 2008,2011, no customer accounted for more than 7%8% of our consolidated gross revenues. The 2008 acquisitionAlthough no individual customer exceeded this threshold and individual customer rankings within our top customers change from time to time, we rely upon our relationship with these large accounts in the aggregate for a significant portion of Concert Group Logisticsour revenues. Any interruption or decrease in the business volume awarded by these customers could have a materially adverse impact on our revenues and formation of Bounce Logistics have broadened the range of industries and types of customers that comprise our account base. As a result, our customer and business concentrations within the automotive industry have been reduced significantly.
COMPETITION AND BUSINESS CONDITIONSCompetition
The transportation industry is intensely competitive and we anticipate it will remain so for the foreseeable future. Competition has increased over the past couple of years, as the amount of freight has declined in response to the U.S. economic recession over that time span. The market is also highly fragmented with thousands of transportation companies competing for a portion ofin the domestic and international freight markets. Our competitors include local, regional, national and international companies with the same specialties that specialize in premium transportation services such assame-day or high-priority freight movements, freight brokerage and freight forwarding services. Each of our business units competes with many other transportation providers for the opportunity to serve the same customer base. None of oursegments provide. Our business units operatessegments do not operate from a position of dominance within its market, and each unit competestherefore must operate daily to retain theestablished business relationships it has developed.
We compete on service, delivery timeframes, flexibilityreliability and reliability, as well as rates. WeSome competitors have historically focused upon transportation niches that demand superior service, in return for premium rates. We believe our rates are in-line with those charged by our competitors,larger client bases, significantly more resources and our reputation for customer service allows us to mitigate occasional rate pressures sometimes faced by many of our competitors. However, in lightmore experience than we do. The health of the recent U.S. recession, it is possibletransportation industry will continue to be a function of domestic and world economic growth. However, we believe we will benefit from the long-term outsourcing trend that should continue to enable the freight brokerage sector to grow at above-market rates.
Regulation
Our operations are regulated and licensed by various governmental agencies in the United States. Such regulations impact us directly, including through our abilityindependent contractor driver fleet, and indirectly through our network of third party transportation providers we need to sustain rates at or near historical levels might be compromised. We recognize as a competitive advantage the reputation of our business units to quickly and efficiently cover the transportation needs oftransport freight for our customers.
also are subject to government regulations. We also may become subject to new or more restrictive regulations relating to fuel emissions, independent contractor drivers’ hours-of-service, independent contractor driver eligibility requirements, on-board reporting of operations, air cargo security and other matters affecting safety or operating methods. Other agencies, such as authority to engage in motor carrierthe Environmental Protection Agency (“EPA”) and Department of Homeland Security (“DHS”), also regulate our equipment, operations safety, hazardous materials transportation, certain mergers, consolidations and acquisitions and periodic financial reporting. independent contractor drivers.
The trucking industry is subject to regulatory and legislative changes, which can affect the economics of the industry. We are also regulated by various state agencies and, in Canada, by other regulatory authorities.
The FMCSA’s CSA 2010 introduces a new enforcement and compliance model that implements driver standards in addition to the company standards currently in place. CSA 2010 ranks both fleets and individual drivers on seven categories of safety-related data, known as Behavioral Analysis and Safety Improvement Categories, or “BASICs,” which include Unsafe Driving, Fatigued Driving (Hours-of-Service), Driver Fitness, Controlled Substances/Alcohol, Vehicle Maintenance, Cargo-Related and Crash Indicator. Under the new regulations, the methodology for determining a carrier’s DOT safety ratingsrating has been expanded to include the on-road safety performance of the carrier’s drivers, including independent contractor drivers. As a result, certain current and potential independent contractor drivers may no longer be eligible to drive for us, our fleet could be ranked poorly as compared to our peer firms, and our safety rating could be adversely impacted. Our network of third party transportation providers may experience a similar result. A reduction in eligible independent contractor drivers or a poor fleet ranking may result in difficulty attracting and retaining qualified independent contractor drivers and could cause our customers to direct their business away from us and to carriers with higher fleet rankings, which would adversely affect our results of operations.
The FMCSA also is considering revisions to the existing rating system and the safety labels assigned to motor carriers: “satisfactory”,
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The FMCSA has issued new rules that may lead to the revocation of carrier authority.
At this time, we transport only low to medium risklow-to-medium-risk hazardous material,materials, representing a very small percentage of our total shipments.
Tax and other regulatory authorities have in the past sought to assert that independent contractor drivers in the trucking industry are employees rather than independent contractors. Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractor drivers as employees, including legislation to increase the recordkeeping requirements for employers of independent contractor drivers and to heighten the penalties of employers who misclassify their employees and are found to have violated employees’ overtime and/or wage requirements. Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing, recognized practice. Most recently, federal legislators are considering a bill that, if enacted, would, among other things, expand the Fair Labor Standards Act to cover “non-employees” who perform labor or services for businesses, even if the “non-employees” are properly classified as independent contractors; require every business to provide written notice to all workers of their classification as either an “employee” or a “non-employee”; and impose penalties of $1,100 to $5,000 per worker for a violation of the notice requirements or for misclassifying an “employee” as a “non-employee.” Some states have put initiatives in place to increase their revenues from items such as unemployment, workers’ compensation and income taxes, and a reclassification of independent contractor drivers as employees would help states with this initiative. Taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status. If our independent contractor drivers 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.
For domestic business, our Concert Group LogisticsFreight Forwarding business unit is also subject to regulation by the DOT in regards toregarding air cargo security for all business,loads, regardless of origin and destination. CGL is regulated as an “indirect air carrier” by the Department of Homeland SecurityDHS and Transportation Security Administration.TSA. These agencies provide requirements, guidance and, in some cases, licensing to the freight forwarding industry. This ensures that we have satisfactorily completed the security requirements and qualifications, adhered to the economic regulations, and implemented the required policies and procedures. These agencies require companies to fulfill these qualifications prior to transacting various types of business, failurebusiness. Failure to do so could result in penalties and fines.
For our international business, our Concert Group Logistics business unitoperations, CGL is a member of the International Air Transportation Association (IATA)(“IATA”), a voluntary association of airlines and forwarders, which outlines operating procedures for freight forwarders acting as agents for its members. A substantial portion of our international air freight business is completed with other IATA members. For international ocean business, we are registered as an Ocean Transportation Intermediary (OTI)(“OTI”) by the Federal Maritime Commission (FMC)(“FMC”), which establishes the qualifications, regulations and bonding requirements to operate as an OTI for businessbusinesses originating and terminating in the United States of America, as well as providing economic regulation. The FMC has authority to enforce regulations by assessing penalties and fines.
We and our independent agents who hold the necessary authorities to operate andcontractor drivers are subject to regulationvarious environmental laws and foreign jurisdictionregulations dealing with the hauling and handling of hazardous materials, emissions from vehicles, engine-idling, discharge and retention of storm water, and other environmental matters that involve inherent environmental risks. We have instituted programs to monitor and control environmental risks and maintain compliance with applicable environmental laws. We would be responsible for the cleanup of any releases caused by our operations or business, and in their respective countries.
results. If we are found to be in violation of applicable laws or regulations, we could be subject to costs and liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on our business and operating results.
SEASONALITYSeasonality
Our revenues and profitability have been historically subject to some minor seasonal fluctuations. InOur 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. This historical pattern has diminished recently due to changes in our historical cycle approximately 45%mix of business between expedited, freight forwarding and freight brokerage and our revenues developed in the first halfmix of each year, with the balance coming in the falling latter half. Over the past few years, we have experienced some variation in this historical cycle with our peak business levels during the second and third quartersindustries served within those modes of each year. At this time, ittransportation. It is not possible to determine whether the historical cycle, the recent cycle or a new cyclerevenue and profitability trends will occur, due to the weakness within the U.S. economy.
EMPLOYEES AND INDEPENDENT CONTRACTORSEmployees
At December 31, 2008,2011, we had 150216 full-time employees, none of whom were covered by a collective bargaining agreement. Of this number, 82122 were employed at Express-1, 20in Expedited Transportation, 38 were employed at Concert Group Logistics, 9in Freight Forwarding, 38 were employed at Bounce Logisticsin Freight Brokerage and 518 were employed in our corporate office. Within our discontinued Express-1 Dedicated operations in Evansville, Indiana we employed 34 full-time employees as of December 31, 2008. In addition to our full-time employees, we employed 1411 part-time employees as of December 31, 2008.2011. We recognize our trained staff of employees as one of our most critical resources, and acknowledge the recruitment, training and retention of qualified employees as essential to our ongoing success.
Executive Officers of the Registrant
We provide below information regarding each of our executive officers.
Name | Age | Position | ||||
Bradley S. Jacobs | 55 | Chairman of the Board and Chief Executive Officer | ||||
M. Sean Fernandez | 48 | Chief Operating Officer | ||||
John J. Hardig | 47 | Chief Financial Officer | ||||
Gordon E. Devens | 43 | Senior Vice President and General Counsel | ||||
Mario A. Harik | 31 | Chief Information Officer | ||||
Scott B. Malat | 35 | Senior Vice President—Strategic Planning | ||||
Gregory W. Ritter | 53 | Senior Vice President—Brokerage Operations |
Bradley Jacobs has served as our Chief Executive Officer and Chairman of the board of directors since September 2011. Mr. Jacobs is also the managing director of Jacobs Private Equity, LLC, which is our largest stockholder. He has led two public companies: United Rentals, Inc. (NYSE: URI), which he co-founded in 1997, and United Waste Systems, Inc., founded in 1989. Mr. Jacobs served as chairman and chief executive officer of United Rentals for its first six years and as executive chairman for an additional four years. He served eight years as chairman and chief executive officer of United Waste Systems. Previously, Mr. Jacobs founded Hamilton Resources (UK) Ltd. and served as its chairman and chief operating officer. This followed the co-founding of his first venture, Amerex Oil Associates, Inc., where he was chief executive officer. Mr. Jacobs is a member of the board of directors of the Beck Institute for Cognitive Behavior Therapy.
Sean Fernandez has served as our Chief Operating Officer since November 2011. Mr. Fernandez has more than 20 years of leadership experience with global companies in industries that include distribution, consumer goods manufacturing, trucking and transportation. He most recently served as senior vice president and General Manager–Consumables for NCR Corporation, and earlier held positions as Vice President—New Growth Platforms with Avery Dennison Corporation; chief operating officer with SIRVA, Inc.; group president with Esselte Corporation; chief operating officer—Asia Pac operations and divisional president with Arrow
Electronics, Inc.; and senior engagement manager with McKinsey & Company, Inc. He holds a master of business administration degree from Harvard University and a bachelor’s degree in business administration from Boston College.
John Hardig has served as our Chief Financial Officer since February 2012. Mr. Hardig most recently served as managing director for the Transportation & Logistics investment banking group of Stifel Nicolaus Weisel since 2003. Prior to that, Mr. Hardig was an investment banker for six years in the Transportation and Telecom groups at Alex. Brown & Sons (now Deutsche Bank). Mr. Hardig holds a master of business administration degree from the University of Michigan Business School and a bachelor’s degree from the U.S. Naval Academy.
Gordon Devens has served as our Senior Vice President and General Counsel since November 2011. Mr. Devens was most recently vice president—corporate development with AutoNation, Inc., where he was previously vice president—associate general counsel. Earlier, he was an associate at the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, where he specialized in mergers and acquisitions and securities law. Mr. Devens holds a doctorate of jurisprudence and a bachelor’s degree in business administration from the University of Michigan.
Mario Harik has served as our Chief Information Officer since November 2011. Mr. Harik has built comprehensive IT organizations and overseen the implementation of proprietary platforms for a variety of firms, including members of theFortune 100. His prior positions include chief information officer and senior vice president—research and development with Oakleaf Waste Management; chief technology officer with Tallan, Inc.; co-founder of G3 Analyst, where he served as chief architect of web and voice applications; and architect and consultant with Adea Solutions. Mr. Harik holds a master of engineering degree in information technology from Massachusetts Institute of Technology, and a degree in engineering, computer and communications from the American University of Beirut, Lebanon.
Scott Malat has served as our Senior Vice President—Corporate Strategy since October 2011. Mr. Malat was most recently with Goldman Sachs Group, Inc., where he served as senior equity research analyst covering the air, rail, trucking and shipping sectors. Prior to Goldman Sachs, Mr. Malat was an equity research analyst with UBS, and a strategy manager with JPMorgan Chase & Co. He serves on the board of directors of the non-profit PSC Partners Seeking a Cure. He is a CFA® charter holder and has a degree in statistics with a concentration in business management from Cornell University.
Gregory Ritter has served as our Senior Vice President—Brokerage Operations since October 2011. Mr. Ritter has more than three decades of sales and management experience in multi-modal transportation logistics. He most recently served as the president of a brokerage subsidiary that he established for one of the top 10 transportation logistics providers in North America. Previously, Mr. Ritter spent 22 years with C.H. Robinson Worldwide, and worked with Allen Lund Company, Inc. on territory development.
Corporate Information and Availability of Reports
XPO Logistics, Inc. was incorporated in Delaware on April 28, 2000. Our executive office is located at 429 Post Road, Buchanan, Michigan 49107. Our telephone number is (269) 695-2700. Our stock is listed on NYSE Amex under the symbol “XPO”.
Our corporate website is www.xpologistics.com. We make available on this website, free of charge, access to our employees,Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we support the capacity needs of our Express-1 and Bounce Logistics business units through the use of independent contract drivers. These individuals operate one or more of their own vehicles and pay for all the operating expenses of their equipment, including: wages, benefits, fuel, fuel taxes, physical damage insurance, maintenance, highway use taxes, and other related equipment costs. By utilizing the services of independent contractors we have reduced the amount of capital required for our growth, which we feel has lessened our financial risk.
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the charters relating to the committees of our board of directors. You also may obtain a printed copy of the foregoing materials by sending a written request to: Investor Relations, XPO Logistics, Inc., 429 Post Road, Buchanan, Michigan 49107. The public may read and copy any materials that we file with the SEC.
Item 1A. | |
ECONOMIC RECESSION; WORLDWIDE ECONOMIC CONDITIONS COULD NEGATIVELY IMPACT OUR BUSINESSCautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K and other written reports and oral statements we make from time to time contain forward-looking statements within the meaning of economicSection 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and tightening of credit markets beginning in 2008expected future developments, as well as other factors it believes are contributing to slowdowns in many industries, including industries in which we or our customers operate. This deterioration and tightening affects businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. These conditions could negatively impact our businesses by adversely affecting, among other things, our:
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ECONOMIC RECESSION; WE ARE SUBJECT TO RISKS RELATED TO DEFAULT UNDER OUR CREDIT FACILITY
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The transportation industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of our customers, interest rate fluctuations and other economic factors beyond our control. Deterioration in the economic environment subjects our business to various risks that may have a material impact on our operating results and cause us to not reach our long-term growth goals, and which may include the following:
A reduction in overall freight volumes in the marketplace reduces our opportunities for growth. In addition, if a downturn in our customers’ business cycles causes a reduction in the volume of operationsfreight shipped by those customers, our operating results could be adversely affected.
Some of our customers may face economic difficulties and financial condition. Furthermore,may not be able to pay us, and some may go out of business. In addition, some customers may not pay us as quickly as they have in the past, causing our working capital needs to increase.
A significant number of our transportation providers may go out of business and we may experience an increase in operating costs, such as costs forbe unable to secure sufficient equipment or other transportation insurance and security as a result of these activities and potential activities. services to meet our commitments to our customers.
We may also face interruptionnot be able to appropriately adjust our expenses to changing market demands. In order to maintain high variability in our business model, it is necessary to adjust staffing levels to changing market demands. In periods of services duerapid change, it is more difficult to increased security measuresmatch our staffing level to our business needs. In addition, we have other primarily variable expenses that are fixed for a period of time, and we may not be able to adequately adjust them in responsea period of rapid change in market demand.
We operate in a highly competitive industry and, if we are unable to terrorism. The U.S. economy in general can be adversely affected by terrorist activities and potential activities. Any economic downturn could adversely impact our results of operations or otherwise adversely affect our ability to grow our business.
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 profitability, including the following:
competition with other transportation services companies, some of which have a broader coverage network, a wider range of services, more fully developed information technology systems and incomegreater capital resources than we do;
reduction by our competitors of their rates to gain business, especially during times of declining growth rates in the economy, which reductions may limit our ability to maintain or increase rates, maintain our operating margins or maintain significant growth in our business;
shift in the business of shippers to asset-based trucking companies that also offer brokerage services in order to secure access to those companies’ trucking capacity, particularly in times of tight industry-wide capacity;
solicitation by shippers of bids from operationsmultiple transportation providers for their shipping needs and the resulting depression of freight rates or loss of business to competitors; and
establishment by our competitors of cooperative relationships to increase their ability to address shipper needs.
REGULATION; WE ARE SUBJECT TO REGULATION BEYOND OUR CONTROL, WHICH COULD NEGATIVELY IMPACT THE WAY IN WHICH WE OPERATE
We intend to fuel emissions, drivers’ hours-of-service, ergonomics, or other matters affecting safety or operating methods. Future lawsexpand substantially through acquisitions to take advantage of market opportunities we perceive in both our current markets (expedited transportation, freight brokerage and regulations may be more stringentfreight forwarding) and require changes in our operating practices, influence the demand for transportation services, or require us to incur significant additional costs. Higher costs incurred by us or by our suppliers who pass the costs onto us through higher prices could adversely affect our results of operations.
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The timing and number of acquisitions we pursue may cause volatility in our financial results.
We are unable to predict the cultivationsize, timing and number of organic growth opportunities. acquisitions we may complete. In addition, we may incur expenses associated with sourcing, evaluating and negotiating acquisitions (including those that are not completed), and we also may pay fees and expenses associated with obtaining financing for acquisitions and with
investment banks and others finding acquisitions for us. Any of these amounts may be substantial, and together with the size, timing and number of acquisitions we pursue, may negatively impact and cause significant volatility in our financial results and stock price.
We lookmay not successfully manage our growth.
We intend to expandgrow rapidly and substantially, including by expanding our independent station network through keyinternal resources, making acquisitions and entering into new markets. We may experience difficulties and higher than expected expenses in executing our businessthis strategy as a result of expansion. We cannot be assured that any adjustment orunfamiliarity with new markets, change in therevenue and business models and revenue models will prove to be successful.
Our inability to manage anticipated future growth could hurt the results of operations. Expansion of operations will be required to address anticipated growth of our customer base and market opportunities. Expansion will place a significant strain on our management, operational and financial resources. Currently, we have a limited number of employees. We will need to continually improve existing procedures and controls as well as implement new transaction processing, operational and financial systems, and procedures and controls to expand, train and manage our employee base. Our working capital needs will increase substantially as our operations grow. Failure to manage growth effectively, or obtain necessary working capital, could have a damagingmaterial adverse effect on our business, results of operations, cash flows, stock price and financial condition.
DEPENDENCE ON DRIVERS SUBJECTS US TO WORKFORCE INTERUPTIONS BEYOND OUR CONTROLAny acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our results of operations.
Acquisitions involve numerous risks, including the following:
failure of the acquired company to achieve anticipated revenues, earnings or cash flows;
assumption of liabilities that were not disclosed to us or that exceed our estimates;
problems integrating the purchased operations with our own, which could result in substantial costs and delays or other operational, technical or financial problems;
potential compliance issues with regard to acquired companies that did not have adequate internal controls;
diversion of management’s attention or other resources from our existing business;
risks associated with entering markets, such as rail intermodal, air freight forwarding and ocean cargo, in which we have limited prior experience;
increases in working capital borrowing to fund the growth of acquired operations;
potential loss of key employees and customers of the acquired company; and
future write-offs of intangible and other assets if the acquired operations fail to generate sufficient cash flows.
In connection with future acquisitions, we may issue shares of capital stock that dilute other stockholders’ holdings, incur debt, assume significant liabilities or create additional expenses related to intangible assets, any of which might reduce our profitability and cause our stock price to decline.
Our driver forcebusiness will be seriously harmed if we fail to develop, implement, maintain, upgrade, enhance, protect and integrate information technology systems.
We rely heavily on our information technology system to efficiently run our business and it is primarily made upa key component of our growth strategy. To keep pace with changing technologies and customer demands, we must correctly interpret and address market trends and enhance the features and functionality of our proprietary technology platform in response to these trends, which may lead to significant ongoing software development costs. We may be unable to accurately determine the needs of our customers and the trends in the transportation services
industry or to design and implement the appropriate features and functionality of our technology platform in a timely and cost-effective manner, which could result in decreased demand for our services and a corresponding decrease in our revenues. Despite testing, external and internal risks, such as malware, insecure coding, “Acts of God,” attempts to penetrate our network, data leakage and human error, pose a direct threat to our information technology systems and operations. Any failure to identify and address such defects or errors could result in loss of revenues or market share, liability to customers or others, diversion of resources, injury to our reputation and increased service and maintenance costs. Correction of such errors could prove to be impossible or very costly and responding to resulting claims or liability could similarly involve substantial cost.
We must maintain and enhance the reliability and speed of our information technology systems to remain competitive and effectively handle higher volumes of freight through our network. If our information technology systems are unable to manage additional volume for our operations as our business grows, our service levels and operating efficiency could decline. We expect customers to continue to demand more sophisticated, fully integrated information systems from their transportation providers. If we fail to hire and retain qualified personnel to implement, protect and maintain our information technology systems or if we fail to upgrade our systems to meet our customers’ demands, our business and results of operations could be seriously harmed. This could result in a loss of customers and a decline in the volume of freight we receive from customers.
We recently have licensed an operating system that we are developing into an integrated information technology system for all of our business units. This new system may not be successful or may not achieve the desired results. We may require additional training or different personnel to successfully implement this system, all of which may result in additional expense, delays in obtaining results or disruptions to our operations. In addition, acquired companies will need to be on-boarded, which may cause additional training or licensing cost and disruption. In such event, our revenue, financial results and ability to operate profitably could be negatively impacted.
Our ability to raise capital in the future may be limited, and our failure to raise substantial additional 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. 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.
Sales or issuances of a substantial number of shares of our common stock may adversely affect the market price of our common stock.
We anticipate that we will fund future acquisitions or our capital requirements from time to time, in whole or part, through sales or issuances of our common stock or equity-based securities, subject to prevailing market conditions and our financing needs. Future equity financing may dilute the interests of our stockholders, and future sales or issuances of a substantial number of shares of our common stock or other equity-related securities may adversely affect the market price of our common stock. There are securities outstanding presently that are convertible into or exercisable for a substantial number of shares of our common stock. As of February 20, 2012, there were (i) 8,369,249 million shares of our common stock outstanding, (ii) 75,000 shares of Series A Convertible Perpetual Preferred Stock outstanding, which are initially convertible into an aggregate of 10,714,286 shares of our common stock (subject to customary anti-dilution adjustments), (iii) warrants exercisable at any time until September 2, 2021, for an aggregate of 10,714,286 shares of our common stock, at an initial exercise price of $7.00 per share of common stock (subject to customary anti-dilution adjustments), and (iv) 2,506,811 shares of our common stock reserved for future issuance under our various stock compensation plans.
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 leaves 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 and retain sales representatives and brokerage agents. Competition for qualified sales representatives and brokerage agents can be intense. We may be unable to attract such persons or retain those that are already associated with us. Any difficulties we experience in expanding or retaining 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. Further, 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 have a new senior management team that has little experience working together and that is essential to the management of our business and operations.
Our success depends on the continuing services of our Chief Executive Officer, Mr. Bradley S. Jacobs. We believe that Mr. Jacobs possesses valuable knowledge and skills that are crucial to our success and would be very difficult to replicate.
We recently assembled a new senior management team under the guidance of Mr. Jacobs. The team was assembled with a view towards substantial growth, and the size and aggregate compensation of the team increased substantially. The associated significant increase in overhead expense could decrease our margins if we fail to grow substantially.
Our senior management team is new and has little experience working together. In addition, not all of our senior management team resides near or works at our headquarters. The newness and geographic distance of the members of our senior management team may impede the team’s ability to work together effectively. Our success will depend, in part, on the efforts and abilities of our senior management and their ability to work together. We cannot assure you that they will be able to do so.
Over time, our success will depend on attracting and retaining qualified personnel. 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 senior 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 and prospects.
Our Chairman and Chief Executive Officer controls a large portion of our stock and has substantial control over us, which could limit other stockholders’ ability to influence the outcome of key transactions, including changes of control.
Our Chairman and Chief Executive Officer, Mr. Bradley S. Jacobs, controls, as the managing member of JPE, (i) 67,500 shares of our Series A Convertible Perpetual Preferred Stock, which are initially convertible into an aggregate of 9,642,857 shares of our common stock, and (ii) 9,642,857 warrants initially exercisable for an aggregate of 9,642,857 shares of our common stock at an exercise price of $7.00 per share, which, upon conversion and exercise, represents approximately 70% of our outstanding common stock. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with controlling stockholders. Our preferred stock votes together with our common stock on an “as-converted” basis on all matters, except as otherwise required by law, and separately as a class with respect to certain matters implicating the rights of holders of shares of the preferred stock. In addition, pursuant to the Investment Agreement, Mr. Jacobs, as the managing member of JPE, will have the right to designate for nomination by our board of directors a majority of the members of our board of directors so long as JPE owns securities (including preferred stock convertible into, or warrants exercisable
for, securities) representing at least 33% of the voting power of our capital stock on a fully-diluted basis, and will have the right to designate for nomination by our board of directors 25% of the members of our board of directors so long as JPE owns securities (including preferred stock convertible into, or warrants exercisable for, securities) representing at least 20% of the voting power of our capital stock on a fully-diluted basis. Accordingly, Mr. Jacobs can exert significant influence over our management and affairs and matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership and the related contractual rights may have the effect of delaying or preventing a change of control, including a merger, consolidation, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other stockholders.
Because Mr. Jacobs controls a majority of the voting power of our stock, we qualify as a “controlled company” as defined in the NYSE Amex LLC Company Guide, and, as such, we may elect not to comply with certain corporate governance requirements of such stock exchange. We do not currently intend to utilize these exemptions.
We depend on third parties in the operation of our business.
In our freight forwarding and freight brokerage operations, we do not own or control the transportation assets that deliver our customers’ freight, and we do not employ the people directly involved in delivering the freight. In our expedited ground transportation operations, we engage independent contractors who own and operate their own equipment. Accordingly, we are dependent on third parties to provide truck, rail, ocean, air, and other transportation services and to report certain events to us, including delivery information and cargo claims. This reliance could cause delays in reporting certain events, including recognizing revenue and claims. Our inability to maintain positive relationships with independent transportation providers could significantly limit our ability to serve our customers on competitive terms. If we are unable to secure sufficient equipment or other transportation services to meet our commitments to our customers or provide our services on competitive terms, our operating results could be materially and adversely affected and our customers could switch to our competitors temporarily or permanently. Many of these risks are beyond our control, including the following:
equipment shortages in the transportation industry, particularly among contracted truckload carriers;
interruptions in service or stoppages in transportation as a result of labor disputes;
changes in regulations impacting transportation; and
changes in transportation rates.
In our freight forwarding operations, we rely upon both independent station owners and company employees to develop and manage customer relationships and to service the customers.
Our freight forwarding services are provided by our Concert Group Logistics subsidiary through a network of independent contractstations that are owned and operated by independent contractors and through stations managed by company employees. These independent station owners and company employees develop and manage customer relationships, have discretion in establishing pricing, and service the customers through the various modes of transportation made available through our network of third-party transportation providers. We cannot assure you that we will be able to maintain our relationships with these independent station owners or develop in the future relationships with additional independent station owners. Similarly, we cannot assure you that we will be able to retain or effectively motivate the key company employees who manage our most significant customer relationships. Since these independent station owners and company employees maintain the relationships with the customers, some customers may decide to terminate their relationship with us if their independent station owner or company contact leaves our network. Accordingly, our inability to maintain relationships with these independent station owners and company employees could have a materially adverse effect on our results of operations.
In addition, since these independent station owners are independent contractors, we have limited control over their operations and the quality of service that they provide to customers. To the extent that an independent station owner provides poor customer service or otherwise does not meet a customer’s expectations, or we encounter a similar situation with our company employees, this will reflect poorly on us, and the customer may not use us in the future, which may adversely affect our results of operations.
Higher purchased transportation expenses may result in decreased net revenue margin.
Transportation providers can be expected to charge higher prices if market conditions warrant, or to cover higher operating expenses. Factors such as increases in freight demand, decreases in trucking capacity, higher driver wages, increased regulation, and increases in the prices of fuel, insurance, tractors, trailers, and other operating expenses can result in higher purchased transportation expenses to us. Our profitability may decrease if we are unable to increase our pricing to our customers to cover higher expenses, or we may be forced to refuse certain business, which could affect our customer relationships.
Increases in independent contractor driver compensation or other difficulties attracting and retaining qualified independent contractor drivers with onlycould adversely affect our profitability and ability to maintain or grow our independent contractor driver fleet.
Our expedited ground transportation services are provided by our Express-1 subsidiary through a handfulfleet of companyexclusive-use vehicles that are owned and operated by independent contractors. These independent contractor drivers are responsible for maintaining their own equipment and paying their own fuel, insurance, licenses and other operating costs. Independent contractor drivers make up a relatively small portion of the pool of all professional drivers in the United States. Turnover and bankruptcy among independent contractor drivers often limit the pool of qualified independent contractor drivers and increase competition for their services. In addition, new regulations such as CSA 2010 may further reduce the pool of qualified independent contractor drivers. Thus, our Express-1 operations. At timescontinued reliance on independent contractor drivers could limit our ability to grow our ground transportation fleet.
From time to time we have experienced substantialexperience, and we are currently experiencing, difficulty in attracting and retaining sufficient numbers of qualified drivers. In addition, becauseindependent contractor drivers, and such shortages may recur in the future. Additionally, our agreements with independent contractor drivers are terminable by either party upon short notice and without penalty. Consequently, we regularly need to recruit qualified independent contractor drivers to replace those who have left our fleet. If we are unable to retain our existing independent contractor drivers or recruit new independent contractor drivers, our business and results of the higher cost of fuel, insurance,operations could be adversely affected.
The compensation we offer our independent contractor drivers is subject to market conditions and equipment, the available pool of independent contract drivers fluctuates. This is especially apparent within the fleet of straight trucks, which serve many of the critical needs of the expedite industry. Because of the shortage of qualified drivers, the availability of alternative jobs and intense recruiting competition from other trucking companies, we expectmay find it necessary to continue to face difficulty increasingincrease independent contractor drivers’ compensation in future periods, which may be more likely to the number of drivers, who are our principal source of planned fleet expansion and resulting growth. In addition, our industry as a whole suffers from high rates of driver turnover, which requires usextent economic conditions continue to continually recruit a substantial number of drivers in order to maintain our existing fleet.improve. If we are unable to continue to attract and retain a sufficient number of independent contractor drivers, we could be required to adjust our compensation packagesmileage rates and accessorial pay or operate with fewer pieces of equipmenttrucks and face difficulty meeting shipper demands, all of which would adversely affect our growthprofitability and profitability. Anyability to maintain our size or grow.
A determination by regulators or courts that our independent contractor drivers are employees could expose us to various liabilities and additional costs and our business and results of operations could be adversely affected.
Legislative and other regulatory authorities have in the past sought to assert that independent contractor drivers in the trucking industry are employees rather than independent contractors. Many states have initiated enforcement programs to increase their revenues from items such as unemployment, workers’ compensation and income taxes and a reclassification of independent contractor drivers as employees would help states with these initiatives. Further, class actions and other lawsuits have arisen in our operating costs could adversely affectindustry seeking to reclassify independent contractor drivers as employees for a variety of purposes, including workers’ compensation, wage-and-hour, and health care
coverage. Proposed legislation would make it easier for tax and other authorities to reclassify independent contractor drivers as employees. If our growthindependent contractor drivers are determined to be our employees, we would incur additional exposure under federal, state and profitability.
We maintain general liability, auto liability, cargo, physical damage, trailer interchange, inland marine, contents, workers’ compensation, excess auto, general liability, errorsmay be subject to various claims and omissions and director’s and officer’s insurance policies for certain types of risks. Some of these policies are written with deductibles currently up to $25,000 per occurrence. We reserve for anticipated losses and expenses and regularly evaluate and adjust our claims reserves to
14
The nature of our deductibles, webusiness exposes us to the potential for various claims and litigation related to labor and employment (including wage-and-hour litigation relating to independent contractor drivers, sales representatives, brokerage agents and other individuals), personal injury, property damage, business practices, environmental liability and other matters. Any material litigation could have significant exposure to fluctuationsa material adverse effect on our business, results of operations, financial condition or cash flows.
Fluctuations in the numberprice or availability of fuel may change our operations structure and severity of claims. Our operating results could be adversely affected if we experience an increase in the frequency and severity of claims for which we maintain higher deductible policies, accruals of significant amounts within a given period, or claims proving to be more severe than originally assessed.
Fuel expense within a year. We have no assurance that the levels of specific stop-loss purchased or the annual aggregate loss coverage purchased will provide a manageable means to control our health care insurance costs.
NEED FOR SUBSTANTIAL, ADDITIONAL FINANCING MAY NOT BE AVAILABLE, IF NEEDED, AND OUR RESULTS COULD BE NEGATIVELY IMPACTEDWe are subject to regulation beyond our control, which could negatively impact our business.
Our operations are regulated and licensed by various United States and international agencies. Our Expedited Transportation unit is no guarantee that we will be ablelicensed as a motor carrier and property broker, and our Freight Brokerage unit is licensed as a property broker, in each case by the Federal Motor Carrier Safety Administration (“FMCSA”), an agency of the U.S. Department of Transportation (the “DOT”), and by various state agencies. Our Freight Forwarding unit is licensed as an ocean transportation intermediary by the U.S. Federal Maritime Commission as a non-vessel-operating common carrier and as an ocean freight forwarder. We must comply with various insurance and surety bond requirements to obtain financing ifact in these capacities. Our air transportation activities in the United States are subject to regulation by the DOT as an indirect air carrier.
We also are subject to regulations and requirements relating to safety and security promulgated by, among others, the U.S. Department of Homeland Security through the Bureau of U.S. Customs and Border Protection and the Transportation Security Administration, the Canada Border Services Agency and various state and local agencies and port authorities. Our failure to maintain our required licenses, or to expandcomply with applicable regulations, could have a materially adverse impact on our business and results of operations.
Future laws and regulations may be more stringent and require changes in our operating practices, influence the demand for transportation services or that the present funding sources will continuerequire us to extend terms under which we can operate efficiently. If weincur significant additional costs. We are unable to secure financing under favorable terms,predict the impact that recently enacted and future regulations may have on our Company may be negatively affected. There is no assurancebusinesses. Higher costs that we incur as a result of new regulations without a corresponding increase in price to our customers could adversely affect our results of operations.
We derive a significant portion of our revenue from our largest customers, some of which are involved in the highly cyclical automotive industry; our relationships with our customers generally are terminable on short notice and generally do not provide minimum shipping commitments.
While individual customer rankings within our top customers change from time to time, we rely upon our relationship with these large accounts in the aggregate for a significant portion of our revenues. Any interruption or decrease in the business volume awarded by these customers could have a materially adverse impact on our revenues and resulting profitability.
Our most significant customers include certain of the large automotive manufacturers, as well as various automotive industry suppliers. These companies have been, and will continue to be, ableimpacted by the changing landscape in the U.S. automotive market, which is highly competitive and historically has been subject to maintain financingsubstantial cyclical variation characterized by periods of oversupply and weak demand. Negative trends in the U.S. automotive market or a worsening in the financial condition of automotive manufacturers, or within the associated supplier base, could have a materially adverse impact on acceptable terms.
Our contractual relationships with our customers generally are terminable by our customers or us on short notice for any reason or no reason. Moreover, our customers generally are not required to provide any minimum shipping commitments. Our failure to retain our existing customers or enter into relationships with new customers could have a materially adverse impact on our revenues and resulting profitability.
VOLATILITY OF THE MARKET PRICE OF THE COMPANY’S STOCK CAN IMPACT OUR ABILITY TO RAISE ADDITIONAL CAPITAL, IF NEEDED, AND IMPACTS OUR COMPENSATION EXPENSEOur operations are subject to varying liability standards that may result in claims being asserted against us.
With respect to our expedited transportation and freight forwarding operations, we have primary liability to the shipper for cargo loss and damage for certain liabilities caused by our independent contractor drivers. From time to time, our independent contractor drivers, and the drivers engaged by the transportation providers we contract with, are involved in accidents that may result in serious personal injuries or property damage. The market priceresulting types and/or amounts of damages may be excluded by or exceed the amount of insurance coverage maintained by the contracted transportation provider. With respect to our brokerage operations, claims of secondary liability may be asserted against us for the actions of transportation providers to which we broker freight and their employees or independent contractor drivers, or for our actions in retaining them. Claims against us may exceed the amount of our common stockinsurance coverage, or may not be volatile,covered by insurance at all. A material increase in the frequency or severity of accidents, liability claims, or workers’ compensation claims, or unfavorable resolutions of claims, could materially and adversely affect our operating results. In addition, significant increases in insurance costs or the inability to purchase insurance as a result of these claims could reduce our profitability.
Seasonality affects our operations and profitability.
The transportation industry experiences seasonal fluctuations. Our results of operations are typically lower for the first quarter of the calendar year relative to our other quarters. We believe this is due in part to the post-holiday reduction in demand experienced by many of our customers, which leads to more capacity in the non-expedited and service-critical markets and, in turn, less demand for expedited and premium shipping services. In addition, the productivity of our independent contractors and transportation providers generally decreases during the winter season because inclement weather impedes 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 independent contractors and transportation providers 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 independent contractors and transportation providers, which could causehave an adverse effect on our results of operations. Congress has mandated 100% security screening of air cargo traveling on passenger airlines effective July 31, 2010, and for ocean freight by July of 2012, which may increase costs associated with our air and freight forwarding operations. War, risk of war, or a terrorist attack also may have an adverse effect on the value of your investment to decline. Any of the following factors could affect the market price of our common stock:
Our outstanding preferred stock price. The stock markets have experienced price and volume volatility that have affected many companies’ stock prices.credit agreement limit our operating and financial flexibility.
We are obligated to pay holders of our Series A Convertible Perpetual Preferred Stock
15
Our current credit agreement contains certain operating performance of those companies. These types of fluctuationsand financial covenants and we expect that any future credit agreement we enter into will contain similarly restrictive covenants. Such covenants limit management’s discretion in operating our business and may affect our ability, among other things, to: incur additional debt; pay dividends and make other distributions; prepay subordinated debt; make investments, acquisitions and other restricted payments; create liens; sell assets; and enter into transactions with affiliates. Failure to comply with the market pricecovenants under our current or future credit agreements may have a materially adverse impact on our operations. In addition, if we fail to comply with the covenants under our current or any future credit agreement, and are unable to obtain a waiver or amendment, an event of default would result under the applicable credit agreement. We cannot assure you that we would have sufficient liquidity to repay or refinance borrowings if such borrowings were accelerated upon an event of default.
We currently do not intend to pay dividends on our common stock.
We adopted SFAS 123R for periods beginning January 1, 2006have never paid, and accordingly recorded compensation expense based in part upon the relative and historic volatility of our Company’s common stock in the statement of income for periods beginning thereafter.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None
ITEM 2. | PROPERTIES |
Our executive offices are located within in an 880 square-foot leased office suite located at 3399 South Lakeshore Drive, Suite 225, Saint Joseph,429 Post Road, Buchanan, Michigan 49085. Within this same office building are common areas to which we have access, including; board and meeting rooms, multimedia facilities and a lounge for visitors. In addition, the49107. The table below identifies otherdescribes the properties that we maintain. We believe each of our properties is appropriately specified and sized for the portion of our operations it houses.
Company | Location | Purpose | Square Feet | Owned or Leased | ||||||||||||
Express-1 Operations and Recruiting Center | 429 Post Road Buchanan, MI | Express-1 headquarters, center & recruiting | 23,000 | Owned | ||||||||||||
XPO Logistics, Inc. | Operations and general office | 4,000 | Leased | |||||||||||||
Express-1/Metro Detroit | 2399 Avon Industrial Drive Rochester Hills, MI 48309 | Metro Detroit Regional expedite call center | 10,500 | Leased | ||||||||||||
Concert Group Logistics | 1430 Branding Ave. Suite 150, Downers Grove, IL 60515 | CGL headquarters and general office | 7,400 | Leased | ||||||||||||
Concert Group Logistics International | 5845 Barry Road Tampa, FL 33634 | International operations station | 6,200 | Leased | ||||||||||||
Concert Group Logistics International | 7855 NW 12th Street Suite 210 Miami, FL 33126 | International operations station | 1,300 | Leased | ||||||||||||
Concert Group Logistics | 1859 Lindberg Street Unit 500 Charlotte, NC 28208 | Operation station | 11,000 | Leased | ||||||||||||
Bounce Logistics | 5838 W. Brick Road South Bend, IN 46628 | Bounce headquarters general office | ||||||||||||||
Leased | ||||||||||||||||
XPO Logistics, LLC | Hayden Corporate Center 8283 North Hayden Road Suite 220 Scottsdale, AZ 85258 | Brokerage operations | 5,100 | |||||||||||||
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We carry liability and excess umbrella insurance policies that we deem sufficient to cover potential legal claims will not bearising in the normal course of conducting our operations as a transportation company. In the event we are required to satisfy a legal claim in excess of the reserves established. Additionally, we maintain liabilitycoverage provided by this insurance, our cash flows and umbrella liability insurance policies that provide protection against claims up to various limits of liability. These limits are intended toearnings could be sufficient to reasonably protect the Company against claims. In the opinion of our management, the ultimate disposition of all known matters will not have a materially adverse effect on our consolidated financial position, results of operations or liquidity.
ITEM 4. |
Not applicable.
PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Price Range of Common Stock
The Company’s common stock is traded on the NYSE AMEX Equities ExchangeAmex under the symbol “XPO.” The table below sets forth the high and low closing sales prices (adjusted for the 4-for-1 reverse stock split effected September 2, 2011) for the Company’s common stock for the quarters included within 20082010 and 20072011 and for the first few months of 2009. Quotations reflect inter-dealer prices, without retailmark-up, mark-down commission, and may not represent actual transactions.
High | Low | |||||||
2007 | ||||||||
1st quarter | $ | 1.58 | $ | 1.24 | ||||
2nd quarter | 1.47 | 1.26 | ||||||
3rd quarter | 1.39 | 1.21 | ||||||
4th quarter | 1.36 | 1.09 | ||||||
2008 | ||||||||
1st quarter | $ | 1.26 | $ | 0.98 | ||||
2nd quarter | 1.36 | 1.10 | ||||||
3rd quarter | 1.42 | 1.20 | ||||||
4th quarter | 1.21 | 0.85 | ||||||
2009 | ||||||||
1st quarter (through March 12, 2009) | $ | 1.10 | $ | 0.67 |
High | Low | |||||||
2010 | ||||||||
1st quarter | $ | 6.60 | $ | 4.88 | ||||
2nd quarter | 6.24 | 5.04 | ||||||
3rd quarter | 7.52 | 4.96 | ||||||
4th quarter | 11.28 | 7.96 | ||||||
2011 | ||||||||
1st quarter | $ | 12.12 | $ | 8.48 | ||||
2nd quarter | 13.28 | 8.28 | ||||||
3rd quarter | 17.00 | 7.67 | ||||||
4th quarter | 12.66 | 6.98 | ||||||
2012 | ||||||||
1st quarter (through February 20, 2012) | $ | 14.90 | $ | 11.35 |
As of March 11, 2009,February 20, 2012, there were over 3000approximately 7,700 holders of record of the Company’sour common stock, based upon data available to us from our proxy solicitor, transfer agent and market maker for our common stock. The Company hasWe have never paid, and have no immediate plans to pay, cash dividends on itsour common stock and intendsstock. We currently plan to keepretain future earnings ifand cash flows for use in the development of our business and to enhance stockholder value through growth and continued focus on increasing profitability rather than pay dividends on our common stock. In addition, our current credit agreement imposes, and we expect that any future credit agreement we enter into will impose, restrictions on our ability to retire debt and finance the expansion of its business.pay cash dividends on our common stock. Accordingly, the Company doeswe do not anticipate thatpaying any cash dividends will be paidon our common stock in the near future. Future payment of dividends on our common stock would depend on the Company’sour earnings, capital requirements, expansion plans, financial condition and other relevant factors.
17
(c) | ||||||||||||
Number of Securities | ||||||||||||
(b) | Remaining Available for | |||||||||||
(a) | Weighted-Average | Future Issuance under | ||||||||||
Number of Securities to | Exercise Price of | Equity Compensation | ||||||||||
be Issued upon Exercise | Outstanding | Plan (Excluding | ||||||||||
of Outstanding Options, | Options, Warrants | Securities Reflected in | ||||||||||
Plan Category | Warrants and Rights | and Rights | Column (a)) | |||||||||
Equity compensation plans approved by security holders | 3,609,000 | $ | 1.18 | 1,991,000 | ||||||||
Warrants issued to raise capital | 2,252,000 | $ | 2.05 | N/A | ||||||||
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Item 6. | |
SELECTED FINANCIAL DATA |
This table includes selected consolidated financial data presented below for and as of the end of, each of the years in the five-year period ended December 31, 2008 is derived from our Consolidated Financial Statements. The Consolidated Financial Statements as of December 31, 2008 and 2007, and for each of the years in the three-year period ended December 31, 2008 and the independent registered public accountants’ reports thereon, are included in Item 8 of thisForm 10-K.last five years. This financial data should be read in conjunctiontogether with theour audited Consolidated Financial Statements and Notes thereto includedrelated notes, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other financial data appearing elsewhere in Item 8this Annual Report.
XPO Logistics, Inc.
Consolidated Statements of thisForm 10-K.Operations
Fiscal Year Ended | ||||||||||||||||||||
December 31, 2011 | December 31, 2010 | December 31, 2009 | December 31, 2008 | December 31, 2007 | ||||||||||||||||
Consolidated Statements of Operations Data: | ||||||||||||||||||||
Operating revenue | $ | 177,076,000 | $ | 157,987,000 | $ | 100,136,000 | $ | 109,462,000 | $ | 47,713,000 | ||||||||||
Income from continuing operations | 759,000 | 4,888,000 | 1,690,000 | 2,817,000 | 1,813,000 | |||||||||||||||
Income from discontinued operations | — | — | 15,000 | 339,000 | 358,000 | |||||||||||||||
Preferred stock beneficial conversion charge and preferred dividends | (45,336,000 | ) | — | — | — | — | ||||||||||||||
Net (loss) income available to common stockholders | $ | (44,577,000 | ) | $ | 4,888,000 | $ | 1,705,000 | $ | 3,156,000 | $ | 2,171,000 | |||||||||
Earnings Per Share | ||||||||||||||||||||
Basic | $ | (5.41 | ) | $ | 0.61 | $ | 0.21 | $ | 0.40 | $ | 0.33 | |||||||||
Diluted | (5.41 | ) | 0.59 | 0.21 | 0.40 | 0.32 | ||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Basic | 8,246,577 | 8,060,346 | 8,008,805 | 7,863,439 | 6,672,596 | |||||||||||||||
Diluted | 8,246,577 | 8,278,995 | 8,041,862 | 7,939,291 | 6,831,682 | |||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Working capital | $ | 83,070,000 | $ | 12,314,000 | $ | 970,000 | $ | 4,428,000 | $ | 3,781,000 | ||||||||||
Total assets | $ | 127,641,000 | $ | 56,672,000 | $ | 49,039,000 | $ | 41,682,000 | $ | 23,724,000 | ||||||||||
Total long-term debt and capital leases | $ | 2,129,000 | $ | 6,512,000 | $ | 1,428,000 | $ | 4,955,000 | $ | 84,000 | ||||||||||
Preferred Stock | $ | 42,794,000 | $ | — | $ | — | $ | — | $ | — | ||||||||||
Stockholder’s equity | $ | 108,360,000 | $ | 34,013,000 | $ | 28,404,000 | $ | 26,527,000 | $ | 18,202,000 |
The Company effected a 4-for-1 reverse stock split on September 2, 2011. All data expressed in the table is expressed in thousands except for earningsshare and per share data.
Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Consolidated Statements of Earnings Data: | ||||||||||||||||||||
Operating revenue from continuing operations | $ | 109,462 | $ | 47,713 | $ | 37,327 | $ | 35,383 | $ | 37,842 | ||||||||||
Net income (loss) from continuing operations | 2,817 | 1,813 | 3,583 | (5,672 | ) | (2,686 | ) | |||||||||||||
Net income (loss) from continuing operations per common share | $ | 0.09 | $ | 0.07 | $ | 0.14 | $ | (0.21 | ) | $ | (0.11 | ) | ||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Cash | $ | 1,107 | $ | 800 | $ | 79 | $ | 386 | $ | 854 | ||||||||||
Working capital | 4,708 | 3,781 | 2,248 | 1,342 | 3,714 | |||||||||||||||
Total assets | 41,682 | 23,724 | 21,609 | 18,454 | 25,065 | |||||||||||||||
Long-term obligations | 4,759 | 650 | 1,401 | 2,787 | 575 |
Item 7. | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion in conjunction with Part I, including matters set forth under Item 1A, “Risk Factors”, of this Annual Report, and our audited Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report. The following discussion contains forward-looking statements. You should refer to the “Cautionary Statement Regarding Forward-Looking Statements” set forth in Part I of this Annual Report.
Executive Summary
XPO Logistics, Inc., a Delaware corporation (the “Company”, “we”, “our” or “us”), is a third party logistics provider of freight transportation services through three non-asset based or asset-light business units: Expedited Transportation, Freight Forwarding and Freight Brokerage. These business units provide services complementary to each other, effectively giving us a platform for expansion in three distinct areas of the transportation industry.
Business Unit | Subsidiary(ies) | Primary Office Location(s) | Date Initiated or Acquired | |||
Expedited Transportation | Express-1 | Buchanan, Michigan | August 2004 | |||
Freight Forwarding | Concert Group Logistics | Downers Grove, Illinois | January 2008 | |||
Freight Brokerage | Bounce Logistics and XPO Logistics | South Bend, Indiana and Phoenix, Arizona | March 2008 |
Expedited Transportation—Express-1, Inc. (“Express-1”) was founded in 1989 and acquired in 2004. Express-1 provides time-critical expedited transportation to its customers, most typically through carrier arrangements that assign one truck to a load, with a specified delivery time requirement. Most of the services provided by Express-1 are completed via a fleet of exclusive-use vehicles that are owned and operated by independent contract drivers.
Freight Forwarding—Concert Group Logistics, Inc. (“CGL”) was founded in 2001 and acquired in 2008. CGL provides freight forwarding services through a network of independently owned stations and Company-owned branches located throughout the United States. These stations and branches are responsible for selling and operating freight forwarding transportation services within their geographic area under the authority of CGL. In October 2009, certain assets and liabilities of LRG International Inc. (now known as CGL International) were purchased to complement the operations of CGL through two Florida branches that primarily provide international freight forwarding services. The financial reporting of this operation has been included within CGL.
Freight Brokerage—Through our Freight Brokerage unit, we arrange freight transportation and provide related logistics and supply chain services to customers in North America, ranging from commitments on specific individual shipments to more comprehensive and integrated relationships. From January 2008 until the fourth quarter of 2011, we provided these services solely through our Bounce Logistics, Inc. subsidiary (“Bounce Logistics”). During the fourth quarter of 2011, we opened a sales office in Phoenix, Arizona, which provides freight brokerage services under the name XPO Logistics. The Phoenix office is the first of several cold-start sales offices we plan to open during the next two years.
The Company generally does not own its own trucks, ships or planes; instead we use a network of relationships with ground, ocean and air carriers to find the best transportation solutions for our customers. This allows capital to be invested primarily in expanding our workforce of talented people who are adept in the critical areas of competitive selling, price negotiation, carrier relations and customer service.
GROWTH STRATEGY
Following a significant equity investment by Jacobs Private Equity, LLC (“JPE”) in the Company in September 2011 (as described below under “Recent Developments”), we began to implement a growth strategy
that will leverage our strengths—including management expertise, substantial liquidity and potential access to additional capital—in pursuit of profitable growth. Our strategy anticipates that this will be facilitated by a highly experienced executive team recently put in place, and by new technology that will integrate our operations on a shared platform for cross-company benchmarking and analysis.
Our growth strategy focuses on the following three key areas:
• | Targeted acquisitions—We intend to make selective acquisitions of non-asset based logistics freight brokerage businesses that would benefit from our greater scale and potential access to capital, and we may make similar acquisitions of freight forwarding, expedited and intermodal service businesses, among others. We believe that we are in a position to make the first phase of acquisitions by using existing cash and expanding our credit facilities. |
• | Organic growth—We plan to establish new freight brokerage offices in locations across North America, and we are actively recruiting managers with a proven track record of building successful brokerage operations. We expect the new brokerage offices to generate revenue growth by developing customer and carrier relationships in new territories. |
• | Optimized operations—We intend to optimize our existing operations, acquired companies and greenfield locations by investing in an expanded sales and service workforce, implementing an advanced information technology infrastructure, incorporating industry best practices, and leveraging scale to share capacity more efficiently and increase buying power. |
Recent Developments
Equity Investment
In September 2011, pursuant to the Investment Agreement, dated as of June 13, 2011 (the “Investment Agreement”), by and among JPE, the other investors party thereto (collectively with JPE, the “Investors”) and the Company, we issued to the Investors, for $75.0 million in cash: (i) an aggregate of 75,000 shares of our Series A Convertible Perpetual Preferred Stock (the “Series A Preferred Stock”), which are initially convertible into an aggregate of 10,714,286 shares of our common stock, and (ii) warrants initially exercisable for an aggregate of 10,714,286 shares of our common stock at an initial exercise price of $7.00 per common share (the “Warrants”). Our stockholders approved the issuance of the Series A Preferred Stock and the Warrants at the special meeting of our stockholders on September 1, 2011. We refer to this investment as the “Equity Investment.” See Note 10 to our audited Consolidated Financial Statements in Item 8 of this Annual Report.
The conversion feature of the Series A Preferred Stock was determined to be a beneficial conversion feature (“BCF”) based on the effective initial conversion price and the market value of our common stock at the commitment date for the issuance of the Series A Preferred Stock. Generally accepted accounting principles in the United States (“US GAAP”) require that we recognize the BCF related to the Series A Preferred Stock as a discount on the Series A Preferred Stock and amortize such amount as a deemed distribution through the earliest conversion date. The calculated value of the BCF was in excess of the relative fair value of net proceeds allocated to the Series A Preferred Stock. Accordingly, during the third quarter of 2011 we recorded a discount on the Series A Preferred Stock of $44.2 million with immediate recognition of this amount as a deemed distribution because the Series A Preferred Stock is convertible at any time.
Change of Company Name
In connection with the closing of the Equity Investment, our name was changed from “Express-1 Expedited Solutions, Inc.” to “XPO Logistics, Inc.” on September 2, 2011. Our stockholders approved the amendment to our certificate of incorporation effecting the name change at the special meeting of our stockholders on September 1, 2011.
Reverse Stock Split
In connection with the closing of the Equity Investment, we effected a 4-for-1 reverse stock split on September 2, 2011. Our stockholders approved the amendment to our certificate of incorporation effecting the reverse stock split at the special meeting of our stockholders on September 1, 2011. Unless otherwise noted, all share-related amounts in this Annual Report and our audited Consolidated Financial Statements and the related Notes thereto reflect the reverse stock split.
In connection with the reverse stock split, our stockholders received one new share of our common stock for every four shares of common stock held at the effective time. The reverse stock split reduced the number of shares of outstanding common stock from 33,011,561 to 8,252,891. Proportional adjustments were made to the number of shares issuable upon the exercise of outstanding options to purchase shares of common stock and the per share exercise price of those options.
Increase in Authorized Shares of Common Stock
In connection with the closing of the Equity Investment, the number of authorized shares of our common stock was increased from 100,000,000 shares to 150,000,000 shares on September 2, 2011. Our stockholders approved the amendment to our certificate of incorporation effecting the increase in the number of authorized shares of common stock at the special meeting of the Company’s stockholders on September 1, 2011.
Other Reporting Disclosures
Throughout our reports, we refer to the impact of fuel on our business. For purposes of these references, we have considered the impact of fuel surcharge revenues and the related fuel surcharge expenses only as they relate to our Expedited Transportation business unit. The expedited transportation industry commonly negotiates both fuel surcharges charged to its customers as well as fuel surcharges paid to its carriers. Therefore, we feel that this approach most readily conveys the impact of fuel revenues, costs and the resulting gross margin within this business unit. Our fuel surcharges are determined on a negotiated customer-by-customer basis and are primarily based on a fuel matrix driven by the Department of Energy fuel price index. Fuel surcharge revenues are charged to our customers to provide for variable costs associated with changing fuel prices. Independent contractors and brokered carriers are responsible for the cost of fuel, and therefore are paid a fuel surcharge by the Company to offset their variable cost of fuel. The fuel surcharge payment is expensed as paid and included in the Company’s cost of transportation. Fuel surcharge payments are consistently applied based on the Department of Energy fuel price index and the type of truck utilized. Because fuel surcharge revenues vary based on negotiated customer rates and the overall mix of business, and because our fuel surcharge expense is applied on a consistent basis, gross margin and our gross margin percentage attributable to fuel surcharges will vary from period to period. The impact of fuel surcharge revenue and expense is discussed within management’s discussion and analysis of our Expedited Transportation business unit.
Within our other two business units, Freight Forwarding and Freight Brokerage, fuel charges to our customers are not commonly negotiated and identified separately from total revenue and the associated cost of transportation. Although fuel costs are factored into overall pricing of these services, they are not typically separately identified between carriers and therefore we have not included an analysis of fuel surcharges for these two operating segments. We believe this is a common practice within the freight forwarding and freight brokerage business sectors.
This discussion and analysis refers from time to time to Expedited Transportation’s international operations. These operations consist of freight shipments that originate in or are delivered to either Canada or Mexico. These freight shipments either originate in or are delivered to the United States, and therefore only a portion of the freight movement actually takes place in Canada or Mexico. This freight is intended to furthercarried for domestic customers who pay in U.S. dollars. We discuss this freight separately because our Expedited Transportation business unit has developed an expertise in cross-docking freight at the reader’s understandingborder through the utilization of Canadian and Mexican carriers, and this portion of our business has seen significant growth.
This discussion and analysis also refers from time to time to our Freight Forwarding international operations. These freight movements also originate in or are delivered to the United States and are primarily paid for in U.S. dollars. We discuss this freight separately because of Freight Forwarding’s more recent focus on international freight through its purchase of LRG International, Inc. (now known as CGL International), and because we believe that international freight could be a significant source of growth for us in the future.
We often refer to the costs of our board of directors, our executive team and certain operating costs associated with operating as a public company as “corporate” charges. In addition to the aforementioned items, we also record items such as our income tax provision and other charges that are reported on a consolidated basis within the corporate line items of the following tables.
The following tables are provided to allow readers to review results within our major operating segments.
XPO Logistics, Inc.
Summary Financial Table
For the Twelve Months Ended December 31,
Percent of Revenue | Percentage Change | |||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011-2010 | 2010-2009 | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Operating revenue | $ | 177,076,000 | $ | 157,987,000 | $ | 100,136,000 | 100.0 | % | 100.0 | % | 100.0 | % | 12.1 | % | 57.8 | % | ||||||||||||||||
Direct expense | ||||||||||||||||||||||||||||||||
Transportation services | 133,007,000 | 117,625,000 | 72,284,000 | 75.1 | % | 74.5 | % | 72.2 | % | 13.1 | % | 62.7 | % | |||||||||||||||||||
Station commissions | 11,098,000 | 10,724,000 | 8,798,000 | 6.3 | % | 6.8 | % | 8.8 | % | 3.5 | % | 21.9 | % | |||||||||||||||||||
Insurance | 1,597,000 | 1,161,000 | 1,568,000 | 0.9 | % | 0.7 | % | 1.6 | % | 37.6 | % | -26.0 | % | |||||||||||||||||||
Other | 1,596,000 | 1,077,000 | 746,000 | 0.9 | % | 0.7 | % | 0.7 | % | 48.2 | % | 44.4 | % | |||||||||||||||||||
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Direct expense | 147,298,000 | 130,587,000 | 83,396,000 | 83.2 | % | 82.7 | % | 83.3 | % | 12.8 | % | 56.6 | % | |||||||||||||||||||
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Gross margin | 29,778,000 | 27,400,000 | 16,740,000 | 16.8 | % | 17.3 | % | 16.7 | % | 8.7 | % | 63.7 | % | |||||||||||||||||||
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SG&A expenses | ||||||||||||||||||||||||||||||||
Salaries & benefits | 15,158,000 | 12,039,000 | 7,971,000 | 8.6 | % | 7.6 | % | 8.0 | % | 25.9 | % | 51.0 | % | |||||||||||||||||||
Purchased services | 6,733,000 | 2,519,000 | 1,917,000 | 3.8 | % | 1.6 | % | 1.9 | % | 167.3 | % | 31.4 | % | |||||||||||||||||||
Depreciation & amortization | 1,046,000 | 1,173,000 | 1,123,000 | 0.6 | % | 0.7 | % | 1.1 | % | -10.8 | % | 4.5 | % | |||||||||||||||||||
Other | 5,117,000 | 3,223,000 | 2,558,000 | 2.9 | % | 2.0 | % | 2.6 | % | 58.8 | % | 26.0 | % | |||||||||||||||||||
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Total SG&A expenses | 28,054,000 | 18,954,000 | 13,569,000 | 15.8 | % | 12.0 | % | 13.6 | % | 48.0 | % | 39.7 | % | |||||||||||||||||||
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Operating income | 1,724,000 | 8,446,000 | 3,171,000 | 1.0 | % | 5.3 | % | 3.2 | % | -79.6 | % | 166.4 | % | |||||||||||||||||||
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Other expense | 56,000 | 140,000 | 51,000 | 0.0 | % | 0.1 | % | 0.1 | % | -60.0 | % | 174.5 | % | |||||||||||||||||||
Interest expense | 191,000 | 205,000 | 105,000 | 0.1 | % | 0.1 | % | 0.1 | % | -6.8 | % | 95.2 | % | |||||||||||||||||||
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Income before income tax | 1,477,000 | 8,101,000 | 3,015,000 | 0.8 | % | 5.1 | % | 3.0 | % | -81.8 | % | 168.7 | % | |||||||||||||||||||
Income tax provision (benefit) | 718,000 | 3,213,000 | 1,325,000 | 0.4 | % | 2.0 | % | 1.3 | % | -77.7 | % | 142.5 | % | |||||||||||||||||||
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Income from Continuing Operations | 759,000 | 4,888,000 | 1,690,000 | 0.4 | % | 3.1 | % | 1.7 | % | -84.5 | % | 189.2 | % | |||||||||||||||||||
Income from Discontinued Operations, Net of Tax | — | — | 15,000 | 0.0 | % | 0.0 | % | 0.0 | % | — | -100.0 | % | ||||||||||||||||||||
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Net Income | $ | 759,000 | $ | 4,888,000 | $ | 1,705,000 | 0.4 | % | 3.1 | % | 1.7 | % | -84.5 | % | 186.7 | % | ||||||||||||||||
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Consolidated Results
2011 vs. 2010
In total, the Company’s financial conditionconsolidated revenues for fiscal year 2011 were 12.1% greater than fiscal year 2010. This growth was driven primarily by increased international revenues at Express-1 and continued strong growth in our Freight Brokerage unit.
Direct expenses represent expenses attributable to freight transportation. Our “asset-light” operating model arranges transportation capacity through variable cost transportation alternatives, and therefore enables us to control certain of our operating costs as our volumes fluctuate. Our primary means of arranging transportation capacity are through our fleet of independent contractors in Expedited Transportation and our network of independent ground, ocean and air carriers in Freight Forwarding and Freight Brokerage. We believe this operating model gives us a strategic advantage as compared to transportation providers who directly own assets, particularly in uncertain economic conditions. Our overall gross margin for fiscal year 2011 was 16.8%, a decrease when compared to 17.3% in fiscal year 2010. The decrease in gross margin can be attributed primarily to the following items:
International shipments in Expedited Transportation tend to be higher revenue transactions than domestic shipments, but historically have generated a lower gross margin percentage. As international business becomes a larger component of our revenue, we expect to experience continuing decreases in gross margin percentage as our business mix shifts.
Freight Brokerage continues to grow at a higher rate than Expedited Transportation and Freight Forwarding, which we expect to continue in the future. Freight Brokerage historically has a lower gross margin percentage compared with Expedited Transportation. As our business mix shifts toward Freight Brokerage in the future, we expect to experience continuing decreases in gross margin percentage.
Selling, general and administrative (“SG&A”) expenses as a percentage of revenue were 15.8% for fiscal year 2011, an increase from 12.0% in 2010. Overall, SG&A expenses increased by $9.1 million for full year 2011 compared to 2010, resulting from an increase of $4.2 million in purchased services, of which approximately $1.0 million represented indirect expenses associated with the Equity Investment and $1.9 million represented recruiting and other costs related to new executive team appointments. Salary and benefit costs increased by $3.1 million related primarily to our investment in additional salespeople at Freight Brokerage and Freight Forwarding and the new executive team appointments, of which $850,000 were one-time guarantees recorded during the fourth quarter of 2011. Additionally, other SG&A costs were up $1.9 million mainly due to equity compensation expense of approximately $900,000 recorded in the fourth quarter of 2011 related to equity grants for the new executive team.
As of December 31, 2011, we had approximately $4.0 million of unrecognized compensation cost related to non-vested stock option-based compensation that we expect to recognize over a weighted average period of approximately 4.3 years. Also as of December 31, 2011, we had approximately $6.9 million of unrecognized compensation cost related to non-vested restricted stock-based compensation that we expect to recognize over a weighted average period of approximately 4.5 years.
Our effective income tax rate for the fiscal year ended December 31, 2011 was 46% as compared to 40% for the fiscal year ended December 31, 2010 associated with out of period tax charges incurred in 2011.
The Company finished fiscal year 2011 with $759,000 in net income, which is a 84.5% decrease when compared to $4.9 million for fiscal year 2010. Investment in the new executive team and corporate infrastructure, which includes payroll, equity compensation and professional fees, and indirect transaction costs related to the Equity Investment contributed to the reduction in net income.
2010 vs. 2009
The actions we took in 2009 to minimize the negative impact of the economic downturn significantly helped improve results of operations during 2010. We experienced solid financial improvements across our business units, including improvements in: gross revenues, gross margin percentage, SG&A-to-revenue ratios and should be readnet income. Our gross margin percentage and SG&A-to-revenue ratios returned to more historic levels during 2010 as the economy improved.
Overall consolidated revenues of $158.0 million for fiscal year 2010 represented an increase of 57.8% over fiscal year 2009. LRG International, acquired in conjunctionOctober of 2009, contributed $12.1 million of the revenue growth for 2010, with remaining growth being achieved organically.
In 2010, the consolidated gross margin percentage improved to 17.3% from 16.7% in 2009 as the result of significant margin improvements at our Expedited Transportation unit and an overall improvement in our mix of business.
SG&A expenses as a percentage of revenue declined steadily throughout the year as revenues increased more quickly than SG&A costs.
Accordingly, net income improved to $4.9 million in 2010, which represented a 187% increase over net income of $1.7 million in full year 2009.
Our Express-1 Dedicated business unit was discontinued during the fourth quarter of 2008 due to the loss of the contract with its key customer. All operations were ceased effective February 28, 2009, and all assets have either been sold or transferred to our other operations.
Expedited Transportation
(Express -1)
Summary Financial Table
For the Twelve Months Ended December 31,
Percent of Revenue | Percentage Change | |||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011-2010 | 2010-2009 | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Operating revenue | $ | 87,558,000 | $ | 76,644,000 | $ | 50,642,000 | 100.0 | % | 100.0 | % | 100.0 | % | 14.2 | % | 51.3 | % | ||||||||||||||||
Direct expense | ||||||||||||||||||||||||||||||||
Transportation services | 66,267,000 | 57,129,000 | 37,728,000 | 75.7 | % | 74.5 | % | 74.5 | % | 16.0 | % | 51.4 | % | |||||||||||||||||||
Insurance | 1,404,000 | 1,020,000 | 1,437,000 | 1.6 | % | 1.3 | % | 2.8 | % | 37.6 | % | -29.0 | % | |||||||||||||||||||
Other | 1,594,000 | 1,077,000 | 709,000 | 1.8 | % | 1.4 | % | 1.4 | % | 48.0 | % | 51.9 | % | |||||||||||||||||||
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Direct expense | 69,265,000 | 59,226,000 | 39,874,000 | 79.1 | % | 77.3 | % | 78.7 | % | 17.0 | % | 48.5 | % | |||||||||||||||||||
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Gross margin | 18,293,000 | 17,418,000 | 10,768,000 | 20.9 | % | 22.7 | % | 21.3 | % | 5.0 | % | 61.8 | % | |||||||||||||||||||
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SG&A expenses | ||||||||||||||||||||||||||||||||
Salaries & benefits | 6,854,000 | 7,061,000 | 5,062,000 | 7.8 | % | 9.2 | % | 10.0 | % | -2.9 | % | 39.5 | % | |||||||||||||||||||
Purchased services | 1,426,000 | 1,249,000 | 782,000 | 1.6 | % | 1.6 | % | 1.5 | % | 14.2 | % | 59.7 | % | |||||||||||||||||||
Depreciation & amortization | 403,000 | 494,000 | 521,000 | 0.5 | % | 0.6 | % | 1.0 | % | -18.4 | % | -5.2 | % | |||||||||||||||||||
Other | 1,411,000 | 1,008,000 | 957,000 | 1.6 | % | 1.3 | % | 1.9 | % | 40.0 | % | 5.3 | % | |||||||||||||||||||
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Total SG&A expenses | 10,094,000 | 9,812,000 | 7,322,000 | 11.5 | % | 12.8 | % | 14.5 | % | 2.9 | % | 34.0 | % | |||||||||||||||||||
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Operating income | $ | 8,199,000 | $ | 7,606,000 | $ | 3,446,000 | 9.4 | % | 9.9 | % | 6.8 | % | 7.8 | % | 120.7 | % | ||||||||||||||||
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Expedited Transportation
2011 vs. 2010
Our Expedited Transportation segment generated fiscal year 2011 revenue of $87.6 million, reflecting growth of 14.2% compared to 2010. As the international component of our Expedited Transportation unit increased during 2011, Mexican and Canadian cross-border freight represented 24.2% of segment revenue for 2011, compared to 20.1% of segment revenue for 2010.
For the year ended December 31, 2011, rising fuel prices positively impacted our revenue as fuel charge revenues represented 16.4% of our revenue as compared to 12.3% for 2010.
Expedited Transportation’s gross margin percentage was 20.9% for fiscal year 2011, compared to 22.7% for 2010. Reasons for the decrease in gross margin percentage include:
The increase in international transactions, which are typically higher revenue shipments at a lower gross margin percentage than our domestic transactions;
A higher percentage of shipments placed through brokered carriers, associated mainly with the growth in international business. All cross-border moves are handled by brokered carriers; and
Expedited Transportation results in the third quarter of 2010 were positively impacted by floods in Mexico that generated significantly higher margins than normal.
Historically, the utilization of brokered carriers has enabled our Expedited Transportation unit to handle peak volume periods for its customers while building its fleet of independent contractor drivers. Brokered carriers also are utilized to more efficiently handle freight that crosses into Canada or Mexico. This component of Expedited Transportation’s purchased transportation costs is critical to our ongoing success; however, gross margin percentages relating to this business are typically lower than margins associated with our consolidated financial statementsown fleet of independent contractor drivers. During fiscal year 2011, 32.5% of our Expedited Transportation unit’s revenue was carried by brokered carriers as compared to 29.6% for 2010. The increase was due primarily to the growth of our international business.
SG&A expenses as a percentage of revenue decreased to 11.5% for full year 2011 from 12.8% for 2010. This decrease in SG&A as a percentage of revenues was driven by improved leverage as our 2011 Expedited Transportation revenues increased $10.9 million as compared to 2010, with a 2.9% increase during 2011 of $282,000 in SG&A expenses as compared to 2010.
Operating income increased by 7.8% or $593,000 for fiscal year 2011 compared to 2010, driven primarily by the factors described above.
Management’s growth strategy for our Expedited Transportation unit is based on:
• | Targeted investments to expand the sales and service workforce, in order to capture key opportunities in specialized areas (e.g., refrigeration and defense); |
An increased focus on carrier recruitment and retention, as well as improved utilization of the current carrier fleet;
Technology upgrades to improve efficiency in sales and carrier procurement; and
Selective acquisitions of non-asset based expedited businesses that would benefit from our scale and potential access to capital.
2010 vs. 2009
During 2010, Expedited Transportation generated annual revenue of $76.6 million. Expedited Transportation’s 2010 revenue increased 51% when compared to 2009. For the year ended December 31, 2010, Expedited Transportation’s continued investment in sales diversification paid off as it expanded its presence into other markets. Also, the results of the Company’s investment in its Mexican operations continued to exceed management’s expectations. Mexican operations generated 16% of the Company’s total revenue for full year 2010 as compared to 13% during 2009. This growth has contributed to our overall improvement in diversifying our customer base, which historically has been heavily dependent on the automotive sector. In general, overall pricing remained stable in 2010 as compared to 2009. Expedited Transportation historically has rebounded quickly from recessions as the expediting industry in general is typically one of the first benefactors of a recovering economy. This proved to be true during 2010 as Expedited Transportation experienced significant quarter-over-quarter growth during 2010 as compared to 2009.
Fuel prices increased throughout the year resulting in a corresponding increase in fuel surcharge as a percentage of revenue. For the year ended December 31, 2010, fuel surcharge revenues represented 12.3% of our revenue as compared to 9.5% in the same period in 2009. Rising fuel prices tend to have a negative impact on our gross margin percentage since these revenues are substantially passed through to our independent contractor drivers and do not tend to add any additional gross margin dollars to the Company.
Expedited Transportation’s direct expenses represent both fleet costs associated with their fleet of independent contractor drivers along with brokerage costs related notesto runs that are brokered to other carriers. Expedited Transportation’s gross margin percentage increased to 22.7% for the year ended December 31, 2010 compared to 21.3% for 2009. The primary factor resulting in the increased gross margin percentage was a favorable mix shift for business at our Expedited Transportation unit. Variables that impacted the mix of business included elsewhere herein. This discussion also contains forward-looking statements. the vehicle type utilized and our customer utilization mix.
As a percentage of total revenue, our SG&A costs dropped for the year ended December 31, 2010 to 12.8% as compared to 14.5% for 2009. Overall, SG&A expenses increased by $2.5 million for full year 2010 as compared to 2009. Increased salaries and benefits accounted for $2.0 million of the increase in SG&A at Expedited Transportation. Approximately $815,000 of the salary and benefits increases resulted from the reestablishment of incentive compensation and the Company match under the XPO Logistics, Inc. 401(k) Plan. An additional $270,000 of the increase resulted from increased expenses relating to the Company’s health insurance plan. The remaining $1.1 million of increased SG&A expenses resulted from the addition of new employees and raises received by existing employees.
Freight Forwarding
(Concert Group Logistics)
Summary Financial Table
For the Twelve Months Ended December 31,
Percent of Revenue | Percentage Change | |||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011-2010 | 2010-2009 | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Operating revenue | $ | 65,148,000 | $ | 65,222,000 | $ | 41,162,000 | 100.0 | % | 100.0 | % | 100.0 | % | -0.1 | % | 58.5 | % | ||||||||||||||||
Direct expense | ||||||||||||||||||||||||||||||||
Transportation services | 47,122,000 | 47,694,000 | 28,067,000 | 72.3 | % | 73.1 | % | 68.2 | % | -1.2 | % | 69.9 | % | |||||||||||||||||||
Station commissions | 11,098,000 | 10,724,000 | 8,798,000 | 17.0 | % | 16.4 | % | 21.4 | % | 3.5 | % | 21.9 | % | |||||||||||||||||||
Insurance | 140,000 | 131,000 | 114,000 | 0.2 | % | 0.2 | % | 0.3 | % | 6.9 | % | 14.9 | % | |||||||||||||||||||
Other | — | — | — | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||||||||||
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Direct expense | 58,360,000 | 58,549,000 | 36,979,000 | 89.6 | % | 89.8 | % | 89.8 | % | -0.3 | % | 58.3 | % | |||||||||||||||||||
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Gross margin | 6,788,000 | 6,673,000 | 4,183,000 | 10.4 | % | 10.2 | % | 10.2 | % | 1.7 | % | 59.5 | % | |||||||||||||||||||
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SG&A expenses | ||||||||||||||||||||||||||||||||
Salaries & benefits | 2,897,000 | 2,670,000 | 1,615,000 | 4.4 | % | 4.1 | % | 3.9 | % | 8.5 | % | 65.3 | % | |||||||||||||||||||
Purchased services | 432,000 | 228,000 | 129,000 | 0.7 | % | 0.3 | % | 0.3 | % | 89.5 | % | 76.7 | % | |||||||||||||||||||
Depreciation & amortization | 575,000 | 629,000 | 575,000 | 0.9 | % | 1.0 | % | 1.4 | % | -8.6 | % | 9.4 | % | |||||||||||||||||||
Other | 1,339,000 | 1,264,000 | 743,000 | 2.1 | % | 1.9 | % | 1.8 | % | 5.9 | % | 70.1 | % | |||||||||||||||||||
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Total SG&A expenses | 5,243,000 | 4,791,000 | 3,062,000 | 8.0 | % | 7.3 | % | 7.4 | % | 9.4 | % | 56.5 | % | |||||||||||||||||||
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Operating income | $ | 1,545,000 | $ | 1,882,000 | $ | 1,121,000 | 2.4 | % | 2.9 | % | 2.7 | % | -17.9 | % | 67.9 | % | ||||||||||||||||
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Freight Forwarding
2011 vs. 2010
Our actual results could differ materiallyFreight Forwarding unit’s revenues for the fiscal year ended December 31, 2011 were $65.1 million, which was essentially flat with 2010. The gains in the first six months of 2011 were offset in the last six months of 2011 by certain lost revenue from those anticipatedlarger customers and specific project work from 2010.
Direct expenses consisted primarily of payments for purchased transportation and payments to Freight Forwarding’s independent offices that control the overall operation of our customers’ shipments. As a percentage of revenue, direct expenses of 89.6% for the full year ended 2011 were flat as compared to 89.8% for 2010. The gross margin percentage for full year 2011 of 10.4% was flat as compared to 10.2% for 2010.
SG&A expenses as a percentage of revenue increased to 8.0% of revenues for full year 2011 compared to 7.3% for 2010. Overall, SG&A expenses for full year 2011 increased by approximately $450,000 compared to 2010 due to an increase in these forward-looking statementspurchased services and our investments in additional salespeople.
Primarily as a result of the risksSG&A increase discussed above, Freight Forwarding’s full-year 2011 operating income of $1.5 million decreased 17.9% as compared to 2010.
As of December 31, 2011 and uncertainties set forth elsewhereDecember 31, 2010, the Company maintained a network of 23 independent offices and two Company-owned branches.
Management’s growth strategy for Freight Forwarding is based on:
Plans to open new offices in this Annual Reportkey U.S. markets, which will consist of both Company-owned and in our other SEC filings. Readers are cautioned not to place undue
19independently owned stations;
Increased international growth, with a focus on Asia and Latin America;
Technology upgrades to improve efficiency in sales and carrier procurement; and
Selective acquisitions of complementary, non-asset based freight forwarding businesses that would benefit from our scale and potential access to capital.
2010 vs. 2009
Freight Forwarding’s year-end revenue in 2010 reflected a rebound from 2009. Revenues of $65.2 million compared favorably to revenues of $41.2 million in 2009, representing a 58.5% increase. The purchase of certain assets and liabilities of LRG International (CGL International) in October 2009 contributed to the revenue increases during 2010 and 2009 of $12.1 million and $1.6 million, respectively.
Direct expenses consist primarily of payments for purchased transportation in addition to payments to Freight Forwarding’s independent offices that control the overall operation of our customers’ shipments. As a percentage of Freight Forwarding revenue, direct expenses represented 89.8% for the years ended December 31, 2010 and 2009. Management expected direct expenses to decrease as a percentage of Freight Forwarding revenue for 2010 because of the acquisition of CGL International with its higher margins. However, because of increasing fuel costs, most notably in the fourth quarter, direct expenses as a percentage of revenue in 2010 stayed unchanged as compared to 2009. The result left gross margin at a comparable percentage of revenue of 10.2% for the years ended December 31, 2010 and 2009. For 2010, CGL International’s direct expense represented $10.4 million or 21.5% of the total direct expense of Freight Forwarding.
SG&A expenses increased for full year 2010 by $1.7 million as compared to 2009, due in part to running CGL International as a Company-owned station. For the years ended December 31, 2010 and 2009, CGL International added approximately $1.3 million and $221,000, respectively, to SG&A expenses. Increased salaries and benefits were responsible for $1.1 million of the increase in SG&A for full year 2010. $673,000 of this increase for full year 2010 as compared to 2009 related to a full year of CGL International payroll and benefits being absorbed by Freight Forwarding. The remaining $427,000 of increased SG&A expense for 2010 as compared to 2009 reflected the addition of six new employees and incentive and other pay increases for all employees. Other costs also increased by $521,000 for 2010 as compared to 2009, of which approximately $196,000 was related to CGL International’s full year of costs and approximately $280,000 was related to bad debt and impairment charges in connection with a former independent station owner whose contract was terminated. As a percentage of revenue, SG&A costs decreased to 7.3% for the year ended December 31, 2010 compared to 7.4% for the year ended December 31, 2009.
For the year ended December 31, 2010, Freight Forwarding generated income from operations before tax of $1.9 million, representing an increase of 67.9% as compared to full year 2009. Approximately $488,000 or 25.7% of Freight Forwarding’s operating income was generated at CGL International.
As of December 31, 2009, the Company maintained a network of 24 independent stations and two Company-owned branches.
Freight Brokerage
(Bounce Logistics and XPO Logistics)
Summary Financial Table
For the Twelve Months Ended December 31,
Percent of Revenue | Percentage Change | |||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011-2010 | 2010-2009 | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Operating revenue | $ | 29,186,000 | $ | 19,994,000 | $ | 10,425,000 | 100.0 | % | 100.0 | % | 100.0 | % | 46.0 | % | 91.8 | % | ||||||||||||||||
Direct expense | ||||||||||||||||||||||||||||||||
Transportation services | 24,434,000 | 16,675,000 | 8,582,000 | 83.7 | % | 83.4 | % | 82.3 | % | 46.5 | % | 94.3 | % | |||||||||||||||||||
Insurance | 53,000 | 10,000 | 17,000 | 0.2 | % | 0.1 | % | 0.2 | % | 430.0 | % | -41.2 | % | |||||||||||||||||||
Other | 2,000 | — | 37,000 | 0.0 | % | 0.0 | % | 0.4 | % | — | -100.0 | % | ||||||||||||||||||||
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Direct expense | 24,489,000 | 16,685,000 | 8,636,000 | 83.9 | % | 83.5 | % | 82.8 | % | 46.8 | % | 93.2 | % | |||||||||||||||||||
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Gross margin | 4,697,000 | 3,309,000 | 1,789,000 | 16.1 | % | 16.5 | % | 17.2 | % | 41.9 | % | 85.0 | % | |||||||||||||||||||
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SG&A expenses | ||||||||||||||||||||||||||||||||
Salaries & benefits | 2,484,000 | 1,761,000 | 857,000 | 8.5 | % | 8.8 | % | 8.2 | % | 41.1 | % | 105.5 | % | |||||||||||||||||||
Purchased services | 148,000 | 98,000 | 64,000 | 0.5 | % | 0.5 | % | 0.6 | % | 51.0 | % | 53.1 | % | |||||||||||||||||||
Depreciation & amortization | 44,000 | 31,000 | 27,000 | 0.2 | % | 0.2 | % | 0.3 | % | 41.9 | % | 14.8 | % | |||||||||||||||||||
Other | 716,000 | 554,000 | 383,000 | 2.5 | % | 2.8 | % | 3.7 | % | 29.2 | % | 44.6 | % | |||||||||||||||||||
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Total SG&A expenses | 3,392,000 | 2,444,000 | 1,331,000 | 11.6 | % | 12.2 | % | 12.8 | % | 38.8 | % | 83.6 | % | |||||||||||||||||||
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Operating income | $ | 1,305,000 | $ | 865,000 | $ | 458,000 | 4.5 | % | 4.3 | % | 4.4 | % | 50.9 | % | 88.9 | % | ||||||||||||||||
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Freight Brokerage
2011 vs. 2010
Our Freight Brokerage unit continues to see significant growth, with revenue for the fiscal year ended December 31, 2011 increasing by 46.0% to $29.2 million, compared to revenue of $20.0 million for the fiscal year ended 2010. Revenue growth was largely driven by expansion of the Freight Brokerage customer base resulting from a year-over-year headcount increase of 8 salespeople over the year.
For full year 2011, Freight Brokerage’s direct transportation expenses of 83.9% as a percentage of revenue were flat as compared to 83.5% for 2010. The additional volume coupled with gross margin of 16.1% added an additional $1.4 million of gross margin for full year 2011 as compared to 2010.
As a percentage of revenue, SG&A costs decreased to 11.6% for full year 2011, compared to 12.2% for 2010. Overall, SG&A expenses increased by $948,000 for full year 2011 compared to 2010. Salaries and benefits increased by $723,000 for full year 2011 as compared to 2010, due primarily to our investments in new salespeople and sales commissions related to the volume growth.
The above items resulted in operating income of $1.3 million for full year 2011, an increase of 50.9% from $865,000 for 2010.
Management’s growth strategy for our Freight Brokerage unit is based on:
Selective acquisitions of non-asset based freight brokerage firms that would benefit from our scale and potential access to capital; and
The opening of new freight brokerage offices in the U.S.;
Investment in an expanded sales and service workforce;
Technology upgrades to improve efficiency in sales, freight tracking and carrier procurement; and
The integration of industry best practices, with specific focus on any forward-looking statements,better leveraging our scale and lowering administrative overhead.
2010 vs. 2009
Freight Brokerage saw significant growth as its revenue for the year ended December 31, 2010 increased by 91.8% to $20.0 million compared to 2009 annual revenues of $10.4 million. We believe this was reflective of an improving freight environment and an aggressive growth strategy.
For the year ended December 31, 2010, our Freight Brokerage unit’s direct transportation expenses increased to 83.5% as a percentage of revenue as compared to 82.8% for 2009. We believe this cost increase reflects a tightening of truck capacity in the marketplace. This decrease in margin was more than offset by additional business that generated an additional $1.5 million in gross margin for the year ended December 31, 2010 as compared to 2009.
SG&A expenses increased by $1.1 million for the year ended December 31, 2010 as compared to 2009. Increased salaries and benefits were responsible for $904,000 of the increase during 2010 and resulted from 12 additional employees, increased volumes and the reestablishment of benefits that were eliminated in 2009 due to the economic recession. Overall, leverage of scale improved as the percentage of SG&A costs to revenue decreased from 12.8% in 2009 to 12.2% in 2010.
The above items resulted in Freight Brokerage generating operating income of $865,000 in the year ended December 31, 2010 compared to $458,000 for full year 2009.
XPO Corporate
Summary of Selling, General and Administrative Expenses
For the Twelve Months Ended December 31,
Percent of Revenue | Percentage Change | |||||||||||||||||||||||||||||||
2011 | 2010 | 2009 | 2011 | 2010 | 2009 | 2011-2010 | 2010-2009 | |||||||||||||||||||||||||
SG&A expenses | ||||||||||||||||||||||||||||||||
Salaries & benefits | $ | 2,923,000 | $ | 547,000 | $ | 437,000 | 1.7 | % | 0.3 | % | 0.4 | % | 434.4 | % | 25.2 | % | ||||||||||||||||
Purchased services | 4,727,000 | 944,000 | 942,000 | 2.7 | % | 0.6 | % | 0.9 | % | 400.7 | % | 0.2 | % | |||||||||||||||||||
Depreciation & amortization | 24,000 | 19,000 | — | 0.0 | % | 0.0 | % | 0.0 | % | 26.3 | % | — | ||||||||||||||||||||
Other | 1,651,000 | 397,000 | 475,000 | 0.9 | % | 0.3 | % | 0.5 | % | 315.9 | % | -16.4 | % | |||||||||||||||||||
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Total SG&A expenses | 9,325,000 | 1,907,000 | 1,854,000 | 5.3 | % | 1.2 | % | 1.9 | % | 389.0 | % | 2.9 | % | |||||||||||||||||||
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Corporate
2011 vs. 2010
Corporate costs for the full year ended December 31, 2011 increased by $7.4 million as compared to 2010. As a percentage of revenue, Corporate costs increased to 5.3% for full year 2011, compared with 1.2% for 2010. Approximately $3.7 million of the full-year 2011 increase related to the Equity Investment and executive team appointments described above, of which speak onlyapproximately $1.2 million was recorded in the quarter ended December 31, 2011. For the fourth quarter 2011, Corporate costs were $4.8 million. We expect our Corporate costs in 2012 to run at a slightly higher rate than we experienced in the quarter ended December 31, 2011.
2010 vs. 2009
Corporate costs for the year ended December 31, 2010 increased by $53,000 as compared to 2009. Increased salaries and benefits were responsible for $110,000 of the 2010 increase and resulted from increased volumes and the reestablishment of benefits that were eliminated in 2009 due to the economic recession. As a percentage of revenue, corporate costs decreased from 1.9% for the year ended December 31, 2009 to 1.2% for 2010.
LIQUIDITY AND CAPITAL RESOURCES
General
As of December 31, 2011, we had $83.1 million of working capital with associated cash of $74.0 million, as compared to working capital of $12.3 million and cash of $561,000 as of December 31, 2010. This represents an increase of $70.8 million in working capital during the date hereof.twelve-month period. The increase was primarily due to the net proceeds of cash received relating to the Equity Investment, which closed on September 2, 2011. We are not a party to any transactions that would be considered “off balance sheet” pursuant to disclosure requirements under ITEM 303(c).
We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs and our planned growth initiatives. In addition to investing our existing cash balances and net cash provided by operating activities, in certain circumstances we may also use debt financings (including, without limitation, credit facilities supported by our accounts receivable balances) and issuances of equity or equity-related securities to fund our operating needs and growth initiatives.
We believe that our existing cash balances, funds we expect to generate from our operations and funds available under our current revolving credit facility will be sufficient for the consolidated financial statements.
Revenue RecognitionCash Flow
During the Company’s Express-1year ended December 31, 2011, $6.6 million was generated in cash from operations compared to $2.3 million for the prior year. The primary source of cash for the year ended December 31, 2011 was our transportation services revenue, while the primary use of cash for the period was payment for transportation services.
Cash generated from revenue equaled $178.7 million for the year ended December 31, 2011 as compared to $151.4 million for 2010 and Bounce Logistics business units,correlates directly with revenue is recognized primarily atincreases between the pointtwo years. Cash inflows increased because of a decrease in time delivery is completed onaccounts receivable of $1.6 million. Our average days outstanding in accounts receivable have decreased by nine days between the freight shipments it handles; with related costs12-month periods ended December 31, 2011 and December 31, 2010, respectively.
Cash used for payment of delivery being accruedtransportation services for the year ended December 31, 2011 equaled $148.3 million as incurred and expensed withincompared to $128.2 million for the same period in 2010. The increase in cash outflows between the two years also directly correlates to the increase in business between the two years. Days outstanding in accounts payable and accrued expenses decreased by five days between 2011 and 2010 due in large part to the timing of cash disbursements at year end.
Other operating uses of cash included SG&A items which equaled $23.4 million and $18.2 million for fiscal years 2011 and 2010, respectively. Significant expenditures in SG&A include payroll and purchased services. For the associated revenueyear ended December 31, 2011, payroll expenses were $15.2 million compared to $12.0 million for the same period in 2010. Included in the $15.2 million in payroll expenses is recognized. For$1.1 million of increased payroll incentives accrued during the period (but to be paid in future periods) relating to the new executive team hired during the fourth quarter of 2011.
Investing activities used approximately $1.2 million during the year ended December 31, 2011 compared to our use of $1.3 million on these business units,activities during the Company usesprior year. During 2011, cash was used to purchase $754,000 in fixed assets. In addition, an acquisition earn-out payment of $450,000 was made to the following supporting criteriaformer owners of LRG International during 2011. During 2010, we used $811,000 to determine revenue has been earnedpurchase fixed assets and should be recognized: i) persuasive evidencepaid $500,000 to the former owners of LRG International in connection with that an arrangement exists, ii) services have been rendered, iii)acquisition.
Financing activities provided approximately $68.0 million for the sales price is fixedyear ended December 31, 2011 compared to the use of $882,000 in 2010. Sources of cash from financing activities during the year ended December 31,
2011, included $71.6 million of net proceeds from the issuance of the Series A Convertible Perpetual Preferred Stock and determinablethe Warrants and iv) collectability is reasonably assured.
Line of Credit and Term Loan
On March 31, 2010, we renewed a $15.0 million credit facility that provided for a receivables-based revolving line of credit of up to $10.0 million and a term loan of $5.0 million. Commencing April 30, 2010, the term loan is payable in 36 consecutive monthly installments consisting of $139,000 in monthly principal payments plus the unpaid interest accrued on the loan. Interest is payable at the one-month LIBOR plus 225 basis points (2.51% as of December 31, 2011).
On March 31, 2011, we amended the credit agreement governing our revolving credit facility and the term loan described above to extend the maturity date of the freight is picked up fromrevolving credit facility to March 31, 2013 and to eliminate the shipper. This alternative method of revenue recognition is not the preferred method of revenue recognition as prescribed within Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force IssueNo. 91-9Revenue and Expense Recognition for Freight Services in Progress(“EITF N.91-9”). This alternative method recognizes revenue and associated expenses priorreceivables borrowing base limitation previously applicable to the point in time that all services are completed.revolving credit facility. The userevolving credit facility continues to provide for a line of credit of up to $10.0 million. We may draw upon this method does not result in a material difference from oneline of credit up to $10.0 million, less amounts outstanding under letters of credit. The proceeds of the more preferred methodsline of credit are to be used exclusively for working capital purposes.
Substantially all of our assets are pledged as identifiedcollateral securing our performance under the revolving credit facility and term loan. The revolving credit facility bears interest at the one-month LIBOR plus a current increment of 175 basis points (2.01% as of December 31, 2011).
The credit agreement governing the revolving credit facility and the term loan contains certain operating covenants and certain covenants related to our financial performance. Included among the covenants are a fixed charge coverage ratio and a total funded debt to earnings before interest, taxes, depreciation and amortization ratio. We are currently in EITFcompliance with all terms under the credit agreement and no events of default exist under the terms of such agreement.
We had outstanding standby letters of credit of $410,000 at each of December 31, 2011 and December 31, 2010 related to insurance policies either continuing in force or recently cancelled. Amounts outstanding for letters of credit reduce the amount available under the revolving credit facility on a dollar-for-dollar basis.
Available capacity in excess of outstanding borrowings under the line of credit was approximately $9.6 million and $6.8 million as of December 31, 2011 and December 31, 2010, respectively. As of December 31, 2011 and December 31, 2010, the line of credit balance was $0 and $2.7 million, respectively.
No. 91-9.Disclosures About Contractual Obligations and Commercial Contingencies
The following table aggregates all contractual commitments and commercial obligations, due by period, that affect our financial condition and liquidity position as of December 31, 2011:
Payments Due by Period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | |||||||||||||||
Capital lease obligations | $ | 45,000 | $ | 8,000 | $ | 20,000 | $ | 17,000 | $ | — | ||||||||||
Notes payable | 2,084,000 | 1,667,000 | 417,000 | — | — | |||||||||||||||
Line of credit | — | — | — | — | — | |||||||||||||||
Operating leases | 6,151,000 | 584,000 | 1,486,000 | 999,000 | 3,082,000 | |||||||||||||||
Earn out obligation—LRG | 450,000 | 450,000 | — | — | — | |||||||||||||||
Employment contracts | 16,849,000 | 4,154,000 | 7,200,000 | 5,495,000 | — | |||||||||||||||
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Total contractual obligations | $ | 25,579,000 | $ | 6,863,000 | $ | 9,123,000 | $ | 6,511,000 | $ | 3,082,000 | ||||||||||
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CRITICAL ACCOUNTING POLICIES
The Company has evaluated the impact of this alternative method onprepares its consolidated financial statements and concluded that the impact is immaterial to the financial statements.
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�� | Year to Year Change | Percent of Revenue | ||||||||||||||||||||||
2008 | 2007 | In Dollars | In Percentage | 2008 | 2007 | |||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Express-1 | $ | 52,639,000 | $ | 47,713,000 | $ | 4,926,000 | 10.3 | % | 48.1 | % | 100.0 | % | ||||||||||||
Concert Group Logistics | 51,136,000 | — | 51,136,000 | — | 46.7 | % | — | |||||||||||||||||
Bounce Logistics | 7,011,000 | — | 7,011,000 | — | 6.4 | % | — | |||||||||||||||||
Intercompany Eliminations | (1,324,000 | ) | — | (1,324,000 | ) | — | -1.2 | % | — | |||||||||||||||
Total Revenues | 109,462,000 | 47,713,000 | 61,749,000 | 129.4 | % | 100.0 | % | 100.0 | % | |||||||||||||||
Direct Expenses | ||||||||||||||||||||||||
Express-1 | 40,408,000 | 35,951,000 | 4,457,000 | 12.4 | % | 36.9 | % | 75.3 | % | |||||||||||||||
Concert Group Logistics | 46,578,000 | — | 46,578,000 | — | 42.6 | % | — | |||||||||||||||||
Bounce Logistics | 5,966,000 | — | 5,966,000 | — | 5.5 | % | — | |||||||||||||||||
Intercompany Eliminations | (1,324,000 | ) | — | (1,324,000 | ) | — | -1.3 | % | — | |||||||||||||||
Total Direct Expenses | 91,628,000 | 35,951,000 | 55,677,000 | 154.9 | % | 83.7 | % | 75.3 | % | |||||||||||||||
Gross Margin | ||||||||||||||||||||||||
Express-1 | 12,231,000 | 11,762,000 | 469,000 | 4.0 | % | 11.2 | % | 24.7 | % | |||||||||||||||
Concert Group Logistics | 4,558,000 | — | 4,558,000 | — | 4.2 | % | — | |||||||||||||||||
Bounce Logistics | 1,045,000 | — | 1,045,000 | — | 0.9 | % | — | |||||||||||||||||
Total Gross Margin | 17,834,000 | 11,762,000 | 6,072,000 | 51.6 | % | 16.3 | % | 24.7 | % | |||||||||||||||
Selling, General & Administrative | ||||||||||||||||||||||||
Express-1 | 7,116,000 | 7,236,000 | (120,000 | ) | -1.7 | % | 6.5 | % | 15.2 | % | ||||||||||||||
Concert Group Logistics | 2,847,000 | — | 2,847,000 | — | 2.6 | % | — | |||||||||||||||||
Bounce Logistics | 1,079,000 | — | 1,079,000 | — | 1.0 | % | — | |||||||||||||||||
Corporate | 1,622,000 | 1,567,000 | 55,000 | 3.5 | % | 1.5 | % | 3.2 | % | |||||||||||||||
Total Selling, General & Administrative | 12,664,000 | 8,803,000 | 3,861,000 | 43.9 | % | 11.6 | % | 18.4 | % | |||||||||||||||
Operating Income from Continuing Operations | ||||||||||||||||||||||||
Express-1 | 5,115,000 | 4,526,000 | 589,000 | 13.0 | % | 4.7 | % | 9.5 | % | |||||||||||||||
Concert Group Logistics | 1,711,000 | — | 1,711,000 | — | 1.6 | % | — | |||||||||||||||||
Bounce Logistics | (34,000 | ) | — | (34,000 | ) | — | — | — | ||||||||||||||||
Corporate | (1,622,000 | ) | (1,567,000 | ) | (55,000 | ) | -3.5 | % | -1.6 | % | -3.3 | % | ||||||||||||
Operating Income from Continuing Operations | 5,170,000 | 2,959,000 | 2,211,000 | 74.7 | % | 4.7 | % | 6.2 | % | |||||||||||||||
Interest Expense | 354,000 | 65,000 | 289,000 | 444.6 | % | 0.3 | % | 0.1 | % | |||||||||||||||
Other Expense | 105,000 | 14,000 | 91,000 | 650.0 | % | 0.1 | % | — | ||||||||||||||||
Income from Continuing Opertations Before Tax | 4,711,000 | 2,880,000 | 1,831,000 | 63.6 | % | 4.3 | % | 6.0 | % | |||||||||||||||
Tax Provision | 1,894,000 | 1,067,000 | 827,000 | 77.5 | % | 1.7 | % | 2.2 | % | |||||||||||||||
Income from Continuing Operations | 2,817,000 | 1,813,000 | 1,004,000 | 55.4 | % | 2.6 | % | 3.8 | % | |||||||||||||||
Income from Discontinued Operations, Net of Tax | 339,000 | 358,000 | (19,000 | ) | -5.3 | % | 0.3 | % | 0.8 | % | ||||||||||||||
Net Income | $ | 3,156,000 | $ | 2,171,000 | $ | 985,000 | 45.4 | % | 2.9 | % | 4.6 | % | ||||||||||||
Revenue Recognition
The Company recognizes revenue at the point in time delivery is completed on the freight shipments it handles, with related costs of delivery being expensed within the same period in which the associated revenue is recognized. The Company uses the following supporting criteria to 2007. Our acquisition of CGL and the Bouncestart-up were the primary catalysts behind this change. We experienced dramatic increases within
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Persuasive evidence that an arrangement exists;
Services have been rendered;
The sales price is fixed and determinable; and
Collectability is reasonably assured.
The Company reports revenue on a gross basis in accordance with ASC Topic 605, “Reporting Revenue Gross as Principal Versus Net as an Agent,” and, as such, presentation on a gross basis is required as:
The Company is the primary obligor and is responsible for providing the service desired by the customer.
The customer holds the Company responsible for fulfillment including the acceptability of the service (requirements may include, for example, on-time delivery, handling freight loss and damage claims, establishing pick-up and delivery times and tracing shipments in transit).
For Expedited Transportation and Freight Brokerage, the Company has discretion to select its drivers, contractors or other transportation providers (collectively, “service providers”). For Freight Forwarding, the Company enters into agreements with significant service providers that specify the cost of services, among other things, and has ultimate authority in approving all service providers that can be used by our consolidated numbersFreight Forwarding unit’s independently owned stations. Independently owned stations may further negotiate the cost of services with Company-approved service providers for individual customer shipments.
Expedited Transportation and Freight Brokerage have discretion to establish sales prices. Independently owned stations within Freight Forwarding have the discretion to establish sales prices.
The Company bears credit risk for all receivables. In the case of Freight Forwarding, the independently owned stations reimburse Freight Forwarding for a portion (typically 70-80%) of credit losses. Our Freight Forwarding unit retains the risk that the independent station owners will not meet this obligation.
Revenue recognized in our Freight Forwarding business includes an estimate at the end of each reporting purposes. Cross-selling most commonly arises when Express-1 or Bounce accepts a loadperiod related to certain freight shipments that are in-transit at year-end. Based on behalfhistorical information, we estimate the number of onedays it takes for delivery to be completed and recognize revenue for these shipments in-transit prior to the end of the reporting period based on this estimate. Our estimates are based on historical information and actual shipment times may vary.
Valuations for Accounts Receivable
The Company’s allowance for doubtful accounts is calculated based upon the aging of our other business units, thereby becoming a provider of services to its affiliate.
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Year to Year Change | Percent of Revenue | |||||||||||||||||||||||
2007 | 2006 | In Dollars | In Percentage | 2007 | 2006 | |||||||||||||||||||
Revenues — Express-1 | $ | 47,713,000 | $ | 37,327,000 | $ | 10,386,000 | 27.8 | % | 100.0 | % | 100.0 | % | ||||||||||||
Direct Expense — Express-1 | 35,951,000 | 27,438,000 | 8,513,000 | 31.0 | % | 75.3 | % | 73.5 | % | |||||||||||||||
Gross Margin — Express-1 | 11,762,000 | 9,889,000 | 1,873,000 | 18.9 | % | 24.7 | % | 26.5 | % | |||||||||||||||
Selling, General & Administrative | ||||||||||||||||||||||||
Express-1 | 7,236,000 | 5,998,000 | 1,238,000 | 20.6 | % | 15.2 | % | 16.1 | % | |||||||||||||||
Corporate | 1,567,000 | 972,000 | 595,000 | 61.2 | % | 3.3 | % | 2.6 | % | |||||||||||||||
Total Selling, General & Administrative | 8,803,000 | 6,970,000 | 1,833,000 | 26.3 | % | 18.4 | % | 18.7 | % | |||||||||||||||
Operating Income from Continuing Operations | ||||||||||||||||||||||||
Express-1 | 4,526,000 | 3,891,000 | 635,000 | 16.3 | % | 9.5 | % | 10.4 | % | |||||||||||||||
Corporate | (1,567,000 | ) | (972,000 | ) | (595,000 | ) | 61.2 | % | -3.3 | % | -2.6 | % | ||||||||||||
Operating Income from Continuing Operations | 2,959,000 | 2,919,000 | 40,000 | 1.4 | % | 6.2 | % | 7.8 | % | |||||||||||||||
Interest Expense | 65,000 | 205,000 | (140,000 | ) | -68.3 | % | 0.1 | % | 0.5 | % | ||||||||||||||
Other Expense | 14,000 | 168,000 | (154,000 | ) | -91.7 | % | 0.0 | % | 0.0 | % | ||||||||||||||
Income from Continuing Opertations Before Tax | 2,880,000 | 2,546,000 | 334,000 | 13.1 | % | 6.0 | % | 6.8 | % | |||||||||||||||
Tax Provision | 1,067,000 | (1,037,000 | ) | 2,104,000 | 202.9 | % | 2.2 | % | -2.8 | % | ||||||||||||||
Income from Continuing Operations | 1,813,000 | 3,583,000 | (1,770,000 | ) | -49.4 | % | 3.8 | % | 9.6 | % | ||||||||||||||
Income from Discontinued Operations, Net of Tax | 358,000 | 321,000 | 37,000 | 11.5 | % | 0.8 | % | 0.9 | % | |||||||||||||||
Net Income | $ | 2,171,000 | $ | 3,904,000 | $ | (1,733,000 | ) | -44.4 | % | 4.6 | % | 10.5 | % | |||||||||||
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Stock-Based Compensation
The term loanfair value of each share-based payment award is amortized overestablished on the date of grant. For grants of restricted stock units, the fair value is established based on the market price on the date of the grant. For grants of options, we use the Black-Scholes option pricing model to estimate the fair value of share-based payment awards. The determination of the fair value of share-based awards is affected by the Company’s stock price and a thirty-six month period and requires monthly principal paymentsnumber of $100,000 together with accrued interest be paid until retired. As of December 31, 2008 the weighted averageassumptions, including expected volatility, expected life, risk-free interest rate onand expected dividends.
Goodwill and Intangible Assets with Indefinite Lives
Goodwill consists of the credit facility was approximately 2.81%,excess of cost over the fair value of net assets acquired in business combinations. Intangible assets with indefinite lives consist principally of the Express-1 and ratesCGL trade names. The Company follows the provisions of the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 350, “Intangibles—Goodwill and Other”,which requires an annual impairment test for goodwill and intangible assets with indefinite lives. If the carrying value of intangibles with indefinite lives exceeds their fair value, an impairment loss is recognized in an amount equal to that excess. Goodwill is evaluated using a two-step impairment test at the reporting unit level. The first step compares the book value of a reporting unit, including goodwill, with its fair value. If the book value of a reporting unit exceeds its fair value, we complete the second step in order to determine the amount of goodwill impairment loss that we should record. In the second step, we determine an implied fair value of the reporting unit’s goodwill by allocating the
fair value of the reporting unit to all of the assets and liabilities other than goodwill. The amount of impairment is equal to the excess of the book value of goodwill over the implied fair value of that goodwill. The Company performs the annual impairment testing during the third quarter unless events or circumstances indicate impairment of the goodwill may have occurred before that time. For the years presented, we did not recognize any goodwill impairment as the estimated fair value of our reporting units with goodwill significantly exceeded the book value of these reporting units.
Identified Intangible Assets
The Company follows the provisions of ASC Topic 360, “Property, Plant and Equipment”, which establishes accounting standards for the impairment of long-lived assets such as property, plant and equipment and intangible assets subject to amortization. The Company reviews long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset group is less than its carrying amount, the asset is considered to be impaired. Impairment losses are adjusted monthly. Available capacity undermeasured as the line was approximately $6.8 million asamount by which the carrying amount of December 31, 2008. The credit facility carriesthe asset group exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a maturity daterate commensurate with the risks associated with the recovery of May 31,the asset. During 2011, 2010 and we anticipate renewing this facility prior2009 there was no impairment of identified intangible assets.
The Company’s intangible assets subject to this time.
Approximate | ||||||||
Number of | Approximate | |||||||
Shares | Proceeds | |||||||
Total Outstanding as of December 31, 2008: | ||||||||
Options granted within Stock Compensation Plan | 3,609,000 | $ | 4,257,000 | |||||
Warrants issued | 2,252,000 | 4,622,000 | ||||||
5,861,000 | $ | 8,879,000 | ||||||
OFF-BALANCE SHEET ARRANGEMENTS
We are the same as those above withnot a different viewpoint. The table is designedparty to reflect maturity date groupings in rows and rangesany transactions that would be considered “off-balance sheet arrangements” under Item 303(a)(4) of exercise prices in columns.
< $1.00 | $1.00-$1.25 | $1.26-$1.50 | $1.51-$1.75 | $1.76-$2.00 | Over $2.00 | Total | ||||||||||||||||||||||
Q1 2009 | 25,000 | 660000 | 685,000 | |||||||||||||||||||||||||
Q2 2009 | 1,793,000 | 1,793,000 | ||||||||||||||||||||||||||
Q3 2009 | 75,000 | 75,000 | ||||||||||||||||||||||||||
Q4 2009 | 23,000 | 23,000 | ||||||||||||||||||||||||||
Thereafter | 980,000 | 1,340,000 | 965,000 | 3,285,000 | ||||||||||||||||||||||||
Total | 980,000 | 1,365,000 | 1,700,000 | 23,000 | 0 | 1,793,000 | 5,861,000 |
29
Payments Due by Period | ||||||||||||
Less than 1 | 1 to 3 | |||||||||||
Contractual Obligations | Total | Year | Years | |||||||||
Capital lease obligations | $ | 35,000 | $ | 35,000 | $ | — | ||||||
Notes payable | 2,600,000 | 1,200,000 | 1,400,000 | |||||||||
Line of credit | 2,320,000 | — | 2,320,000 | |||||||||
Operating leases | 17,000 | 17,000 | ||||||||||
Earn out obligation** | 500,000 | 500,000 | ||||||||||
Real estate obligations* | 507,000 | 178,000 | 329,000 | |||||||||
Total contractual obligations | $ | 5,979,000 | $ | 1,930,000 | $ | 4,049,000 | ||||||
The Company is required to apply SFAS No. 141(R) prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Earlier application is not permitted. It is likely that the adoption of SFAS 141 (R) will have significant impact upon the structure of any future acquisitions and the recording of the assets acquired in those transactions and expenses incurred as a result of these transactions.
30
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed tohad $74.0 million of cash on December 31, 2011, all of which was held at a financial institution. The primary market risk related to changesassociated with these investments is liquidity risk. A hypothetical 100-basis-point change in the interest ratesrate would not have a material effect on our bank line of credit which may adversely affect our results of operations and financial condition. We are also exposed to market risk changes in commodity prices.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The Consolidated Financial Statements and financed the transaction with $9.0 million credit facility to fund partsupplementary data of the purchase. The credit facility is subject to variable ratesCompany required by this Item are included at pages 49-76 of interestthis Annual Report on Form 10-K and are incorporated herein by reference.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an adjustmentevaluation, as required by paragraph (b) of 1%Rule 13a-15 and 15d-15 of the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the interest rate on this facility would result in a corresponding change in our annual pretax earningsExchange Act, as of approximately $50,000. At December 31, 2008,2011. Based upon that evaluation, our balanceChief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2011.
Management’s Annual Report on Internal Control over Financial Reporting.
We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our credit facility was $4,955,000Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with a blended interest rategenerally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of approximately 3%.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a substantial amount of intangible assets including goodwill and are required to perform impairment tests whenever events or circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. As a result of our periodic evaluations, we may determine that the intangible asset values need to be written down to their fair values, which might result in material charges that could be adverse to our operating results and financial position. Although at December 31, 2008, we believed our intangible assets were recoverable, changes in the economy, the business in which we operate and our own relative performance could change the assumptions used to evaluate intangible asset recoverability. We continue to monitor those assumptions and their effect on the estimated recoverabilityfinancial statements.
Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of our intangible assets.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management’s assessment, we believe that, as of December 31, 2011, our internal control over financial reporting is effective.
Change in Internal Controls
During the quarter ended December 31, 2011, there were no changes in our subsidiaries. As a result, we do not currently have any operating equity price risk. internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION |
Not applicable.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by Item 10 of Part III of Form 10-K (other than certain information required by Item 401 of Regulation S-K with respect to our executive officers, which is set forth under Item 1 of Part I of this Annual Report on Form 10-K, and certain information required by Item 405 of Regulation S-K with respect to Section 16(a) beneficial ownership reporting compliance, which is set forth below) will be set forth in our Proxy Statement relating to the 2012 Annual Meeting of Stockholders and is incorporated herein by reference.
We have usedadopted a Senior Officer Code of Business Conduct and Ethics (the “Code”), which is applicable to our principal executive officer, principal financial officer, principal accounting officer and other senior officers. The Code is available on our website at www.xpologistics.com. In the stockevent that we amend or waive any of the provisions of the Code that relate to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, we intend to disclose the same on our Companywebsite.
Section 16(a) Beneficial Ownership Reporting Compliance
No Form 3 was filed in transactions involvingrespect of JPE’s entrance into the purchase of business units and assets, as well as in general fund raising activities. FluctuationsVoting Agreement disclosed by JPE on Schedule 13D filed on June 13, 2011. JPE had no pecuniary interest in the priceunderlying shares. A Form 3 was filed on September 12, 2011 in respect of JPE in connection with the closing of the Equity Investment.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by Item 11 of Part III of Form 10-K will be set forth in our ownProxy Statement relating to the 2012 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by Item 12 of Part III of Form 10-K (other than certain information required by Item 201(d) of Regulation S-K with respect to equity compensation plans, which is set forth below) will be set forth in our Proxy Statement relating to the 2012 Annual Meeting of Stockholders and is incorporated herein by reference.
Equity Compensation Plan
The following table sets forth information, as of December 31, 2011, with respect to the Company’s compensation plans under which equity securities are authorized for issuance.
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | |||||||
Equity compensation plans approved by security holders | ||||||||
Options | 1,382,000 | $ | 8.53 | |||||
|
|
|
| |||||
Total | 1,382,000 | |||||||
|
|
|
|
The Company had 150,753 shares remaining available for future issuance under the Company’s 2011 Omnibus Incentive Compensation Plan as of December 31, 2011.
Additionally, the Company has in place an employee stock ownership plan in which 64,395 shares of the Company’s common stock exposes usare held on behalf of qualifying employees.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by Item 13 of Part III of Form 10-K (other than certain information required by Item 404 of Regulation S-K with respect to some risktransactions with related persons, which is set forth below) will be set forth in futureour Proxy Statement relating to the 2012 Annual Meeting of Stockholders and is incorporated herein by reference.
Transactions with Related Persons
During the third quarter of 2011, with the approval of the audit committee of the Company’s board of directors, the Company agreed to pay an incremental $261,000 of expenses incurred by JPE in connection with the transactions where our stockcontemplated by the Investment Agreement. Also during the third quarter of 2011, with the approval of the Company’s board of directors, the Company agreed to pay JPE $297,000 as reimbursement for certain executive search firm and other expenses incurred by JPE on behalf of the Company.
In March 2010, the Company issued a promissory note to an employee for $150,000. The note accrues interest at 5.5% per annum, and is used ascollateralized by a mediummortgage on real property. The note has no stated maturity; however, the note and accrued interest are payable in full to the Company upon termination of exchange.
In December 2010, an owner of one of CGL’s independently owned stations sold his interest in such station and became employed by CGL. In connection with his prior ownership and operation of his CGL station, this employee was the obligor on a promissory note in favor of CGL in an aggregate principal amount of $128,000. The note accrues interest at the prime rate, as in effect from time to time, and is uncollateralized. The note matures on August 31, 2012 and requires bi-weekly payments of $2,600. As of December 31, 2011, the note had an outstanding balance of $56,000, which has been classified as a current note receivable.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by Item 14 of Part III of Form 10-K will be set forth in our value providersProxy Statement relating to the 2012 Annual Meeting of Stockholders and is incorporated herein by reference.
PART IV
Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
Financial Statements and Financial Statement Schedules
The list of Consolidated Financial Statements set forth in the accompanying Index to Consolidated Financial Statements is incorporated herein by reference. Such Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K. All financial statement schedules are omitted because the required information is not applicable, or because the information required is included in the Consolidated Financial Statements and notes thereto.
Exhibits
The exhibits listed on the accompanying Exhibit Index on page 77 of this Annual Report on Form 10-K are filed or incorporated by reference as part of this Annual Report on Form 10-K and such Exhibit Index is incorporated herein by reference.
Certain of the agreements listed as exhibits to this Annual Report on Form 10-K (including the exhibits to such agreements), which have been filed to provide investors with information regarding their terms, contain various representations, warranties and covenants of XPO Logistics, Inc. and the resulting impactother parties thereto. They are not intended to provide factual information about any of commoditiesthe parties thereto or any subsidiaries of the parties thereto. The assertions embodied in those representations, warranties and covenants were made for purposes of each of the agreements, solely for the benefit of the parties thereto. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what a security holder might view as material, or may have been made for purposes of allocating contractual risk among the parties rather than establishing matters as facts. Investors should not view the representations, warranties, and covenants in the agreements (or any description thereof) as disclosures with respect to the actual state of facts concerning the business, operations, or condition of any of the parties to the agreements (or their subsidiaries) and should not rely on them as such. In addition, information in any such representations, warranties or covenants may change after the dates covered by such provisions, which subsequent information may or may not be fully reflected in the public disclosures of the parties. In any event, investors should read the agreements together with the other information concerning XPO Logistics, Inc. contained in reports and statements that we file with the Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, as fuelamended, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the overall economy withinundersigned, thereunto duly authorized, in the United States.City of Greenwich, CT, on February 29, 2012.
XPO LOGISTICS, INC. | ||
By: | /s/ BRADLEY S. JACOBS | |
Bradley S. Jacobs | ||
(Chairman of the Board of Directors and Chief Executive Officer) | ||
By: | /s/ JOHN J. HARDIG | |
John J. Hardig | ||
(Chief Financial Officer) |
31
Signature | Title | Date | ||
/s/ BRADLEY S. JACOBS Bradley S. Jacobs | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) | February 29, 2012 | ||
/s/ JOHN J. HARDIG John J. Hardig | Chief Financial Officer (Principal Financial Officer) | February 29, 2012 | ||
/s/ KENT R. RENNER Kent R. Renner | Senior Vice President— Chief Accounting Officer (Principal Accounting Officer) | February 29, 2012 | ||
/s/ G. CHRIS ANDERSEN G. Chris Andersen | Director | February 29, 2012 | ||
/s/ MICHAEL G. JESSELSON Michael G. Jesselson | Director | February 29, 2012 | ||
/s/ ADRIAN P. KINGSHOTT Adrian P. Kingshott | Director | February 29, 2012 | ||
/s/ JAMES J. MARTELL James J. Martell | Director | February 29, 2012 | ||
/s/ JASON D. PAPASTAVROU Jason D. Papastavrou | Director | February 29, 2012 | ||
/s/ OREN G. SHAFFER Oren G. Shaffer | Director | February 29, 2012 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No. | |||||||
Consolidated Balance Sheets As of December 31, 2011 and 2010 | 51 | ||||||
Consolidated Statements of Stockholders’ Equity For the Years Ended December 31, 2011, 2010 and 2009 | 54 | ||||||
32
The Board of Directors
XPO Logistics, Inc.
We have audited the accompanying consolidated balance sheets of XPO Logistics, Inc. (formerly Express-1 Expedited Solutions, Inc.) (the Company) as of December 31, 2008,2011 and 2007;2010, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years in the three year period ended December 31, 2008, 2007 and 2006.2011. These consolidated financial statements are the responsibility of the management of Express-1 Expedited Solutions, Inc.Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditsaudit 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 audit 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Express-1 Expedited Solutions,XPO Logistics, Inc. as of December 31, 20082011 and 2007;2010, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2008, 2007 and 20062011 in conformity with accounting principlesU.S. generally accepted in the United States of America.
(signed) KPMG LLP
33
February 29, 2012
XPO Logistics, Inc.
Express-1 Expedited Solutions, Inc.
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 1,107,000 | $ | 800,000 | ||||
Accounts receivable, net of allowances of $133,000 and $77,000, respectively | 12,202,000 | 5,663,000 | ||||||
Prepaid expenses | 372,000 | 492,000 | ||||||
Other current assets | 650,000 | 149,000 | ||||||
Deferred tax asset, current | 493,000 | 1,549,000 | ||||||
Total current assets | 14,824,000 | 8,653,000 | ||||||
Property and equipment, net of $2,220,000 and $1,734,000 in accumulated depreciation, respectively | 3,141,000 | 2,312,000 | ||||||
Goodwill | 14,915,000 | 7,737,000 | ||||||
Identified intangible assets, net of $1,682,000 and $1,279,000 in accumulated amortization, respectively | 7,631,000 | 3,950,000 | ||||||
Loans and advances | 63,000 | 104,000 | ||||||
Deferred tax asset, long term | — | 377,000 | ||||||
Other long term assets | 1,108,000 | 591,000 | ||||||
$ | 41,682,000 | $ | 23,724,000 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 6,578,000 | $ | 892,000 | ||||
Accrued salaries and wages | 691,000 | 660,000 | ||||||
Accrued acquisition earnouts | — | 2,210,000 | ||||||
Accrued expenses, other | 862,000 | 861,000 | ||||||
Current maturities of long-term debt | 1,235,000 | 50,000 | ||||||
Other current liabilities | 1,030,000 | 199,000 | ||||||
Total current liabilities | 10,396,000 | 4,872,000 | ||||||
Line of credit | 2,320,000 | — | ||||||
Notes payable and capital leases, net of current maturities | 1,400,000 | 34,000 | ||||||
Deferred tax liability, long-term | 583,000 | — | ||||||
Other long-term liabilities | 456,000 | 616,000 | ||||||
Total long-term liabilities | 4,759,000 | 650,000 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $.001 par value; 10,000,000 shares, no shares issued or outstanding | — | — | ||||||
Common stock, $.001 par value; 100,000,000 shares authorized; 32,215,218 and 27,008,768 shares issued and 32,035,218 and 26,828,768 shares outstanding | 32,000 | 27,000 | ||||||
Additional paid-in capital | 26,316,000 | 21,152,000 | ||||||
Accumulated earnings (deficit) | 286,000 | (2,870,000 | ) | |||||
Treasury stock, at cost, 180,000 shares held | (107,000 | ) | (107,000 | ) | ||||
Total stockholders’ equity | 26,527,000 | 18,202,000 | ||||||
$ | 41,682,000 | $ | 23,724,000 | |||||
December 31, 2011 | December 31, 2010 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 74,007,000 | $ | 561,000 | ||||
Accounts receivable, net of allowances of $356,000 and $136,000, respectively | 22,425,000 | 24,272,000 | ||||||
Prepaid expenses | 426,000 | 257,000 | ||||||
Deferred tax asset, current | 955,000 | 314,000 | ||||||
Income tax receivable | 1,109,000 | 1,348,000 | ||||||
Other current assets | 219,000 | 813,000 | ||||||
|
|
|
| |||||
Total current assets | 99,141,000 | 27,565,000 | ||||||
Property and equipment, net of $3,937,000 and $3,290,000 in accumulated depreciation, respectively | 2,979,000 | 2,960,000 | ||||||
Goodwill | 16,959,000 | 16,959,000 | ||||||
Identifiable intangible assets, net of $3,356,000 and $2,827,000 in accumulated amortization, respectively | 8,053,000 | 8,546,000 | ||||||
Loans and advances | 128,000 | 126,000 | ||||||
Other long-term assets | 381,000 | 516,000 | ||||||
|
|
|
| |||||
Total long-term assets | 28,500,000 | 29,107,000 | ||||||
|
|
|
| |||||
Total assets | $ | 127,641,000 | $ | 56,672,000 | ||||
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 8,565,000 | $ | 8,756,000 | ||||
Accrued salaries and wages | 2,234,000 | 1,165,000 | ||||||
Accrued expenses, other | 2,789,000 | 2,877,000 | ||||||
Current maturities of long-term debt and capital leases | 1,675,000 | 1,680,000 | ||||||
Other current liabilities | 808,000 | 773,000 | ||||||
|
|
|
| |||||
Total current liabilities | 16,071,000 | 15,251,000 | ||||||
Line of credit | — | 2,749,000 | ||||||
Long-term debt and capital leases, net of current maturities | 454,000 | 2,083,000 | ||||||
Deferred tax liability, long-term | 2,346,000 | 2,032,000 | ||||||
Other long-term liabilities | 410,000 | 544,000 | ||||||
|
|
|
| |||||
Total long-term liabilities | 3,210,000 | 7,408,000 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $.001 par value; 10,000,000 shares authorized; 75,000 shares and none issued and outstanding, respectively | 42,794,000 | — | ||||||
Common stock, $.001 par value; 150,000,000 shares authorized; 8,410,353 and 8,171,881 shares issued, respectively; and 8,365,353 and 8,126,881 shares outstanding, respectively | 8,000 | 8,000 | ||||||
Additional paid-in capital | 102,613,000 | 27,233,000 | ||||||
Treasury stock, at cost, 45,000 shares held | (107,000 | ) | (107,000 | ) | ||||
Accumulated (deficit) earnings | (36,948,000 | ) | 6,879,000 | |||||
|
|
|
| |||||
Total stockholders’ equity | 108,360,000 | 34,013,000 | ||||||
|
|
|
| |||||
Total liabilities and stockholders’ equity | $ | 127,641,000 | $ | 56,672,000 | ||||
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
34Consolidated Financial Statements.
Twelve Months Ended | ||||||||||||
December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenues | ||||||||||||
Operating revenue | $ | 109,462,000 | $ | 47,713,000 | $ | 37,327,000 | ||||||
Expenses | ||||||||||||
Direct expense | 91,628,000 | 35,951,000 | 27,438,000 | |||||||||
Gross margin | 17,834,000 | 11,762,000 | 9,889,000 | |||||||||
Sales, general and administrative expense | 12,664,000 | 8,803,000 | 6,970,000 | |||||||||
Operating income from continuing operations | 5,170,000 | 2,959,000 | 2,919,000 | |||||||||
Other expense | 105,000 | 14,000 | 168,000 | |||||||||
Interest expense | 354,000 | 65,000 | 205,000 | |||||||||
Income from continuing operations before income tax | 4,711,000 | 2,880,000 | 2,546,000 | |||||||||
Income tax provision | 1,894,000 | 1,067,000 | (1,037,000 | ) | ||||||||
Income from continuing operations | 2,817,000 | 1,813,000 | 3,583,000 | |||||||||
Income from discontinued operations, net of tax(1) | 339,000 | 358,000 | 321,000 | |||||||||
Net income | $ | 3,156,000 | $ | 2,171,000 | $ | 3,904,000 | ||||||
Basic income per share | ||||||||||||
Income from continuing operations | $ | 0.09 | $ | 0.07 | $ | 0.14 | ||||||
Income from discontinued operations | 0.01 | 0.01 | 0.01 | |||||||||
Net income | 0.10 | 0.08 | 0.05 | |||||||||
Diluted income per share | ||||||||||||
Income from continuing operations | $ | 0.09 | $ | 0.07 | $ | 0.14 | ||||||
Income from discontinued operations | 0.01 | 0.01 | 0.01 | |||||||||
Net income | 0.10 | 0.08 | 0.15 | |||||||||
Weighted average common shares outstanding | ||||||||||||
Basic weighted average common shares outstanding | 31,453,765 | 26,690,382 | 26,297,120 | |||||||||
Diluted weighted average common shares outstanding | 31,757,164 | 27,326,729 | 26,641,012 |
Twelve Months Ended | ||||||||||||
December 31, 2011 | December 31, 2010 | December 31, 2009 | ||||||||||
Revenues | ||||||||||||
Operating revenue | $ | 177,076,000 | $ | 157,987,000 | $ | 100,136,000 | ||||||
Expenses | ||||||||||||
Direct expense | 147,298,000 | 130,587,000 | 83,396,000 | |||||||||
|
|
|
|
|
| |||||||
Gross margin | 29,778,000 | 27,400,000 | 16,740,000 | |||||||||
Selling, general and administrative expense | 28,054,000 | 18,954,000 | 13,569,000 | |||||||||
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Operating income | 1,724,000 | 8,446,000 | 3,171,000 | |||||||||
Other expense | 56,000 | 140,000 | 51,000 | |||||||||
Interest expense | 191,000 | 205,000 | 105,000 | |||||||||
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Income from continuing operations before income tax | 1,477,000 | 8,101,000 | 3,015,000 | |||||||||
Income tax provision | 718,000 | 3,213,000 | 1,325,000 | |||||||||
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Income from continuing operations | 759,000 | 4,888,000 | 1,690,000 | |||||||||
Income from discontinued operations, net of tax | — | — | 15,000 | |||||||||
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Net income | 759,000 | 4,888,000 | 1,705,000 | |||||||||
Preferred stock beneficial conversion charge and dividends | (45,336,000 | ) | — | — | ||||||||
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Net (loss) income available to common shareholders | $ | (44,577,000 | ) | $ | 4,888,000 | $ | 1,705,000 | |||||
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Basic earnings per common share | ||||||||||||
Income from continuing operations | $ | (5.41 | ) | $ | 0.61 | $ | 0.21 | |||||
Income from discontinued operations | — | — | — | |||||||||
Net (loss) income | (5.41 | ) | 0.61 | 0.21 | ||||||||
Diluted earnings per common share | ||||||||||||
Income from continuing operations | (5.41 | ) | 0.59 | 0.21 | ||||||||
Income from discontinued operations | — | — | — | |||||||||
Net (loss) income | $ | (5.41 | ) | $ | 0.59 | $ | 0.21 | |||||
Weighted average common shares outstanding | ||||||||||||
Basic weighted average common shares outstanding | 8,246,577 | 8,060,346 | 8,008,805 | |||||||||
Diluted weighted average common shares outstanding | 8,246,577 | 8,278,995 | 8,041,862 |
The accompanying notes are an integral part of the consolidated financial statements.
35Consolidated Financial Statements.
Additional | Accumulated | |||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid in | Earnings | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||||||||
Balance, January 1, 2006 | 26,465,034 | $ | 26,000 | (180,000 | ) | $ | (107,000 | ) | $ | 20,312,000 | $ | (8,945,000 | ) | $ | 11,286,000 | |||||||||||||
Issuance of stock for exercise of warrants | 1,003 | 1,000 | 1,000 | |||||||||||||||||||||||||
Issuance of ESOP shares | 50,000 | 1,000 | 36,000 | 37,000 | ||||||||||||||||||||||||
Stock option expense | 110,000 | 110,000 | ||||||||||||||||||||||||||
Net income | 3,904,000 | 3,904,000 | ||||||||||||||||||||||||||
Balance, December 31, 2006 | 26,516,037 | $ | 27,000 | (180,000 | ) | $ | (107,000 | ) | $ | 20,459,000 | $ | (5,041,000 | ) | $ | 15,338,000 | |||||||||||||
Issuance of stock for exercise of warrants | 290,500 | 290,000 | 290,000 | |||||||||||||||||||||||||
Issuance of common stock | 22,231 | — | — | |||||||||||||||||||||||||
Issuance of ESOP shares | 180,000 | 225,000 | 225,000 | |||||||||||||||||||||||||
Stock option expense | 178,000 | 178,000 | ||||||||||||||||||||||||||
Net income | 2,171,000 | 2,171,000 | ||||||||||||||||||||||||||
Balance, December 31, 2007 | 27,008,768 | $ | 27,000 | (180,000 | ) | $ | (107,000 | ) | $ | 21,152,000 | $ | (2,870,000 | ) | $ | 18,202,000 | |||||||||||||
Issuance of stock for exercise of warrants | 406,450 | — | 168,000 | 168,000 | ||||||||||||||||||||||||
Stock option expense | 198,000 | 198,000 | ||||||||||||||||||||||||||
Issuance of common stock | 4,800,000 | 5,000 | 4,843,000 | 4,848,000 | ||||||||||||||||||||||||
AMEX issuance fees | (45,000 | ) | (45,000 | ) | ||||||||||||||||||||||||
Net income | 3,156,000 | 3,156,000 | ||||||||||||||||||||||||||
Balance, December 31, 2008 | 32,215,218 | $ | 32,000 | (180,000 | ) | $ | (107,000 | ) | $ | 26,316,000 | $ | 286,000 | $ | 26,527,000 | ||||||||||||||
Twelve Months Ended | ||||||||||||
December 31, 2011 | December 31, 2010 | December 31, 2009 | ||||||||||
Operating activities | ||||||||||||
Net income | $ | 759,000 | $ | 4,888,000 | $ | 1,705,000 | ||||||
Adjustments to reconcile net income to net cash from operating activities | ||||||||||||
(Recovery) provisions for allowance for doubtful accounts | 219,000 | (84,000 | ) | 92,000 | ||||||||
Depreciation and amortization expense | 1,240,000 | 1,290,000 | 1,191,000 | |||||||||
Stock compensation expense | 1,180,000 | 157,000 | 172,000 | |||||||||
Loss (gain) on disposal of equipment | 12,000 | 4,000 | (29,000 | ) | ||||||||
Non-cash impairment of incentive payments | — | 75,000 | 124,000 | |||||||||
Changes in assets and liabilities | ||||||||||||
Account receivable | 1,627,000 | (6,618,000 | ) | (5,459,000 | ) | |||||||
Deferred tax expense | (327,000 | ) | 900,000 | 713,000 | ||||||||
Income tax receivable | 239,000 | (1,348,000 | ) | — | ||||||||
Other current assets | 595,000 | (355,000 | ) | 104,000 | ||||||||
Prepaid expenses | (170,000 | ) | (99,000 | ) | 214,000 | |||||||
Other long-term assets and advances | 97,000 | 338,000 | (93,000 | ) | ||||||||
Accounts payable | (191,000 | ) | 1,987,000 | 191,000 | ||||||||
Accrued expenses | 1,097,000 | 1,780,000 | 1,529,000 | |||||||||
Other liabilities | 234,000 | (658,000 | ) | (553,000 | ) | |||||||
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Cash provided (used) by operating activities | 6,611,000 | 2,257,000 | (99,000 | ) | ||||||||
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Investing activities | ||||||||||||
Acquisition of business, net of cash acquired | — | — | (2,250,000 | ) | ||||||||
Payment of acquisition earn-out | (450,000 | ) | (500,000 | ) | (1,100,000 | ) | ||||||
Payment for purchases of property and equipment | (754,000 | ) | (811,000 | ) | (186,000 | ) | ||||||
Proceeds from sale of property and equipment | 13,000 | 2,000 | 62,000 | |||||||||
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Cash used by investing activities | (1,191,000 | ) | (1,309,000 | ) | (3,474,000 | ) | ||||||
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Financing activities | ||||||||||||
Line of credit, net | (2,749,000 | ) | (3,781,000 | ) | 4,210,000 | |||||||
Proceeds from issuance of long-term debt | — | 5,000,000 | — | |||||||||
Payments of long-term debt and capital leases | (1,633,000 | ) | (2,665,000 | ) | (1,249,000 | ) | ||||||
Excess tax benefit from stock options | 451,000 | — | — | |||||||||
Proceeds from issuance of preferred stock and warrants | 71,628,000 | — | — | |||||||||
Net proceeds from exercise of options | 704,000 | 564,000 | — | |||||||||
Dividends paid to preferred stockholders | (375,000 | ) | — | — | ||||||||
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Cash provided (used) by financing activities | 68,026,000 | (882,000 | ) | 2,961,000 | ||||||||
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Net increase (decrease) in cash | 73,446,000 | 66,000 | (612,000 | ) | ||||||||
Cash, beginning of period | 561,000 | 495,000 | 1,107,000 | |||||||||
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Cash, end of period | $ | 74,007,000 | $ | 561,000 | $ | 495,000 | ||||||
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Cash paid during the period for interest | $ | 110,000 | $ | 124,000 | $ | 105,000 | ||||||
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Cash paid during the period for income taxes | 233,000 | 3,521,000 | 396,000 | |||||||||
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Increase of goodwill due to accrual of acquisition earnout | — | — | 687,000 | |||||||||
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The accompanying notes are an integral part of the consolidated financial statements.
36Consolidated Financial Statements.
XPO Logistics, Inc.
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Operating activities | ||||||||||||
Net income applicable to stockholders | $ | 3,156,000 | $ | 2,171,000 | $ | 3,904,000 | ||||||
Adjustments to reconcile net income to net cash from operating activities | — | |||||||||||
Provision for allowance for doubtful accounts | (67,000 | ) | 188,000 | 157,000 | ||||||||
Depreciation & amortization expense | 1,114,000 | 843,000 | 1,054,000 | |||||||||
Stock compensation expense | 198,000 | 178,000 | 110,000 | |||||||||
Common stock issued for ESOP | 224,000 | — | ||||||||||
Loss on retirement of note receivable | — | — | 90,000 | |||||||||
Loss (gain) on disposal of equipment | 4,000 | (12,000 | ) | 66,000 | ||||||||
Non-cash impairment of intangible assets | — | — | 23,000 | |||||||||
Changes in assets and liabilities, net of effect of acquisition: | ||||||||||||
Account receivable | (231,000 | ) | (497,000 | ) | (1,078,000 | ) | ||||||
Other current assets | 907,000 | (448,000 | ) | (674,000 | ) | |||||||
Prepaid expenses | 211,000 | (227,000 | ) | 62,000 | ||||||||
Other assets | 475,000 | 1,303,000 | (479,000 | ) | ||||||||
Accounts payable | 250,000 | (142,000 | ) | 110,000 | ||||||||
Accrued expenses | (566,000 | ) | 121,000 | (271,000 | ) | |||||||
Accrued salary and wages | — | (64,000 | ) | 364,000 | ||||||||
Other liabilities | 1,597,000 | 405,000 | 199,000 | |||||||||
Cash provided by operating activities | 7,048,000 | 4,043,000 | 3,637,000 | |||||||||
Investing activities | ||||||||||||
Acquisition of business, net of cash acquired | (8,489,000 | ) | ||||||||||
Payment of acquisition earn-out | (2,210,000 | ) | (1,960,000 | ) | (1,710,000 | ) | ||||||
Payment of purchases of property and equipment | (1,109,000 | ) | (473,000 | ) | (961,000 | ) | ||||||
Proceeds from sale of assets | 28,000 | 101,000 | 5,000 | |||||||||
Proceeds from notes receivable | — | 39,000 | 150,000 | |||||||||
Cash used by investing activities | (11,780,000 | ) | (2,293,000 | ) | (2,516,000 | ) | ||||||
Financing activities | ||||||||||||
Credit line, net activity | 2,320,000 | (1,159,000 | ) | (1,252,000 | ) | |||||||
Proceeds from debt for acquisition | 3,600,000 | — | — | |||||||||
Payments of debt | (1,049,000 | ) | (160,000 | ) | (176,000 | ) | ||||||
Proceeds from exercise of warrants | 168,000 | 290,000 | — | |||||||||
Cash flows provided (used) by financing activities | 5,039,000 | (1,029,000 | ) | (1,428,000 | ) | |||||||
Net increase (decrease) in cash | 307,000 | 721,000 | (307,000 | ) | ||||||||
Cash, beginning of period | 800,000 | 79,000 | 386,000 | |||||||||
Cash, end of period | $ | 1,107,000 | $ | 800,000 | $ | 79,000 | ||||||
Supplemental disclosures of noncash activities: | ||||||||||||
Cash paid during the period for interest | $ | 318,000 | $ | 79,000 | $ | 205,000 | ||||||
Cash paid during the period for income taxes | 267,000 | 49,000 | — | |||||||||
Debt used to finance purchase of building | — | — | 647,000 | |||||||||
Increase of goodwill due to accrual of acquisition earnout | $ | — | $ | 2,210,000 | $ | 1,960,000 | ||||||
Acquisition of assets and liabilities of Concert Group Logistics | ||||||||||||
Cash | $ | 671,000 | ||||||||||
Accounts receivable purchased | 5,856,000 | |||||||||||
Prepaid expenses | 95,000 | |||||||||||
Property and equipment | 415,000 | |||||||||||
Other assets | 872,000 | |||||||||||
Goodwill and other intangible assets | 11,303,000 | |||||||||||
Liabilities assumed | (4,704,000 | ) | ||||||||||
Net assets acquired | 14,508,000 | |||||||||||
Less equity issued, including issuance cost | (4,848,000 | ) | ||||||||||
Less note payable issued | (500,000 | ) | ||||||||||
Less cash acquired | (671,000 | ) | ||||||||||
Net cash paid | $ | 8,489,000 | ||||||||||
For the Three Years Ended December 31, 2011, 2010 and 2009
Additional Paid in Capital | Accumulated Earnings | Total | ||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares (a) | Amount | Shares (a) | Amount | |||||||||||||||||||||||||||||||
Balance, December 31, 2008 | 8,053,805 | $ | 8,000 | (45,000 | ) | $ | (107,000 | ) | $ | 26,340,000 | $ | 286,000 | $ | 26,527,000 | ||||||||||||||||||||||
Stock compensation expense | — | — | 172,000 | 172,000 | ||||||||||||||||||||||||||||||||
Net income | 1,705,000 | 1,705,000 | ||||||||||||||||||||||||||||||||||
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Balance, December 31, 2009 | — | — | 8,053,805 | 8,000 | (45,000 | ) | (107,000 | ) | 26,512,000 | 1,991,000 | 28,404,000 | |||||||||||||||||||||||||
Issuance of stock for exercise of options | 118,077 | 564,000 | 564,000 | |||||||||||||||||||||||||||||||||
Stock compensation expense | 157,000 | 157,000 | ||||||||||||||||||||||||||||||||||
Net income | 4,888,000 | 4,888,000 | ||||||||||||||||||||||||||||||||||
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Balance, December 31, 2010 | — | — | 8,171,882 | 8,000 | (45,000 | ) | (107,000 | ) | 27,233,000 | 6,879,000 | 34,013,000 | |||||||||||||||||||||||||
Issuance of common stock for option exercise | 237,826 | — | 704,000 | 704,000 | ||||||||||||||||||||||||||||||||
Issuance of ESOP shares | 645 | — | — | — | ||||||||||||||||||||||||||||||||
Issuance of preferred stock and warrants, net of issuance costs | 75,000 | 42,794,000 | 28,834,000 | 71,628,000 | ||||||||||||||||||||||||||||||||
Deemed distribution for recognition of beneficial conversion feature on preferred stock | 44,211,000 | (44,211,000 | ) | — | ||||||||||||||||||||||||||||||||
Stock compensation expense | 1,180,000 | 1,180,000 | ||||||||||||||||||||||||||||||||||
Excess tax benefit from stock options | 451,000 | 451,000 | ||||||||||||||||||||||||||||||||||
Dividends paid to preferred stockholders $5 per share | (375,000 | ) | (375,000 | ) | ||||||||||||||||||||||||||||||||
Net income | 759,000 | 759,000 | ||||||||||||||||||||||||||||||||||
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Balance, December 31, 2011 | 75,000 | $ | 42,794,000 | 8,410,353 | $ | 8,000 | (45,000 | ) | $ | (107,000 | ) | $ | 102,613,000 | $ | (36,948,000 | ) | $ | 108,360,000 | ||||||||||||||||||
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(a) | Amounts have been retrospectively adjusted for a 4-for-1 reverse stock split effective September 2, 2011. |
The accompanying notes are an integral part of the consolidated financial statements.
37Consolidated Financial Statements.
XPO Logistics, Inc.
Years ended December 31, 2008, 20072011, 2010 and 20062009
1. | |
Significant Accounting |
BasisNature of PresentationBusiness
XPO Logistics, Inc.—(the years ended December 31, 2007 and 2006, Express-1 Expedited Solutions, Inc. (“the Company”“Company”) providedprovides premium transportation and logistics services to thousands of customers primarily through its three business units:
Expedited Transportation—provides time critical expedited transportation to our customers through our wholly owned subsidiary Express-1, Inc. (Express-1). This typically involves dedicating one truck and driver to a load which has a specified time delivery requirement. Most of the services provided wereare completed through a fleet of exclusive use vehicles that wereare owned and operated by independent contract drivers. The use of non-owned resources to provide services minimizes the amount of capital investment required and is often described with the terms “non-asset” or “asset-light.”
Freight Forwarding—provides freight forwarding services through a newly formedchain of independently owned stations located throughout the United States, along with our two company owned international branches through our wholly owned subsidiary Concert Group Logistics, Inc. (CGL). These two subsidiaries engage in premium transportation solutions throughstations are responsible for selling and operating freight forwarding transportation services within their geographic area under the authority of CGL. In October of 2009, certain assets and premium freightliabilities of LRG International Inc. (LRG) were purchased to complement the operations of CGL. CGL began consolidating the results of LRG as of the purchase date.
Freight Brokerage—provides truckload brokerage solutions, respectively. The Concert Group Logistics, Inc. andtransportation services to our customers throughout the United States through our wholly owned subsidiaries Bounce Logistics, Inc. results of operations have been consolidated within the(Bounce) and XPO Logistics, LLC.
For specific financial statements and accompanying footnotes for the year ended December 31, 2008, as presented herein. More detail on the Concert Group Logistics purchase is located in Footnote 13, within these notesinformation relating to the financial statements.
During 2008, the Company discontinued its Express-1 Dedicated business unit, in anticipation of the cessation of these operations in February 2009. All revenues and costs associated with this operation have been accounted for, net of taxes, in the line item labeled “Income from discontinued operations”. More information on the discontinuance of the Express-1 Dedicated operations can be found in Footnote 3.
Principles of Consolidation
The accompanying consolidated financial statementsConsolidated Financial Statements include the accounts of Express-1 Expedited Solutions, Inc.the Company and all of its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company does not have any variable interest entities whose financial results are not included in the consolidated financial statements.
Use of Estimates
The Company prepares its consolidated financial statementsConsolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statementsConsolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. The Company reviews its estimates, including but not limited to,to: accrued revenue, purchased transportation, recoverability of long-lived assets, recoverabilityaccrual of prepaid expenses,acquisition earn-outs, estimated legal accruals, valuation allowances for deferred taxes, valuation of investmentsreserve for uncertain tax positions, and allowance for
doubtful accounts on a regular basis and makes adjustments based on historical experiences and existing and expected future conditions. These evaluations are performed and adjustments are made as information is available. Management believes that these estimates are reasonable and have been discussed with the audit committee; however, actual results could differ from these estimates.
Reclassifications
38
Financial instruments, whichthat potentially subject the Company to concentrations of credit risk, are cash and cash equivalents and account receivables.
Cash and cash equivalents consist primarily of cash isand money market accounts with an original maturity of three months or less and are maintained with regionalat financial institutions located within in the United States. Deposits withinstitutions. At times, these banksbalances may exceed federally insured limits. The Company has not experienced any losses related to these balances. All of the non-interest bearing cash balances were fully insured at December 31, 2011, due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance provided on such deposits. Generally, these depositsfor eligible accounts. Beginning in 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and the non-interest bearing cash balances may be redeemed upon demand.
The Company continues to mitigate the concentration of credit risk with respect to trade receivables fromfor any one customer is limited due toby the Company’s large numberexpansion of customerscustomer base, industry base, and wide range of industries and locations served. One of its customers,service areas. For the year ended December 31, 2011, a domestic automotive manufacturer accounted for approximately 7%8% of the Company’s revenues in fiscal 2008. This concentration includes approximately, $4.8 million or 4%, which was derived from the operations of Express-1 Dedicated that were discontinued in 2008. The Company has a concentration of credit risk associated with its aggregate of customer account receivables originating from the domestic automotive industry. For the year ended December 31, 2008,consolidated revenue. During 2011, the Company generated approximately 10% of its consolidated revenue from the Big Three U.S.domestic automotive manufacturers. OurAdditionally, at December 31, 2011, account receivable balances related to the Big Three automotive makers equaled 5% of the Company’s consolidated accounts receivable. The concentration risk is comprised not only of domestic automotive manufacturers (the U.S. Big Three), but alsocredit risk extends to major automotive industry suppliers. The Company servicessuppliers, international automotive manufacturers, and many other customers who support and derive their revenuesrevenue from the automotive industry exclusiveindustry.
For the year ended December 31, 2010, a domestic automotive manufacturer accounted for approximately 5% of the Company’s consolidated revenue. During 2010, the Company generated approximately 8% of its consolidated revenue from the Big Three domestic automotive manufacturers. Additionally, at December 31, 2010, account receivable balances related to the Big Three automotive makers equaled 6% of the Company’s consolidated account receivable balance. The concentration of credit risk extends to major automotive industry suppliers, international automotive manufacturers, and their major suppliers.
The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay in accordance with the payment terms. The Company provides for estimated losses on accounts receivable considering a number of factors, including the overall aging of account receivables, customersaccounts receivable, customers’ payment history and the customer’scustomers’ current ability to pay its obligation. Based on managements’ review oftheir obligations. The Company writes off accounts receivable and other receivables, anagainst the allowance for doubtful accounts of approximately $133,000 and $77,000when an account is considered necessary as of December 31, 2008 and 2007, respectively.deemed uncollectible. We do not accrue interest on past due receivables.
Activity in the allowance for doubtful accounts for the years ended December 31, 2011, 2010 and 2009 were as follows:
Year Ending December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Balance at beginning of year | $ | 136,000 | $ | 225,000 | $ | 133,000 | ||||||
Additions: Charged to cost and expense | 250,000 | — | 92,000 | |||||||||
Deductions and adjustments | (30,000 | ) | (89,000 | ) | — | |||||||
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Balance at end of year | $ | 356,000 | $ | 136,000 | $ | 225,000 | ||||||
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Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repair costs are expensed as incurred. Major improvements that increase the estimated useful life of an asset are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in the results of operations. Depreciation is calculated by the straight-line method over the following estimated useful lives of the related assets:
Years | ||||
Land | 0 | |||
Building and improvements | 39 | |||
Office equipment | 3-10 | |||
Warehouse equipment and shelving | 3-7 | |||
Computer equipment and software | ||||
Leasehold improvements | Lease term |
Goodwill and Intangible Assets with Indefinite Lives
Goodwill consists of the excess of cost over the fair value of net assets acquired in business combinations. Intangible assets with indefinite lives consist principally of the Express-1 and CGL trade names. The Company follows the provisions of Statement ofthe Financial Accounting Standards Board’s (“SFAS”FASB”) No. 142, Accounting Standard Codification (“ASC”) Topic 350, “Intangibles—Goodwill and Other Intangible Assets. SFAS No. 142Other”,which requires an annual impairment test for goodwill and intangible assets with indefinite lives. UnderIf the provisionscarrying value of SFAS No. 142,intangibles with indefinite lives exceeds their fair value, an impairment loss is recognized in an amount equal to that excess. Goodwill is evaluated using a two-step impairment test at the reporting unit level. The first step ofcompares the impairment test requires that the
39
The Company will performperforms the annual testimpairment testing during its fiscalthe third quarter unless events or circumstances indicate impairment of the goodwill may have occurred before that time.
Identified Intangible Assets
The Company follows the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,ASC Topic 360, “Property, Plant and Equipment” which establishes accounting standards for the impairment of long-lived assets such as property, plant and equipment and intangible assets subject to amortization. The Company reviews long-lived assets to beheld-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a
long-lived asset group is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. ForDuring 2011 and 2010, there was no impairment of identified intangible assets.
The Company’s intangible assets subject to amortization consist of trade names, non-compete agreements, customer relationships, and other intangibles that are amortized on a straight-line basis over the years ended December 31, 2008 and 2007, there were no impairmentsestimated useful lives of the related intangible assets. Forasset. The estimated useful lives of the year ended December 31, 2006 the Company impaired $23,000 relatingrespective intangible assets range from four to a terminated employment contract.
Other Long-Term Assets
Other long-term assets consist primarily consist of balances representing various deposits, the long term portion of notes receivable, and the long-term portion of the Company’s non-qualified deferred compensation plan.
Fair Value Measurements
FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and classifies the inputs used to measure fair value into the following hierarchy:
Level 1—Quoted prices for identical instruments in active markets;
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
Estimated Fair Value of Financial Instruments
The aggregatedaggregate net fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, and cash equivalents, receivables, payables,accounts receivable, notes receivable, accounts payable, accrued expenses and short-term borrowings. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company’s long-term debt is estimatedand CGL notes receivable approximated their respective carrying values based upon the quoted market prices for the same or similar issues or on the currentinterest rates offeredassociated with these instruments.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Certain assets and liabilities are measured at fair value on a non-recurring basis, which means that the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value measurements or adjustments in certain circumstances, for example, when the Company for debt of similar maturities.
In accordance with FASB ASC Topic 350, “Revenue RecognitionIntangibles—Goodwill and Other
changes indicate possible impairment. The Company’s annual impairment analyses were completed in the third quarter of fiscal years 2011 and 2010, and resulted in no impairments. For the years presented, we did not recognize any goodwill impairment as the estimated fair value of our reporting unit with goodwill significantly exceeded its carrying amount.
As discussed further inNote 11—Acquisitions, the Company completed an acquisition in the fourth quarter of fiscal year 2009. The acquisition-date fair values of the intangible assets acquired have been estimated by management using income approach methodologies, pricing models and valuation techniques. The valuation of these identifiable intangible assets, as well as the other assets acquired and liabilities assumed, was based on management’s estimates, available information and reasonable and supportable assumptions. The fair value measurements were determined primarily based on Level 3 unobservable input data that reflect the Company’s assumptions regarding how market participants would value the assets.
Revenue Recognition
The Company recognizes revenue is recognized primarily at the point in time delivery is completed on the freight shipments it handles;handles, with related costs of delivery being accrued as incurred and expensed within the same period in which the associated revenue is recognized. For these business units, theThe Company uses the following supporting criteria to determine that revenue has been earned and should be recognized: i) persuasive
Persuasive evidence thatof an arrangement exists, ii) servicesexists;
Services have been rendered, iii) therendered;
The sales price is fixed and determinabledeterminable; and iv) collectability
Collectability is reasonably assured.
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The Company is the primary obligor and is responsible for providing the service desired by the customer.
The customer holds the Company responsible for fulfillment including the acceptability of the service (requirements may include, for example, on-time delivery, handling freight loss and damage claims, establishing pick-up and delivery times, and tracing shipments in transit).
For Expedited Transportation and Freight Brokerage, the | ||
Expedited Transportation and Freight Brokerage have complete discretion to establish sales prices. Independently owned stations within Freight Forwarding have the discretion to establish sales prices.
The Company bears credit risk for all receivables. In the case of Freight Forwarding the independently owned stations reimburse Freight Forwarding for a gross basis.portion (typically 70-80%) of credit losses. Freight Forwarding retains the risk that the independent station owners will not meet this obligation.
Income Taxes
Taxes on income are provided in accordance with SFAS No. 109, Accounting for ASC Topic 740, “Income Taxes.Taxes”. Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been reflected in the consolidated financial statements.Consolidated Financial Statements. Deferred tax assets and liabilities are determined based on the differences
between the book values, and the tax basis of particular assets and liabilities in addition toand the tax effects of net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized as income or expense in the period that included the enactment date. A valuation allowance is provided to offset the net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Accounting for uncertainty in income taxes is determined based on ASC Topic 740, which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. As of December 31, 2011 and 2010, the Company adopted Financial Accounting Standards Board (FASB) Interpretation Number 48 (FIN 48), “Accountingaccrued approximately $200,000 and $135,000 for Uncertainty in Income Taxes — an Interpretation of FASB statement number 109.” The Company recognized no adjustments in its tax liability as a result of the adoption of FIN 48.
During the fourth quarter of 2008, the Company received notice from2010 the Internal Revenue Service completed its review of the United States (the “IRS”) that itsCompany’s 2006 tax year, 2006 had been selected for examination byand based upon the IRS. The Company has been cooperative with the IRS agent assigned to the engagement. Since the audit remains in the preliminary stages, the Company does not anticipate currently anticipate the examination will result in any significant adverse claims against Express-1 Expedited Solutions, Inc.
Stock OptionsStock-Based Compensation
The Company accounts for share-based compensation based on the equity instrument’s grant date fair value in accordance with Statement of Financial Accounting Standard (SFAS) Number 123R, “Share-Based Payment,” which was adopted January 1, 2006, utilizing the modified prospective method. Prior to the adoption of SFAS 123R we accounted for stock option grants using the
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The Company has in place a stock option planstock-based compensation plans approved by the shareholdersCompany’s stockholders for 5,600,000up to 1,900,000 shares of its common stock. Through the plan, the Company offers sharesstock options and restricted stock units to employees and assists in the recruitment of qualified employeesdirectors.
Options and non-employee directors. Under the plan, the Company may also grant restricted stock awards, subject to the satisfaction by the recipient of certain conditions and enumerated in the specific restricted stock grant.
The weighted-average fair value of each stock option recorded in expense for the years ended December 31, 2008, 20072011, 2010 and 2006 were2009 was estimated on the date of grant using the Black-Scholes option pricing model and were amortized over the vestingrequisite service period of the underlying options. The Company has used one grouping for the assumptions, as its option grants are primarily basic withhave similar characteristics. The expected term of options granted has been derived based upon the Company’s history of actual exercise behavior and represents the period of time that options granted are expected to be outstanding. Historical data was also used to estimate option exercises and employee terminations. Estimated volatility is based upon the Company’s historical market price at consistent points in a period equal to the expected life of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and the dividend yield is zero. The assumptions outlined in the table below were utilized in the calculations of compensation expense from option grants in the reporting periods reflected.
Twelve Months Ended December 31, | ||||||
2008 | 2007 | 2006 | ||||
Risk-free interest rate | 3%-4% | 5% | 4%-5% | |||
Expected life | 5.0-6.0 years | 6.0 years | 5.0 - 10.0 years | |||
Expected volatility | 35% | 35% | 18% - 35% | |||
Expected dividend yield | none | none | none | |||
Grant date fair value | $0.37 | $0.62 | $0.22 |
Twelve Months Ended December 31, | ||||||
2011 | 2010 | 2009 | ||||
Risk-free interest rate | 1.5% | 2.5% | 2.5% | |||
Expected term | 6.2 years | 5.8 years | 5.1 years | |||
Expected volatility | 48% | 35% | 35% | |||
Expected dividend yield | none | none | none | |||
Grant date fair value | $5.65 | $2.12 | $1.24 |
As of December 31, 2008,2011, the Company had approximately $265,000$4.0 million of unrecognized compensation cost related to non-vested share-basedstock option-based compensation that is anticipated to be recognized over a weighted average period of approximately 1.14.3 years. Remaining estimated compensation expense related to existing share-basedstock-option based plans is $148,000, $72,000$1.2 million, $875,000, $781,000, $652,000 and $45,000$395,000 for the years ending December 31, 2009, 20102012, 2013, 2014, 2015, and thereafter,2016, respectively.
As of December 31, 2011, the Company had approximately $6.9 million of unrecognized compensation cost related to non-vested restricted stock-based compensation that is anticipated to be recognized over a weighted average period of approximately 4.5 years. Remaining estimated compensation expense related to existing restricted stock-based plans is $1.6 million, $1.5 million, $1.5 million, $1.4 million and $900,000 for the years ending December 31, 2012, 2013, 2014, 2015 and 2016, respectively.
At December 31, 2008,2011 and 2010, the aggregate intrinsic value of warrants and options outstanding and exercisable was $359,000. During the year ended December 31, 2008, warrants representing 153,250 shares were exercised$12,800,000 and the Company received approximately and $168,000 in cash from these transactions. Also during the year, warrants representing 854,747 shares of the Company’s stock were exercised in a cashless manner, wherein the Company did not receive cash proceeds from the transaction.$3,200,000, respectively. During the years ended December 31, 2008, 20072011, 2010 and 2006,2009 the intrinsic value of options exercised was $1,034,000, $159,000 and zero, respectively. During the years ended December 31, 2011, 2010, and 2009 stock options with a fair value of $261,000, $218,000$785,000, $159,000 and $121,000199,000 vested, respectively.
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Earnings per common share are computed in accordance with SFAS No. 128, “Earnings PerASC Topic 260, “Earnings per Share”, which requires companies to present basic earnings per share and diluted earnings per share. Basic earnings per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share are computed by dividing net income by the combined weighted average number of shares of common stock outstanding and dilutive options outstanding during the year. The table below identifies the weighted average number of shares outstanding and the associated earnings per common share for the periods represented.
For the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Income from continuing operations | $ | 2,817,000 | $ | 1,813,000 | $ | 3,634,000 | ||||||
Income from discontinued operations | 339,000 | 358,000 | 270,000 | |||||||||
Net income | $ | 3,156,000 | $ | 2,171,000 | $ | 3,904,000 | ||||||
Basic shares outstanding | 31,453,765 | 26,690,382 | 26,297,120 | |||||||||
Diluted shares outstanding | 31,757,164 | 27,326,729 | 26,641,012 | |||||||||
Basic earnings per share | ||||||||||||
Income from continuing operations | $ | 0.09 | $ | 0.07 | $ | 0.14 | ||||||
Income from discontinued operations | $ | 0.01 | $ | 0.01 | $ | 0.01 | ||||||
Net Income | $ | 0.10 | $ | 0.08 | $ | 0.15 | ||||||
Diluted earnings per share | ||||||||||||
Income from continuing operations | $ | 0.09 | $ | 0.07 | $ | 0.14 | ||||||
Income from discontinued operations | $ | 0.01 | $ | 0.01 | $ | 0.01 | ||||||
Net Income | $ | 0.10 | $ | 0.08 | $ | 0.15 |
Twelve Months Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Basic weighted average common shares outstanding | 8,246,577 | 8,060,346 | 8,008,805 | |||||||||
Diluted weighed average common shares outstanding | 8,246,577 | 8,278,995 | 8,041,862 | |||||||||
Net income | $ | 759,000 | $ | 4,888,000 | $ | 1,705,000 | ||||||
Less: | ||||||||||||
Declared cumulative paid preferred dividends | (375,000 | ) | — | — | ||||||||
Undeclared cumulative preferred dividends | (750,000 | ) | — | — | ||||||||
Deemed dividends from amortization of beneficial conversion feature | (44,211,000 | ) | — | — | ||||||||
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Net (loss) income available to common shareholders | $ | (44,577,000 | ) | $ | 4,888,000 | $ | 1,705,000 | |||||
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Basic earnings per share | $ | (5.41 | ) | $ | 0.61 | $ | 0.21 | |||||
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Diluted earnings per share | $ | (5.41 | ) | $ | 0.59 | $ | 0.21 | |||||
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Diluted earnings per common share are computed by dividing net income by the combined weighted average number of shares of common stock outstanding and the potential dilution of stock options, warrants, restricted stock units and convertible preferred stock outstanding during the period, if dilutive. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. For the year ended December 31, 2011, the weighted average of potentially dilutive securities excluded from the computation of diluted earnings per share was as follows:
Twelve Months Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Shares underlying the conversion of preferred stock to common stock | 3,522,505 | — | — | |||||||||
Shares underlying warrants to purchase common stock | 3,618,061 | — | — | |||||||||
Shares underlying stock options to purchase common stock | 298,017 | 218,649 | 33,057 | |||||||||
Shares underlying restricted stock units | 6,456 | — | — | |||||||||
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7,445,039 | 218,649 | 33,057 | ||||||||||
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The Company has in place an Employee Stock Ownership Plan (ESOP), which is described in more detail within Footnote 16 within this report.(“ESOP”). Shares issued to this plan are included in both the denominator of the earnings per share calculation. Dilutivebasic and diluted weighted average common shares outstanding amounts. Common shares outstanding from Company’sthe ESOP were 255,000, 255,00064,395 and 165,00063,750 and 63,750 for the years ended December 31, 2008, 20072011, 2010 and 2006,2009, respectively.
Recently Issued Financial Accounting Standards
The Company is required to apply SFAS No. 141(R) prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Earlier application is not permitted. It is likely that the adoption of SFAS 141 (R) will have significant impact upon the structure of any future acquisitions and the recording of the assets acquired in those transactions and expenses incurred as a result of these transactions.
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2. | |
Subsequent Events |
On January 2009,9, 2012, our board of directors approved the Company completed the purchasedeclaration of certain tangible and intangible assets from First Class Expediting Service, Inc. (FCES)a dividend payable to holders of Rochester Hills, Michigan for the sumour Series A Convertible Perpetual Preferred Stock. The declared dividend equaled $10 per share of $250,000. The Company assumed approximately $50,000 of liabilities related to leases for office equipmentpreferred stock as specified in the transaction and entered into a lease with the former ownersCertificate of FCES for a small trucking terminal which houses the operations. The Company’s subsidiary, Express-1, Inc. completed the transaction, resulting in the establishment of a new First Class division of Express-1, Inc. Management anticipates that an allocationDesignation of the purchase price to the assets acquired will be completed during the first quarter of 2009.
3. | |
Discontinued Operations |
During the fourth quarter of 2008, the Company discontinued its Express-1 Dedicated business unit. The Company had operated this unit under the terms of a dedicated contract to supply transportation services to a domestic automotive manufacturer. The contact had been in-place for five years, and was not renewed by the automotive manufacturer in favor
Substantially all of the Company.
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The following table below reflects the revenues,revenue, operating expenses, gross margins, operating expenses and net income of the Company’s discontinued Express-1 Dedicated business unit in each of the previous three years.
Year Ended December | Year Ended December | Year Ended December | ||||||||||
31, 2008 | 31, 2007 | 31, 2006 | ||||||||||
Operating revenue | $ | 4,921,000 | $ | 5,076,000 | $ | 4,864,000 | ||||||
Operating expense | 3,805,000 | 3,960,000 | 3,958,000 | |||||||||
Gross margin | 1,116,000 | 1,116,000 | 906,000 | |||||||||
Sales, general, and administrative | 527,000 | 525,000 | 676,000 | |||||||||
Income before tax provision | 589,000 | 591,000 | 230,000 | |||||||||
Tax provision (benefit) | 250,000 | 233,000 | (91,000 | ) | ||||||||
Net income | $ | 339,000 | $ | 358,000 | $ | 321,000 | ||||||
Years Ending December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Operating revenue | $ | — | $ | — | $ | 666,000 | ||||||
Operating expense | — | — | 532,000 | |||||||||
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Gross margin | — | — | 134,000 | |||||||||
Selling, general and administrative | — | — | 106,000 | |||||||||
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Income from discontined operations, before tax provision | — | — | 28,000 | |||||||||
Tax provision | — | — | 13,000 | |||||||||
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Income from discontined operations, net of tax | $ | — | $ | — | $ | 15,000 | ||||||
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2008 | 2007 | |||||||
Accounts receivable | $ | 12,335,000 | $ | 5,740,000 | ||||
Less: Allowance for doubtful accounts | 133,000 | 77,000 | ||||||
$ | 12,202,000 | $ | 5,663,000 | |||||
2008 | 2007 | |||||||
Balance at beginning of year | $ | 77,000 | $ | 77,000 | ||||
Additions: Charged to cost and expense | 117,000 | 188,000 | ||||||
Deductions and adjustments | (61,000 | ) | (188,000 | ) | ||||
Balance at end of year | $ | 133,000 | $ | 77,000 | ||||
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Property and Equipment |
Years Ending December 31, | ||||||||
2008 | 2007 | |||||||
Buildings | $ | 1,115,000 | $ | 1,066,000 | ||||
Leasehold improvements | 228,000 | 51,000 | ||||||
Office equipment | 378,000 | 223,000 | ||||||
Trucks and trailers | 1,884,000 | 1,644,000 | ||||||
Warehouse equipment | 115,000 | 79,000 | ||||||
Computer equipment | 1,066,000 | 670,000 | ||||||
Computer software | 575,000 | 313,000 | ||||||
5,361,000 | 4,046,000 | |||||||
Less: accumulated depreciation | (2,220,000 | ) | (1,734,000 | ) | ||||
Total property and equipment | $ | 3,141,000 | $ | 2,312,000 | ||||
Property and trailers” are assets financed with capital lease obligations of approximately $225,000equipment is summarized as of December 31, 2008 and 2007. Accumulated depreciation on these assets was $185,000 and $155,000 for 2008 and 2007, respectively.
Year Ending December 31, | ||||||||
2011 | 2010 | |||||||
Buildings | $ | 1,115,000 | $ | 1,115,000 | ||||
Leasehold improvements | 392,000 | 345,000 | ||||||
Office equipment | 739,000 | 586,000 | ||||||
Trucks and trailers | 1,860,000 | 1,786,000 | ||||||
Warehouse equipment | 103,000 | 117,000 | ||||||
Computer equipment | 1,689,000 | 1,390,000 | ||||||
Computer software | 1,018,000 | 911,000 | ||||||
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Less: accumulated depreciation | (3,937,000 | ) | (3,290,000 | ) | ||||
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Total property and equipment, net | $ | 2,979,000 | $ | 2,960,000 | ||||
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Depreciation expense of property and equipment totaled approximately $664,000, $561,000$710,000, $641,000 and $631,000$608,000 for the years ended December 31, 2008, 20072011, 2010 and 2006,2009, respectively.
Within our Consolidated Statements of Operations” included within our financial statements containedOperations, depreciation expense is included in a caption other than “Direct expenses” for the years ended December 31, 2008, 2007both “direct expense” and 2006.“selling general and administrative expense”. For those years2011, 2010 and 2009 depreciation expense of $300,000, $320,000$193,000, $192,000 and $415,000 respectively,$191,000 was included within the line item “Direct expenses,“direct expense,” while depreciation expense of $364,000, $241,000$517,000, $449,000 and $216,000 respectively$417,000 was included within the line “Sales,“selling, general and administrative expense.”
5. | |
The carrying amount of goodwill at both December 31, 2011 and 2010 was $16,959,000.
In conjunction with its restructuring activities and the related disposal of its Temple operations,October 2009, the Company, entered intothrough its subsidiary CGL, acquired certain assets of LRG International, Inc., a loan withFlorida based international forwarding company (“LRG”). As consideration the buyerformer owners of this operationLRG were paid $2,000,000 in July 2005.cash at closing, and received $500,000 on the one year anniversary of the closing, October 1, 2010. Additionally, earn-out consideration of $450,000 was earned by the former owners of LRG based on financial criteria being met in 2010. In the first quarter of 2011, the $450,000 earn-out above was paid in cash. The loan called forfinal earn-out of $450,000 was earned based on 2011 financial criteria being met. The initial fair value liability of the borrower to remit topotential earn-out payments were based on the Company payments spread equally over a sixty month period beginningCompany’s third-party valuation and was approximately $737,000 as of December 31, 2009. Increases in July 2006. Interest on this borrowing accrued at the rateliability of 6% per annum.
Balance at December 31, 2006 | $ | 5,527,000 | ||
Contingent contractually earned payments | 2,210,000 | |||
Balance at December 31, 2007 | $ | 7,737,000 | ||
CGL Purchase | 6,678,000 | |||
Contingent contractually earned payments | 500,000 | |||
Balance at December 31, 2008 | $ | 14,915,000 | ||
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quarter of 2009 in addition to the $500,000 note payable established at the time of purchase. This transaction resulted in a cash payment of $1.1 million to the former owners of CGL and 2009. Subsequentan additional $687,000 being added to goodwill for the year ended December 31, 2008, the Company entered into an agreement wherein2009. The negotiated earn-out represented payment in full for all earnout and contractual obligationsfuture earn-out compensation related to the CGL purchase were settled with the former owners of Concert Group Logistics, LLC for the amount of $1.1 million.
6. | |
Identified Intangible Assets |
Year Ending December 31, | ||||||||
2008 | 2007 | |||||||
Intangible not subject to amortization: | ||||||||
Trade name | $ | 6,420,000 | $ | 3,346,000 | ||||
Intangibles subject to amortization: | ||||||||
Employee contracts, net of accumulated amortization of $200,000 and $182,000 respectively | — | 18,000 | ||||||
Non-compete agreements, net of accumulated amortization of $432,000 and $328,000, respectively | 271,000 | 345,000 | ||||||
Independent Participant Network, net of accumulated amortization of $196,000 and $0, respectively | 784,000 | — | ||||||
Customer relationships, net of accumulated amortization of $347,000 and $276,000, respectively | 147,000 | 218,000 | ||||||
Other intangibles, net of accumulated amortization of $507,000 and $493,000, respectively | 9,000 | 23,000 | ||||||
Total identifiable intangible assets | $ | 7,631,000 | $ | 3,950,000 | ||||
Remaining Weighted Average Amortization In Years | Year Ending December 31, | |||||||||||
2011 | 2010 | |||||||||||
Intangible not subject to amortization: | ||||||||||||
Trade names | — | $ | 6,420,000 | $ | 6,420,000 | |||||||
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Intangibles subject to amortization: | ||||||||||||
Trade Names, net of accumulated amortization of $94,000 and $52,000, respectively | 2.97 | 126,000 | 168,000 | |||||||||
Non-compete Agreements, net of accumulated amortization of $730,000 and $654,000, respectively | 2.97 | 33,000 | 109,000 | |||||||||
Independent Participant Network, net of accumulated amortization of $786,000 and $591,000 respectively | 0.94 | 194,000 | 389,000 | |||||||||
Customer relationships, net of accumulated amortization of $809,000 and $676,000, respectively | 9.71 | 1,165,000 | 1,298,000 | |||||||||
Other intangibles, net of accumulated amortization of $631,000 and $584,000, respectively | 2.54 | 115,000 | 162,000 | |||||||||
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7.50 | 1,633,000 | 2,126,000 | ||||||||||
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Total identifiable intangible assets | $ | 8,053,000 | $ | 8,546,000 | ||||||||
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The following is a schedule by year of future expected amortization expense related to identifiable intangible assets as of December 31, 2008:
2009 | $ | 378,000 | ||
2010 | 363,000 | |||
2011 | 263,000 | |||
2012 | 200,000 | |||
2013 | 4,000 | |||
Thereafter | 3,000 | |||
Total future expected amortization expense | $ | 1,211,000 | ||
2012 | $ | 426,000 | ||
2013 | 232,000 | |||
2014 | 203,000 | |||
2015 | 129,000 | |||
2016 | 115,000 | |||
Thereafter | 528,000 | |||
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Total future expected amortization expense | $ | 1,633,000 | ||
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The Company recorded amortization expense of approximately $450,000, $282,000$493,000, $649,000 and $423,000$580,00 for the years ended December 31, 2008, 20072011, 2010 and 2006,2009, respectively.
7. | |
The Company enters into notes payablelong-term debt and capital leases with various third parties from time to time to finance certain operational equipment real property and other assets used in its business operations. The Company also uses financing for acquisitions and business start ups, among other items. Generally these loans and capital leases bear interest at market rates, and are collateralized with accounts receivable, equipment and certain assets of the Company.
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Year Ending December 31, | ||||||||||||||||
Interest rates | Term (months) | 2008 | 2007 | |||||||||||||
Capital leases for equipment | 18 | % | 24 - 60 | $ | 35,000 | $ | 84,000 | |||||||||
Notes Payables | 2.8 | % | 36 | 2,600,000 | — | |||||||||||
Total notes payable and capital leases | 2,635,000 | 84,000 | ||||||||||||||
Less: current maturities of long-term debt | 1,235,000 | 50,000 | ||||||||||||||
Non-current maturities of long term-debt | $ | 1,400,000 | $ | 34,000 | ||||||||||||
Year Ending December 31, | ||||||||||||||||
Interest rates | Term (months) | 2011 | 2010 | |||||||||||||
Capital leases for equipment | 10 – 18 | % | 24 – 60 | $ | 45,000 | $ | 13,000 | |||||||||
Notes Payables | 2.5 | % | 36 | 2,084,000 | 3,750,000 | |||||||||||
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|
|
|
|
|
|
| |||||||||
Total notes payable and capital leases | 2,129,000 | 3,763,000 | ||||||||||||||
Less: current maturities of long-term debt and capital leases | 1,675,000 | 1,680,000 | ||||||||||||||
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|
| |||||||||||||
Non-current maturities of long term-debt and capital leases | $ | 454,000 | $ | 2,083,000 | ||||||||||||
|
|
|
|
The Company recorded interest expense associated with capital leasesfor the long-term debt of $4,000, $11,000$75,000, $91,000 and $21,000$37,000 for the years ended December 31, 2008, 20072011, 2010 and 2006,2009, respectively. For these same years, the Company recorded gross payments for capital lease obligations of $53,000, $154,000 and $222,000, respectively. The Company also recorded interest expense for the above note payable of $122,000 for the year ending December 31, 2008. For the same year the Company recorded gross payments for the note payable of $1,122,000.
The following is a schedule by year of future minimum principal payments required under the terms of the above notes payablelong-term debt and capital lease obligations as of December 31, 2008:
2009 | $ | 1,235,000 | ||
2010 | 1,200,000 | |||
2011 | 200,000 | |||
Total future principal payments | $ | 2,635,000 | ||
2012 | $ | 1,675,000 | ||
2013 | 427,000 | |||
2014 | 10,000 | |||
2015 | 11,000 | |||
2016 | 6,000 | |||
|
| |||
Total future principal payments | $ | 2,129,000 | ||
|
|
The Company entered into a new$5.0 million term loan on March 31, 2010. Commencing April 30, 2010, the term loan is payable in 36 consecutive monthly installments consisting of $139,000 in monthly principal payments plus the unpaid interest accrued on the loan. Interest is payable at the one-month LIBOR plus 225 basis points (2.51% as of December 31, 2011).
8. | Revolving Credit Facility |
On March 31, 2011, the Company amended the credit agreement governing the Company’s revolving credit facility with National City Bankand the term loan described in January, 2008. ThisNote 7 above to extend the maturity date of the revolving credit facility providesto March 31, 2013 and to eliminate the receivables borrowing base limitation previously applicable to the revolving credit facility. The revolving credit facility continues to provide for a receivables based line of credit of up to $11.0 million and a term note of $3.6$10.0 million. The Company may draw upon the receivables basedthis line of credit the lessor of $11.0up to $10.0 million, or 80% of eligible accounts receivables, less amounts outstanding under letters of credit. To fundThe proceeds of the purchase of Concert Group Logistics, LLC, the Company drew approximately $3.6 million on the term facility and $5.4 million on the receivables based line of credit. credit will be used exclusively for working capital purposes.
Substantially all of the assets of the Company and its wholly owned subsidiaries (Express-1, Inc., Concert Group Logistics, Inc. and Bounce Logistics, Inc.) are pledged as collateral securing the Company’s performance under the terms of the commitment.revolving credit facility and term loan. The linerevolving credit facility bears interest based upon a spread abovethirty-dayat the one-month LIBOR withplus an initial increment of 125175 basis points abovethirty-day LIBOR for the receivables line and 150 basis points abovethirty-day LIBOR for the term note. Amortizing over a thirty-six month period, the term note requires monthly principal payments of $100,000 together with accrued interest be paid until retired. The Company’s interest rate spread remained LIBOR plus 150 basis points for the term loan and LIBOR plus 125 basis points for the receivables based line,(2.01% as of December 31, 2008. 2011).
The weighted average of interest oncredit agreement governing the revolving credit facility was approximately 2.8% and the rates are adjusted monthly. Available capacity under the line was approximately $6.8 million as of December 31, 2008. The credit facility carries a maturity date of May 31, 2010.
48
Perpetual Preferred Stock, as well as certain other technical matters not involving the Company’s financial performance or financial maintenance covenants. Subsequent to December 31, 2011, the Company received a waiver from its lender regarding the payment of dividends on the preferred stock in October 2011 and January 2012 and the other technical matters noted above. As of December 31, 2011, the Company was in compliance with all other terms under the credit facilityagreement and no other events of default existed under the terms of thissuch agreement.
The Company had outstanding standby letters of credit as of both December 31, 2011 and 2010 totaling $410,000 related to insurance policies either continuing in force or recently canceled. Amounts outstanding for letters of credit reduce the amount available under the revolving credit facility, on a dollar-for-dollar basis.
Available capacity in excess of outstanding borrowings under the line was approximately $9.6 million and $6.8 million of the as of December 31, 2008.2011 and 2010, respectively. The line of credit facility carries a maturity date of MayMarch 31, 2010.
9. | |
Commitments and Contingencies |
Lease Commitments
The following is a schedule by year of future minimum payments required under operating leases for various transportation and office equipment and real estate lease commitments that have an initial or remaining non-cancelable lease term as of December 31, 2008. In addition to real estate leases used in2011.
For the Year Ended December 31, | ||||
2012 | $ | 584,000 | ||
2013 | 874,000 | |||
2014 | 611,000 | |||
2015 | 519,000 | |||
2016 | 481,000 | |||
Thereafter | 3,082,000 | |||
|
| |||
Total | $ | 6,151,000 | ||
|
|
Rent expense was approximately $514,000, $472,000 and $446,000 for the Company’s current operations, included in this number is a commitment for property located on Boggy Creek Road in Orlando, Florida, net of estimated sublease proceeds. This Florida real estate lease commitment will expire in July 2009.
Current | Closed | |||||||
Operations | Locations | |||||||
For the Year Ended December 31, | ||||||||
2009 | $ | 150,000 | $ | 45,000 | ||||
2010 | 115,000 | 0 | ||||||
2011 | 107,000 | 0 | ||||||
2012 | 107,000 | 0 | ||||||
Total | $ | 479,000 | $ | 45,000 | ||||
49
The Company carries liability and excess umbrella insurance policies that it deems sufficient to cover potential legal claims arising in the normal course of conducting its operations as a transportation company. In the event the Company is required to satisfy a legal claim in excess of the coverage provided by this insurance, the cash flows and earnings of the Company could be negatively impacted.
During 2008, Express-1, Inc. became involved in litigation relating to a vehicular accident involving an Express-1 vehicle. Throughout 2009, legal discovery took place and during November of 2009 the Company received an order from the court to begin mediation. As a result of mediation, an agreement was reached to settle the litigation for an amount in excess of the Company’s insured limits. As such, the Company recorded $400,000 in expense in the fourth quarter of 2009 that was included in sales, general and administrative expense.
Regulatory Compliance
The Company’s activities are regulated by state and federal regulatory agencies under requirements that are subject to broad interpretations. The Company cannot predict positions that may be taken by these third parties that could require changes to the manner in which the Company operates.
10. | |
Stockholders’ Equity |
ConvertibleEquity Investment-Convertible Preferred Stock and Warrants
On September 2, 2011, pursuant to the Investment Agreement, dated as of June 13, 2011 (the “Investment Agreement”), by and among Jacobs Private Equity, LLC (“JPE”), the other investors party thereto (collectively with JPE, the “Investors”) and XPO Logistics, Inc., a Delaware corporation, the Company issued to the Investors, for $75,000,000 in cash: (i) an aggregate of 75,000 shares of Series A Convertible Perpetual Preferred Stock of the Company (the “Series A Preferred Stock”), which are initially convertible into an aggregate of 10,714,286 shares of common stock, and (ii) warrants initially exercisable for an aggregate of 10,714,286 shares of common stock at an initial exercise price of $7.00 per common share (the “Warrants”). The Company’s stockholders approved the issuance of the Series A Preferred Stock and the Warrants at the special meeting of the Company’s stockholders on September 1, 2011. We refer to this investment as the “Equity Investment.”
The Series A Preferred Stock has an initial liquidation preference of $1,000 per share and is convertible at any time in whole or in part at the option of the holder thereof into shares of common stock at an initial conversion price of $7.00 per common share (subject to customary anti-dilution adjustments), for an effective initial aggregate conversion rate of 10,714,286 shares of common stock. The Series A Preferred Stock pays and or accrues quarterly cash dividends equal to the greater of (i) the as-converted dividends on the underlying common stock for the relevant quarter and (ii) 4% of the then-applicable liquidation preference per annum. Accrued and unpaid dividends for any quarter accrete to liquidation preference for all purposes. As of December 31, 2011 there were $750,000 of arrearages in cumulative preferred dividends. The liquidation preference of the Series A Preferred Stock at December 31, 2011 was $75,000,000. The Series A Preferred Stock votes together with the common stock on an as-converted basis on all matters, except as otherwise required by law, and separately as a class with respect to certain matters involving the rights of holders of the Series A Preferred Stock.
The Warrants are initially exercisable at any time in whole or in part until September 2, 2021 at the option of the holder thereof for one share of common stock per Warrant at an initial exercise price of $7.00 in cash per common share (subject to customary anti-dilution adjustments), for an effective initial aggregate number of shares of common stock subject to Warrants of 10,714,286.
After deducting $3,372,000 of direct incremental issuance costs, the Company received net proceeds of $71,628,000 for the Series A Preferred Stock and the Warrants, which was recorded in equity based on the relative fair values of the Series A Preferred Stock and the Warrants, resulting in $42,794,000 allocated to the Series A Preferred Stock and $28,834,000 allocated to the Warrants.
The conversion feature of the Series A Preferred Stock was determined to be a beneficial conversion feature (“BCF”) based on the effective initial conversion price and the market value of the Company’s common stock at the commitment date for the issuance of the Series A Preferred Stock. ASC Topic 470, “Debt”, requires recognition of the BCF related to the Series A Preferred Stock as a discount on the Series A Preferred Stock and amortization of such amount as a deemed distribution through the earliest conversion date. The calculated value of the BCF was in excess of the relative fair value of net proceeds allocated to the Series A Preferred Stock. The Company therefore recorded a discount on the Series A Preferred Stock of $44,211,000 with immediate recognition of this amount as a deemed distribution because the Series A Preferred Stock is convertible at any time.
The authorized preferred stock of the Company consists of 10,000,000 shares at $0.001$.001 par value, of which no75,000 shares were issued and outstanding as of December 31, 2008, 20072011. No shares were issued and 2006.outstanding as of December 31, 2010 or 2009.
Reverse Stock Split
In connection with the closing of the Equity Investment, the Company effected a 4-for-1 reverse stock split on September 2, 2011. The authorized preferredCompany’s stockholders approved the amendment to the Company’s certificate of incorporation effecting the reverse stock is comprisedsplit at the special meeting of three classes: Series A — Redeemable, Series B — Convertiblethe Company’s stockholders on September 1, 2011. Unless otherwise noted, all share-related amounts herein reflect the reverse stock split.
In connection with the reverse stock split, stockholders received one new share of common stock for every four shares of common stock held at the effective time. Proportional adjustments were made to the number of shares issuable upon the exercise of outstanding options to purchase shares of common stock and Series C — Redeemable, each with differing terms, ratesthe per share exercise price of interest and conversion rights.
Common Stock
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividend payments whenever funds are legally available and dividends are declared by the Boardour board of Directors (the “Board”),directors, subject to the prior rights of the holders of all classes of stock outstanding. The Company records stock as issued when the consideration is received or the obligation is incurred.
Treasury Stock
In 2005, the Company received 180,00045,000 shares of its Common Stockcommon stock from the holders thereof in settlement of certain loans and deposits between the Company and these shareholders.stockholders. The shares were recorded at market price on the dates on which they were acquired by the Company.
Options and WarrantsRestricted Stock Units
The Company has in place astock-based compensation plans in which 1,900,000 shares of its common stock option plan initiallyhave been approved by the shareholders for 600,000 shares of stock in November 2001 and later increased by the shareholders to 5,600,000 shares in June 2005.be issued. Through the planplans, the Company offers shares to employees and assistsassist in the recruitment and retention of qualified employees and non-employee directors. Under the plan, the Company may also grant restricted stock awards.Outstanding options granted to employees and non-employee directors totaled 1,382,000 and 751,000 as of December 31, 2011 and 2010, respectively. Restricted stock represents sharesunits granted to employees and non-employee directors totaled 695,000 and zero as of common stock issued to eligible participants under the stock option plan subject to the satisfaction by the recipient of certain conditions and enumerated in the specific restricted stock grant. Conditions that may be imposed include, but are not limited to, specified periods of employment, attainment of personal performance standards or the Company’s overall financial performance.
502011 and 2010, respectively.
Range of Exercise | Weighted Average | |||||||||||
Shares | Prices | Exercise Price | ||||||||||
Outstanding at December 31, 2005 | 13,126,950 | $ | 0.57 - 2.75 | $ | 1.52 | |||||||
Warrants issued | ||||||||||||
Warrants exercised/cancelled | ||||||||||||
Options granted | 852,502 | 0.74 - 1.29 | 0.94 | |||||||||
Options expired/cancelled | (825,714 | ) | 1.15 - 1.75 | 1.58 | ||||||||
Outstanding at December 31, 2006 | 13,153,738 | 0.57 - 2.75 | 1.49 | |||||||||
Warrants issued | 10,173 | 1.25 | 1.25 | |||||||||
Warrants exercised/cancelled | (310,500 | ) | 1.00 - 1.35 | 1.02 | ||||||||
Options granted | 485,475 | 1.11 - 1.48 | 1.41 | |||||||||
Options expired/cancelled | (1,570,000 | ) | 1.75 | 1.75 | ||||||||
Outstanding at December 31, 2007 | 11,768,886 | 0.57 - 2.75 | 1.47 | |||||||||
Warrants issued | 31,540 | 1.25 | 1.25 | |||||||||
Warrants exercised | (1,007,997 | ) | 1.00 - 1.50 | 1.04 | ||||||||
Warrants cancelled/expiring | (4,261,382 | ) | 1.15 - 1.40 | 1.36 | ||||||||
Options granted | 660,000 | 0.92 - 1.20 | 1.41 | |||||||||
Options expired/cancelled | (1,330,357 | ) | 1.25 - 1.75 | 1.71 | ||||||||
Outstanding at December 31, 2008 | 5,860,690 | $ | 0.57 - 2.75 | $ | 1.52 | |||||||
Outstanding Warrants and Options | Exercisable Warrants and Options | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||||||||
Number | Remaining | Average | Number | Remaining | Average | |||||||||||||||||||
Outstanding | Life | Price | Exercisable | Life | Price | |||||||||||||||||||
Range of Exercise | ||||||||||||||||||||||||
$0.57 - $2.75 | 3,608,975 | 6.2 | $ | 1.18 | 2,270,279 | 5.7 | $ | 1.19 | ||||||||||||||||
$1.25 - $2.20 | 2,251,715 | 0.3 | 2.05 | 2,251,715 | 0.3 | 2.05 | ||||||||||||||||||
$0.57 - $2.75 | 5,860,690 | 4.1 | $ | 1.52 | 4,521,994 | 3.4 | $ | 1.58 |
��
Options | Restricted Stock Units | |||||||||||||||||||||||
Options | Weighted Average Exercise Price | Exercise Price Range | Weighted Average Remaining Term | Restricted Stock Units | Weighted Average Grant Date Fair Value | |||||||||||||||||||
Outstanding at December 31, 2009 | 785,750 | $ | 4.56 | 2.28 – 5.92 | 5.1 | |||||||||||||||||||
Granted | 158,750 | 5.64 | 5.00 – 6.60 | |||||||||||||||||||||
Expired | (75,250 | ) | 5.16 | 3.92 – 6.08 | ||||||||||||||||||||
Exercised | (118,000 | ) | 4.76 | 3.92 – 5.00 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Outstanding at December 31, 2010 | 751,250 | $ | 4.72 | 2.28 - 6.60 | 6.2 | — | ||||||||||||||||||
|
|
|
|
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|
|
|
|
|
|
| |||||||||||||
Vested & Exercisable at December 31, 2010 | 582,595 | $ | 4.57 | 2.28 – 6.60 | 5.5 | — | — | |||||||||||||||||
Outstanding at December 31, 2010 | 751,250 | $ | 4.72 | 2.28 – 6.60 | 6.2 | — | ||||||||||||||||||
Granted | 1,059,250 | 10.89 | 9.28 – 16.92 | 695,000 | 10.34 | |||||||||||||||||||
Expired | (190,716 | ) | 10.83 | 2.28 – 16.92 | — | |||||||||||||||||||
Exercised | (237,826 | ) | 5.14 | 2.28 – 10.56 | — | |||||||||||||||||||
|
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|
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|
| |||||||||||||
Outstanding at December 31, 2011 | 1,381,958 | $ | 8.53 | 2.28 – 16.92 | 9.0 | 695,000 | 10.34 | |||||||||||||||||
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| |||||||||||||
Vested & Exercisable at December 31, 2011 | 471,653 | $ | 5.52 | 2.68 - 10.56 | 6.2 | — |
Of the 695,000 restricted stock units, 583,000 vest subject to service conditions and 112,000 vest subject to service and performance-based conditions.
11. | Acquisitions |
Equity FundingFirst Class
In January of 2009, the Company issued 5,206,450 shares of its common stock, with 4,800,000 of these shares being issued to the sellers of Concert Group Logistics, LLC to fund the Express-1 Expedited Solutions’ purchase ofpurchased certain assets and liabilities from First Class Expediting Services Inc. (FCES). FCES was a Rochester Hills, Michigan based company providing regional expedited transportation in the Midwest. The Company paid the former owners of FCES $250,000 in cash and received approximately $40,000 of net assets consisting primarily of fixed assets, net of related debt. The Company funded the company. The remaining 406,450 shares of common stock were issued in conjunctiontransaction through cash available from working capital.
For financial reporting purposes, FCES is included with the exerciseoperating results of warrants by the holders thereof.
The purchase price allocation for FCES as of warrants were issued in reliance on the exemptions from registration provided by Section 4(2) of the Securities Act of 1933,January 2009 was as amended (the “Securities Act”) or Rule 506 of Regulation D as promulgated under the Securities Act of 1933. Each of the recipients of the Company’s securities represented to the Company that they were an accredited or sophisticated investor, had sufficient liquid
51
Property and equipment | $ | 82,000 | ||
Intangibles | 210,000 | |||
Liabilities assumed | (42,000 | ) | ||
|
| |||
Total purchase price | $ | 250,000 | ||
|
|
LRG
At closing the Company paid the former owners of Concert LLC total consideration including $9.0LRG $2 million in cash and 4.8 million shares of the Company’s common stock.cash. The Company received $3.2 million of assets consisting of cash, receivables, office equipment and other current assets, net of liabilities acquired in the transaction. The transaction was financed through the Company’sused its then-existing line of credit and with cash available fromto finance the Company’s working capital.
The Company accounted for the sum of $1.1 million in cash. Discussion on this settlement is contained within footnote 2 under the caption subsequent events.
The Company allocated the costpurchase price allocation for LRG as of the acquisition to the assets acquired and the liabilities assumed based upon estimated fair values. The Company relied upon third party analysis in the formulation of its allocations and estimates for this valuation.
Property and equipment | $ | 30,000 | ||
Trademarks/names | 220,000 | |||
Association memberships | 160,000 | |||
Customer lists | 1,410,000 | |||
Non-compete agreements | 60,000 | |||
Goodwill | 1,357,000 | |||
Earn-outs | (1,237,000 | ) | ||
|
| |||
Total purchase price | $ | 2,000,000 | ||
|
|
The following table sets forth the components of identifiable intangible assets associated with the acquisition:
Fair Value | Useful Life | |||||
Trademark/Name | $ | 3,070,000 | Indefinite | |||
Independent participant network | 980,000 | 5 years | ||||
Non-compete agreements | 30,000 | 4 years | ||||
Total intangible assets | $ | 4,080,000 | ||||
52
Fair Value | Useful Lives | |||||||
Trademark/name | $ | 220,000 | 5 years | |||||
Association memberships | 160,000 | 5 years | ||||||
Customer list | 1,410,000 | 12 years | ||||||
Non-compete agreements | 60,000 | 5 years | ||||||
|
| |||||||
Total identifiable intangible assets | $ | 1,850,000 | ||||||
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|
Proforma Consolidated Results (Unaudited) | ||||||||
2007 | 2006 | |||||||
Revenues | $ | 95,006,000 | $ | 74,055,000 | ||||
Income from continuing operations before income tax | 3,885,000 | 3,759,000 | ||||||
Income from continuing operations | 2,416,000 | 4,796,000 | ||||||
Basic income from continuing operations per share | $ | 0.08 | $ | 0.15 | ||||
Diluted income from continuing operations per share | 0.08 | 0.15 |
Proforma Consolidated Results (Unaudited) | ||||
For the year ended December 31, 2009 | ||||
Operating revenue | $ | 106,540,000 | ||
Income from continuing operations before tax | 3,409,000 | |||
|
| |||
Income from continuing operations | $ | 1,926,000 | ||
|
| |||
Basic income from continuing operations per share | $ | 0.06 | ||
|
| |||
Diluted income from continuing operations per share | $ | 0.06 | ||
|
|
12. | |
Income Taxes |
The components of the income tax provision for income taxes is as follows:
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Current | ||||||||||||
Federal | $ | 109,000 | $ | 80,000 | $ | 5,000 | ||||||
State | 19,000 | 8,000 | 1,000 | |||||||||
128,000 | 88,000 | 6,000 | ||||||||||
Deferred | ||||||||||||
Federal | 1,712,000 | 1,047,000 | (1,025,000 | ) | ||||||||
State | 304,000 | 165,000 | (109,000 | ) | ||||||||
2,016,000 | 1,212,000 | (1,134,000 | ) | |||||||||
Total income tax provision | 2,144,000 | 1,300,000 | (1,128,000 | ) | ||||||||
Income tax provision included in discontinued operations | 250,000 | 233,000 | (91,000 | ) | ||||||||
Income tax provision included in continuing operations | $ | 1,894,000 | $ | 1,067,000 | $ | 1,037,000 | ||||||
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Current | ||||||||||||
Federal | $ | 738,000 | $ | 1,968,000 | $ | 172,000 | ||||||
State | 269,000 | 330,000 | 453,000 | |||||||||
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|
| |||||||
1,007,000 | 2,298,000 | 625,000 | ||||||||||
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|
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| |||||||
Deferred | ||||||||||||
Federal | (249,000 | ) | 798,000 | 591,000 | ||||||||
State | (40,000 | ) | 117,000 | 122,000 | ||||||||
|
|
|
|
|
| |||||||
(289,000 | ) | 915,000 | 713,000 | |||||||||
|
|
|
|
|
| |||||||
Total income tax provision | 718,000 | 3,213,000 | 1,338,000 | |||||||||
Income tax provision included in discontinued operations | — | — | 13,000 | |||||||||
|
|
|
|
|
| |||||||
Income tax provision included in continuing operations | $ | 718,000 | $ | 3,213,000 | $ | 1,325,000 | ||||||
|
|
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|
|
|
The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows:
Year Ending December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Provision For Income Tax | ||||||||||||
Income tax provision at statutory rate | $ | 1,832,000 | $ | 1,129,000 | $ | 970,000 | ||||||
Increase (decrease) in income tax due to: | ||||||||||||
State tax provision | 326,000 | 181,000 | 104,000 | |||||||||
Change in valuation allowance | — | (2,073,000 | ) | |||||||||
All other non-deductibles items | (14,000 | ) | (10,000 | ) | (129,000 | ) | ||||||
Total provision for income tax | $ | 2,144,000 | $ | 1,300,000 | $ | (1,128,000 | ) | |||||
53
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Income tax provision at statutory rate | $ | 519,000 | $ | 2,754,000 | $ | 1,038,000 | ||||||
Increase (decrease) in income tax due to: | ||||||||||||
State tax | 137,000 | 317,000 | 379,000 | |||||||||
Uncertain tax position provision | 65,000 | 135,000 | — | |||||||||
All other non-deductible items | (3,000 | ) | 7,000 | (79,000 | ) | |||||||
|
|
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|
|
| |||||||
Total provision for income tax | $ | 718,000 | $ | 3,213,000 | $ | 1,338,000 | ||||||
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|
|
Year Ending December 31, | ||||||||
2008 | 2007 | |||||||
Current deferred tax items | ||||||||
Allowance for doubtful accounts | $ | 56,000 | $ | 30,000 | ||||
Prepaid expenses | (149,000 | ) | (194,000 | ) | ||||
Adverse lease accrual | 20,000 | 23,000 | ||||||
Charitable contributions | 10,000 | — | ||||||
Lease accrual | 20,000 | |||||||
Accrued expenses | 103,000 | 170,000 | ||||||
Accrued insurance claims | 69,000 | — | ||||||
Unrealized currency loss (CGL) | 22,000 | |||||||
Net operating loss | 362,000 | 1,500,000 | ||||||
$ | 493,000 | $ | 1,549,000 | |||||
Non-current deferred tax items | ||||||||
Property plant and equipment | $ | (107,000 | ) | $ | (95,000 | ) | ||
Amortization expense | (999,000 | ) | (294,000 | ) | ||||
Adverse lease accrual | — | 19,000 | ||||||
Accrued deferred compensation | 130,000 | |||||||
Stock option expense | 206,000 | 112,000 | ||||||
AMT credit | 187,000 | 20,000 | ||||||
Net operating loss | — | 615,000 | ||||||
$ | (583,000 | ) | $ | 377,000 | ||||
Total deferred asset (liability) | $ | (90,000 | ) | $ | 1,926,000 | |||
Year Ended December 31, | ||||||||
2011 | 2010 | |||||||
Current deferred tax items | ||||||||
Allowance for doubtful accounts | $ | 141,000 | $ | 53,000 | ||||
Prepaid expenses | (142,000 | ) | (93,000 | ) | ||||
Accrued expenses | 896,000 | 294,000 | ||||||
Accrued insurance claims | 60,000 | 60,000 | ||||||
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|
|
| |||||
Total deferred tax asset, current | $ | 955,000 | $ | 314,000 | ||||
|
|
|
| |||||
Non-current deferred tax items | ||||||||
Property, plant & equipment | $ | (478,000 | ) | $ | (396,000 | ) | ||
Intangible assets | (2,569,000 | ) | (1,984,000 | ) | ||||
Accrued expenses | 20,000 | 20,000 | ||||||
Stock option expense | 594,000 | 253,000 | ||||||
Net operating loss carryforward | 87,000 | 75,000 | ||||||
|
|
|
| |||||
Total deferred tax liability, long-term | (2,346,000 | ) | (2,032,000 | ) | ||||
|
|
|
| |||||
Net deferred tax liability | $ | (1,391,000 | ) | $ | (1,718,000 | ) | ||
|
|
|
|
As of December 31, 2008,2011, the Company had bothno remaining federal andnet operating loss carry forward. The Company’s gross state net operating loss carry forwards. The federal loss carry forward at December 31, 2011, totaled approximately $850,000$1,600,000 and beginswill begin expiring in 2021.
Liability for Uncertain Tax Positions
In July 2006, the FASB issued guidance which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with ASC Topic 740, and prescribed a recognition threshold and measurement attributes for financial statement disclosure of Express-1, Inc.tax positions taken or expected to be taken on a tax return. Under this guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, this guidance provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company adopted this guidance on January 1, 2007, however, the adoption did not have a material impact on the Company’s Consolidated Financial Statements until fiscal year 2010. As a result of the implementation of this guidance, the Company has recognized the following liability for the year ended December 31, 2011 and 2010. A reconciliation of the beginning to ending amount of the recognized uncertain tax position liability is as follows:
Year Ended December 31, | ||||||||
2011 | 2010 | |||||||
Balance at January 1 | $ | 135,000 | $ | — | ||||
Additions based on tax positions related to the current year | 65,000 | 70,000 | ||||||
Additions for tax positions of prior years | — | 65,000 | ||||||
Reductions for tax positions of prior years | — | — | ||||||
Reductions due to the statute of limitations | — | — | ||||||
Settlements | — | — | ||||||
|
|
|
| |||||
Balance at December 31 | $ | 200,000 | $ | 135,000 | ||||
|
|
|
|
The Company recognizes interest accrued to unrecognized tax benefits in interest expense and penalties in sales, general and administrative expense. During the years ended December 31, 20072011 and 2006,2010, the Company recorded $2,210,000recognized $0 for interest and $1,750,000, respectivelypenalties due to the immaterial nature of both items.
13. | Related Party Transactions |
Pursuant to the terms of the Investment Agreement, on September 2, 2011, the Company paid JPE $1,000,000 as additional acquisition considerationreimbursement for subsequent payment to this group. The Company’s CEOcertain expenses incurred by JPE in connection with the transactions contemplated by the Investment Agreement, which reduced the net proceeds received approximately 41%for the Series A Preferred Stock and the Warrants. With the approval of these distributions. The transaction was treated as an increase in goodwill within the Company’s financial statements during the period it was determined to have been earned and thereby due and payable. Other family membersaudit committee of the Company’s Chief Executive Officer areboard of directors, the Company also membersagreed to pay an incremental $261,000 of expenses incurred by JPE in connection with the transactions contemplated by the Investment Agreement. In addition, with the approval of the former ownership groupCompany’s board of Express-1, Inc.directors, the Company agreed to pay JPE $297,000 as reimbursement for certain executive search firm and received a portion of this distribution.
In March 2010, the Company issued a promissory note to an employee for $150,000. The note accrues interest at 5.5% per annum, and is collateralized by a membermortgage on real property. The note has no stated maturity; however, the note and accrued interest are payable in full to the Company upon termination of the former ownership group of Concert Group Logistics, LLC.employee’s employment. The Company made a $1,100,000 payment to the group in 2009 to satisfy all remaining claims between the Companynote and the former owners of Concert Group Logistics, LLC. The Board member received approximately 85% of the payment. $600,000 of this transactionaccrued interest will be treated aspaid by the employee in the form of performance bonuses in the future. As of December 30, 2011, the note had an increase in goodwill during 2009. The remaining $500,000outstanding balance of $143,000, of which approximately $15,000 was accruedclassified as a guaranteed payment in 2008 and included in goodwill at December 31, 2008.
54
In December 2010, an owner of one of CGL’s independently owned stations sold his interest in such station and became employed by CGL. In connection with his prior ownership and operation of his CGL station, this employee was the three subsequent years thereafter.obligor on a promissory note in favor of CGL in an aggregate principal amount of $128,000. The buildingnote accrues interest at the prime rate, as in effect from time to time, and is owned byuncollateralized. The note matures on August 31, 2012 and requires bi-weekly payments of $2,600. As of December 31, 2011, the note had an Illinois Limited Liability Company,outstanding balance of $56,000, which has within its ownership group, Daniel Para,been classified as a current note receivable.
The above transactions are not necessarily indicative of amounts, terms and conditions that the former CEO of Concert Group Logistics, LLC. Mr. Para was appointed to the Board of Express-1 Expedited Solutions, Inc.Company may have received in January 2008.
14. | |
Employee Benefit Plans |
The Company has a defined contribution 401(k) salary reduction plan intended to qualify under sectionSection 401(a) of the Internal Revenue Code of 1986 (“Salary Savings(the “401(k) Plan”). The Salary Savings401(k) Plan allows eligible employees, as defined in the plan document, to defer up to fifteen percentthe federally allowed limits of their eligible compensation, with the Company contributing an amount determined at the discretion of the Company’s Boardboard of Directors.directors. The Company contributed approximately $173,000, $81,000$120,000, $120,000 and $32,000$65,000 to the Salary Savings401(k) Plan for the years ended December 31, 2008, 20072011, 2010 and 2006,2009, respectively.
The Company also maintainsmaintained a Non-qualified Deferred Compensation Plan for certain employees. This plan allowsallowed participants to defer a portion of their salary on a pretaxpre-tax basis and accumulate tax-deferred earnings plus interest. These deferrals were in addition to those allowed under the 401(k) Plan. The Company providesprovided a discretionary matching contribution of 25 percent of the employee contribution, subject to a maximum Company contribution of $2,500 per employee. These deferrals are in addition to those allowed in the Company’s 401(k) plans. The Company’s matching contribution expense for such plans was approximately $0, $0 and $1,000$0 for the years ended December 31, 2008, 20072011, 2010 and 2006,2009, respectively. In addition,During the fourth quarter of 2009, the Company contributed $30,000, $83,000 and $120,000 fordecided to terminate this plan effective in January 2010. Liabilities totaling $350,000 were paid out to plan participants during 2011 in conjunction with the years ended December 31, 2008, 2007 and 2006, respectively totermination of the plan to fulfill contractual obligations related to the acquisition of Express-1 to the former executives ofExpress-1, all of whom were employed within the Company at December 31, 2008.
The Company has in place an Employee Stock Ownership Plan (“ESOP”) for all employees. The planESOP allows employer contributions, at the sole discretion of the board of directors. To be eligible to receive contributions, thean employee must complete one year of full time service and be employed on the last day of the year. Contributions to the planESOP vest over a five-year period. The Company did not contributefollowing table reflects activity to the Company’s ESOP in 2008.
ESOP Shares | Stock | Expense | ||||||||||||||
Awarded | Valuation | Issuance Date | Recognized | |||||||||||||
Outstanding prior to 2005 | 25,000 | $ | 1.20 | 3/31/2005 | $ | 30,000 | ||||||||||
2005 | 50,000 | 0.74 | 10/6/2006 | 124,000 | ||||||||||||
2006 | 90,000 | 1.38 | 4/10/2007 | 101,000 | ||||||||||||
2007 | 90,000 | 1.12 | 12/11/2007 | 101,000 | ||||||||||||
2008 | — | — | — | — | ||||||||||||
Total | 255,000 | $ | 292,000 | |||||||||||||
ESOP Shares Awarded | Stock Valuation | Issuance Date | Expense Recognized | |||||||||||||
Outstanding prior to 2005 | 6,250 | 4.80 | 3/31/2005 | $ | 30,000 | |||||||||||
2005 | 12,500 | 2.96 | 10/6/2006 | 124,000 | ||||||||||||
2006 | 22,500 | 5.52 | 4/10/2007 | 101,000 | ||||||||||||
2007 | 22,500 | 4.48 | 12/11/2007 | 101,000 | ||||||||||||
2008 | — | — | 2,000 | |||||||||||||
2009 | — | — | 40,000 | |||||||||||||
2010 | — | — | — | |||||||||||||
2011 | 645 | 9.28 | 4/25/2011 | — | ||||||||||||
|
|
|
| |||||||||||||
Total | 64,395 | $ | 398,000 | |||||||||||||
|
|
|
|
15. | |
Employment Agreements |
The Company has in place with certain of its managers and executive’sexecutives employment agreements calling for base compensation payments totaling $1,200,000, $1,111,000, $573,000$4,154,000, $3,600,000, $3,600,000, $3,432,000 and $250,000$2,063,000 for the years ending
55
16. | |
Quarterly Financial Data (Unaudited) |
Express-1 Expedited Solutions,XPO Logistics, Inc.
Quarterly Financial Data (Unaudited)
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2007 | 2007 | 2007 | 2007 | |||||||||||||
Operating revenues | $ | 10,275,000 | $ | 12,575,000 | $ | 12,052,000 | $ | 12,811,000 | ||||||||
Direct expenses | 7,550,000 | 9,290,000 | 9,298,000 | 9,813,000 | ||||||||||||
Gross margin | 2,725,000 | 3,285,000 | 2,754,000 | 2,998,000 | ||||||||||||
Sales, General and Administrative | 2,096,000 | 2,124,000 | 2,154,000 | 2,429,000 | ||||||||||||
Other expense | 1,000 | 18,000 | (2,000 | ) | (3,000 | ) | ||||||||||
Interest expense | 24,000 | 34,000 | 13,000 | (6,000 | ) | |||||||||||
Income from continuing operations before tax | 604,000 | 1,109,000 | 589,000 | 578,000 | ||||||||||||
Income tax provision | 224,000 | 417,000 | 217,000 | 209,000 | ||||||||||||
Income from continuing operations | 380,000 | 692,000 | 372,000 | 369,000 | ||||||||||||
Income from discontinued operations, net of tax | 81,000 | 62,000 | 127,000 | 88,000 | ||||||||||||
Net income | $ | 461,000 | $ | 754,000 | $ | 499,000 | $ | 457,000 | ||||||||
Basic income per share | ||||||||||||||||
Income from continuing operations | $ | 0.01 | $ | 0.03 | $ | 0.01 | $ | 0.01 | ||||||||
Income from discontinued operations | — | — | — | — | ||||||||||||
Net income | 0.02 | 0.03 | 0.02 | 0.02 | ||||||||||||
Diluted income per share | ||||||||||||||||
Income from continuing operations | $ | 0.01 | $ | 0.02 | $ | 0.02 | $ | 0.02 | ||||||||
Income from discontinued operations | — | — | — | — | ||||||||||||
Net income | 0.02 | 0.03 | 0.02 | 0.02 |
56
March 31, 2011 | June 30, 2011 | September 30, 2011 | December 31, 2011 | |||||||||||||
Operating revenue | $ | 41,508,000 | $ | 44,094,000 | $ | 47,389,000 | $ | 44,085,000 | ||||||||
Direct expense | 34,301,000 | 36,914,000 | 39,169,000 | 36,914,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross margin | 7,207,000 | 7,180,000 | 8,220,000 | 7,171,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Sales, general and administrative expense | 5,207,000 | 5,537,000 | 7,750,000 | 9,560,000 | ||||||||||||
Other expense (income) | 29,000 | 33,000 | — | (6,000 | ) | |||||||||||
Interest expense | 49,000 | 47,000 | 49,000 | 46,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income tax | 1,922,000 | 1,563,000 | 421,000 | (2,429,000 | ) | |||||||||||
Income tax provision | 805,000 | 649,000 | 231,000 | (967,000 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | 1,117,000 | 914,000 | 190,000 | (1,462,000 | ) | |||||||||||
Preferred stock beneficial conversion charge and dividends | — | — | (44,586,000 | ) | (750,000 | ) | ||||||||||
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|
|
|
|
|
|
| |||||||||
Net income (loss) available to common shareholders | $ | 1,117,000 | $ | 914,000 | $ | (44,396,000 | ) | $ | (2,212,000 | ) | ||||||
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|
|
|
|
|
|
| |||||||||
Basic income per share | ||||||||||||||||
Net income | $ | 0.14 | $ | 0.11 | $ | (5.38 | ) | $ | (0.27 | ) | ||||||
Diluted income per share | ||||||||||||||||
Net income | $ | 0.13 | $ | 0.11 | $ | (5.38 | ) | $ | (0.27 | ) | ||||||
March 31, 2010 | June 30, 2010 | September 30, 2010 | December 31, 2010 | |||||||||||||
Operating revenue | $ | 31,642,000 | $ | 40,340,000 | $ | 44,448,000 | $ | 41,557,000 | ||||||||
Direct expense | 26,043,000 | 33,101,000 | 36,309,000 | 35,134,000 | ||||||||||||
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|
|
|
|
| |||||||||
Gross margin | 5,599,000 | 7,239,000 | 8,139,000 | 6,423,000 | ||||||||||||
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|
|
|
|
|
| |||||||||
Sales, general and administrative expense | 4,075,000 | 4,598,000 | 5,219,000 | 5,062,000 | ||||||||||||
Other expense | 20,000 | 34,000 | 48,000 | 38,000 | ||||||||||||
Interest expense | 20,000 | 88,000 | 32,000 | 65,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income before income tax | 1,484,000 | 2,519,000 | 2,840,000 | 1,258,000 | ||||||||||||
Income tax provision | 650,000 | 1,015,000 | 1,110,000 | 438,000 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Net income | $ | 834,000 | $ | 1,504,000 | $ | 1,730,000 | $ | 820,000 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Basic income per share | ||||||||||||||||
Net income | $ | 0.10 | $ | 0.19 | $ | 0.21 | $ | 0.10 | ||||||||
Diluted income per share | ||||||||||||||||
Net income | $ | 0.10 | $ | 0.18 | $ | 0.21 | $ | 0.10 |
March 31, 2009 | June 30, 2009 | September 30, 2009 | December 31, 2009 | |||||||||||||
Operating revenue | $ | 20,072,000 | $ | 22,243,000 | $ | 26,211,000 | $ | 31,610,000 | ||||||||
Direct expense | 16,856,000 | 18,606,000 | 21,482,000 | 26,452,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross margin | 3,216,000 | 3,637,000 | 4,729,000 | 5,158,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Sales, general and administrative expense | 3,243,000 | 3,006,000 | 3,284,000 | 4,036,000 | ||||||||||||
Other expense | (10,000 | ) | 19,000 | 19,000 | 23,000 | |||||||||||
Interest expense | 22,000 | 26,000 | 26,000 | 31,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from continuing operations before income tax | (39,000 | ) | 586,000 | 1,400,000 | 1,068,000 | |||||||||||
Income tax provision | (14,000 | ) | 273,000 | 599,000 | 467,000 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from continuing operations | (25,000 | ) | 313,000 | 801,000 | 601,000 | |||||||||||
Income from discontinued operations, net of tax | 30,000 | (25,000 | ) | 10,000 | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | $ | 5,000 | $ | 288,000 | $ | 811,000 | $ | 601,000 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Basic income per share | ||||||||||||||||
Income from continuing operations | $ | — | $ | 0.04 | $ | 0.10 | $ | 0.08 | ||||||||
Income from discontinued operations | — | — | — | — | ||||||||||||
Net income | — | 0.04 | 0.10 | 0.08 | ||||||||||||
Diluted income per share | ||||||||||||||||
Income from continuing operations | — | 0.04 | 0.10 | 0.07 | ||||||||||||
Income from discontinued operations | — | — | — | — | ||||||||||||
Net income | $ | — | $ | 0.04 | $ | 0.10 | $ | 0.07 |
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2008 | 2008 | 2008 | 2008 | |||||||||||||
Operating revenues | $ | 23,716,000 | $ | 29,675,000 | $ | 31,117,000 | $ | 24,954,000 | ||||||||
Direct expenses | 19,606,000 | 24,925,000 | 26,164,000 | 20,933,000 | ||||||||||||
Gross margin | 4,110,000 | 4,750,000 | 4,953,000 | 4,021,000 | ||||||||||||
Sales, General and Administrative | 3,150,000 | 3,389,000 | 3,148,000 | 2,977,000 | ||||||||||||
Other expense | 3,000 | 12,000 | 21,000 | 69,000 | ||||||||||||
Interest expense | 80,000 | 99,000 | 94,000 | 81,000 | ||||||||||||
Income from continuing operations before tax | 877,000 | 1,250,000 | 1,690,000 | 894,000 | ||||||||||||
Income tax provision | 341,000 | 508,000 | 665,000 | 380,000 | ||||||||||||
Income from continuing operations | 536,000 | 742,000 | 1,025,000 | 514,000 | ||||||||||||
Income from discontinued operations, net of tax | 107,000 | 32,000 | 127,000 | 73,000 | ||||||||||||
Net income | $ | 643,000 | $ | 774,000 | $ | 1,152,000 | $ | 587,000 | ||||||||
Basic income per share | $ | 0.02 | $ | 0.02 | $ | 0.03 | $ | 0.02 | ||||||||
Income from continuing operations | — | — | — | — | ||||||||||||
Income from discontinued operations | 0.02 | 0.02 | 0.04 | 0.02 | ||||||||||||
Net income | ||||||||||||||||
Diluted income per share | ||||||||||||||||
Income from continuing operations | $ | 0.01 | $ | 0.02 | $ | 0.04 | $ | 0.02 | ||||||||
Income from discontinued operations | — | — | — | — | ||||||||||||
Net income | 0.02 | 0.02 | 0.04 | 0.02 |
17. | |
Operating Segments |
The Company has three reportable segments included in its continuing operations. The Company refers to these segments as “business units” to help differentiate between individual business components and the Company’s former name Segmentz Inc. These operations have been identified based on their uniquethe type of service provided, to its customers:
Expedited Transportation—provides time critical expedited transportation to its customers. This typically involves dedicating one truck to a load which has a specified time delivery requirement. Most of the services provided are completed through a fleet of exclusive use vehicles that are owned and operated by independent contract drivers. The use of non-owned resources to their customers: Express-1, provides expeditedprovide transportation services throughoutminimizes the continental United States, partsamount of Canadacapital investment required and Mexico, Concert Group Logistics, is often described with the terms “non-asset” or “asset-light”.
Freight Forwarding—provides domestic and international freight forwarding services through a networkchain of independently owned stations located throughout the United States, along with our two CGL-owned CGL International branches. These stations are responsible for selling and Bounce Logistics operating freight forwarding transportation services within their geographic area under the authority of CGL. In October of 2009, certain assets and liabilities of LRG International (currently CGL International) were purchased to complement the operations of CGL.
Freight Brokerage—provides freightpremium truckload brokerage services targeted at shipments needing a greater degree of customer service. During 2008, Express-1 Dedicated, which provided dedicated expeditingtransportation services to one primary contract customer, was discontinued for purposesits customers throughout the United States.
The costs of financial reporting. Current yearthe Company’s board of directors, executive team and historical data is included in the following table for comparability purposes.
57
The following schedule below identifies select financial data for each of the business units.
Express-1 Expedited Solutions, IncBusiness UnitXPO Logistics, Inc.
Operating Segment Data
Total | Discontinued | |||||||||||||||||||||||||||
Concert Group | Continuing | Operations | ||||||||||||||||||||||||||
Year Ended December 31, 2008 | Express-1 | Logistics | Bounce | Corporate | Eliminations | Operations | E-1 Dedicated | |||||||||||||||||||||
Revenues | $ | 52,639,000 | $ | 51,136,000 | $ | 7,011,000 | $ | — | $ | (1,324,000 | ) | $ | 109,462,000 | $ | 4,921,000 | |||||||||||||
Operating income (loss) from continuing operations | 5,115,000 | 1,711,000 | (34,000 | ) | (1,622,000 | ) | 5,170,000 | 589,000 | ||||||||||||||||||||
Depreciation and amortization | 697,000 | 339,000 | 14,000 | — | 1,050,000 | 64,000 | ||||||||||||||||||||||
Interest expense | — | 332,000 | — | 22,000 | 354,000 | — | ||||||||||||||||||||||
Tax provision (benefit) | — | — | — | 1,894,000 | 1,894,000 | 250,000 | ||||||||||||||||||||||
Goodwill | 7,737,000 | 7,178,000 | — | — | 14,915,000 | — | ||||||||||||||||||||||
Total assets | 20,025,000 | 19,026,000 | 1,120,000 | 13,678,000 | (12,810,000 | ) | 41,039,000 | 643,000 | (1) | |||||||||||||||||||
Year Ended December 31, 2007 | ||||||||||||||||||||||||||||
Revenues | $ | 47,713,000 | — | — | $ | — | $ | 47,713,000 | $ | 5,076,000 | ||||||||||||||||||
Operating income (loss) from continuing operations | 4,526,000 | — | — | (1,567,000 | ) | 2,959,000 | 577,000 | |||||||||||||||||||||
Depreciation and amortization | 715,000 | — | — | — | 715,000 | 128,000 | ||||||||||||||||||||||
Interest expense | — | — | — | 65,000 | 65,000 | — | ||||||||||||||||||||||
Tax provision (benefit) | — | — | — | 1,067,000 | 1,067,000 | 233,000 | ||||||||||||||||||||||
Goodwill | 7,737,000 | — | — | — | 7,737,000 | — | ||||||||||||||||||||||
Total assets | 20,052,000 | — | — | 2,825,000 | 22,877,000 | 847,000 | ||||||||||||||||||||||
Year Ended December 31, 2006 | ||||||||||||||||||||||||||||
Revenues | $ | 37,327,000 | — | — | — | 37,327,000 | 4,864,000 | |||||||||||||||||||||
Operating income (loss) from continuing operations | 3,983,000 | — | — | (1,064,000 | ) | 2,919,000 | 268,000 | |||||||||||||||||||||
Depreciation and amortization | 801,000 | — | — | — | 801,000 | 253,000 | ||||||||||||||||||||||
Interest expense | — | — | — | 205,000 | 205,000 | — | ||||||||||||||||||||||
Tax provision (benefit) | — | — | — | (1,037,000 | ) | (1,037,000 | ) | (91,000 | ) | |||||||||||||||||||
Goodwill | 5,527,000 | — | — | — | 5,527,000 | — | ||||||||||||||||||||||
Total assets | $ | 17,889,000 | $ | — | $ | — | $ | 3,138,000 | $ | — | $ | 21,027,000 | $ | 582,000 |
Year Ended December 31, 2011 | Expedited Transportation | Freight Forwarding | Freight Brokerage | Corporate | Eliminations | Total Continuing Operations | Discontinued Operations E-1 Dedicated | |||||||||||||||||||||
Revenues | $ | 87,558,000 | $ | 65,148,000 | $ | 29,186,000 | $ | — | $ | (4,816,000 | ) | $ | 177,076,000 | |||||||||||||||
Operating income (loss) from continuing operations | 8,199,000 | 1,545,000 | 1,305,000 | (9,325,000 | ) | 1,724,000 | ||||||||||||||||||||||
Depreciation and amortization | 596,000 | 576,000 | 44,000 | 24,000 | 1,240,000 | |||||||||||||||||||||||
Interest expense | 4,000 | 150,000 | 33,000 | 4,000 | 191,000 | |||||||||||||||||||||||
Tax provision (benefit) | 356,000 | — | 42,000 | 320,000 | 718,000 | |||||||||||||||||||||||
Goodwill | 7,737,000 | 9,222,000 | — | — | 16,959,000 | |||||||||||||||||||||||
Total assets | 22,448,000 | 23,394,000 | 4,854,000 | 97,667,000 | (20,722,000 | ) | 127,641,000 | |||||||||||||||||||||
Year Ended December 31, 2010 | ||||||||||||||||||||||||||||
Revenues | $ | 76,644,000 | $ | 65,222,000 | $ | 19,994,000 | $ | — | $ | (3,873,000 | ) | $ | 157,987,000 | |||||||||||||||
Operating income (loss) from continuing operations | 7,606,000 | 1,882,000 | 865,000 | (1,907,000 | ) | 8,446,000 | ||||||||||||||||||||||
Depreciation and amortization | 686,000 | 629,000 | 31,000 | 19,000 | 1,365,000 | |||||||||||||||||||||||
Interest expense | — | 171,000 | 31,000 | 3,000 | 205,000 | |||||||||||||||||||||||
Tax provision | 2,382,000 | 529,000 | 262,000 | 40,000 | 3,213,000 | |||||||||||||||||||||||
Goodwill | 7,737,000 | 9,222,000 | — | — | 16,959,000 | |||||||||||||||||||||||
Total assets | 24,509,000 | 25,106,000 | 4,836,000 | 25,867,000 | (23,646,000 | ) | 56,672,000 | |||||||||||||||||||||
Year Ended December 31, 2009 | ||||||||||||||||||||||||||||
Revenues | $ | 50,642,000 | $ | 41,162,000 | $ | 10,425,000 | $ | — | $ | (2,093,000 | ) | $ | 100,136,000 | $ | 666,000 | |||||||||||||
Operating income (loss) from continuing operations | 3,446,000 | 1,121,000 | 458,000 | (1,854,000 | ) | 3,171,000 | 28,000 | |||||||||||||||||||||
Depreciation and amortization | 711,000 | 452,000 | 27,000 | — | 1,190,000 | 1,000 | ||||||||||||||||||||||
Interest expense | — | 76,000 | 24,000 | 5,000 | 105,000 | — | ||||||||||||||||||||||
Tax provision | — | — | — | 1,325,000 | 1,325,000 | 13,000 | ||||||||||||||||||||||
Goodwill | 7,737,000 | 9,222,000 | — | — | 16,959,000 | — | ||||||||||||||||||||||
Total assets | 23,381,000 | 23,509,000 | 2,150,000 | 16,858,000 | (16,859,000 | ) | 49,039,000 | — |
EXHIBIT INDEX
58
Exhibit Number
59
60
(a) | (c) | |||||||||||
Number of | Number of Securities | |||||||||||
Securities to | (b) | Remaining Available | ||||||||||
be Issued | Weighted-Average | for Future Issuance | ||||||||||
Upon Exercise | Exercise Price of | Under Equity | ||||||||||
of Outstanding | Outstanding | Compensation Plan | ||||||||||
Options, Warrants | Options, Warrants | (Excluding Securities | ||||||||||
Plan Category | and Rights | and Rights | Reflected in Column (a)) | |||||||||
Equity compensation plans approved by security holders | 3,600,000 | $ | 1.18 | 1,991,000 | ||||||||
Warrants issued to raise capital | 2,252,000 | $ | 2.05 | N/A |
Description | |||||
Sequential Page | |||||
61
3 | .1 | Amended and Restated Certificate of Incorporation of Segmentz, Inc., dated May 17, 2005. | ||
3 | .2 | Certificate of Amendment to the Certificate of Incorporation of Segmentz, Inc., dated May 31, 2006, filed as Exhibit 3 to Form 8-K on June 7, 2006, and incorporated herein by reference. | ||
3 | .3 | Certificate of Amendment to the Certificate of Incorporation of Express-1 Expedited Solutions, Inc., dated June 20, 2007, filed as Exhibit 3.1 to Form 10-Q on August 14, 2007, and incorporated herein by reference. | ||
3 | .4 | Amended and Restated Bylaws of Express-1 Expedited Solutions, Inc., dated June 20, 2007, filed as Exhibit 3.2 to Form 10-Q on August 14, 2007, and incorporated herein by reference. | ||
3 | .5 | 2nd Amended and Restated Bylaws of Express-1 Expedited Solutions, Inc., dated August 30, 2007, filed as Exhibit 3.2 to Form 8-K/A on September 14, 2007, and incorporated herein by reference. | ||
10 | .1 | Amendment Number 1 to Executive Employment Agreement between Express-1 Expedited Solutions, Inc. and Michael R. Welch, dated July 2008 (Exhibit 10.1 to 10-Q filed 08/14/2008), and incorporated herein by reference | ||
10 | .2 | Amendment #2 to Executive Employment Agreement between Express-1 Expedited Solutions, Inc. and Mark Patterson, dated August 2008 (Exhibit 10.2 to 10-Q filed 08/14/2008), and incorporated herein by reference. | ||
10 | .3 | Asset Purchase Agreement by and among Concert Group Logistics, Inc., Express-1 Expedited Solutions Inc., Concert Group Logistics, LLC, Daniel Para, Gerald H. Post, Efrain Maldonado, John H. Musolino and the members thereto, dated January 31, 2008 (Exhibit 10.1 to 10-Q filed 05/15/2008), and incorporated herein by reference. | ||
10 | .4 | Employment Agreement between Concert Group Logistics, Inc and Gerald H. Post, dated January 31, 2008 (exhibit 10.2 to 10-q filed 05/15/2008), and incorporated herein by reference. | ||
10 | .5 | Credit facility with National City Bank, date January 31, 2008 (item 2.03 to form 8-k filed 1/31/08), and incorporated herein by reference. | ||
10 | .6 | Mutual Release Agreement Related to EBITDA and Earnout Provisions between the Company and Concert Group Logistics, LLC and its shareholders, dated February 27, 2009. | ||
14 | Code of Ethics, filed as Exhibit 14 to Form 10-QSB on March 13, 2005, and incorporated herein by reference. | |||
21 | .1 | Subsidiaries of the Registrant. | ||
23 | .1 | Consent of Auditors, Pender Newkirk & Company LLP | ||
31 | .1 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31 | .2 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32 | .1 | Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.) | ||
32 | .2 | Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.) |
62
2.1 | *‡ |
3.1 |
Amended and Restated Certificate of Incorporation of the registrant, dated May 17, 2005 (incorporated herein by reference to Exhibit 3.1 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007). | * | |||||
3.2 | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the registrant, dated May 31, 2006 (incorporated herein by reference to Exhibit 3 to the registrant’s Current Report on Form 8-K dated June 7, 2006). | * | ||||
3.3 | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the registrant, dated June 20, 2007 (incorporated herein by reference to Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (the “June 2007 Form 10-Q”)). | * | ||||
3.4 | ||||||
registrant, dated September 1, 2011 (incorporated herein by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated September 6, 2011 (the “September 2011 Form 8-K”)). | * | |||||
3.5 | ||||||
Restated Bylaws of the registrant, dated August 30, 2007 (incorporated herein by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K/A dated September 14, 2007). | * | |||||
4.1 | ||||||
Certificate of Designation of Series A Convertible Perpetual Preferred Stock of the registrant (incorporated herein by reference to Exhibit 4.1 of the September 2011 Form 8-K). | * | |||||
4.2 | ||||||
Warrant Certificate (incorporated herein by reference to Exhibit 4.2 of the September 2011 Form 8-K). | * | |||||
4.3 | ||||||
Registration Rights Agreement, dated as of September 2, 2011, by and among JPE, each of the other holders and designated secured lenders party thereto and the registrant (incorporated herein by reference to Exhibit 4.3 of the September 2011 Form 8-K). | * | |||||
10.1 | ||||||
2011 Omnibus Incentive Compensation Plan (incorporated herein by reference to Exhibit D to Exhibit 2.1 to the June 2011 Form 8-K). | + | * | ||||
10.2 | ||||||
2001 Amended and Restated Stock Option Plan (incorporated herein by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-8 dated May 20, 2010). | + | * | ||||
10.3 | Employment Agreement between the registrant and Bradley S. Jacobs, dated November 21, 2011 (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated November 21, 2011). | + | * | |||
10.4 | Employment Agreement between the registrant and M. Sean Fernandez, dated October 13, 2011 (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated November 7, 2011). | + | * |
Exhibit Number | Description | Sequential Page | ||||
10.5 | + | * | ||||
10.6 | Amendment No. 1 to Employment Agreement between the registrant and Michael R. Welch (incorporated herein by reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K dated July 7, 2008). | + | * | |||
10.7 | Amendment No. 2 to Employment Agreement between the registrant and Michael R. Welch, dated July 1, 2005 (incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “June 2010 Form 10-Q”)). | + | * | |||
10.8 | Amendment No. 3 to Employment Agreement between the registrant and Michael R. Welch, dated June 10, 2011 (incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011). | + | * | |||
10.9 | Amendment No. 4 to Employment Agreement between the registrant and Michael R. Welch, dated July 18, 2011 (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated July 22, 2011 (the “July 2011 Form 8-K”)). | + | * | |||
10.10 | Employment Agreement between the registrant and John D. Welch, dated January 1, 2011 (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K/A dated March | + | * | |||
10.11 | Amendment No. 1 to Employment Agreement between the registrant and John D. Welch, dated July 18, 2011 (incorporated herein by reference to Exhibit 10.2 to the July 2011 Form 8-K). | + | * | |||
10.12 | Employment Agreement between the registrant and Scott B. Malat, dated September 20, 2011 (incorporated herein by reference to Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (the “September 2011 Form 10-Q”)). | + | * | |||
10.13 | Employment Agreement between the registrant and Gregory W. Ritter, dated October 5, 2011. | + | ||||
10.14 | Employment Agreement between the registrant and Mario A. Harik, dated October 10, 2011. | + | ||||
10.15 | Employment Agreement between the registrant and Gordon E. Devens, dated October 31, 2011. | + | ||||
10.16 | Employment Agreement between the registrant and Daniel Para, dated June 1, 2010 (incorporated herein by reference to Exhibit 10.2 to the June 2010 Form 10-Q). | + | * | |||
10.17 | Amendment No. 1 to Employment Agreement between the registrant and Daniel Para, effective July 18, 2011 (incorporated herein by reference to Exhibit 10.3 to the September 2011 Form 10-Q). | + | * | |||
10.18 | Form of Restricted Stock Unit Award Agreement (Service-Vesting) (2011 Omnibus Incentive Compensation Plan). | + | ||||
10.19 | Form of Performance-Based Restricted Stock Unit Award Agreement (2011 Omnibus Incentive Compensation Plan). | + |
63
Exhibit Number | Description | Sequential Page | ||||
10.20 | Form of Option Award Agreement (2011 Omnibus Incentive Compensation Plan). | + | ||||
10.21 | Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (2011 Omnibus Incentive Compensation Plan). | + | ||||
10.22 | Form of Option Award Agreement for Non-Employee Directors (2011 Omnibus Incentive Compensation Plan). | + | ||||
10.23 | Form of Option Award Agreement (2001 Amended and Restated Stock Option Plan) (grants from June 2011 through September 2011). | + | ||||
10.24 | Form of Option Award Agreement (2001 Amended and Restated Stock Option Plan) (grants through May 2011). | + | ||||
10.25 | Amendment to Revolving and Term Loan Agreement (incorporated herein by reference to Exhibit 99.2 to the registrant’s Current Report on Form 8-K dated March 31, 2010 (the “March 2010 Form 8-K”)). | * | ||||
10.26 | Second Amendment to Revolving and Term Loan Agreement (incorporated herein by reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K dated March 31, 2011). | * | ||||
10.27 | Commerical Term Note (incorporated herein by reference to Exhibit 99.3 to the March 2010 Form 8-K). | * | ||||
10.28 | Commerical Revolving Note (incorporated herein by reference to Exhibit 99.2 to the registrant’s Current Report on Form 8-K dated March 31, 2011). | * | ||||
14 | Senior Officer Code of Business Conduct and Ethics (incorporated herein by reference to Exhibit 14.1 to the registrant’s Current Report on Form 8-K dated January 20, 2012). | * | ||||
21 | Subsidiaries of the registrant. | |||||
23 | Consent of KPMG LLP, Independent Registered Public Accounting Firm. | |||||
31.1 | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. | |||||
31.2 | Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. | |||||
32.1 | Certification of the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. | ł | ||||
32.2 | Certification of the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. | ł | ||||
101.INS | XBRL Instance Document. | |||||
101.SCH | XBRL Taxonomy Extension Schema. | |||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | |||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase. |
Exhibit Number | Description | Sequential Page | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase. | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
* | Incorporated by reference. |
+ | This exhibit is a management contract or compensatory plan or arrangement. |
This exhibit will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. |
‡ | The schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish supplementally a copy of any such omitted schedules to the Commission upon request. |
80