UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-K

 

 

(Mark One)

þxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 20112013

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number: 001-32172

 

 

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.)

429 Post RoadFive Greenwich Office Park

Buchanan, MI 49107Greenwich, Connecticut 06831

(Address of principal executive offices)

(269) 695-2700(855) 976-4636

(Registrant’s telephone number)number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

 

Title of Each Class:

 

Name of Each Exchange on Which Registered:

Common Stock, par value $.001 per share

 

NYSE Amex

New York Stock Exchange

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  ¨x    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  ¨    No  þx

Indicate by check mark whether the registrant: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  þx    No  ¨

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  þx    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation 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 this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨  Accelerated filer ¨x
Non-accelerated filer ¨  (Do not check if a smaller reporting company)  Smaller reporting company þ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):    Yes  ¨    No  þx

The aggregate market value of the registrant’s common stock, par value $0.001 per share, held by non-affiliates of the registrant was approximately $84.9$329.2 million as of June 30, 2011,28, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing price of $12.44$18.09 per share on the NYSE Amex on that date.

As of February 20, 2012,21, 2014, there were 8,369,24948,747,390 shares of the registrant’s common stock, par value $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 20122014 Annual Meeting of Stockholders (the “Proxy Statement”), are incorporated by reference into Part III of this 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.

FORM 10-K—FOR THE YEAR ENDED DECEMBER 31, 20112013

TABLE OF CONTENTS

 

     Page
No.
 
 PART I  

Item 1

 

Business

   32  

Item 1A

 

Risk Factors

   1412  

Item 1B

 

Unresolved Staff Comments

   2426  

Item 2

 

Properties

   2426  

Item 3

 

Legal Proceedings

   2426  

Item 4

 

Mine Safety Disclosures

   2427  
 PART II  

Item 5

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

   2528  

Item 6

 

Selected Financial Data

   2630  

Item 7

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   2730  

Item 7A

 

Quantitative and Qualitative Disclosures About Market Risk

   4349  

Item 8

 

Financial Statements and Supplementary Data

   4349  

Item 9

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

   4350  

Item 9A

 

Controls and Procedures

   4450  

Item 9B

 

Other Information

   4451  
 PART III  

Item 10

 

Directors, Executive Officers and Corporate Governance

   4552  

Item 11

 

Executive Compensation

   4552  

Item 12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

   4552  

Item 13

 

Certain Relationships and Related Transactions, and Director Independence

   4653  

Item 14

 

Principal AccountantAccounting Fees and Services

   4653  
 PART IV  

Item 15

 

Exhibits, Financial Statement Schedules

   4754  

Signatures

   4855  

Exhibit Index

This Annual Report on Form 10-K is for the year ended December 31, 2011.2013. The Securities and Exchange Commission (the “Commission”) allows us to incorporate by reference information that we file with the 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. In addition, information that we file with the Commission in the future will automatically update and supersede information contained in this Annual Report. In this Annual Report, “Company,” “we,” “us” and “our” refer to XPO Logistics, Inc. and its subsidiaries.

1


PART I

Cautionary 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 Section 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 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”, the risks in the Company’s filings with the Commission and 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 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.BUSINESS

General

XPO Logistics, Inc. (“XPO” or the “Company”), a Delaware corporation, (the “Company”, “we”, “our” or “us”),together with its subsidiaries, is a third party logisticsleading non-asset provider of freight transportation logistics services. We act as a middleman between shippers and carriers who outsource their transportation logistics to us as a third-party provider. As of December 31, 2013, we operated at 94 locations: 73 Company-owned branches and 21 agent-owned offices.

We offer our 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 TransportationExpress-1Buchanan, MichiganAugust 2004
Freight ForwardingConcert Group LogisticsDowners Grove, IllinoisJanuary 2008
Freight BrokerageBounce Logistics andSouth Bend, Indiana andMarch 2008
XPO LogisticsPhoenix, Arizona

Expedited Transportation—Express-1, Inc. (“Express-1”) was founded in 1989 and acquired in 2004. Express-1 provides time-criticalunits. Our freight brokerage unit places shippers’ freight with qualified carriers, primarily trucking companies. Our 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 completedunit facilitates urgent shipments via a fleet of exclusive-use vehicles that are ownedindependent over-the-road contractors and operated by independent contract drivers.

Freight Forwarding—Concert Group Logistics, Inc. (“CGL”was founded in 2001 and acquired in 2008. CGL providesair charter carriers. Our freight forwarding servicesunit arranges domestic and international shipments using ground, air and ocean transport through a network of independently owned stationsagent-owned 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. locations.

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 quarterSeptember of 2011, we provided these services solely through our Bounce Logistics, Inc. subsidiary (“Bounce Logistics”). Duringfollowing 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 adeptequity investment in the critical areas of competitive selling, price negotiation, carrier relations and customer service.

Growth Strategy

Following a significant equity investmentCompany led 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 willto leverage our strengths—including management expertise, substantial liquidityoperational scale and potential accesscapital resources—with the goals of significant growth and value creation.

By executing our strategy, we have built leading positions in some of the fastest-growing sectors of transportation logistics. In North America, we are the fourth largest provider of freight brokerage service—a $50 billion sector which, driven by an outsourcing trend, is growing at two to additional capital—three times the rate of Gross Domestic Product (“GDP”). Our acquisitions of 3PD Holding, Inc. (“3PD”) and Optima Service Solutions, LLC (“Optima”) in pursuit2013 (further described below) made us the largest provider of profitable growth. heavy goods, last-mile logistics in North America—a $13 billion sector which, driven by outsourcing by big-box retailers and a rise in e-commerce, is growing at five to six times the rate of GDP. Our acquisition of National Logistics Management (“NLM”) in December of 2013 (further described below) gave us a foothold in managed transportation, and together with our other expedited logistics operations, makes us the largest manager of expedited shipments in North America—a sector where growth is being driven by a trend toward just-in-time inventories in manufacturing. Upon completion of the pending acquisition of Pacer International, Inc. (further described below), we will be the third largest provider of intermodal services in North America and the largest provider of cross-border Mexico intermodal services—a sector that, driven by the efficiencies of long-haul rail and a trend toward near-shoring of manufacturing in Mexico, is growing at three to five times the rate of GDP. We believe our broad service offering gives us a competitive advantage as many customers, particularly large shippers, focus their relationships on fewer, larger third party logistics providers with deep capacity across a wide range of services.

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 followinghas three key areas:main components:

 

  

Targeted acquisitionsOptimization of operations.We intendare continuing to make selective acquisitionsoptimize our existing operations by growing our sales force, implementing advanced information technology, cross-selling our services and leveraging our shared carrier capacity. We have a disciplined framework of non-asset based logistics freight brokerage businesses that would benefit fromprocesses in place for the recruiting, training and mentoring of newly hired employees. Our salespeople market our greater scaleservices to hundreds of thousands of small and potential accessmedium-sized prospective customers. In addition, we have a strategic and national accounts team focused on developing business relationships with the largest shippers in North America. Our network is supported by our national operations centers in Charlotte, NC, Chicago, IL, and Atlanta, GA.; and by our information technology. We have a scalable IT platform in place across the Company, with sales, service, carrier and track-and-trace capabilities, as well as benchmarking and analysis. Most important to capital, and we may make similar acquisitions of freight forwarding, expedited and intermodal service businesses, among others. We believe thatour growth strategy, we are indeveloping a position to make the first phaseculture of acquisitions by using existing cash and expanding our credit facilities.passionate, world-class service for customers.

 

  

Organic growthAcquisitions. We take a disciplined approach to acquisitions: we develop and maintain an active pipeline of targets by looking for companies that are highly scalable and are a good strategic fit

2


with our core competency. When we acquire a company, we seek to integrate it with our operations and scale it up by adding salespeople. We integrate the acquired operations with our technology platform, which connects them to our broader organization, and we give them access to our shared carrier pool. We gain more carriers, customers, lane histories and pricing histories with each acquisition, and in some cases an acquisition adds complementary services. We capitalize on these resources Company-wide to buy transportation more efficiently and to cross-sell a more complete supply chain solution to customers. In 2012, we completed the acquisition of four non-asset third party logistics companies. We acquired another six companies in 2013, including 3PD, the largest non-asset, third party provider of heavy goods, last-mile logistics in North America, and NLM, the largest provider of web-based expedited transportation management in North America. On January 5, 2014, we agreed to acquire Pacer International, Inc., a Tennessee corporation (“Pacer”), the third largest provider of intermodal transportation services in North America. 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 officescontinue to generate revenue growth by developing customer and carrier relationships in new territories.acquire quality companies that fit our strategy for growth.

 

  

Optimized operations—Cold-starts.We intendbelieve that cold-starts can generate high returns on invested capital because of the relatively low investment required and the large component of variable-based incentive compensation. We are currently ramping up 23 cold-starts: 10 in Freight Brokerage, 12 in Freight Forwarding and one in Expedited Transportation. We seek to optimizelocate our existing operations, acquired companies and greenfieldFreight Brokerage cold-starts in prime areas for sales recruitment. We plan to continue to open cold-start 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.where we see the potential for strong returns.

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 unitsWe 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 eliminated in the 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 transportation 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 include: documentation on international shipments, customs clearance; customized services including trade show shipment management, time definite and customized product distributions, reverse logistics and on-site asset recovery projects, installation coordination, freight optimization and diversity compliance support.

Freight 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,the trucks or other equipment used to transport freight. Instead, we rely onutilize our network ofrelationships with subcontracted transportation providers, which providers—typically are independent contract motor carriers.carriers, railroads and aircraft owners. 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 in large part on our ability to findhire and train talented salespeople and deploy them under exceptional leaders, develop sophisticated information technology, and build relationships with the carriers in our network so that we can purchase the optimal transportation solutions for our customers.

As of December 31, 2013, our operations consisted of three business units: Freight Brokerage, Expedited Transportation and Freight Forwarding. Each of these business units is described more fully below. We provide financial information for our business units in Note 13 to our audited Consolidated Financial Statements.

Freight Brokerage

Through our Freight Brokerage business unit we arrange truckload, less-than-truckload (“LTL”), and intermodal brokerage, last-mile delivery logistics services for the delivery of heavy goods and related logistics and supply-chain services.

Our truckload, LTL and intermodal services typically are provided on a shipment-by-shipment basis. Customers offer loads to us via telephone, fax, email, electronic data interchange (EDI) and the Internet on a daily basis. Our employees utilize a proprietary operating system that helps our sales representatives price loads efficiently to initiate the transaction, and our carrier representatives select a suitable carrier based on equipment availability, service capability, rates and other relevant information. The prices for the majority of our services are determined on a transactional, or spot market, basis for both customers and carriers. We are responsible for collecting payment from the customer and paying the carrier. In some cases, we contractually agree to handle a significant portion of a customers’ freight at pre-determined rates for specific origin and destination parameters.

3


As is usual in the transportation provider at the right time, placeindustry, these volume contracts typically have a term of one year or less and price to provide freight transportation services for our customers.no minimum volume commitment.

From January 2008 until the fourth quarter of 2011, we provided freight brokerage services solely through our Bounce Logistics, Inc. subsidiary. During the fourth quarter of 2011, we opened abegan to open sales office in Phoenix, Arizona, which providesoffices to provide freight brokerage services under the name XPO Logistics. The Phoenix office is the first of severalWe have established and are currently ramping up 10 cold-start sales offices we plan to open during the next two years. Bounce Logistics’ operating model is to provide premium freight brokerage services to customerslocations in need of greater customer service levels than those typically offered in the marketplace. Bounce also services other customers in need of non-expedited premium transportation movements.Freight Brokerage. As of December 31, 2011,2013, our Freight Brokerage business unit employed 381,753 full-time employees within its operations.in the United States and Canada, compared with 594 full-time employees 12 months earlier.

On August 15, 2013, we acquired 3PD, the largest non-asset, third party provider of last-mile logistics for heavy goods in North America. Our 3PD operations serve a fast-growing sector of transportation logistics that includes blue chip retailers, e-commerce companies and smaller retailers. On November 15, 2013, we acquired Optima, a leading non-asset provider of last-mile logistics services for major retailers and manufacturers in the United States, which specializes in complex installations. Our acquisition of Optima enhanced our Company’s leadership position in the heavy goods, last-mile logistics space.

Express-1 Dedicated—Discontinued OperationsExpedited Transportation

TheOur Expedited Transportation unit, which operates as Express-1, is one of the largest ground expedited freight carriers in North America. Express-1 provides services to thousands of customers from its locations in Buchanan and Detroit, MI, and Birmingham, AL. On February 8, 2013, we acquired the operations of East Coast Air Charter, Inc. (“East Coast Air Charter”), a non-asset, third-party logistics business specializing in expedited air charter, which we now operate as XPO Air Charter. On December 28, 2013, we acquired NLM, the largest web-based manager of expedited shipments in North America, which we now operate as XPO NLM.

Expedited transportation services can be characterized as time-critical, time-sensitive or high priority freight shipments, many of which have special handling needs. These urgent needs typically arise due to tight supply chain tolerances, interruptions or changes in the supply chain, or the failure of 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. Vehicles used to transport expedited shipments range from cargo vans to semi-tractor trailer units. The dimensions for each shipment dictate the size of vehicle used to move the freight and the related revenue per mile. Customers request our Express-1 Dedicatedservices via telephone, fax, email, EDI or the Internet, typically on a per-load transaction basis, with only a small percentage of loads being scheduled for future delivery dates. We operate an ISO 9001:2008 certified 24-hour, seven-day-a-week call center that gives our customers on-demand communications and status updates relating to their shipments.

Our Expedited Transportation business is predominantly a non-asset based service provider, meaning that substantially all of the transportation equipment used in its operations is provided by third parties. These third-party vehicles are primarily provided by independent owner-operators who own one piece of equipment, or by independent owners of multiple pieces of equipment who employ multiple drivers, commonly referred to as fleet owners. We use these third party providers to move our customers’ urgent freight within the United States. We are focused on developing strong, long-term relationships with these fleet owners and incentivizing them to maintain their fleets on an exclusive basis with Express-1. In addition, we arrange transportation services for cross-border expedited shipments to and from Canada and Mexico, primarily for customers located in the United States. Cross-border Mexico expedited freight is an attractive vertical market for us, as are temperature-controlled freight and air charter. We are working to increase our presence in these verticals, as well as gain share in the broader expedited transportation market. As of December 31, 2013, we employed 268 full-time employees to support our Expedited Transportation operations.

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Freight Forwarding

Our Freight Forwarding business unit, were classifiedwhich operates as discontinued during the fourth quarterXPO Global Logistics (“XGL”; formerly Concert Group Logistics or “CGL”), is a non-asset based logistics provider for domestic and international shipments. XPO Global Logistics provides these services by using its relationships with ground, air and ocean carriers through a network of 2008, due to the loss of a dedicated services contract with a domestic automotive company.agent-owned and Company-owned locations. As of the contract termination date, February 28, 2009, all operations ceasedDecember 31, 2013, our Freight Forwarding business supported 18 independently-owned stations and all employees were released from service. The facility lease was transferred11 Company-owned branches with 78 full-time employees. We have established and are currently ramping up 12 cold-start branches in Freight Forwarding. Our freight forwarding capabilities are not restricted by size, weight, mode or location, and therefore are potentially attractive to a third partywide market base.

We provide three types of services through our Freight Forwarding business: Domestic—time-critical services, including just-in-time, air charter and all equipment was either sold or redeployed for use elsewhere within our operations without incurring any material impairments or losses. All revenuesexpedited transportation; time-sensitive services, including next-day, second-day and costs associated with this operation have been accounted for, net of taxes, in the line item labeled “Income from discontinued operations” for all years presented in the Consolidated Statements of Operations.third-day deliveries; and cost-sensitive services including deferred delivery, LTL and full truckload.International—time-critical services, including on-board courier and air charter; time-sensitive services, including direct transit and consolidation; and cost-sensitive services, including less-than-container loads, full-container loads and vessel charters.Other—value-added services, including documentation on international shipments and customs clearances; and customized services, including trade show shipment management, time-definite and customized product distributions, reverse logistics, on-site asset recovery projects, installation coordination, freight optimization and diversity compliance support.

Information Systems

TheCompanies within the transportation logistics industry increasingly relies uponrely on information technology to linkfind optimal solutions to shipper needs and provide visibility into the shipper with its inventory and as an analytical tool to optimize transportation solutions.movement of freight.

Our goal is to develop a customized,In our Freight Brokerage business, we have developed proprietary software applicationapplications that isare integrated with a packaged base software platform that we license from a third party. We expect this customizedThis proprietary IT solution to enable us to integrate our three operating divisions and provideprovides our customers with cost effective, timely and reliable access to carrier capacity, which we expect to givebelieve gives us an advantage as comparedversus our competitors. By continuing to companies against which we compete that use non-customized, or less significantly customized, packaged software systems. By developing a customized, proprietarydevelop our technology solution,solutions, 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. DuringXPO. We launched the first quarter of 2012, we expect to complete the initial development phase of our IT strategy,scalable technology platform in March of 2012, with subsequent phasesmajor enhancements. In 2012, the enhancements included new pricing tools and truck-finding capabilities and the introduction of custom-built software upgrades planned overour proprietary freight optimizer software. In 2013, the following two years.enhancements included advanced pricing algorithms, additional carrier ranking tools, LTL functionality, and new customer and carrier portals. In 2013, our acquisition of 3PD included proprietary technology that manages the customer experience for superior satisfaction ratings. This technology, while currently utilized by our last-mile operations, has potential applications throughout our Company.

More specific toIn our Express-1 fleet,Expedited Transportation business, we utilize satellite tracking and communication units on theour independently-contracted vehicles in our fleet to continually update the position of equipment.shipments we place. We have the ability to communicate to individual unitsvehicles or to a larger group of units,broader fleet, based upon our specific needs. Information received through ourthis satellite tracking and communication system automatically updates our internal software and provides our customers with real-time electronic updates.

WithinIn our Freight Forwarding business, unit we utilize a freight forwardingan operating system software package with customization exclusive topurchased from a third party and customized for our CGL network. We offer on-lineOur capabilities include online shipment entry, quoting and “track-and-trace”track-and-trace for domestic and international shipments, as well asand EDI messaging.

Technology represents one of our Company’s largest categories of investment within our annual capital expenditure budget, and we believereflecting our belief that the continual enhancement of our technology platforms is critical to our success.

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Customers, Sales and Marketing

Our business units provideCompany provides services to a variety of customers ranging in size from small, entrepreneurial organizations toFortune 500 companies. In 2011, we collectivelyDuring 2013, our business units served more than 4,0009,500 different customers. customers, with no single customer accounting for more than 6% of our consolidated gross revenue.

Our customers are engaged withinin a wide range of industries, such as: major domesticincluding manufacturing, industrial, retail, commercial, life sciences and foreign automotive manufacturing, production of automotive components and supplies, commercial printing, durable goods manufacturing, pharmaceuticals, food and consumer products and the high tech sector. We have hazmat authority and transport lower risk hazardous materials such as automotive paint and batteries on occasion.government sectors. In addition, we serve third-party logistics providers, (3PLs), who themselves serve a multitude of customers and industries. Our 3PLthird party logistics provider customers vary in size from small, independent, single facilitysingle-facility organizations to large, global logistics companies. Within our Expedited Transportation and Freight Brokerage business units, our services are marketed withinto the United States, Canada and Mexico. In addition to offering services within these same markets, ourOur Freight Forwarding unit also provides international services by both air and oceanserves these same North American markets, as well as other value added services.global markets.

WeTo serve our customers, we maintain a significant staff of external sales representatives and related support personnel within our Freight Brokerage, Expedited Transportation and Freight Forwarding business units. Within Freight Forwarding, in addition to our own sales staff within Express-1, CGL and Bounce Logistics. Within Concert Group Logistics, sales are also initiated bylocations, our network of independent-owned stations, whichindependent agents 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 consistentlyOur sales strategy is twofold: we seek to establish long-term relationships with new accounts and to increase the amount of business done withgenerated from our existing customers.customer base. These objectives are served by our position as one of the largest third party logistics providers in North America and by our ability to cross-sell a range of services. We believe that these attributes are competitive advantages in the transportation logistics industry. We are committedfocused on raising our profile in front of every prospective customer in this sector by deploying a highly experienced, dedicated team that sells to providingthe 1,200 largest shippers, which we have identified as strategic accounts, and the next largest 5,000 shippers, identified as national accounts. Additionally, our customers with a full rangebranch sales teams pursue the hundreds of logistics services. Our abilitythousands of small to offer multiple services through each of our business units represents a competitive advantage withinmedium-sized shippers operating in North America. See Note 13 to the transportation industry.

During 2011, no customer accountedConsolidated Financial Statements for more than 8% of our consolidated gross revenues. Although 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 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.further geographic information.

Competition

The transportation logistics industry is intensely competitive with thousands of transportation companies competing in the domestic and international markets. Our competitors include local, regional, national and international companies with the same specialtiesservices that our business segmentsunits provide. OurDue in part to the fragmented nature of the industry, our business segmentsunits do not operate from a position of dominance, and therefore must operatestrive daily to retain establishedexisting business relationships and forge new relationships in this competitive framework.relationships.

We compete on service, reliability and rates.price. Some competitors have larger clientcustomer bases, significantly more resources and more experience than we do. The health of the transportation logistics industry will continue to be a function of domestic and worldglobal economic growth. However, we believe we will benefit from thea long-term outsourcing trend that should continue to enable certain sectors of transportation logistics, particularly the freight brokerage sector, to grow at above-market rates.rates that outpace growth in the macro-environment.

Regulation

Our operations are regulated and licensed by various governmental agencies in the United States. Such regulations impact us directly, including through our independent contractor driver fleet, and indirectly through ourthe network of third party transportation providers we needuse to transport freight for our customers. We and such third parties must comply with the safety and fitness regulations of the U.S. Department of Transportation (“DOT”), including those relating to drug- and alcohol-testing and hours-of-service. Weight and equipment dimensions

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 the U.S. Environmental Protection Agency (“EPA”) and U.S. Department of Homeland Security (“DHS”), also regulate our equipment, operations and independent contractor drivers.

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The DOT, through the Federal Motor Carrier Safety Administration (“FMCSA”), imposes safety and fitness regulations on us, our independent contractor drivers, and our network of third party transportation providers. The FMCSA recently issued a final driver hours-of-service rule that placed additional limits on the amount of time drivers may operate a commercial motor vehicle. The rule preserved the current 11-hour driving limitation and included new provisions that generally (i) require drivers to take 30 minutes off-duty after consecutively driving eight hours; (ii) reduce the total hours a driver may work in one week from 82 to 70 hours; (iii) modified the “off-duty time” definition to exclude time spent resting in a parked commercial motor vehicle; and (iv) redefined which hours-of-service rule violations are considered “egregious” and subject to maximum civil penalties. The new rule also addressed the “34-hour restart,” which generally occurs when a driver’s weekly hours-of-service resets after the driver refrains from working during a 34-hour period. Under the new rule, the 34-hour restart may only occur only once each week and only if the 34-hour period includes two periods between 1:00 a.m. and 5:00 a.m. The 34-hour restart provisions became effective on July 1, 2013. We are unable to predict the impact that the new hours-of-service rules may have, how a court may rule on challenges to such rules, and to what extent the FMCSA might attempt to materiallycould revise the rules.rules in the future. On the whole, however, we believe that the new rules willcould decrease productivity and cause some loss of efficiency. DriversIn the event that productivity and efficiency are adversely affected, drivers and shippers may need to be retrained, computer programming may require modifications, additional independent contractor driverscontractors may need to be engaged, ourrecruited and engaged. Our independent contractor driverscontractors and network of other third party transportation providers may also experience a negative impact on their results and productivity and consequently could exit the market, our network of third party transportation providers may have their productivity decreased, may have to pay more for drivers, and may pass the additional expense on to us, additional independent contractor drivers may need to be recruited, and some shipping lanes may need to be reconfigured.us. We also are unable to predict the effect of any new rules that might be proposed if the issuedcurrent final rule is stricken by a court in the future, but we believe any such proposed rules could increase costs in our industry or decrease productivity.

The FMCSA’s CSA 2010Compliance Safety Accountability program (“CSA”) (formerly “Comprehensive Safety Analysis 2010”) introduces a new enforcement and compliance model that implements driver and vehicle safety and fitness 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, Hours-of-Service Compliance (formerly Fatigued Driving (Hours-of-Service)Driving), Driver Fitness, Controlled Substances/Alcohol, Vehicle Maintenance, Cargo-RelatedHazardous Materials Compliance (formerly Cargo-Related) and Crash Indicator. Under the newcurrent CSA regulations, the methodology for determining a carrier’s DOT safety rating 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 driverscontractors may no longer be eligiblebecome ineligible to drive for us, our fleet could be ranked poorly as compared to our peer firms,competitors, 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 driverscontractors or a poor fleet rankingsafety and fitness ratings may result in difficulty attracting and retaining qualified independent contractor driverscontractors and could cause our customers to direct their business away from us and to carriers with higher fleet rankings,more favorable CSA scores, which would adversely affect our results of operations.

The FMCSA also is considering revisions to the existing rating systemSafety Measurement System (“SMS”) under which the CSA scores of individual drivers and the safety labels assigned to motor carriers are measured and evaluated by the DOT. OurIn the past, the subsidiary with motor carrier operating authority currentlythrough which we operate our Expedited Transportation business has a satisfactory DOT rating,exceeded the established intervention threshold in certain of the safety related standards, and we may exceed the threshold for other safety related standards in the future. Depending on our ratings, we may be prioritized for an intervention action or roadside inspection, either of which is the highest available rating under the current safety rating scale.could adversely affect our results of operations. In addition, customers may be less likely to assign loads to us. Under the revised Safety Fitness Determination (“SFD”) rating system being considered by the FMCSA, the safety rating atof our subsidiaries with operating authority would be evaluated more regularly, and our safety rating would reflect a more in-depth assessment of safety-based violations. We cannot predict the extent to which CSA requirements or safety and fitness ratings under SMS or SFD could adversely affect our business, operations or ability to retain compliant drivers, or those of our subsidiaries, independent contractors or third-party transportation providers.

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The FMCSA has issuedproposed new rules that willwould require nearly all carriers, including us, to install and use electronic on-board recorders (“EOBRs,” also known as paperless logs) in their tractors. Such recordersThese rules were vacated by the Seventh Circuit Court of Appeals in August 2011. In July 2012, Congress passed a federal transportation bill that requires the promulgation of rules mandating EOBR use by July 2013, with full adoption for all trucking carriers no later than July 2015. EOBR installation will increase costs for, and may not be well-received by, independent contractor drivers.contractors.

At this time, we transport only low-to-medium-risk hazardous materials, representing a very small percentage of our total shipments. The U.S. Transportation Security Administration (“TSA”) has adopted regulations that require a determination by the TSA that each driver who applies for or renews his or her license for carrying hazardous materials is not a security threat. This could reduce the pool of qualified independent contractor drivers,contractors, which could require us to increase independent contractor driver compensation or limit the amount of hazardous materials freight we transport.

The State of California also recently adopted new regulations regarding the fuel emissions and efficiency of tractors and trailers. Diesel tractors operated in California are required to satisfy certain performance requirements by compliance target dates occurring between 2011 and 2023. In December 2008, California also adopted new regulations to improve the fuel efficiency of tractors that pull 53-foot or longer box-type trailers within the state. The tractors and trailers subject to these regulations must either be SmartWay-certified or equipped with low-rolling resistance tires and retrofitted with SmartWay-verified aerodynamic technologies (such as tractor fairings and trailer skirts) that have been shown to meet or exceed fuel savings percentages specified in the regulations. Beginning December 31, 2012, either pre-2011 model year trailers of this type must satisfy the same requirements applicable to 2011 model year and newer trailers or carriers must have submitted a size-based fleet compliance plan in order to phase-in compliance over time. Compliance with California’s regulations has increased new tractor costs, might increase the costs of new trailers operated in California, might require the retrofitting of pre-2011 model year trailers operated in California, and could diminish equipment productivity and increase operating expenses. Federal and state governments have also proposed environmental legislation that could, among other things, potentially limit carbon, exhaust and greenhouse gas emissions. If enacted, such legislation could also result in higher new tractor and trailer costs, reduced productivity and efficiency, and increased operating expenses, all of which could adversely affect our fleet growth.results of operations.

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 driverscontractors as employees, including legislation to increase the recordkeeping requirements for employers of independent contractor driverscontractors 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, federalFederal legislators are considering a bill that, if enacted, would, among other things,also sought to 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 businesstaxpayers to provide written notice to all workers ofbased upon their classification as either an “employee” or a “non-employee”; and impose penalties of $1,100 to $5,000 per workerand fines for a violationviolations of the notice requirements or for misclassifying an “employee” as a “non-employee.”or “non-employee” misclassifications. 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 driverscontractors 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.

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For domestic business, carriers must generally obtain authority to carry general commodities and other types of cargo in intrastate commerce. If any of our Freight Forwarding business unit isindependent contractors plans to operate in interstate commerce in a state where such carrier did not previously have intrastate authority, the independent contractor typically must apply for authority in any such state. The FMCSA has also licensed our XGL freight forwarding subsidiary as a property broker and our Express-1 expedited transportation subsidiary as a motor carrier and property broker. XGL and our XPO Air Charter, LLC (“XPO Air Charter”) subsidiary, through which we arrange expedited air charter transportation, are subject to regulation by the DOT regarding air cargo security for all loads, regardless of origin and destination. CGL isXGL and XPO Air Charter also are regulated as an “indirect air carrier”carriers” by the DHS and TSA. These agencies provide requirements, guidance and, in some cases, administer licensing requirements and processes applicable to the freight forwarding industry. This ensuresWe actively monitor our compliance with such agency requirements to ensure that we have satisfactorily completed the security requirements and qualifications, adhered to the economic regulations, and implemented the required policies and procedures. These agencies generally require companies to fulfill these qualifications prior to transacting various types of business. Failure to do so could result in penalties and fines. The air cargo industry is also subject to regulatory and legislative changesactions that could affect the economics ofeconomic conditions within the industry by requiring changes in operating practices or influencing the demand for and the costs of providing services to clients. We cannot predict the extent to which any such regulatory or legislative actions could adversely affect our business and operations, but we strive to comply with and satisfy agency requirements applicable to our domestic business.

For our international operations, CGLXGL is a member of the International Air Transportation Association (“IATA”), a voluntary association of airlines and forwarders whichthat 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 oceanoceanic freight forwarding business, we are registered as an Ocean Transportation Intermediary (“OTI”) by the U.S. Federal Maritime Commission (“FMC”), which establishes the qualifications, regulations and bonding requirements to operate as an OTI for businesses originating and terminating in the U.S.United States. XGL is also a licensed non-vessel operating common carrier (“NVOCC”) and ocean freight forwarder. Our international operations subject us to regulations of the U.S. Department of State, U.S. Department of Commerce and the U.S. Department of Treasury. Regulations cover matters such as what commodities may be shipped to what destination and to what end-user, unfair international trade practices, and limitations on entities with which we may conduct business.

We and our independent contractor driverscontractors are subject to various environmental laws and regulations dealing with the hauling, handling and handlingdisposal of hazardous materials, emissions from vehicles, engine-idling, fuel spillage and seepage, 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.laws and regulations. We would be responsible for the cleanup of any releasesspill or other release involving hazardous materials caused by our operations or business, and inbusiness. In the past, we have been responsible for the costs of cleanup of diesel fuel spills caused by traffic accidents or other events.events, and none of these incidents materially affected our business or operations. We generally transport only hazardous materials rated as low-to-medium-risk, and a small percentage of our total shipments contain hazardous materials. We believe that our operations are in substantial compliance with current laws and regulations and do not know of any existing environmental condition that would reasonably be expected to have a materiallymaterial adverse effect on our business or operating

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 materiallymaterial adverse effect on our business and operating results.

Risk Management and Insurance

We generally require carriers that we engage to have $1 million of automobile liability insurance and $100,000 of cargo insurance, or up to $250,000 in the case of our last-mile contract carriers. We require motor carriers we engage to enter into a written agreement with us and to meet our safety and performance qualification standards. We also require motor carriers to have workers compensation and other insurance as required by law in connection with the specific tasks they are undertaking.

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In our Freight Brokerage operations, we generally are not liable for damage to our customers’ cargo or in connection with damage arising from the provision of transportation services. However, in some instances, we agree to assume cargo and other liability. While we endeavor to limit this exposure to matters arising due to our negligence or misconduct, or to cap our exposure at a stated maximum dollar amount, we are not always able to do so.

With respect to our Expedited Transportation and Freight Forwarding operations and the portion of our Freight Brokerage operations related to last-mile delivery logistics, we have primary liability to our customer for cargo loss and damage for certain liabilities caused by our independent contractors and the carriers to which we broker freight. Accordingly, liability claims 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 insurance coverage or may not be covered by insurance at all.

We maintain a contingent cargo liability insurance policy to protect us against losses that may not be recovered from the responsible contracted carrier. Our last-mile delivery logistics operations may involve installation of appliances in customers’ homes involving water, gas or electric connections. We maintain commercial general liability insurance coverage to protect from claims related to these services. We carry various liability insurance policies, including automobile, general liability and umbrella coverage, at levels we deem appropriate. However, we cannot provide assurance that our insurance coverage will effectively protect us in the event of claims made against us.

Seasonality

Our revenues and profitability have historically been historically subject to some minor seasonal fluctuations. Our results of operations for the quarter ending in March are on average lower than the quarters ending in June, September and December. Typically, this pattern has been the result of factors such as inclement weather, national holidays, customer demand and economic conditions. This historical pattern has diminished recently due to changes in our mix of business between expedited, freight forwarding and freight brokerage and our mix of industries served within those modes of transportation. It is not possible to determinepredict whether the historical revenue and profitability trends will occur.occur in future periods.

Employees

At December 31, 2011,2013, we had 2162,259 full-time employees, none of whom were covered by a collective bargaining agreement. Of this number, 1221,753 were employed in Freight Brokerage, 268 were employed in Expedited Transportation, 3878 were employed in Freight Forwarding 38 were employed in Freight Brokerage and 18160 were employed in our corporate office. In addition to our full-time employees, we employed 11 part-time employees as of December 31, 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. We believe that we have good relations with our employees.

Executive Officers of the Registrant

We provide below information regarding each of our executive officers.

 

Name

  Age   

Position

Bradley S. Jacobs

   5557    

Chairman of the Board and Chief Executive Officer

M. Sean Fernandez

   4850    

Chief Operating Officer

John J. Hardig

   4749    

Chief Financial Officer

Troy A. Cooper

44

Senior Vice President—Operations and Finance

Gordon E. Devens

   4345    

Senior Vice President and General Counsel

Mario A. Harik

   3133    

Chief Information Officer

Scott B. Malat

   3537    Senior Vice President—Strategic Planning

Gregory W. RitterChief Strategy Officer

53Senior Vice President—Brokerage Operations

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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–Consumablesgeneral manager—consumables for NCR Corporation, and earlier held positions as Vice President—New Growth Platformsvice 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.

Troy Cooper has served as our Senior Vice President—Operations and Finance since February 2014. Mr. Cooper joined our company in September 2011 as Vice President—Finance, and has held positions of increasing responsibility since then. Mr. Cooper is responsible for aligning the operational and financial performance of the company’s business units with strategic objectives. Mr. Cooper was most recently with United Rentals, Inc., where he served as vice president—group controller responsible for field finance functions. Previously, he held controller positions with United Waste Systems, Inc. and OSI Specialties, Inc. (formerly a division of Union Carbide, Inc.). Mr. Cooper began his career in public accounting with Arthur Andersen and Co. and has a degree in accounting from Marietta College.

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 includingand has consulted to 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 Chief Strategy Officer since July 2012. Mr. Malat served as our Senior Vice President—Corporate Strategy sinceStrategic Planning from the time he joined us in October 2011.2011 until July 2012. Prior to joining XPO

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Logistics, 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,Earlier, 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 holdercharterholder 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,May 8, 2000. Our executive office is located at 429 Post Road, Buchanan, Michigan 49107.Five Greenwich Office Park, Greenwich, Connecticut 06831. Our telephone number is (269) 695-2700.(855) 976-4636. Our stock is listed on NYSE Amexthe New York Stock Exchange (“NYSE”) under the symbol “XPO”.

Our corporate website is www.xpologistics.com.www.xpologistics.com. We make available on this website, free of charge, access to our 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 electronically submit such material to the Commission. We also make available on our website copies of materials regarding our corporate governance policies and practices, including the XPO Logistics, Inc. Corporate Governance Guidelines, our Senior Officer Code of Business Conduct and Ethics and

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.Five Greenwich Office Park, Greenwich, Connecticut 06831. The public may read and copy any materials that we file with the Commission at the Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the Commission’s website is www.sec.gov.www.sec.gov. The Commission makes available on this website, free of charge, reports, proxy and information statements and other information regarding issuers, such as us, that file electronically with the Commission. Information on our website or the Commission’s website is not part of this document. We are currently classified as a “smaller reporting company” for purposes of filings with the Commission. However, beginning with our Quarterly Report for the quarter ending March 31, 2012, we will be classified as an “accelerated filer” for purposes of filings with the Commission.

 

Item 1A.Risk Factors

Cautionary 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 Section 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 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 below and the risks discussed in the Company’s other filings with the Commission. 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

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discussion should be read in conjunction with the Company’s audited Consolidated Financial Statements and related Notes thereto included elsewhere in this 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.

Economic recessions and other factors that reduce freight volumes could have a materiallymaterial adverse impact on our business.

The transportation industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of our customers, increases in prices charged by third-party carriers, interest rate fluctuations and other U.S. and global economic factors beyond our control. DeteriorationThe recession beginning in 2008 and continuing throughout 2009 impacted the availability of services from our rail and truck transportation providers and our customer’s demands for our services. Although conditions have improved somewhat since 2009, the future pace of recovery and even the continuation thereof cannot be predicted. During economic downturns, reduced overall demand for transportation services will likely reduce demand for our services and exert downward pressures on rates and margins. In periods of strong economic growth, demand for limited transportation resources can result in increased rail network congestion and resulting operating inefficiencies. In addition, 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 freight shipped by those customers, our operating results could be adversely affected.

Some of our customers may face economic difficulties and 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 be unable to secure sufficient equipment or other transportation services to meet our commitments to our customers.

 

We may not 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 rapid change, it is more difficult to match 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 a period of rapid change in market demand.

We operate in a highly competitive industry and, if we are unable to adequately address factors that may adversely affect our revenue and costs, our business could suffer.

Competition in the transportation services industry is intense. Increased competition may lead to revenue reductions, reduced profit margins, or a loss of market share, any one of which could harm our business. There are many factors that could impair our 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 greater 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;

 

a 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-wideindustry wide capacity;

 

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solicitation by shippers of bids from multiple 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.

We may not be able to successfully execute our acquisition strategy.

We intend to expand substantially through acquisitions, including the acquisition of Pacer, to take advantage of market opportunities we perceive in both our current markets (expedited(freight brokerage, expedited transportation freight brokerage and freight forwarding) and in new markets that we may enter. However, we can provide no assurance that the Pacer acquisition or any other future acquisitions will be completed in the time frame we anticipate, if at all. In addition, we may experience delays in making acquisitions or be unable to make the acquisitions we desire for a number of reasons. Suitable acquisition candidates may not be available at purchase prices that are attractive to us or on terms that are acceptable to us. In pursuing acquisition opportunities, we will compete with other companies, some of which have greater financial and other resources than we do. We may not have available funds or common stockCommon Stock with a sufficient market price to complete a desired acquisition. If we are unable to secure sufficient funding for potential acquisitions, we may not be able to complete acquisitions that we otherwise find advantageous.

The timing and number of acquisitions we pursue may cause volatility in our financial results.

WeOther than the Pacer acquisition, we are unable to predict the size, timing and number of 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 the price of our Common Stock.

Any 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;

inability to negotiate effective indemnification protection from the seller, or inability to collect in the event of an indemnity claim;

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, ocean cargo, and last-mile logistics, in which we have limited prior experience;

increases in working capital investment 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.

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In connection with future acquisitions, we may issue shares of capital stock price.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.

We may not successfully manage our growth.

We intend to grow rapidly and substantially, including by expanding our internal resources, making acquisitions (including the Pacer acquisition) and entering into new markets. We may experience difficulties and higher than expectedhigher-than-expected expenses in executing this strategy as a result of unfamiliarity with new markets, change in revenue and business models and entering into new geographic areas.

Our growth will place a significant strain on our management, operational and financial resources. 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 material adverse effect on our business, results of operations, cash flows, stock price and financial condition.

Any acquisitionsWe incurred substantial operating losses and net losses in the 2012 and 2013 fiscal years and we may continue to incur losses as we continue to invest in the Company to promote growth.

We incurred substantial losses in the 2012 and 2013 fiscal years and we may continue to incur substantial losses as we invest pursuant to our strategies. Our growth strategy, in part, seeks to grow our business through the opening of cold-start locations in our Freight Brokerage segment. Generally, a newly opened sales office will generate an operating loss, and may have lower margin sales, during its start-up phase. Additionally, our business strategy requires that we undertake coulddevelop an information technology platform across the Company, with sales, service, carrier and track-and-trace capabilities, as well as benchmarking and analysis. We are investing in technology systems and corporate infrastructure that are scalable for our intended growth and are designed to support larger operations than we currently have. Acquisitions increase the challenges associated with developing and integrating our information technology platform for purposes of meeting current and anticipated business needs. As a result of these and other initiatives, our gross margin derived from our operations may not be difficultsufficient to integrate, disruptabsorb all of our business, dilute stockholder valueselling, general and adversely affect our results of operations.

Acquisitions involve numerous risks,administrative expenses until we are able to generate greater revenue. Our ability to generate significant revenues and operate profitably will depend on many factors, including the following:

failuresuccessful implementation 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 withacquisition and greenfield growth strategies and 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.new information technology system.

Our business 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 a 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.

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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 andor a decline in the volume of freight we receive from customers.

We recently have licensedlicense an operating system that we are developing into an integrated information technology system for all of our business units.segments. 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 onto this new integrated information technology system, 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 The challenges associated with integration of our common stockacquisitions may adversely affect the market price of our common stock.increase these risks.

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 brokerageindependent station agents, or if a significant number of our existing sales representatives and brokerageindependent station agents leavesleave 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 brokerageindependent station 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 brokerageindependent station 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 brokerageindependent station agents could also increase our recruiting costs and decrease our operating efficiency.

We have a new senior management team that has little experience working togetherOur success is dependent on our Chief Executive Officer and that is essential to the management of our business and operations.other key personnel.

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 newOur senior management team was assembled in 2011 and early 2012 under the guidanceleadership 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, notNot 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.16

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 forwardingFreight Forwarding and freight brokerageFreight 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 transportationExpedited 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 companyour employees to develop and manage customer relationships and to service the customers.

Our freight forwarding servicesFreight Forwarding operations are provided by our Concert Group Logistics subsidiary through a network of independent stations that are owned and operated by independent contractors and through stations managed by companyour 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-partythird 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 theour key company employees who manage our most significant customer relationships. Since these independent station owners and companyour 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 companyour employees could have a materiallymaterial 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.

We derive a significant portion of our revenue from our largest customers, some of which are involved in highly cyclical industries; 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 relationships with these large accounts in the aggregate for a significant portion of our revenues. In addition, 3PD, which we acquired during the third quarter of 2013, derived approximately 30% of its revenues in 2012 from its largest customer, a blue chip home improvement retailer, and its top three customers accounted for approximately 65% of its revenues in 2012. Any interruption or decrease in the business volume awarded by these customers could have a material adverse impact on our revenues and resulting profitability.

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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, impacted by the changing landscape in the U.S. automotive market, which is highly competitive and historically has been subject to substantial 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 material adverse impact on our revenues, profitability and cash flows.

3PD’s most significant customers include many large home improvement retailers and other companies whose businesses are impacted by the residential real estate market in the United States, which is subject to significant volatility. An increase in the volatility of and/or deterioration in the residential real estate market may adversely affect these customers and, in turn, 3PD’s, and therefore our, revenues and results of operations.

Our contractual relationships with our customers generally are terminable at will by the customers (or us) on short notice. Moreover, our customers generally are not required to provide any minimum shipping commitments. Failure to retain our existing customers or enter into relationships with new customers could have a material adverse impact on our revenues and resulting profitability.

If our customers are able to improve their internal supply chain management systems or reduce their supply chain cost structures, our business and results of operations may be harmed.

We believe that significant drivers for our customers to use third party logistics providers include the quality and cost of internal supply chain management and personnel. Third party logistics service providers such as ourselves are generally able to provide high-quality service more efficiently than otherwise could be provided “in-house.” Historically, this has been the case in our target industries. If, however, a customer in any industry we target is able to improve the quality of its internal supply chain management system, renegotiate the terms of its labor contracts or otherwise reduce its total cost structure regarding its employees, we may not be able to provide such a customer with an attractive alternative for its logistics needs and our business, results of operations and growth potential may be harmed.

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.

Fluctuations in the price or availability of fuel may change our operations structure and resulting profitability.

Fuel expense constitutes one of the greatest costs to our fleet of independent contractor drivers and third party transportation providers who complete the physical movement of freight we arrange. Fuel prices are highly volatile with the price and availability of all petroleum products subject to economic, political and other market forces beyond our control. As is customary in our industry, most of our customer contracts include fuel surcharge provisions to mitigate the effect of the fuel price increase over base amounts established in the contract. However, these fuel surcharge mechanisms usually do not capture the entire amount of the increase in fuel prices, and they also feature a lag between the payment for the fuel at the pump and collection of the surcharge revenue. Market pressures may limit our ability to assess fuel surcharges in the future. Significant increases in fuel prices would increase our need for working capital to fund payments to our independent contractor drivers and third party transportation providers. Significant changes in the price or availability of fuel in future periods or significant changes in our ability to mitigate fuel price increases through the use of fuel surcharges, could have a material adverse impact on our operations, fleet capacity and ability to generate both revenues and profits.

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Increases in independent contractor driver compensation or other difficulties attracting and retaining qualified independent contractor drivers could 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 subsidiaryExpedited Transportation segment operates through a fleet of exclusive-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 2010the FMCSA Compliance Safety Accountability program may further reduce the pool of qualified independent contractor drivers. Thus, our continued reliance on independent contractor drivers could limit our ability to grow our ground transportation fleet.

FromWe are currently experiencing, and expect to continue to experience from time to time we experience, and we are currently experiencing,in the future, difficulty in attracting and retaining sufficient numbers of qualified independent contractor drivers, and such shortages may recur in the future.drivers. 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 operations could be adversely affected.

The compensation we offer our independent contractor drivers is subject to market conditions and we may find it necessary to continue to increase independent contractor drivers’ compensation in future periods, which may be more likely to the extent economic conditions continue to improve. If we are unable to continue to attract and retain a sufficient number of independent contractor drivers, we could be required to adjustincrease our mileage rates and accessorial pay or operate with fewer trucks and face difficulty meeting shipper demands, all of which would adversely affect our profitability and ability to maintain our size or grow.to pursue our growth strategy.

3PD’s warehouse lease costs are fixed for a certain period of time, even if customer demand for shipping services in the areas where these warehouse are located decreases.

3PD is subject to expenses that are fixed for varying lengths of time through a significant number of lease agreements for warehousing facilities. These leases expire at various dates through 2018. The fixed nature of 3PD’s lease expenses may limit our ability to react promptly to a decline in demand by its customers for shipping services in the areas where these warehouses are located. The inability to respond promptly to changes in customer demand may have an adverse effect on our financial condition and results of operations. In addition, we may be unable to terminate these leases or find suitable subleases in the event of a rapid reduction in market demand without a material adverse effect on our business, results of operations and financial condition.

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 industry seeking to reclassify independent contractor drivers as employees for a variety of purposes, including workers’ compensation, wage-and-hour, and health care

healthcare coverage. Proposed legislation would make it easier for tax and other authorities to reclassify independent contractor drivers as employees. If our independent contractor drivers are determined to be our employees in any future determinations by regulators or courts, such a determination could increase the likelihood that we would be found liable under respondeat superior or other similar theories in personal injury or

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other negligence causes of action, and we would incur additional exposure under federal, state and local tax, workers’ compensation, unemployment benefits, labor and employment laws, including for prior periods, as well as potential liability for penalties and interest, which could have a materiallymaterial adverse effect on our results of operations and financial condition and the ongoing viability of our business model.

Additionally, 3PD has been advised of audits by certain states regarding the classification of 3PD’s contract carriers and non-final reclassifications of 3PD’s contract carriers that 3PD is currently appealing. 3PD is also involved as a defendant in certain class action lawsuits which claim, in part, improper classification of 3PD’s contract carriers. If 3PD’s contract carrier drivers are determined to be its employees by regulators or courts in any of the actions involving 3PD or in any future determinations by regulators or courts, we would incur additional exposure under federal, state and local tax, workers’ compensation, unemployment benefits, labor and employment laws, including for prior periods, as well as potential liability for penalties and interest. Pursuant to the stock purchase agreement related to the acquisition of 3PD, the former stockholders, option holders and warrant holders of 3PD have agreed to indemnify us for certain liabilities, including claims related to 3PD’s relationships with its contract carriers, subject to certain limits. However, there can be no assurance that this indemnification will be sufficient to protect us against the full amount of such liabilities.

We may be subject to various claims and lawsuits that could result in significant expenditures.

The nature of our business 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.matters, including with respect to claims asserted under various theories of agency and employer liability notwithstanding our independent contractor relationships with our transportation providers. During 2013, we spent approximately $4.9 million in litigation-related legal costs. Any material litigation could have a material adverse effect on our business, results of operations, financial condition or cash flows. Businesses that we acquire also increase our exposure to litigation.

FluctuationsWe are involved in litigation in the price or availabilityFourth Judicial District Court of fuel may changeHennepin County, Minnesota relating to our operations structurehiring of former employees of C.H. Robinson Worldwide, Inc. (“CHR”). In the litigation, CHR asserts claims for breach of contract, breach of fiduciary duty and resulting profitability.

Fuel expense constitutes oneduty of loyalty, tortious interference with contractual relationships and prospective contractual relationships, misappropriation of trade secrets, violation of the greatest costsfederal Computer Fraud and Abuse Act, inducing, aiding and abetting breaches and conspiracy. CHR seeks temporary, preliminary and permanent injunctions, as well as direct and consequential damages and attorneys’ fees. CHR has asserted that it may seek punitive damages as well. On January 17, 2013, following a hearing, the Court issued an Order Regarding Motion for Temporary Injunction (the “Order”). The Order (as amended on April 16, 2013) prohibits us from engaging in business with certain CHR customers (the “Restricted Customers”) within a specified radius of Phoenix, AZ, until July 1, 2014. On November 6, 2013, CHR moved to our fleet of independent contractor drivers and third-party transportation providers who complete the physical movement of freight we arrange. Fuel prices are highly volatilecompel compliance with the priceOrder, requesting discovery and availabilityexpanded enforcement of all petroleum products subjectthe Order. On November 18, 2013, we opposed CHR’s motion and cross moved to economic, political and other market forces beyond our control. As is customary in our industry, mostmodify the Order. On February 19, 2014, the Court denied the majority of CHR’s motion, granting only CHR’s request for a report of our customer contracts include fuel surcharge provisionsremediation efforts under the Order. At the same time, the Court granted our motion and modified the Order to mitigateallow XPO to do business with Restricted Customers in the effectPhoenix area if: (a) XPO obtained that business as the result of a merger or acquisition; or (b) the business is part of a competitive bidding process with an entity seeking nationwide services. The Court also clarified that the business restrictions in the Order do not apply to XPO’s servicing of other independent third party logistics entities who might be working for the ultimate benefit of the fuel price increase over base amounts establishedRestricted Customers.

On February 7, 2013, CHR filed a First Amended Complaint against us and eight individual defendants who are current or former employees of XPO, including our Chief Operating Officer, Senior Vice President—Strategic Accounts and Vice President—Carrier Procurement and Operations. On April 11, 2013, we moved to dismiss the new claims asserted in that First Amended Complaint and moved to stay discovery pending the contract. However, these fuel surcharge mechanisms usually do not capture the entire amountCourt’s resolution of the increasemotion to dismiss. On August 29, 2013, the Court granted in fuel prices,part and they also feature a lag betweendenied in part the payment

20


motion to dismiss and denied as moot the motion to stay discovery. On September 23, 2013, we filed our Answer to the First Amended Complaint and asserted counterclaims against CHR for the fuel at the pump and collectionviolations of the surcharge revenue. Market pressures may limitMinnesota Antitrust, Unlawful Trade Practices, and Deceptive Trade Practices Act, as well as tortious interference with contractual relations and prospective contractual relations. CHR moved to dismiss our abilitycounterclaims on November 12, 2013, and we opposed that motion. A hearing on CHR’s motion to dismiss was held on February 10, 2013. The Court has not yet issued a ruling on CHR’s motion to dismiss. We intend to vigorously defend the action in the future to assess fuel surcharges. Significant increases in fuel prices would increase our need for working capital to fund payments to our independent contractor driverscourt. The outcome of this litigation is uncertain and third-party transportation providers. Significant changes in the price or availability of fuel in future periods or significant changes in our ability to mitigate fuel price increases through the use of fuel surcharges, could have a materiallymaterial adverse impact on our operations, fleet capacity and ability to generate both revenues and profits.

We 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 licensed 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 act 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 comply with applicable regulations, could have a materially adverse impacteffect on our business and results of operations.

Future3PD is a defendant in a number of class action and individual lawsuits alleging improper classification of contract carriers as independent contractors rather than employees, among other claims, and seeking damages primarily under varying state laws for alleged improper deductions from wages. Pursuant to the stock purchase agreement by which we acquired 3PD, the former owners of 3PD have agreed to indemnify us for costs and regulations may be more stringentliabilities related to such class action and require changes in our operating practices, influence the demand for transportation services or require usindividual lawsuits, subject to incur significant additional costs. Wecertain limits. Additionally, we are unablea party to predict the impact that recently enacted and future regulations may have on our businesses. Higher costs that we incura variety of other legal actions, both as a resultplaintiff and as a defendant, that arose in the ordinary course of new regulations withoutbusiness, and may in the future become involved in other legal actions. We do not currently expect any of these matters or these matters in the aggregate to have a corresponding increase in price to our customers could adversely affectmaterial adverse effect on our results of operations.

We derive a significant portionoperations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters, or our revenue from our largest customers, some of which are involvedfailure to recover, in full or in part, under the highly cyclical automotive industry; our relationshipsindemnity provisions noted above 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 timethe respect 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 customers3PD, could have a materiallymaterial adverse impacteffect 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, impacted by the changing landscape in the U.S. automotive market, which is highly competitive and historically has been subject to substantial 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, results of automotive manufacturers,operations or within the associated supplier base, could have a materially adverse impact on our revenues and resulting profitability.

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.cash flows.

Our operations are subject to varying liability standards that may result in claims being asserted against us.

With respect to our expedited transportationExpedited Transportation and freight forwardingFreight 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 resulting types and/or amounts of damages may be excluded by or exceed the amount of insurance coverage maintained by the contracted transportation provider. With respectIn our Freight Brokerage operations, we generally are not liable for damage to our brokerage operations, claimscustomers’ cargo or in connection with damages arising in connection with the provision of secondarytransportation services. However, in our customer contracts, we may agree to assume cargo and other liability, may be asserted against ussuch as for negligence and personal injury, including liability 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. While we endeavor to limit this exposure to matters arising due to our negligence or misconduct, or to cap our exposure at a stated maximum dollar amount, we are not always able to do so. Claims against us may exceed the amount of our insurance coverage, or may not be covered by insurance at all. A material increase in the frequency or severity of accidents, 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.

We are subject to regulation beyond our control, which could negatively impact our business.

Our operations are regulated and licensed by various federal and state transportation agencies in the United States and similar governmental agencies in foreign countries in which we operate. These regulatory agencies have authority and oversight of domestic and international transportation services and related activities, licensure, motor carrier operations, safety and security and other matters. We must comply with various insurance and surety bond requirements to act in the capacities for which we are licensed. Our subsidiaries and independent contractors must also comply with applicable regulations and requirements of such agencies. The “Regulation” section of this Annual Report on Form 10-K under the caption entitled “Business” describes the various licenses obtained by us, Express-1, XGL and XPO Air Charter, as well as proposed, pending and adopted regulations that could significantly affect our business, operations, productivity, independent contractors and capital expenditures.

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Through our subsidiaries and business units, we hold various licenses required to carry out our domestic and international services. These licenses permit us to provide services as a motor carrier, property broker, indirect air carrier, Ocean Transportation Intermediary, non-vessel operating common carrier, freight forwarder and ocean freight forwarder. We also are subject to regulations and requirements promulgated by, among others, the U.S. Department of Transportation and FMCSA, the U.S. Department of Homeland Security through the Bureau of U.S. Customs and Border Protection and the U.S. Transportation Security Administration, the U.S. Federal Maritime Commission, International Air Transportation Association, the Canada Border Services Agency and various other international, domestic, state, and local agencies and port authorities. Our failure to maintain our required licenses, or to comply with applicable regulations, could have a material 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 require us to incur significant additional costs. We are unable to predict the impact that recently enacted and future regulations may have on our businesses. Higher costs incurred by us, or incurred by our independent contractors or third party transportation providers who pass the increased costs on to us, as a result of future new regulations could adversely affect our results of operations to the extent we are unable to obtain a corresponding increase in price from our customers.

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.

Work stoppages, weather related issues, or other disruption beyond our transportation providers control could adversely affect our operating results.

Our transportation services are provided through a network of transportation providers. Hurricanes, flooding, and other severe weather conditions, as well as other calamities such as earthquakes, fires and acts of terrorism, can cause a disruption in service that can affect the flow of traffic over the entire network. In addition, our businesses can be adversely affected by labor disputes between railroads and their union employees, seaport strikes and labor renegotiations, foreign labor market disruptions, or by a work stoppage at railroads or local trucking companies servicing rail terminals, including work disruptions involving owner operators under contract with our local trucking operations. These network disruptions result in terminal embargoes, disruption to equipment and freight flows, depressed volumes and revenues, increased costs and other negative effects on our operations and financial results.

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 have 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.airlines. War, risk of war or a terrorist attack also may have an adverse effect on the economy. A decline in economic activity could adversely affect our revenues or restrict our future growth.

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Instability in the financial markets as a result of terrorism or war also could impact our ability to raise capital. In addition, the insurance premiums charged for some or all of the coverage currently maintained by us could increase dramatically or such coverage could be unavailable in the future.

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. Future issuances of our Common Stock will dilute our stockholders’ ownership and our stock price may decline accordingly. Debt financing, if available, may involve restrictive covenants and could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.

Our outstanding preferred stockPreferred Stock, Convertible Senior Notes and revolving credit agreement limit our operating and financial flexibility.

We are obligated to pay holders of our Series A Convertible Perpetual Preferred Stock quarterly cash dividends equal to the greater of (i) the “as-converted” dividends on the underlying common stockCommon Stock for the relevant quarter, if applicable, and (ii) 4% of the then-applicable liquidation preference per annum. Presently, the aggregate dividends due to holders of our preferred stockSeries A Preferred Stock are $3.0$2.9 million each year. Our preferred stockSeries A Preferred Stock has an initial liquidation preference of $1,000 per share, for an aggregate initial liquidation preference of $75.0$73.4 million, subject to adjustment in the event of accrued and unpaid dividends. Accordingly, holders of our preferred stockSeries A Preferred Stock have claim to a substantial portion of our cash flows from operations and liquidity, thereby reducing the availability of our cash flows to fund acquisitions, working capital, capital expenditures, our growth initiatives and other general corporate purposes.

We are obligated to pay holders of our 4.50% Convertible Senior Notes interest semiannually in arrears on April 1 and October 1 of each year, beginning on April 1, 2013. The Notes will mature on October 1, 2017 unless earlier converted or repurchased. The conversion rate was initially 60.8467 shares of Common Stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $16.43 per share of Common Stock) and is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. We may acquire from time to time our 4.50% Convertible Senior Notes for cash or securities in market transactions, privately negotiated transactions or otherwise, depending on market and other conditions.

Our currentrevolving credit agreement contains, and any future credit agreement would likely contain, certain operating and financial covenants and we expect that any future credit agreement we enter into will contain similarly restrictive covenants. Such covenants limitinclude limits on 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 covenants under our currentthe loan commitment (if drawn) or any future credit agreementsagreement may have a materiallymaterial adverse impact on our operations. In addition, if we fail to comply with the covenants under our current or any futuresuch 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.

The price of our Common Stock historically has been volatile and this volatility may make it difficult for you to resell shares of Common Stock owned by you at times or may make it difficult for you to sell shares of Common Stock at prices you find attractive.

The trading price of our Common Stock may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in share prices and trading

23


volumes that affect the market prices of the shares of many companies. These broad market fluctuations have adversely affected, and may in the future adversely affect, the market price of our Common Stock. Among the factors that could affect our stock price are:

changes in financial estimates and buy/sell recommendations by securities analysts or our failure to meet analysts’ revenue or earnings estimates;

actual or anticipated variations in our operating results;

our earnings releases and financial performance;

market conditions in our industry and the general state of the securities markets;

fluctuations in the stock price and operating results of our competitors;

actions by institutional shareholders;

investor perception of us and the industry and markets in which we operate;

general economic conditions; and

other factors described in this “Risk Factors” section.

The trading price of our Common Stock has fluctuated widely in the past, and we expect that it will continue to fluctuate in the future.

Delaware law and our charter documents may impede or discourage a takeover, which could cause the market price of our Common Stock to decline.

We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. In addition, our board of directors or a committee thereof has the power, without stockholder approval, to designate the terms of one or more series of Preferred Stock and issue shares of Preferred Stock. The ability of our board of directors or a committee thereof to create and issue a new series of Preferred Stock, our stockholders rights plan and certain provisions of Delaware law and our certificate of incorporation and bylaws could impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our Common Stock, which, under certain circumstances, could reduce the market price of our Common Stock.

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 (including the Pacer acquisition) 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 will dilute the interests of our then-existing 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.

We have securities outstanding presently that are convertible into or exercisable for a substantial number of shares of our Common Stock. As of February 21, 2014, there were (i) 48,747,390 shares of our Common Stock outstanding, (ii) 73,425 shares of Series A Convertible Perpetual Preferred Stock outstanding, which are convertible into an aggregate of 10,489,286 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 10,678,572 shares of our Common Stock, at an initial exercise price of $7.00 per share of Common Stock (subject to customary anti-dilution adjustments), (iv) 2,469,273 shares of our Common Stock reserved for issuance upon exercise of outstanding stock options or settlement of restricted stock units and (v) 7,341,824 shares reserved for issuance upon conversion of our 4.50% Convertible Senior Notes.

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Our Chairman and Chief Executive Officer controls a large portion of our voting 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, is the managing member of Jacobs Private Equity, LLC (“JPE”), our largest stockholder, and beneficially owns as of February 21, 2014: (i) 67,500 shares of our Series A Convertible Perpetual Preferred Stock held by JPE, which are initially convertible into an aggregate of 9,642,857 shares of our Common Stock, (ii) Warrants held by JPE that are initially exercisable for an aggregate of 9,642,857 shares of our Common Stock at an exercise price of $7.00 per share, (iii) 56,826 shares of our Common Stock that are held directly by Mr. Jacobs and (iv) employee stock options exercisable for 100,000 shares of our Common Stock that have vested or will vest within 60 days. In total, as of February 21, 2014, Mr. Jacobs beneficially owns 19,442,540 shares of our Common Stock, which represents approximately 28.5% of our outstanding Common Stock, assuming conversion and exercise of his Series A Convertible Perpetual Preferred Stock, Warrants and vested stock options and restricted stock units (without reflecting any shares issuable upon conversion of our 4.50% Convertible Senior Notes due October 1, 2017). This significant concentration of beneficial 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 Series A 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 Series A Preferred Stock. In addition, pursuant to the Investment Agreement, dated as of June 13, 2011 (the “Investment Agreement”), by and among JPE, the other investors party thereto and us, 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. Under the terms of the Investment Agreement, Mr. Jacobs currently beneficially owns approximately 25.0% of the voting power of our capital stock on a fully-diluted basis, including his ownership of Series A Convertible Perpetual Preferred Stock and Warrants. Further, as of February 21, 2014, Mr. Jacobs’ beneficial ownership of our Common Stock and Series A Convertible Perpetual Preferred Stock entitled him to cast approximately 16.4% of the votes eligible to be cast on matters to be presented for consideration at a meeting of our stockholders (such as, for example, the election of directors). 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.

Our Common Stock is subordinate to our existing and future indebtedness and Series A Preferred Stock.

Shares of the Common Stock are equity interests in XPO and do not constitute indebtedness. As such, shares of our Common Stock rank junior to all indebtedness and other non-equity claims on XPO with respect to assets available to satisfy claims on XPO, including in a liquidation of XPO. Additionally, we have outstanding shares of Series A Preferred Stock with a liquidation preference of $73.4 million and an annual cash dividend of 4% of such liquidation preference. Holders of our Common Stock are subject to the prior dividend and liquidation rights of the holders of our Series A Preferred Stock.

We currently do not intend to pay dividends on our common stock.Common Stock.

We have never paid, and have no immediate plans to pay, cash dividends on our common stock.Common Stock. We currently plan to retain future earnings and 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.Common Stock. Accordingly, we do not anticipate paying any cash dividends on our common stockCommon Stock in the near future.

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ITEM 1B.UNRESOLVED STAFF COMMENTS

None

 

ITEM 2.PROPERTIES

OurWe lease our current executive offices at Five Greenwich Office Park, Greenwich, Connecticut, as well as our national operations center in Charlotte, North Carolina. We own the facility at which we conduct a portion of our Expedited Transportation operations in Buchanan, Michigan. As of February 2014, we also lease numerous other facilities relating to our operations under each of our operating segments, generally ranging from 1,000 to approximately 100,000 square feet of space. These facilities are located at 429 Post Road, Buchanan, Michigan 49107. The table below describes the propertiesin all 50 states, District of Columbia and three Canadian provinces: British Columbia, Ontario and Quebec. We believe that we maintain.our facilities are sufficient for our current needs and are in good condition in all material respects.

Company

Location

Purpose

Square FeetOwned or Leased

Express-1 Operations and Recruiting Center

429 Post Road
Buchanan, MI 49107

Express-1

headquarters, call

center & recruiting

23,000Owned

XPO Logistics, Inc.

Nine Greenwich Office Park, Greenwich, CT 06831

Operations and

general office

4,000Leased

Express-1/Metro Detroit

2399 Avon Industrial Drive Rochester Hills, MI 48309

Metro Detroit

Regional expedite

call center

10,500Leased

Concert Group Logistics

1430 Branding Ave. Suite 150, Downers Grove, IL 60515

CGL

headquarters and

general office

7,400Leased

Concert Group Logistics International

5845 Barry Road
Tampa, FL 33634

International

operations station

6,200Leased

Concert Group Logistics International

7855 NW 12th Street Suite 210 Miami, FL 33126

International

operations station

1,300Leased

Concert Group Logistics

1859 Lindberg Street Unit 500 Charlotte, NC 28208Operation station11,000Leased

Bounce Logistics

5838 W. Brick Road
South Bend, IN 46628

Bounce

headquarters and

general office

6,300Leased

XPO Logistics, LLC

Hayden Corporate Center 8283 North Hayden Road Suite 220 Scottsdale, AZ 85258

Brokerage

operations

5,100Leased

 

ITEM 3.LEGAL PROCEEDINGS

We are involved in various claims and legal actions arisinglitigation in the ordinary conductFourth Judicial District Court of Hennepin County, Minnesota relating to our hiring of former employees of C.H. Robinson Worldwide, Inc. (“CHR”). In the litigation, CHR asserts claims for breach of contract, breach of fiduciary duty and duty of loyalty, tortious interference with contractual relationships and prospective contractual relationships, misappropriation of trade secrets, violation of the federal Computer Fraud and Abuse Act, inducing, aiding and abetting breaches and conspiracy. CHR seeks temporary, preliminary and permanent injunctions, as well as direct and consequential damages and attorneys’ fees. CHR has asserted that it may seek punitive damages as well. On January 17, 2013, following a hearing, the Court issued an Order Regarding Motion for Temporary Injunction (the “Order”). The Order (as amended on April 16, 2013) prohibits us from engaging in business with certain CHR customers (the “Restricted Customers”) within a specified radius of Phoenix, AZ, until July 1, 2014. On November 6, 2013, CHR moved to compel compliance with the Order, requesting discovery and expanded enforcement of the Order. On November 18, 2013, we opposed CHR’s motion and cross moved to modify the Order. On February 19, 2014, the Court denied the majority of CHR’s motion, granting only CHR’s request for a report of our business. Weremediation efforts under the Order. At the same time, the Court granted our motion and modified the Order to allow XPO to do business with Restricted Customers in the Phoenix area if: (a) XPO obtained that business as the result of a merger or acquisition; or (b) the business is part of a competitive bidding process with an entity seeking nationwide services. The Court also clarified that the business restrictions in the Order do not believe thatapply to XPO’s servicing of other independent third party logistics entities who might be working for the ultimate benefit of the Restricted Customers.

On February 7, 2013, CHR filed a First Amended Complaint against us and eight individual defendants who are current or former employees of XPO, including our Chief Operating Officer, Senior Vice President—Strategic Accounts and Vice President—Carrier Procurement and Operations. On April 11, 2013, we moved to dismiss the new claims asserted in that First Amended Complaint and moved to stay discovery pending the Court’s resolution of these matters willthe motion to dismiss. On August 29, 2013, the Court granted in part and denied in part the motion to dismiss and denied as moot the motion to stay discovery. On September 23, 2013, we filed our Answer to the First Amended Complaint and asserted counterclaims against CHR for violations of the Minnesota Antitrust, Unlawful Trade Practices, and Deceptive Trade Practices Act, as well as tortious interference with contractual relations and prospective contractual relations. CHR moved to dismiss our counterclaims on November 12, 2013, and we opposed that motion. A hearing on CHR’s motion to dismiss was held on February 10, 2013. The Court has not yet issued a ruling on CHR’s motion to dismiss. We intend to vigorously defend the action in court. The outcome of this litigation is uncertain and could have a material adverse effect on our business and results of operations.

We are a party to a variety of other legal actions, both as a plaintiff and as a defendant that arose in the ordinary course of business, and may in the future become involved in other legal actions. We do not currently expect any of these matters or these matters in the aggregate to have a material adverse effect on our results of

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operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our business,financial condition, results of operations financial condition,or cash flows and prospects.flows.

We carry liability and excess umbrella insurance policies that we deem sufficient to cover potential legal claims arising 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 coverage provided by this insurance, our financial condition, results of operations and cash flows and earnings could be negatively impacted.

 

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

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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’sOur common stock is traded on NYSE Amex 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’sour common stock for the quarters included within 20102012 and 20112013 and through February 20, 2012.21, 2014.

 

  High   Low   High   Low 

2010

    

2012

    

1st quarter

  $6.60    $4.88    $18.34    $11.35  

2nd quarter

   6.24     5.04     19.02     15.25  

3rd quarter

   7.52     4.96     16.50     11.93  

4th quarter

   11.28     7.96     17.38     11.60  

2011

    

2013

    

1st quarter

  $12.12    $8.48    $18.59    $16.60  

2nd quarter

   13.28     8.28     18.25     15.82  

3rd quarter

   17.00     7.67     25.41     17.96  

4th quarter

   12.66     6.98     26.45     19.50  

2012

    

1st quarter (through February 20, 2012)

  $14.90    $11.35  

2014

    

1st quarter (through February 21, 2014)

  $30.31    $23.90  

As of February 20, 2012,21, 2014, there were approximately 7,700382 record holders of our common stock, based upon data available to us from our proxy solicitor, transfer agent and market maker for our common stock.agent. We have never paid, and have no immediate plans to pay, cash dividends on our common stock. We currently plan to retain future earnings and cash flows for use in the development of our business and to enhance stockholder value through growth and continued focus on increasingimproving profitability rather than payfor paying 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 pay cash dividends on our common stock. Accordingly, we do not anticipate paying any cash dividends on our common stock in the near future. Future payment of dividends on our common stock would depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors.

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The graph below compares the cumulative 5-year total return of holders of our common stock with the cumulative total returns of the Russell 2000 Index, and the Dow Jones Transportation Average Index. The graph tracks the performance of a $100 investment in our common stock and in each index from December 31, 2008 to December 31, 2013.

   12/08   12/09   12/10   12/11   12/12   12/13 

XPO Logistics, Inc.

  $100    $111    $223    $268    $378    $572  

Russell 2000

  $100    $125    $157    $148    $170    $233  

Dow Jones Transportation Average

  $100    $116    $144    $142    $150    $209  

Equity Compensation Plan

Certain information with respect to our equity compensation plans is set forth in Item 12 of this Annual Report on Form 10-K.

 

29


ItemITEM 6.SELECTED FINANCIAL DATA

This table includes selected financial data for the last five years. This financial data should be read together with our audited Consolidated Financial Statements and related notes, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other financial data appearing elsewhere in this Annual Report.

XPO Logistics, Inc.

Consolidated Statements of Operations(In thousands)

 

  Fiscal Year Ended   Year Ended December 31, 
  December 31,
2011
 December 31,
2010
   December 31,
2009
   December 31,
2008
   December 31,
2007
   2013 2012 2011 2010   2009 

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  

Revenue

  $702,303   $278,591   $177,076   $157,987    $100,136  

Gross margin

   123,507    40,826    29,778    27,400     16,740  

(Loss) income from continuing operations

   (48,530  (20,339  759    4,888     1,690  

Income from discontinued operations

   —      —       15,000     339,000     358,000     —      —      —      —       15  

Preferred stock beneficial conversion charge and preferred dividends

   (45,336,000  —       —       —       —    

Preferred stock beneficial conversion charge

   —      —      (44,211  —       —    

Cumulative preferred dividends

   (2,972  (2,993  (1,125  —       —    

Net (loss) income available to common stockholders

  $(44,577,000 $4,888,000    $1,705,000    $3,156,000    $2,171,000    $(51,502 $(23,332 $(44,577 $4,888    $1,705  

Earnings Per Share

         

(Loss) Earnings per share

       

Basic

  $(5.41 $0.61    $0.21    $0.40    $0.33    $(2.26 $(1.49 $(5.41 $0.61    $0.21  

Diluted

   (5.41  0.59     0.21     0.40     0.32     (2.26  (1.49  (5.41  0.59     0.21  

Weighted average common shares outstanding

                

Basic

   8,246,577    8,060,346     8,008,805     7,863,439     6,672,596     22,752    15,694    8,247    8,060     8,009  

Diluted

   8,246,577    8,278,995     8,041,862     7,939,291     6,831,682     22,752    15,694    8,247    8,279     8,042  

Consolidated Balance Sheet Data:

                

Working capital

  $83,070,000   $12,314,000    $970,000    $4,428,000    $3,781,000    $72,839   $271,907   $83,070   $12,314    $970  

Total assets

  $127,641,000   $56,672,000    $49,039,000    $41,682,000    $23,724,000    $780,241   $413,208   $127,641   $56,672    $49,039  

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   $—      $—      $—      $—    

Current maturities of long-term debt

  $2,028   $491   $1,675   $1,680    $7,745  

Convertible senior notes

  $106,268   $108,280   $—     $—      $—    

Revolving credit facility and other long-term debt, net of current maturities

  $75,373   $676   $454   $4,832    $213  

Total long-term debt

  $181,641   $108,956   $454   $4,832    $213  

Preferred stock

  $42,737   $42,794   $42,794   $—      $—    

Stockholder’s equity

  $108,360,000   $34,013,000    $28,404,000    $26,527,000    $18,202,000    $455,843   $245,059   $108,360   $34,013    $28,404  

The CompanyWe effected a 4-for-1 reverse stock split on September 2, 2011. All share and per share amounts have been adjusted to reflect the reverse stock split. Results for the fiscal year ended December 31, 2011 reflect the beneficial conversion feature of $44.2 million on the Series A Preferred Stock that was recorded as a deemed distribution during the third quarter of 2011, as described in Item 1 above.

7 below.

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, Item 1A of this Annual Report.

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Executive Summary

XPO Logistics, Inc., a Delaware corporation, (the “Company”, “we”, “our” or “us”),together with its subsidiaries, is a third party logisticsleading non-asset provider of freight transportation logistics services. We act as a middleman between shippers and carriers who outsource their transportation logistics to us as a third-party provider. As of December 31, 2013, we operated at 94 locations: 73 Company-owned branches and 21 agent-owned offices.

We offer our 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-1Buchanan, MichiganAugust 2004

Freight Forwarding

Concert Group LogisticsDowners Grove, IllinoisJanuary 2008

Freight Brokerage

Bounce Logistics and XPO LogisticsSouth Bend, Indiana and Phoenix, ArizonaMarch 2008

Expedited Transportation—Express-1, Inc. (“Express-1”) was founded in 1989 and acquired in 2004. Express-1 provides time-criticalsegments. Our freight brokerage segment places shippers’ freight with qualified carriers, primarily trucking companies. Our 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 completedsegment facilitates urgent shipments via a fleet of exclusive-use vehicles that are ownedindependent over-the-road contractors and operated by independent contract drivers.

Freight Forwarding—Concert Group Logistics, Inc. (“CGL”was founded in 2001 and acquired in 2008. CGL providesair charter carriers. Our freight forwarding servicessegment arranges domestic and international shipments using ground, air and ocean transport through a network of independently owned stationsagent-owned 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. locations.

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 quarterSeptember of 2011, we provided these services solely through our Bounce Logistics, Inc. subsidiary (“Bounce Logistics”). Duringfollowing 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 adeptequity investment in the critical areas of competitive selling, price negotiation, carrier relations and customer service.

GROWTH STRATEGY

Following a significant equity investmentCompany led 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 to leverage our strengths—including management expertise, substantial liquidityoperational scale and potential accesscapital resources—with the goals of significant growth and value creation.

By executing our strategy, we have built leading positions in some of the fastest-growing sectors of transportation logistics. In North America, we are the fourth largest provider of freight brokerage services, which, driven by an outsourcing trend, is growing at two to additional capital—three times the rate of GDP. Our acquisitions of 3PD Holding, Inc. (“3PD”) and Optima Service Solutions, LLC (“Optima”) in pursuit2013 (further described below) made us the largest provider of profitable growth. heavy goods last-mile delivery logistics in North America, a $13 billion sector which, driven by outsourcing by big-box retailers and e-commerce, is growing at five to six times the rate of GDP. In part due to our acquisition of National Logistics Management (“NLM”) in December of 2013 (further described below), we now manage more expedited shipments than any other company in North America and have established a foothold in managed transportation. Expediting is growing due to a trend toward just-in-time inventories in manufacturing. Upon completion of the acquisition of Pacer International, Inc. (further described below), we will be the third largest provider of intermodal services in North America and the largest provider of cross-border Mexico intermodal services, a sector that, driven by the efficiencies of long-haul rail and the growth of near-shoring of manufacturing in Mexico, is growing at three to five times the rate of GDP. We believe our broad service offering gives us a competitive advantage as many customers, particularly large shippers, focus their relationships on fewer, larger third party logistics providers with deep capacity across a wide range of services.

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 followinghas three key areas:main components:

 

  

Targeted acquisitionsOptimization of operations.We intendare continuing to make selective acquisitionsoptimize our existing operations by growing our sales force, implementing advanced information technology, cross-selling our services and leveraging our shared carrier capacity. We have a disciplined framework of non-asset based logistics freight brokerage businesses that would benefit fromprocesses in place for the recruiting, training and mentoring of newly hired employees. Our salespeople market our greater scaleservices to hundreds of thousands of small and potential accessmedium-sized prospective customers. In addition, we have a strategic and national accounts team focused on developing business relationships with the largest shippers in North America. Our network is supported by our national operations center in Charlotte, North Carolina, which we opened in March of 2012, and by our information technology. We have a scalable platform in place across the Company, with sales, service, carrier and track-and-trace capabilities, as well as benchmarking and analysis. Most important to capital, and we may make similar acquisitions of freight forwarding, expedited and intermodal service businesses, among others. We believe thatour growth strategy, we are indeveloping a position to make the first phaseculture of acquisitions by using existing cash and expanding our credit facilities.passionate, world-class service for customers.

 

  

Organic growthAcquisitions. We take a disciplined approach to acquisitions: we look for companies that are highly scalable and are a good strategic fit with our core competency. When we acquire a company, we seek to integrate it with our operations and scale it up by adding salespeople. We integrate the acquired operations with our technology platform, which connects them to our broader organization, and we give them access to our shared carrier pool. We gain more carriers, customers, lane histories and pricing histories with each acquisition, and in some cases an acquisition adds complementary services.

31


We use these resources Company-wide to buy transportation more efficiently and to cross-sell a more complete supply chain solution to customers. Since the beginning of 2012, we have developed an active pipeline of targets. In 2012, we completed the acquisition of four non-asset third party logistics companies. We acquired another six companies in 2013, including 3PD, the largest non-asset, third party provider of heavy goods, last-mile logistics in North America, and NLM, the largest provider of web-based expedited transportation management in North America. On January 5, 2014, we agreed to acquire Pacer International, Inc., a Tennessee corporation (“Pacer”), the third largest provider of intermodal transportation services in North America. 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 officescontinue to generate revenue growth by developing customer and carrier relationships in new territories.acquire quality companies that fit our strategy for growth.

 

  

Optimized operationsCold-starts.We intendbelieve that cold-starts can generate high returns on invested capital because of the relatively low investment required and the large component of variable-based incentive compensation. We are currently ramping up 23 cold-starts: 10 in Freight Brokerage, 12 in Freight Forwarding and one in Expedited Transportation. We seek to optimizelocate our existing operations, acquired companies and greenfieldFreight Brokerage cold-starts in prime areas for sales recruitment. We plan to continue to open cold-start 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.where we see the potential for strong returns.

Recent DevelopmentsPending Acquisition of Pacer International

On January 5, 2014, XPO entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Pacer International, Inc., a Tennessee corporation (“Pacer”), and Acquisition Sub, Inc., a Tennessee corporation and a wholly owned subsidiary of XPO (“Merger Subsidiary”), providing for the acquisition of Pacer by XPO. Pursuant to the terms of Merger Agreement, Merger Subsidiary will be merged with and into Pacer (the “Merger”), with Pacer continuing as the surviving corporation and an indirect wholly owned subsidiary of XPO.

Pursuant to the terms of the Merger Agreement and subject to the conditions thereof, at the effective time of the Merger, each outstanding share of common stock of Pacer, par value $0.01 per share (the “Pacer Common Stock”), other than shares of Pacer Common Stock held by Pacer, XPO, Merger Subsidiary or their respective subsidiaries, will be converted into the right to receive (1) $6.00 in cash and (2) subject to the limitations in the following sentence, a fraction (the “Exchange Ratio”) of a share of XPO common stock, par value $0.001 per share (the “XPO Common Stock”), equal to $3.00 divided by the volume-weighted average price per share of XPO Common Stock for the last 10 trading days prior to the closing date (such average, the “VWAP,” and, such cash and stock consideration together, the “Merger Consideration”). For the purpose of calculating the Exchange Ratio, the VWAP may not be less than $23.12 per share or greater than $32.94 per share. If the VWAP for purposes of the Exchange Ratio calculation is less than or equal to $23.12 per share, then the Exchange Ratio will be fixed at 0.1298 of a share of XPO Common Stock. If the VWAP for purposes of the Exchange Ratio calculation is greater than or equal to $32.94 per share, then the Exchange Ratio will be fixed at 0.0911 of a share of XPO Common Stock.

The completion of the Merger is subject to customary closing conditions, including approval of the Merger by the holders of a majority of the outstanding shares of Pacer Common Stock. XPO’s and Merger Subsidiary’s obligations to consummate the Merger are not subject to any condition related to the availability of financing.

Revolving Loan Credit Agreement

On October 18, 2013, we and certain of our wholly-owned subsidiaries, as borrowers, entered into a $125.0 million multicurrency secured Revolving Loan Credit Agreement (the “Credit Agreement”) with the lender parties thereto and Morgan Stanley Senior Funding, Inc., as administrative agent for such lenders, with a maturity of five years.

32


The proceeds of the Credit Agreement may be used by us for ongoing working capital needs and other general corporate purposes, including strategic acquisitions. Borrowings under the Credit Agreement bear interest at a per annum rate equal to, at our option, the one, two, three or six month (or such other period less than one month or greater than six months as the lenders may agree) LIBOR rate plus a margin of 1.75% to 2.25%, or a base rate plus a margin of 0.75% to 1.25%. We are required to pay an undrawn commitment fee equal to 0.25% or 0.375% of the quarterly average undrawn portion of the commitments under the Credit Agreement, as well as customary letter of credit fees. The margin added to LIBOR, or base rate, will depend on the quarterly average availability of the commitments under the Credit Agreement.

All obligations under the Credit Agreement are secured by substantially all of our assets and are unconditionally guaranteed by certain of our subsidiaries, provided that no foreign subsidiary guarantees, and no assets of any foreign subsidiary secures, any obligations of any of our domestic borrower subsidiaries. The Credit Agreement contains representations, warranties and covenants that are customary for agreements of this type. Among other things, the covenants in the Credit Agreement limit our ability to, with certain exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make certain investments and restricted payments; and enter into certain transactions with affiliates. In certain circumstances, the Credit Agreement also requires us to maintain certain minimum EBITDA or, at our election, maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than 1.00 to 1.00. If an event of default under the Credit Agreement shall occur and be continuing, the commitments thereunder may be terminated and the principal amount outstanding thereunder, together with all accrued unpaid interest and other amounts owed thereunder, may be declared immediately due and payable. Certain subsidiaries acquired by us in the future may be excluded from the restrictions contained in certain of the foregoing covenants. We do not believe that the covenants contained in the Credit Agreement will impair our ability to execute our strategy. At December 31, 2013, we had borrowed $75.0 million under the terms of the Credit Agreement. We were in compliance, in all material respects, with all covenants related to the Credit Agreement as of December 31, 2013.

Common Stock Offerings

On February 5, 2014, we closed a registered underwritten public offering of 15,000,000 shares of common stock, and on February 11, 2014 we closed as part of the same public offering the sale of an additional 2,250,000 shares as a result of the full exercise of the underwriters’ overallotment option, in each case at a price of $25.00 per share (together, the “February 2014 Offering”). We received $413.3 million in net proceeds from the February 2014 Offering after underwriting discounts and expenses.

On August 13, 2013, we closed a registered underwritten public offering of 9,694,027 shares of common stock, and on August 16, 2013 we closed as part of the same public offering the sale of an additional 1,454,104 shares as a result of the full exercise of the underwriters’ overallotment option, in each case at a price of $22.75 per share (together, the “August 2013 Offering”). We received $239.5 million in net proceeds from the August 2013 Offering after underwriting discounts and expenses.

On March 20, 2012, we closed a registered underwritten public offering of 9,200,000 shares of common stock (the “2012 Offering”), including 1,200,000 shares issued and sold as a result of the full exercise of the underwriters’ overallotment option, at a price of $15.75 per share. We received $137.0 million in net proceeds from the 2012 Offering after underwriting discounts and estimated expenses.

Convertible Debt Offering

On September 26, 2012, we completed a registered underwritten public offering of 4.50% Convertible Senior Notes due October 1, 2017 (the “Notes”), in an aggregate principal amount of $125.0 million. On October 17, 2012, the underwriters exercised the overallotment option to purchase $18.8 million additional principal amount of the Notes. We received $138.5 million in net proceeds after underwriting discounts,

33


commissions and expenses were paid. The Notes were allocated to long-term debt and equity in the amounts of $106.8 million and $31.7 million, respectively. These amounts are net of debt issuance costs of $4.1 million for debt and $1.2 million for equity. To date, we have entered into transactions pursuant to which we have issued an aggregate of 1,404,887 shares of our common stock to certain holders of the Notes in connection with the conversion of $23.1 million aggregate principal amount of the Notes. These transactions included induced conversions pursuant to which we paid the holder a market-based premium in cash. The negotiated market-based premiums, in addition to the difference between the current fair value and the book value of the Notes, will be reflected in interest expense. The number of shares of common stock issued in the foregoing transactions equals the number of shares of common stock presently issuable to holders of the Notes upon conversion under the original terms of the Notes.

We are obligated to pay holders of the Notes interest semiannually in arrears on April 1 and October 1 of each year which began on April 1, 2013. The notes will mature on October 1, 2017 unless earlier converted or repurchased. The conversion rate was initially 60.8467 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $16.43 per share of common stock) and is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

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 107 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’sThis discussion and analysis ofalso refers from time to time to our Expedited Transportation business unit.

Within our other two business units, Freight Forwarding and Freight Brokerage fuel chargesinternational operations. These brokered shipments may originate in either the United States or Canada and are largely attributable to our acquisition of Kelron Corporate Services, Inc. and certain related entities (collectively, “Kelron”) in August 2012. These services are provided to both U.S. and Canadian 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.who primarily pay in their home currency.

This discussion and analysis refers from time to time to Expedited Transportation’s international operations. These operations consistinvolve the transportation 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 freightservice is carried forprovided to domestic customers who pay primarily in U.S. dollars. We discuss this freight separately because our Expedited Transportation business unitsegment has developed an expertise in cross-docking freight at the border through the utilization of Canadian and Mexican carriers, and this portion of our business has seen significant growth.carriers.

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.34


XPO Logistics, Inc.

Summary Financial TableConsolidated Statement of Operations

For the Twelve MonthsYear 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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Direct expense

  147,298,000    130,587,000    83,396,000    83.2  82.7  83.3  12.8  56.6
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross margin

  29,778,000    27,400,000    16,740,000    16.8  17.3  16.7  8.7  63.7
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total SG&A expenses

  28,054,000    18,954,000    13,569,000    15.8  12.0  13.6  48.0  39.7
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

  1,724,000    8,446,000    3,171,000    1.0  5.3  3.2  -79.6  166.4
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net Income

 $759,000   $4,888,000   $1,705,000    0.4  3.1  1.7  -84.5  186.7
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
(In thousands)

             Percent of Revenue 
   2013  2012  2011   2013  2012  2011 

Revenue

  $702,303   $278,591   $177,076     100.0  100.0  100.0

Direct expense

        

Transportation services

   567,805    224,035    133,007     80.8  80.4  75.1

Station commissions

   7,168    9,321    11,098     1.0  3.3  6.3

Other direct expense

   3,823    4,409    3,193     0.5  1.6  1.8
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total direct expense

   578,796    237,765    147,298     82.3  85.3  83.2
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Gross margin

   123,507    40,826    29,778     17.7  14.7  16.8
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

SG&A expense

        

Salaries & benefits

   100,633    39,278    16,338     14.3  14.1  9.2

Other SG&A expense

   29,358    11,616    3,937     4.2  4.2  2.2

Purchased services

   25,214    15,388    6,733     3.6  5.5  3.8

Depreciation and amortization

   20,627    2,508    1,046     2.9  0.9  0.6
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total SG&A expense

   175,832    68,790    28,054     25.0  24.7  15.8
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Operating loss

   (52,325  (27,964  1,724     -7.3  -10.0  1.0
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Other expense

   478    363    56     0.1  0.1  0.0

Interest expense

   18,169    3,207    191     2.6  1.2  0.1
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Loss before income tax

   (70,972  (31,534  1,477     -10.0  -11.3  0.9

Income tax benefit

   (22,442  (11,195  718     -3.2  -4.0  0.4
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Net loss

  $(48,530 $(20,339 $759     -6.8  -7.3  0.5
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Consolidated Results

Consolidated ResultsYear Ended December 31, 2013 Compared to Year Ended December 31, 2012

2011 vs. 2010

In total, the Company’sOur consolidated revenuesrevenue for fiscal year 2011 were 12.1% greater than fiscal year 2010.2013 increased 152.1% to $702.3 million from $278.6 million in 2012. This growthincrease was driven primarilylargely by increased international revenues at Express-1the acquisitions of Turbo Logistics, Inc. and continued strongTurbo Dedicated, Inc. (collectively, “Turbo”), 3PD, Covered Logistics, Inc. (“Covered”), Interide Logistics, LC (“Interide”), East Coast Air Charter, NLM, and Optima, as well as the revenue attributable to the growth inof our Freight Brokerage unit.cold-start locations.

Total gross margin dollars for 2013 increased 202.5% to $123.5 million from $40.8 million in 2012. As a percentage of revenue, gross margin was 17.7% in 2013 as compared to 14.7% in 2012. The increase in gross margin as a percentage of revenue is attributable to higher gross margins in Freight Brokerage and Freight Forwarding as described below.

Sales, general and administrative (“SG&A”) expense as a percentage of revenue was 25.0% in 2013, as compared to 24.7% in 2012. SG&A expense increased by $107.0 million in 2013 compared to 2012, due to significant growth initiatives, including six acquisitions, sales force recruitment, costs associated with our new Freight Brokerage offices, and an increase in Corporate SG&A.

Interest expense for 2013 increased 466.5% to $18.2 million from $3.2 million in 2012. The increase in interest expense is primarily attributable to the year over year increase in interest on the convertible senior notes and an undrawn debt commitment fee of $3.0 million related to our acquisition of 3PD.

Our effective income tax rates were (31.6%) and (35.5%) for 2013 and 2012, respectively. Both 2013 and 2012 included the recognition of a tax benefit due to the net operating losses incurred. The difference in the income tax rate for 2013 relates to the recording of tax expense in certain state and foreign jurisdictions, the non-deductible loss on convertible debt, and the change in the provision for uncertain tax positions.

35


The increase in net loss was due primarily to higher SG&A expenses associated with significant growth initiatives, including sales force recruitment, costs associated with our new Freight Brokerage offices, and an increase in Corporate costs. Additionally, the Company incurred higher interest expense and recorded the accelerated amortization of the CGL trade name indefinite-lived intangible assets.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Our consolidated revenue for 2012 increased 57.3% to $278.6 million from $177.1 million in 2011. This increase was driven largely by the increased revenues in Freight Brokerage due to the acquisitions of Turbo, BirdDog Logistics, Inc. (“BirdDog”), Kelron and Continental Freight Services, Inc. (“Continental”), as well as the revenue attributable to our Freight Brokerage cold-start locations opened since December 2011.

Direct expenses represent expensesexpense is primarily attributable to the cost of procuring freight transportation.transportation services for our customers and commissions paid to independent station owners in our freight forwarding business. Our “asset-light”non-asset operating model arrangesprovides transportation capacity through variable cost third-party transportation alternatives, andarrangements, therefore enablesenabling us to control certain of our operating costs as our volumes fluctuate.be flexible to adapt to changes in economic or industry conditions. Our primary means of arranging transportationproviding capacity are through our fleetbase of independent contractorsowner operators in Expedited Transportation and our network of independent ground, ocean and air carriers in Freight Forwarding and Freight Brokerage. We believeview this operating model gives usas a strategic advantage as compareddue to transportation providers who directly own assets,its flexibility, particularly in uncertain economic conditions. Our overall

Total gross margin dollars for fiscal year 20112012 increased 37.1% to $40.8 million from $29.8 million in 2011. As a percentage of revenue, gross margin was 16.8%, a decrease when14.7% in 2012 as compared to 17.3%16.8% in fiscal year 2010.2011. 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 wereis attributable primarily to increased revenues in our Freight Brokerage segment, which typically experiences lower margins than our other operations. Freight Brokerage’s gross margins also have been negatively impacted by our cold-start sales offices, which are still in the start-up phase.

SG&A expense as a percentage of revenue was 24.7% in 2012, as compared to 15.8% for fiscal yearin 2011. SG&A expense increased by $40.7 million in 2012 compared to 2011, due to significant growth initiatives, including four acquisitions, sales force recruitment, costs associated with our new Freight Brokerage offices, and an increase from 12.0% in 2010. Overall,Corporate 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.&A.

Our effective income tax rate forrates in 2012 and 2011 were (35.5%) and 48.6%, respectively. The significant difference between the fiscal year ended December 31, 2011 was 46% as comparedtax rates is due to 40% for the fiscal year ended December 31, 2010 associated with out ofprior period tax charges incurred in 2011.

The Company finished fiscal year 2011 with $759,000reduction in net income which is a 84.5% decrease whenwas due primarily to higher SG&A expenses associated with significant growth initiatives, including sales force recruitment, costs associated with our new Freight Brokerage offices, and an increase in Corporate SG&A.

36


Freight Brokerage

Statement of Operations Data

For the Year Ended December 31,

(In thousands)

       Percent of Revenue 
   2013  2012  2011   2013  2012  2011 

Revenue

  $541,389   $125,121   $29,186     100.0  100.0  100.0

Direct expense

        

Transportation services

   444,719    108,507    24,434     82.1  86.7  83.7

Other direct expense

   575    489    55     0.1  0.4  0.2
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total direct expense

   445,294    108,996    24,489     82.2  87.1  83.9
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Gross margin

   96,095    16,125    4,697     17.8  12.9  16.1
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

SG&A expense

        

Salaries & benefits

   64,873    15,171    2,484     12.0  12.1  8.5

Other SG&A expense

   20,189    3,590    716     3.7  2.9  2.5

Purchased services

   7,563    1,695    148     1.4  1.4  0.5

Depreciation and amortization

   14,892    1,223    44     2.8  1.0  0.2
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total SG&A expense

   107,517    21,679    3,392     19.9  17.4  11.7
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Operating loss

  $(11,422 $(5,554 $1,305     -2.1  -4.5  4.4
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Freight Brokerage

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenue in our Freight Brokerage segment increased by 332.7% to $541.4 million in 2013 compared to $4.9$125.1 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 related2012. Revenue growth was primarily due to the Equity Investment contributedacquisitions of Turbo, 3PD, Covered, Interide and Optima, as well as revenue growth from our Freight Brokerage cold-start sales locations.

Freight Brokerage’s gross margin dollars increased by 495.9% to $96.1 million in 2013 from $16.1 million in 2012. As a percentage of revenue, Freight Brokerage’s gross margin increased to 17.8% in 2013, compared to 12.9% in 2012 due to the reductionacquisitions in net income.

2010 vs. 2009

The actions we tookFreight Brokerage as well as improvements in 2009 to minimizeour existing business. Excluding the negative impactacquisitions 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,3PD and Optima, which typically generate higher gross margin percentage SG&A-to-revenue ratiosthan truckload brokerage, Freight Brokerage gross margin improved due to prior acquisitions and net income. Ourhigher gross margin percentage at our cold starts.

SG&A expense increased by 395.9% to $107.5 million in 2013 from $21.7 million in 2012. As a percentage of revenue, SG&A expense increased to 19.9% in 2013 as compared to 17.4% in 2012. The increase in SG&A expense was due to acquisitions, sales force expansion, technology and SG&A-to-revenue ratios returnedtraining, as well as increased intangible asset amortization relating to more historic levels during 2010the acquisition of 3PD.

Our Freight Brokerage operations generated an operating loss of $11.4 million in 2013 compared to an operating loss of $5.6 million in 2012. The increase in operating loss was attributable to the increase in SG&A expense as the economy improved.we continue to invest in sales and procurement personnel to support our growth initiatives.

Overall consolidated revenuesManagement’s growth strategy for Freight Brokerage is based on:

Selective acquisitions of $158.0non-asset based freight brokerage firms that would benefit from our scale and potential access to capital;

The opening of new freight brokerage sales offices;

Investment in an expanded sales and service workforce;

Technology investments to improve efficiency in sales, freight tracking and carrier procurement; and

The integration of industry best practices, with specific focus on better leveraging our scale and lowering administrative overhead.

37


Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue in our Freight Brokerage segment increased by 328.7% to $125.1 million forin 2012 compared to $29.2 million in fiscal year 2010 represented2011. Revenue growth was primarily due to the acquisitions of Turbo, BirdDog, Kelron and Continental, as well as an increase of 57.8% over fiscalin volumes at our cold-start sales offices during the year 2009. LRG International, acquired in October of 2009, contributed $12.1 million of the revenue growth for 2010, with remaining growth being achieved organically.ended December 31, 2012. Year-over-year headcount increased by 560 sales and procurement personnel within Freight Brokerage.

In 2010, the consolidatedFreight Brokerage’s gross margin dollars increased 243.3% to $16.1 million in 2012 from $4.7 million in 2011. As a percentage improvedof revenue, Freight Brokerage’s gross margin was 12.9% in 2012, compared to 17.3% from 16.7%16.1% in 2009 as the result of significant2011. The decrease in gross 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 throughoutwas due primarily to our cold-start sales offices, which are still in the year as revenuesstart-up phase.

SG&A expense increased more quickly than SG&A costs.

Accordingly, net income improved539.1% to $4.9$21.7 million in 2010, which represented a 187%2012 from $3.4 million in 2011. The increase over netin SG&A expense was associated with the addition of Turbo, Kelron, Continental and BirdDog, as well as investments in sales force recruitment and the opening of new offices.

Our Freight Brokerage operations generated an operating loss of $5.6 million in 2012 compared to operating income of $1.7$1.3 million in full year 2009.

Our Express-1 Dedicated business unit2011. The reduction in operating income was discontinued during the fourth quarter of 2008 dueattributable to the loss ofincrease in SG&A expense and the contractlower gross margin percentage associated 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.cold-start sales offices.

Expedited Transportation

(Express -1)

Summary Financial TableStatement of Operations Data

For the Twelve MonthsYear 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
 

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Direct expense

  69,265,000     59,226,000    39,874,000     79.1  77.3  78.7  17.0  48.5
 

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross margin

  18,293,000     17,418,000    10,768,000     20.9  22.7  21.3  5.0  61.8
 

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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
 

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total SG&A expenses

  10,094,000     9,812,000    7,322,000     11.5  12.8  14.5  2.9  34.0
 

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

 $8,199,000    $7,606,000   $3,446,000     9.4  9.9  6.8  7.8  120.7
 

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
(In thousands)

               Percent of Revenue 
   2013   2012   2011   2013  2012  2011 

Revenue

  $101,817    $94,008    $87,558     100.0  100.0  100.0

Direct expense

          

Transportation services

   81,532     73,376     66,267     80.1  78.1  75.7

Other direct expense

   3,111     3,738     2,998     3.1  4.0  3.4
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total direct expense

   84,643     77,114     69,265     83.2  82.1  79.1
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Gross margin

   17,174     16,894     18,293     16.8  17.9  20.9
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

SG&A expense

          

Salaries & benefits

   7,786     6,613     6,854     7.6  7.0  7.8

Other SG&A expense

   2,047     2,121     1,411     2.0  2.3  1.6

Purchased services

   955     1,015     1,426     0.9  1.1  1.6

Depreciation and amortization

   1,182     320     403     1.2  0.3  0.5
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total SG&A expense

   11,970     10,069     10,094     11.7  10.7  11.5
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Operating income

  $5,204    $6,825    $8,199     5.1  7.2  9.4
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Note: Total depreciation and amortization for the Expedited Transportation operating segment, included in both direct expense and SG&A, was $1.4 million, $0.5 million and $0.6 million, for the years ended December 31, 2013, 2012 and 2011, respectively.

Expedited Transportation

2011 vs. 2010Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

OurRevenue in our Expedited Transportation segment generated fiscal year 2011increased 8.3% to $101.8 million in 2013 from $94.0 million in 2012. This growth was driven by the acquisition of East Coast Air Charter on February 8, 2013 partially offset by a decline in the rest of our over-the-road expedited business.

38


Direct expenses consist primarily of payments to independent owner operators and contract carriers for ground transportation and air charter services, insurance and truck leasing expense. Expedited Transportation gross margin dollars increased 1.7% to $17.2 million in 2013 from $16.9 million in 2012. As a percentage of revenue, of $87.6 million, reflecting growth of 14.2%Expedited Transportation gross margin was 16.8% in 2013, 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 the17.9% in 2012. The decrease in gross margin as a percentage include:

The increaseof revenue primarily reflects a soft expedited freight environment in international transactions, which arethe first half of the year as well as the addition of expedited air charter revenue from the 2013 acquisition of East Coast Air Charter; air charter services typically generate higher gross revenue shipments at abut lower gross margin percentage than our domestic transactions;over-the-road expedited business.

A higher percentage of shipments placed through brokered carriers, associated mainly with the growthSG&A expense increased 18.9% to $12.0 million in international business. All cross-border moves are handled by brokered carriers; and

Expedited Transportation results2013 from $10.1 million 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 own 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 2010.2012. The increase was due primarily to the growthaddition of our international business.

SG&A expenses asEast Coast Air Charter, particularly intangible amortization associated with the acquisition. As a percentage of revenue, decreasedSG&A expense increased to 11.5% for full year 2011 from 12.8% for 2010. This decrease11.7% in SG&A as a percentage of revenues was driven by improved leverage as our 2011 Expedited Transportation revenues increased $10.9 million as2013 compared to 2010, with a 2.9% increase during 2011 of $282,00010.7% in SG&A expenses as compared to 2010.2012.

Operating income increased by 7.8% or $593,000 for fiscal year 2011decreased to $5.2 million in 2013 compared to 2010, driven$6.8 million in 2012. The decrease in operating income was primarily byrelated to the factorsdecrease in gross margin as a percent of revenue, as described above.

Management’s growth strategy for our Expedited Transportation unitsegment is based on:

 

  

Targeted investments to expand the sales and service workforce, in order to capture key opportunities in specialized areas (e.g., cross-border, refrigeration and defense)air charter);

 

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.capital; and

Cross-selling of expedited transportation services to customers of our other business segments.

2010 vs. 2009Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

During 2010,Revenue in our Expedited Transportation generated annualsegment increased 7.4% to $94.0 million in 2012 from $87.6 million in 2011. This growth was driven by an increase in temperature control and international revenue as well as an increase in air charter revenue related to a customer project completed in the first quarter of $76.6 million. 2012.

Expedited Transportation’s 2010Transportation gross margin dollars decreased 7.6% to $16.9 million in 2012 from $18.3 million in 2011. As a percentage of revenue, increased 51% whenExpedited Transportation gross margin was 17.9% in 2012, compared to 2009. For the year ended December 31, 2010, Expedited Transportation’s continued investment20.9% in sales diversification paid off as it expanded its presence into other markets. Also, the results of the Company’s investment2011. The decrease 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 surchargegross margin as a percentage of revenue. For the year ended December 31, 2010, fuel surcharge revenues represented 12.3% of our revenue as comparedprimarily reflects higher rates paid to 9.5%independent fleet owners and owner-operators, effective March 1, 2012, and an increase 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 to runs that are brokered to other carriers. Expedited Transportation’s gross margin percentage increased to 22.7% for the year ended December 31, 2010recruiting initiatives.

SG&A expense remained flat at $10.1 million in 2012 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 the vehicle type utilized and our customer utilization mix.

2011. As a percentage of total revenue, our SG&A costs dropped for the year ended December 31, 2010expense decreased to 12.8% as10.7% in 2012 compared to 14.5% for 2009. Overall, SG&A expenses increased by $2.511.5% in 2011.

Operating income decreased to $6.8 million for full year 2010 asin 2012 compared to 2009. Increased salaries$8.2 million in 2011. The decrease in operating income was primarily related to the decrease in gross margin as a percent of revenue and benefits accounted for $2.0 million of thean 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.as described above.

39


Freight ForwardingBrokerage

(Concert Group Logistics)

Summary Financial TableStatement of Operations Data

For the Twelve MonthsYear Ended December 31,

(In thousands)

               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  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Direct expense

   58,360,000     58,549,000     36,979,000     89.6  89.8  89.8  -0.3  58.3
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross margin

   6,788,000     6,673,000     4,183,000     10.4  10.2  10.2  1.7  59.5
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total SG&A expenses

   5,243,000     4,791,000     3,062,000     8.0  7.3  7.4  9.4  56.5
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

  $1,545,000    $1,882,000    $1,121,000     2.4  2.9  2.7  -17.9  67.9
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

       Percent of Revenue 
   2013  2012  2011   2013  2012  2011 

Revenue

  $541,389   $125,121   $29,186     100.0  100.0  100.0

Direct expense

        

Transportation services

   444,719    108,507    24,434     82.1  86.7  83.7

Other direct expense

   575    489    55     0.1  0.4  0.2
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total direct expense

   445,294    108,996    24,489     82.2  87.1  83.9
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Gross margin

   96,095    16,125    4,697     17.8  12.9  16.1
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

SG&A expense

        

Salaries & benefits

   64,873    15,171    2,484     12.0  12.1  8.5

Other SG&A expense

   20,189    3,590    716     3.7  2.9  2.5

Purchased services

   7,563    1,695    148     1.4  1.4  0.5

Depreciation and amortization

   14,892    1,223    44     2.8  1.0  0.2
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total SG&A expense

   107,517    21,679    3,392     19.9  17.4  11.7
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Operating loss

  $(11,422 $(5,554 $1,305     -2.1  -4.5  4.4
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Freight ForwardingBrokerage

2011 vs. 2010

Our Freight Forwarding unit’s revenues for the fiscal year endedYear Ended December 31, 2011 were $65.12013 Compared to Year Ended December 31, 2012

Revenue in our Freight Brokerage segment increased by 332.7% to $541.4 million whichin 2013 compared to $125.1 million in 2012. Revenue growth was essentially flat with 2010. The gainsprimarily due to the acquisitions of Turbo, 3PD, Covered, Interide and Optima, as well as revenue growth from our Freight Brokerage cold-start sales locations.

Freight Brokerage’s gross margin dollars increased by 495.9% to $96.1 million in the first six months of 2011 were offset2013 from $16.1 million in the last six months of 2011 by certain lost revenue from larger 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.2012. As a percentage of revenue, direct expenses of 89.6% for the full year ended 2011 were flat asFreight Brokerage’s gross margin increased to 17.8% in 2013, compared to 89.8% for 2010. The12.9% in 2012 due to the acquisitions in Freight Brokerage as well as improvements in our existing business. Excluding the acquisitions of 3PD and Optima, which typically generate higher gross margin percentage for full year 2011 of 10.4% was flat as comparedthan truckload brokerage, Freight Brokerage gross margin improved due to 10.2% for 2010.prior acquisitions and higher gross margin percentage at our cold starts.

SG&A expenses asexpense increased by 395.9% to $107.5 million in 2013 from $21.7 million in 2012. As a percentage of revenue, SG&A expense 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 increase19.9% in purchased services and our investments in additional salespeople.

Primarily as a result of the SG&A increase discussed above, Freight Forwarding’s full-year 2011 operating income of $1.5 million decreased 17.9%2013 as compared to 2010.17.4% in 2012. The increase in SG&A expense was due to acquisitions, sales force expansion, technology and training, as well as increased intangible asset amortization relating to the acquisition of 3PD.

AsOur Freight Brokerage operations generated an operating loss of December 31, 2011$11.4 million in 2013 compared to an operating loss of $5.6 million in 2012. The increase in operating loss was attributable to the increase in SG&A expense as we continue to invest in sales and December 31, 2010, the Company maintained a network of 23 independent offices and two Company-owned branches.procurement personnel to support our growth initiatives.

Management’s growth strategy for Freight ForwardingBrokerage is based on:

 

PlansSelective acquisitions of non-asset based freight brokerage firms that would benefit from our scale and potential access to opencapital;

The opening of new officesfreight brokerage sales offices;

Investment in key U.S. markets, which will consistan expanded sales and service workforce;

Technology investments to improve efficiency in sales, freight tracking and carrier procurement; and

The integration of both Company-ownedindustry best practices, with specific focus on better leveraging our scale and independently owned stations;lowering administrative overhead.

37


Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue in our Freight Brokerage segment increased by 328.7% to $125.1 million in 2012 compared to $29.2 million in fiscal year 2011. Revenue growth was primarily due to the acquisitions of Turbo, BirdDog, Kelron and Continental, as well as an increase in volumes at our cold-start sales offices during the year ended December 31, 2012. Year-over-year headcount increased by 560 sales and procurement personnel within Freight Brokerage.

Freight Brokerage’s gross margin dollars increased 243.3% to $16.1 million in 2012 from $4.7 million in 2011. As a percentage of revenue, Freight Brokerage’s gross margin was 12.9% in 2012, compared to 16.1% in 2011. The decrease in gross margin as a percentage of revenue was due primarily to our cold-start sales offices, which are still in the start-up phase.

SG&A expense increased 539.1% to $21.7 million in 2012 from $3.4 million in 2011. The increase in SG&A expense was associated with the addition of Turbo, Kelron, Continental and BirdDog, as well as investments in sales force recruitment and the opening of new offices.

Our Freight Brokerage operations generated an operating loss of $5.6 million in 2012 compared to operating income of $1.3 million in 2011. The reduction in operating income was attributable to the increase in SG&A expense and the lower gross margin percentage associated with our cold-start sales offices.

Expedited Transportation

Statement of Operations Data

For the Year Ended December 31,

(In thousands)

               Percent of Revenue 
   2013   2012   2011   2013  2012  2011 

Revenue

  $101,817    $94,008    $87,558     100.0  100.0  100.0

Direct expense

          

Transportation services

   81,532     73,376     66,267     80.1  78.1  75.7

Other direct expense

   3,111     3,738     2,998     3.1  4.0  3.4
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total direct expense

   84,643     77,114     69,265     83.2  82.1  79.1
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Gross margin

   17,174     16,894     18,293     16.8  17.9  20.9
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

SG&A expense

          

Salaries & benefits

   7,786     6,613     6,854     7.6  7.0  7.8

Other SG&A expense

   2,047     2,121     1,411     2.0  2.3  1.6

Purchased services

   955     1,015     1,426     0.9  1.1  1.6

Depreciation and amortization

   1,182     320     403     1.2  0.3  0.5
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total SG&A expense

   11,970     10,069     10,094     11.7  10.7  11.5
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Operating income

  $5,204    $6,825    $8,199     5.1  7.2  9.4
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Note: Total depreciation and amortization for the Expedited Transportation operating segment, included in both direct expense and SG&A, was $1.4 million, $0.5 million and $0.6 million, for the years ended December 31, 2013, 2012 and 2011, respectively.

Expedited Transportation

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenue in our Expedited Transportation segment increased 8.3% to $101.8 million in 2013 from $94.0 million in 2012. This growth was driven by the acquisition of East Coast Air Charter on February 8, 2013 partially offset by a decline in the rest of our over-the-road expedited business.

38


Direct expenses consist primarily of payments to independent owner operators and contract carriers for ground transportation and air charter services, insurance and truck leasing expense. Expedited Transportation gross margin dollars increased 1.7% to $17.2 million in 2013 from $16.9 million in 2012. As a percentage of revenue, Expedited Transportation gross margin was 16.8% in 2013, compared to 17.9% in 2012. The decrease in gross margin as a percentage of revenue primarily reflects a soft expedited freight environment in the first half of the year as well as the addition of expedited air charter revenue from the 2013 acquisition of East Coast Air Charter; air charter services typically generate higher gross revenue but lower gross margin percentage than our over-the-road expedited business.

SG&A expense increased 18.9% to $12.0 million in 2013 from $10.1 million in 2012. The increase was due to the addition of East Coast Air Charter, particularly intangible amortization associated with the acquisition. As a percentage of revenue, SG&A expense increased to 11.7% in 2013 compared to 10.7% in 2012.

Operating income decreased to $5.2 million in 2013 compared to $6.8 million in 2012. The decrease in operating income was primarily related to the decrease in gross margin as a percent of revenue, as described above.

Management’s growth strategy for our Expedited Transportation segment is based on:

Targeted investments to expand the sales and service workforce, in order to capture key opportunities in specialized areas (e.g., cross-border, refrigeration and air charter);

Increased international growth, with aAn increased focus on Asiacarrier recruitment and Latin America;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 complementary, non-asset based freight forwardingexpedited businesses that would benefit from our scale and potential access to capital.capital; and

Cross-selling of expedited transportation services to customers of our other business segments.

2010 vs. 2009Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Freight Forwarding’s year-end revenueRevenue in 2010 reflected a rebound from 2009. Revenues of $65.2 million compared favorablyour Expedited Transportation segment increased 7.4% to revenues of $41.2$94.0 million in 2009, representing2012 from $87.6 million in 2011. This growth was driven by an increase in temperature control and international revenue as well as an increase in air charter revenue related to a 58.5% increase. The purchasecustomer project completed in the first quarter of certain assets and liabilities of LRG International (CGL International)2012.

Expedited Transportation gross margin dollars decreased 7.6% to $16.9 million in October 2009 contributed to the revenue increases during 2010 and 2009 of $12.12012 from $18.3 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.2011. As a percentage of Freight Forwarding revenue, direct expenses represented 89.8% for the years ended December 31, 2010 and 2009. Management expected direct expensesExpedited Transportation gross margin was 17.9% in 2012, compared to 20.9% in 2011. The 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 expensesgross margin as a percentage of revenue primarily reflects higher rates paid to independent fleet owners and owner-operators, effective March 1, 2012, and an increase in 2010 stayed unchanged ascosts associated with fleet recruiting initiatives.

SG&A expense remained flat at $10.1 million in 2012 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.2011. As a percentage of revenue, SG&A costsexpense decreased to 7.3% for the year ended December 31, 201010.7% in 2012 compared to 7.4% for the year ended December 31, 2009.11.5% in 2011.

For the year ended December 31, 2010, Freight Forwarding generatedOperating income from operations before tax of $1.9decreased to $6.8 million representing an increase of 67.9% asin 2012 compared to full year 2009. Approximately $488,000 or 25.7% of Freight Forwarding’s$8.2 million in 2011. The decrease in operating income was generated at CGL International.

Asprimarily related to the decrease in gross margin as a percent of December 31, 2009, the Company maintained a network of 24 independent stationsrevenue and two Company-owned branches.an increase in SG&A, as described above.

39


Freight Brokerage

(Bounce Logistics and XPO Logistics)

Summary Financial TableStatement of Operations Data

For the Twelve MonthsYear Ended December 31,

(In thousands)

               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
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Direct expense

   24,489,000     16,685,000     8,636,000     83.9  83.5  82.8  46.8  93.2
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross margin

   4,697,000     3,309,000     1,789,000     16.1  16.5  17.2  41.9  85.0
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total SG&A expenses

   3,392,000     2,444,000     1,331,000     11.6  12.2  12.8  38.8  83.6
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

  $1,305,000    $865,000    $458,000     4.5  4.3  4.4  50.9  88.9
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

       Percent of Revenue 
   2013  2012  2011   2013  2012  2011 

Revenue

  $541,389   $125,121   $29,186     100.0  100.0  100.0

Direct expense

        

Transportation services

   444,719    108,507    24,434     82.1  86.7  83.7

Other direct expense

   575    489    55     0.1  0.4  0.2
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total direct expense

   445,294    108,996    24,489     82.2  87.1  83.9
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Gross margin

   96,095    16,125    4,697     17.8  12.9  16.1
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

SG&A expense

        

Salaries & benefits

   64,873    15,171    2,484     12.0  12.1  8.5

Other SG&A expense

   20,189    3,590    716     3.7  2.9  2.5

Purchased services

   7,563    1,695    148     1.4  1.4  0.5

Depreciation and amortization

   14,892    1,223    44     2.8  1.0  0.2
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total SG&A expense

   107,517    21,679    3,392     19.9  17.4  11.7
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Operating loss

  $(11,422 $(5,554 $1,305     -2.1  -4.5  4.4
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Freight Brokerage

2011 vs. 2010Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

OurRevenue in our Freight Brokerage unit continuessegment increased by 332.7% to see significant growth, with revenue for the fiscal year ended December 31, 2011 increasing by 46.0% to $29.2$541.4 million in 2013 compared to revenue of $20.0$125.1 million for the fiscal year ended 2010.in 2012. Revenue growth was largely driven by expansionprimarily due to the acquisitions of theTurbo, 3PD, Covered, Interide and Optima, as well as revenue growth from our Freight Brokerage customer base resulting from a year-over-year headcount increase of 8 salespeople over the year.cold-start sales locations.

For full year 2011, Freight Brokerage’s direct transportation expenses of 83.9% asgross margin dollars increased by 495.9% to $96.1 million in 2013 from $16.1 million in 2012. As a percentage of revenue, were flat asFreight Brokerage’s gross margin increased to 17.8% in 2013, compared to 83.5% for 2010. The additional volume coupled with12.9% in 2012 due to the acquisitions in Freight Brokerage as well as improvements in our existing business. Excluding the acquisitions of 3PD and Optima, which typically generate higher gross margin of 16.1% added an additional $1.4 million ofpercentage than truckload brokerage, Freight Brokerage gross margin for full year 2011 as comparedimproved due to 2010.prior acquisitions and higher gross margin percentage at our cold starts.

SG&A expense increased by 395.9% to $107.5 million in 2013 from $21.7 million in 2012. As a percentage of revenue, SG&A costs decreasedexpense increased 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 201119.9% in 2013 as compared to 2010,17.4% in 2012. The increase in SG&A expense was due primarily to our investments in new salespeopleacquisitions, sales force expansion, technology and sales commissions relatedtraining, as well as increased intangible asset amortization relating to the volume growth.acquisition of 3PD.

Our Freight Brokerage operations generated an operating loss of $11.4 million in 2013 compared to an operating loss of $5.6 million in 2012. The above items resultedincrease in operating income of $1.3 million for full year 2011, anloss was attributable to the increase of 50.9% from $865,000 for 2010.in SG&A expense as we continue to invest in sales and procurement personnel to support our growth initiatives.

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.;sales offices;

 

Investment in an expanded sales and service workforce;

 

Technology upgradesinvestments to improve efficiency in sales, freight tracking and carrier procurement; and

 

The integration of industry best practices, with specific focus on better leveraging our scale and lowering administrative overhead.

37


2010 vs. 2009Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue in our Freight Brokerage saw significantsegment increased by 328.7% to $125.1 million in 2012 compared to $29.2 million in fiscal year 2011. Revenue growth was primarily due to the acquisitions of Turbo, BirdDog, Kelron and Continental, as its revenue forwell as an increase in volumes at our cold-start sales offices during the year ended December 31, 20102012. Year-over-year headcount increased by 91.8%560 sales and procurement personnel within Freight Brokerage.

Freight Brokerage’s gross margin dollars increased 243.3% to $20.0$16.1 million in 2012 from $4.7 million in 2011. As a percentage of revenue, Freight Brokerage’s gross margin was 12.9% in 2012, 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%16.1% in 2011. The decrease in gross margin as a percentage of revenue was due primarily to our cold-start sales offices, which are still in the start-up phase.

SG&A expense increased 539.1% to $21.7 million in 2012 from $3.4 million in 2011. The increase in SG&A expense was associated with the addition of Turbo, Kelron, Continental and BirdDog, as well as investments in sales force recruitment and the opening of new offices.

Our Freight Brokerage operations generated an operating loss of $5.6 million in 2012 compared to operating income of $1.3 million in 2011. The reduction in operating income was attributable to the increase in SG&A expense and the lower gross margin percentage associated with our cold-start sales offices.

Expedited Transportation

Statement of Operations Data

For the Year Ended December 31,

(In thousands)

               Percent of Revenue 
   2013   2012   2011   2013  2012  2011 

Revenue

  $101,817    $94,008    $87,558     100.0  100.0  100.0

Direct expense

          

Transportation services

   81,532     73,376     66,267     80.1  78.1  75.7

Other direct expense

   3,111     3,738     2,998     3.1  4.0  3.4
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total direct expense

   84,643     77,114     69,265     83.2  82.1  79.1
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Gross margin

   17,174     16,894     18,293     16.8  17.9  20.9
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

SG&A expense

          

Salaries & benefits

   7,786     6,613     6,854     7.6  7.0  7.8

Other SG&A expense

   2,047     2,121     1,411     2.0  2.3  1.6

Purchased services

   955     1,015     1,426     0.9  1.1  1.6

Depreciation and amortization

   1,182     320     403     1.2  0.3  0.5
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total SG&A expense

   11,970     10,069     10,094     11.7  10.7  11.5
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Operating income

  $5,204    $6,825    $8,199     5.1  7.2  9.4
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Note: Total depreciation and amortization for the Expedited Transportation operating segment, included in both direct expense and SG&A, was $1.4 million, $0.5 million and $0.6 million, for the years ended December 31, 2013, 2012 and 2011, respectively.

Expedited Transportation

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenue in our Expedited Transportation segment increased 8.3% to $101.8 million in 2013 from $94.0 million in 2012. This growth was driven by the acquisition of East Coast Air Charter on February 8, 2013 partially offset by a decline in the rest of our over-the-road expedited business.

38


Direct expenses consist primarily of payments to independent owner operators and contract carriers for ground transportation and air charter services, insurance and truck leasing expense. Expedited Transportation gross margin dollars increased 1.7% to $17.2 million in 2013 from $16.9 million in 2012. As a percentage of revenue, Expedited Transportation gross margin was 16.8% in 2013, compared to 17.9% in 2012. The decrease in gross margin as a percentage of revenue primarily reflects a soft expedited freight environment in the first half of the year as well as the addition of expedited air charter revenue from the 2013 acquisition of East Coast Air Charter; air charter services typically generate higher gross revenue but lower gross margin percentage than our over-the-road expedited business.

SG&A expense increased 18.9% to $12.0 million in 2013 from $10.1 million in 2012. The increase was due to the addition of East Coast Air Charter, particularly intangible amortization associated with the acquisition. As a percentage of revenue, SG&A expense increased to 11.7% in 2013 compared to 10.7% in 2012.

Operating income decreased to $5.2 million in 2013 compared to $6.8 million in 2012. The decrease in operating income was primarily related to the decrease in gross margin as a percent of revenue, as described above.

Management’s growth strategy for our Expedited Transportation segment is based on:

Targeted investments to expand the sales and service workforce, in order to capture key opportunities in specialized areas (e.g., cross-border, refrigeration and air charter);

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;

Selective acquisitions of non-asset based expedited businesses that would benefit from our scale and potential access to capital; and

Cross-selling of expedited transportation services to customers of our other business segments.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue in our Expedited Transportation segment increased 7.4% to $94.0 million in 2012 from $87.6 million in 2011. This growth was driven by an increase in temperature control and international revenue as well as an increase in air charter revenue related to a customer project completed in the first quarter of 2012.

Expedited Transportation gross margin dollars decreased 7.6% to $16.9 million in 2012 from $18.3 million in 2011. As a percentage of revenue, Expedited Transportation gross margin was 17.9% in 2012, compared to 20.9% in 2011. The decrease in gross margin as a percentage of revenue primarily reflects higher rates paid to independent fleet owners and owner-operators, effective March 1, 2012, and an increase in costs associated with fleet recruiting initiatives.

SG&A expense remained flat at $10.1 million in 2012 compared to 2011. As a percentage of revenue, SG&A expense decreased to 10.7% in 2012 compared to 11.5% in 2011.

Operating income decreased to $6.8 million in 2012 compared to $8.2 million in 2011. The decrease in operating income was primarily related to the decrease in gross margin as a percent of revenue and an increase in SG&A, as described above.

39


Freight Forwarding

Statement of Operations Data

For the Year Ended December 31,

(In thousands)

              Percent of Revenue 
   2013  2012   2011   2013  2012  2011 

Revenue

  $73,154   $67,692    $65,148     100.0  100.0  100.0

Direct expense

         

Transportation services

   55,611    50,381     47,122     76.0  74.4  72.3

Station commissions

   7,168    9,321     11,098     9.8  13.8  17.0

Other direct expense

   137    182     140     0.2  0.3  0.2
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total direct expense

   62,916    59,884     58,360     86.0  88.5  89.5
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Gross margin

   10,238    7,808     6,788     14.0  11.5  10.5
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

SG&A expense

         

Salaries & benefits

   6,026    4,050     2,897     8.2  6.0  4.4

Other SG&A expense

   1,386    1,479     1,339     1.9  2.2  2.1

Purchased services

   344    597     432     0.5  0.9  0.7

Depreciation and amortization

   3,477    574     575     4.8  0.8  0.9
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total SG&A expense

   11,233    6,700     5,243     15.4  9.9  8.1
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Operating (loss) income

  $(995 $1,108    $1,545     -1.4  1.6  2.4
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Freight Forwarding

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Revenue in our Freight Forwarding segment increased 8.1% to $73.2 million in 2013 from $67.7 million in 2012. The increase was primarily the result of the opening of new freight forwarding locations.

Direct expense consists primarily of payments for purchased transportation and commissions paid to Freight Forwarding’s independently-owned stations. Freight Forwarding’s gross margin dollars increased 31.1% to $10.2 million in 2013 from $7.8 million in 2012. As a percentage of revenue, Freight Forwarding gross margin increased to 14.0% in 2013 as compared to 82.8% for 2009. We believe this cost11.5% in 2012. The increase reflectsin gross margin percentage was primarily driven by branch conversions from independent ownership to company ownership.

SG&A expense increased 67.7% to $11.2 million in 2013 from $6.7 million in 2012. As a tighteningpercentage of truck capacityrevenue, SG&A expense increased to 15.4% in 2013 as compared to 9.9% in 2012. The increase in SG&A expense is mainly due to the marketplace. Thisaccelerated amortization of $3.1 million in indefinite-lived intangible assets related to the CGL trade name based on the reduction in remaining useful life as a result of the name change of the business to XPO Global Logistics during the third quarter of 2013 as well as the investment associated with opening our company-owned branches in Orlando, FL, Montreal, Quebec, and Dallas, TX during the year.

Operating loss was $1.0 million in 2013 compared to income of $1.1 million in 2012. The decrease in marginoperating income was more thanprimarily related to the accelerated amortization of the CGL trade name indefinite-lived intangible assets described above offset by additionalan increase in gross margins driven by conversions of independently-owned stations to company-owned branches. Excluding the accelerated amortization of the CGL trade name, operating income increased reflecting a higher gross margin.

Management’s growth strategy for Freight Forwarding is based on:

Plans to open new offices in key U.S. markets, which will consist of both company-owned branches and independently-owned stations;

Growth of international shipments;

Technology upgrades to improve efficiency in sales and carrier procurement;

Selective acquisitions of complementary, non-asset based freight forwarding businesses; and

Cross-selling of freight forwarding services to customers of our other business that generated an additionalsegments.

40


Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue in our Freight Forwarding segment increased 3.9% to $67.7 million in 2012 from $65.1 million in 2011. The increase was the result of higher revenues at our Company-owned branches.

Freight Forwarding’s gross margin dollars increased 15.0% to $7.8 million in 2012 from $6.8 million in 2011. As a percentage of revenue, Freight Forwarding gross margin increased to 11.5% in 2012 as compared to 10.5% in 2011. The increase is due to the increase in revenues at our Company-owned branches, which yield higher margins than our independently-owned stations as commission expense is not incurred as a direct cost for the Company-owned branches.

SG&A expense increased 27.8% to $6.7 million in 2012 from $5.2 million in 2011. As a percentage of revenue, SG&A expense increased to 9.9% in 2012 as compared to 8.1% in 2011. The increase in SG&A expense is mainly due to the investment associated with opening our Company-owned branches in Chicago, IL, Houston, TX, Los Angeles, CA, Minneapolis, MN, Charlotte, NC, and Atlanta, GA.

As of December 31, 2012, Freight Forwarding had 27 locations, consisting of 19 independently-owned stations and eight Company-owned branches. This compares to 25 locations as of December 31, 2011, consisting of 23 independently-owned stations and two Company-owned branches.

Operating income decreased to $1.1 million in 2012 compared to $1.5 million in gross margin for the year ended December 31, 2010 as compared2011. The reduction in operating income was primarily related 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.expense, as described above.

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 ExpensesExpense

For the Twelve MonthsYear Ended December 31,

(In thousands)

               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
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total SG&A expenses

   9,325,000     1,907,000     1,854,000     5.3  1.2  1.9  389.0  2.9
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

               Percent of Consolidated Revenue 
   2013   2012   2011   2013  2012  2011 

SG&A expense

          

Salaries & benefits

   21,947     13,445     4,103     3.1  4.8  2.3

Other SG&A expense

   5,737     4,425     471     0.8  1.6  0.3

Purchased services

   16,353     12,082     4,727     2.3  4.3  2.7

Depreciation and amortization

   1,075     391     24     0.2  0.1  0.0
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total SG&A expense

  $45,112    $30,343    $9,325     6.4  10.8  5.3
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Corporate

2011 vs. 2010Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Corporate costs for the full year ended December 31, 2011SG&A expense in 2013 increased by $7.4$14.8 million as compared to 2010.2012. As a percentage of consolidated revenue, Corporate costs increased to 5.3% for full year 2011,SG&A expense was 6.4% in 2013, compared with 1.2% for 2010. Approximately $3.710.8% in 2012 due to improved operating leverage as the Company executed its acquisition and organic growth strategies. Salaries and benefits increase was driven by a year-over-year increase in headcount in corporate shared services. Purchased services increased in 2013 due largely to $6.5 million of the full-year 2011 increase related to the Equity Investmentacquisition-related transaction costs. Corporate SG&A for 2013 also included $4.9 million of litigation-related legal costs and executive team appointments described above,$4.7 million of which approximately $1.2 million was recorded in the quarter endednon-cash share based compensation.

41


Year Ended December 31, 2011. For the fourth quarter 2011, Corporate costs were $4.8 million. We expect our Corporate costs in 2012 Compared to run at a slightly higher rate than we experienced in the quarter endedYear Ended December 31, 2011.

2010 vs. 20092011

Corporate costs for the year ended December 31, 2010SG&A expense in 2012 increased by $53,000 as$21.0 million 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.2011. As a percentage of consolidated revenue, Corporate SG&A expense was 10.8% in fiscal year 2012, compared with 5.3% in 2011. The increase was driven by a higher headcount in corporate shared services as well as higher purchased services and other SG&A expense. Included in the salaries and benefits increase is additional stock compensation expense of $3.2 million over prior year. Purchased services in 2012 included $2.9 million of acquisition-related transaction costs, decreased from 1.9%$2.5 million of litigation-related legal costs, and $2.0 million for the year ended December 31, 2009compliance costs. Other operating expense increased primarily due to 1.2% for 2010.

increased travel costs and costs associated with our acquisitions strategy such as due diligence, accounting services and integration cost as well as facility costs that are due to our increase in headcount.

LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources

General

As of December 31, 2011,2013, we had $83.1 million of working capital with associatedof $72.8 million, including cash of $74.0$21.5 million asand restricted cash of $2.1 million, compared to working capital of $12.3$271.9 million, andincluding cash of $561,000$252.3 million, as of December 31, 2010.2012. This represents an increasedecrease of $70.8$199.1 million in working capital during the twelve-month period. The increaseyear was primarilymainly due to cash used for the net proceedsacquisitions of cash received relating to the Equity Investment, which closed on September 2, 2011. We do not have any material commitments that have not been disclosed elsewhere.East Coast Air Charter, Covered, Interide, 3PD, Optima and NLM, operations and capital expenditures.

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. See discussion below under Common Stock Offering and Debt Facilities regarding our recent common stock offering and multicurrency secured revolving loan credit facility, respectively.

We believe that our existing cash balances funds we expect to generate from our operations and funds availableavailability under our current revolving credit facility will be sufficient for the next 12twelve months to finance our existing operations our first phase of acquisitions, establishment of planned new sales offices, development and implementation of the first phase of our information technology system and our other growth initiatives.

Cash Flow

During the year ended December 31, 2011, $6.62013, $66.3 million was generatedused in cash from operations compared to $2.3$24.3 million used for the prior year.2012 and $6.6 million generated for 2011. 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 forof transportation services.services and various SG&A expenses.

Cash generated from revenue equaled $665.3 million for 2013 as compared to $264.8 million for 2012 and $178.7 million for the year ended December 31, 2011 as compared to $151.4 million for 2010 and correlates directly with the revenue increase between the periods. Cash flow increases are related primarily to volume increases between the two years. Cash inflows increased because of a decrease in accounts receivable of $1.6 million. Our average days outstanding in accounts receivable have decreased by nine days between the 12-month periods ended December 31, 20112013, 2012 and December 31, 2010, respectively.2011.

Cash used for payment of transportation services for the year ended December 31, 20112013 equaled $148.3$585.1 million as compared to $128.2$223.0 million for the same period in 2010.2012 and $148.3 million for 2011. The increase in cash outflows between the two yearsperiods also directly correlates to the increase in businessrevenues between the two years. Days outstanding in accounts payableperiods ended December 31, 2013, 2012 and accrued expenses decreased by five days between 2011 and 2010 due in large part to the timing of cash disbursements at year end.2011.

Other operating uses of cash included SG&A items, which equaled $134.4 million, $67.2 million and $23.4 million and $18.2 million for fiscalthe years 2011 and 2010, respectively. Significant expenditures in SG&A include payroll and purchased services. For the year ended December 31, 2013, 2012 and 2011, respectively. Payroll represents the most significant SG&A item. For 2013, cash used for payroll expenses were $15.2equaled $74.9 million as compared to $12.0$31.3 million for the same period in 2010. Included in the $15.22012 and $13.6 million in payroll expenses is $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 offor 2011.

42


Investing activities used approximately $1.2$470.3 million during the year ended December 31, 2011for 2013 compared to oura use of $1.3$64.2 million onand $0.7 million from these activities during the prior year.for 2012 and 2011, respectively. During 2011, cash2013, $458.8 million was used in acquisitions and $11.6 million was used to purchase $754,000 in fixed assets. In addition, an acquisition earn-out payment of $450,000assets while $0.1 million was made to the former owners of LRG International during 2011.provided by other investing activities. During 2010, we2012, $57.2 million was used $811,000for acquisitions and $7.0 million was used to purchase fixed assets and paid $500,000while during 2011 $0.7 million was used to the former owners of LRG International in connection with that acquisition.purchase fixed assets.

Financing activities providedgenerated approximately $68.0$305.8 million for the year ended December 31, 20112013 compared to the use of $882,000 in 2010. Sources$266.8 million and $67.6 million generated for 2012 and 2011, respectively. Our main sources of cash from financing activities during 2013 were the year ended December 31,

$239.5 million of net proceeds from the issuance of stock and the $73.3 million of net proceeds from borrowing on our revolving credit facility while our primary uses of cash were the dividends paid to preferred stockholders of $3.0 million and $4.1 million related to other financing activities. During 2012, our main sources of cash were $138.5 million of net proceeds from the issuance of convertible senior notes and $137.0 million of net proceeds from the issuance of common stock while our primary use of cash was the dividend paid to preferred stockholders of $3.0 million and $5.7 million related to other financing activities. During 2011, includedour main source of cash from financing activities was the $71.6 million of net proceeds from the issuance of the Series A Convertible Perpetual Preferred Stock and warrants while our primary uses of cash for 2011 were $0.4 million of dividends paid to preferred stockholders and $3.7 million of other financing activities.

Common Stock Offering

On February 5, 2014, we closed a registered underwritten public offering of 15,000,000 shares of common stock, and on February 11, 2014 we closed as part of the Warrants and $704,000same public offering the sale of an additional 2,250,000 shares as a result of the full exercise of the underwriters’ overallotment option, in each case at a price of $25.00 per share (together, the “February 2014 Offering”). We received $413.3 million in net proceeds from the exercise of stock options. Uses of cash for financing activities included payments on term debt of $1.6 millionFebruary 2014 Offering after underwriting discounts and net payments on the line of credit of $2.7 million. During 2010, sources of cash for financing activities included $5.0 million of proceeds from term debt related to a new credit agreement signed in March 2010 in addition to $564,000 in proceeds associated with the exercise of stock options during the period. Uses of cash for financing activities included payments on term debt of $2.7 million and net payments on the line of credit of $3.8 million.expenses.

Line of Credit and Term LoanDebt Facilities

On March 31, 2010,October 18, 2013, we renewedand certain of our wholly-owned subsidiaries, as borrowers, entered into a $15.0$125.0 million credit facility that providedmulticurrency secured Credit Agreement with the lender parties thereto and Morgan Stanley Senior Funding, Inc., as administrative agent for such lenders, with a receivables-based revolving linematurity of five years.

The proceeds of the Credit Agreement may be used by us for ongoing working capital needs and other general corporate purposes, including strategic acquisitions. Borrowings under the Credit Agreement bear interest at a per annum rate equal to, at our option, the one, two, three or six month (or such other period less than one month or greater than six months as the lenders may agree) LIBOR rate plus a margin of 1.75% to 2.25%, or a base rate plus a margin of 0.75% to 1.25%. We are required to pay an undrawn commitment fee equal to 0.25% or 0.375% of the quarterly average undrawn portion of the commitments under the Credit Agreement, as well as customary letter of credit fees. The margin added to LIBOR, or base rate, will depend on the quarterly average availability of upthe commitments under the Credit Agreement.

All obligations under the Credit Agreement are secured by substantially all of our assets and are unconditionally guaranteed by certain of our subsidiaries, provided that no foreign subsidiary guarantees, and no assets of any foreign subsidiary secures, any obligations of any of our domestic borrower subsidiaries. The Credit Agreement contains representations, warranties and covenants that are customary for agreements of this type. Among other things, the covenants in the Credit Agreement limit our ability to, $10.0 millionwith certain exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make certain investments and restricted payments; and enter into certain transactions with affiliates. In certain circumstances, the Credit Agreement also requires us to maintain minimum EBITDA or, at our election, maintain a term loanFixed Charge Coverage Ratio (as defined in the Credit Agreement) of $5.0 million. Commencing April 30, 2010,not less than 1.00 to 1.00. If an event of default under the term loan is payable in 36 consecutive monthly installments consisting of $139,000 in monthlyCredit Agreement shall occur and be continuing, the commitments thereunder may be terminated and the principal payments plus theamount outstanding thereunder, together with all accrued unpaid interest accrued onand other amounts owed

43


thereunder, may be declared immediately due and payable. Certain subsidiaries acquired by us in the loan. Interest is payable atfuture may be excluded from the one-month LIBOR plus 225 basis points (2.51%restrictions contained in certain of the foregoing covenants. We do not believe that the covenants contained in the Credit Agreement will impair our ability to execute our strategy. At December 31, 2013, we had $75.0 million drawn under our Revolving Loan Credit Agreement. We were in compliance, in all material respects, with all covenants related to the Revolving Loan Credit Agreement as of December 31, 2011).2013.

On March 31, 2011,September 26, 2012, we amendedcompleted the credit agreement governingregistered underwritten public offering of 4.50% Convertible Senior Notes due October 1, 2017, in an aggregate principal amount of $125.0 million. The Notes were allocated to long-term debt and equity in the amounts of $92.8 million and $27.5 million, respectively. These amounts are net of debt issuance costs of $3.6 million for debt and $1.1 million for equity. On October 17, 2012, as part of the underwritten registered public offering on September 26, 2012 of the 4.50% convertible senior notes due October 1, 2017, the underwriters exercised the overallotment option to purchase $18.8 million additional principal amount of the Notes. We received approximately $18.2 million in net proceeds after underwriting discounts, commissions and expenses were paid. The overallotment option was allocated to long-term debt and equity in the amounts of $14.0 million and $4.2 million, respectively. These amounts are net of debt issuance costs of $0.5 million for debt and $0.1 million for equity. Interest is payable on the notes on April 1 and October 1 of each year, beginning on April 1, 2013.

To date, we have entered into transactions pursuant to which we have issued an aggregate of 1,404,887 shares of our revolving credit facilitycommon stock to certain holders of the Notes in connection with the conversion of $23.1 million aggregate principal amount of the Notes. These transactions included induced conversions pursuant to which we paid the holder a market-based premium in cash. The negotiated market-based premiums, in addition to the difference between the current fair value and the term loan described abovebook value of the Notes, will be reflected in interest expense. The number of shares of common stock issued in the foregoing transactions equals the number of shares of common stock presently issuable to extendholders of the Notes upon conversion under the original terms of the Notes.

Under certain circumstances at the election of the holder, the convertible senior notes may be converted until the close of business on the business day immediately preceding April 1, 2017, into cash, shares of the Company’s common stock, or a combination of cash and shares of common stock, at the Company’s election, at the initial conversion rate of approximately 60.8467 shares of common stock per $1,000 in principal amount, which is equivalent to an initial conversion price of approximately $16.43 per share. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its convertible senior notes in connection with such corporate event in certain circumstances. On or after April 1, 2017, until the close of business on the business day immediately preceding the maturity date, holders may convert their convertible senior notes at any time.

The convertible senior notes may be redeemed by the Company on or after October 1, 2015 if the last reported sale price of the revolving credit facilityCompany’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The Company may redeem the convertible senior notes in whole but not in part, at a redemption price in cash equal to March 31, 2013100% of the principal amount to be redeemed, plus accrued and to eliminateunpaid interest, but excluding, the receivables borrowing base limitation previously applicableredemption date, plus a make-whole premium payment. The “make whole premium” payment or delivery will be made, as the case may be, in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, equal to the revolvingpresent values of the remaining scheduled payments of interest on the convertible senior notes to be redeemed through October 1, 2017 (excluding interest accrued to, but excluding, the redemption date), computed using a discount rate equal to 4.5%. The make-whole premium is paid to holders whether or not they convert the convertible senior notes following the Company’s issuance of a redemption notice.

44


In conjunction with the acquisition of Kelron on August 3, 2012, the Company assumed Kelron’s credit facility. The revolving credit facility continues to provideagreements with Royal Bank of Canada (“RBC”) dated April 21, 2011 and amended May 8, 2012 (the “Agreements”), which provided for a line of credit of up$5.0 million revolving demand facility (the “Revolving Demand Facility”) subject to $10.0 million. We may draw upon this line of credit up to $10.0 million, less amounts outstanding under letters of credit.certain borrowing limits. The proceedsAgreements were terminated on October 18, 2013 in conjunction with the execution of the line of credit are to be used exclusively for working capital purposes.

Substantially all of our assets are pledgedCredit Agreement as collateral 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).discussed above.

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 compliance 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.

Disclosures About Contractual Obligations and Commercial Contingencies

The following table aggregates allreflects our contractual commitments and commercial obligations due by period, that affect our financial condition and liquidity position as of December 31, 2011:2013 (in thousands):

 

   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     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $25,579,000    $6,863,000    $9,123,000    $6,511,000    $3,082,000  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   Payments Due by Period 

Contractual Obligations

  Total   Less than
1 Year
   1 to 3
Years
   3 to 5
Years
   More than
5 Years
 

Capital leases payable

  $196    $48    $110    $38    $—    

Notes payable

   2,205     1,981     224     —       —    

Operating/real estate leases

   43,875     8,988     16,856     10,941     7,089  

Purchase commitments

   2,344     670     1,674     —       —    

Employment contracts

   15,211     6,464     8,747     —       —    

Revolving credit facility

   75,000     —       —       75,000     —    

Convertible senior notes

   156,229     6,019     12,038     138,172     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual cash obligations

  $295,060    $24,169    $39,649    $224,151    $7,089  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Company’s liability for uncertain tax positions of $0.8 million represents a contractual obligation; however, it is not reasonably possible to predict when the liability may be paid thus it has been excluded from the table above. We do not have any material commitments that have not been disclosed elsewhere.

CRITICAL ACCOUNTING POLICIESESTIMATES

The Company prepares itsWe prepare our audited Consolidated 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 audited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. The Company reviews itsWe review our estimates, including but not limited to: accrued revenue, purchased transportation, recoverability of long-lived assets, accrual of acquisition earn-outs, estimated legal accruals, valuation allowances for deferred taxes, reserve 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 has discussed them with the audit committee of our board of directors. However, actual results could differ from these estimates. Note 1 of the2 to our audited Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of our audited Consolidated Financial Statements. For the fiscal year ended December 31, 2011, thereThere were no significant changes to our critical accounting policies.policies in 2013. The following is a brief discussion of our critical accounting policies and estimates.

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Revenue Recognition

The Company recognizesWe recognize revenue at the point in time when delivery is completed, on the freight shipments it handles, with related costs of delivery being accrued as incurred and expensed within the same period in which the associated revenue is recognized. The Company usesWe use the following supporting criteria to determine that revenue has been earned and should be recognized:

 

Persuasive evidence thatof an arrangement exists;

 

Services have been rendered;

 

The sales price is fixed and determinable; and

 

Collectability is reasonably assured.

The Company reportsWe generally report revenue on a gross basis in accordance with ASCthe Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 605, “Reporting Revenue Gross as Principal Versus Net as an Agent and, as such,. We believe presentation on a gross basis is required as:appropriate under ASC Topic 605 in light of the following factors:

 

The Company isWe are the primary obligor and isare responsible for providing the service desired by the customer.

The customer holds the Companyus 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 haswe have complete discretion to select itsour drivers, contractors or other transportation providers (collectively, “service providers”). For Freight Forwarding, the Company enterswe enter into agreements with significant service providers that specify the cost of services, among other things, and has ultimate authority in approvingproviding approval for all service providers that can be used by our Freight Forwarding unit’s independently ownedForwarding’s independently-owned stations. Independently ownedIndependently-owned stations may further negotiate the cost of services with Company-approvedFreight Forwarding-approved service providers for individual customer shipments.

 

Expedited Transportation and Freight Brokerage have complete discretion to establish sales prices. Independently ownedIndependently-owned stations within Freight Forwarding have the discretion to establish sales prices.

 

The Company bearsWe bear credit risk for all receivables. In the case of Freight Forwarding, the independently ownedindependently-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.

RevenueFor a subset of Expedited Transportation, revenue is recognized on a net basis in our Freight Forwarding business includes an estimate ataccordance with ASC Topic 605. The Company does not serve as the end of each reporting period related to certain freight shipments that are in-transit at year-end. Based on historical information, we estimate the number of days it takesprimary obligor, receives a fixed management fee for delivery to be completedits services and recognize revenuedoes not assume credit risk 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.transactions.

Valuations for Accounts Receivable

The Company’sOur allowance for doubtful accounts is calculated based upon the aging of our receivables, our historical experience of uncollectible accounts, and any specific customer collection issues that we have identified. The allowance of $356,000$3.5 million as of December 31, 20112013 increased compared to the allowance of $136,000$0.6 million as of December 31, 2010.2012. We believe that the recorded allowance is sufficient and appropriate based on our customer aging trends, the exposures we have identified and our historical loss experience.

Stock-Based Compensation

We account for share-based compensation based on the equity instrument’s grant date fair value in accordance with ASC Topic 718,“Compensation—Stock Compensation”. The fair value of each share-based payment award is established on the date of grant. For grants of restricted stock units,segments, including those subject

46


to service-based vesting conditions and those subject to service and performance-based vesting conditions, 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’sour stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends.

The weighted-average fair value of each stock option recorded in expense for the year ended December 31, 2013 was estimated on the date of grant using the Black-Scholes option pricing model and is amortized over the requisite service period of the option. We have used one grouping for the assumptions, as our option grants have similar characteristics. The expected term of options granted has been derived based upon our history of actual exercise behavior and represents the period of time that options granted are expected to be outstanding. Historical data based on the population of employees and our historical vesting experience was also used to estimate option exercises and forfeiture rates. Estimated volatility is based upon our 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 expected dividend yield is zero.

Income Taxes

Our annual effective tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available. Our income tax rate is affected by the tax rate on our foreign operations. In addition to local country tax laws and regulations, this rate depends on the extent earnings are indefinitely reinvested outside the United States. Indefinite reinvestment is determined by management’s judgment about and intentions concerning the future operations of the Company. In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. As of December 31, 2013, the Company has not made a provision for U.S. or additional foreign withholding taxes for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration, if any exists. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing all available evidence, including the reversal of the deferred tax liabilities, carrybacks available and historical and projected pre-tax profits generated by our operations. We also considered tax planning strategies that are prudent and can be reasonably implemented in our evaluation. These sources of income rely heavily on estimates. The reversal of deferred tax liabilities prior to expiration of the deferred tax assets was the most significant factor in our determination of the valuation allowance under the “more likely than not” criteria. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.

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 followsname. We follow the provisions of the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”)ASC Topic 350, “Intangibles—Goodwill and Other”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 performsWe perform the annual impairment testing during the third quarter unless events or circumstances indicate impairment of the goodwill may have occurred before that time. We determine fair values for each of the reporting units using an income approach. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for our business. Actual results may

47


differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing public company market data for our industry to estimate the weighted average cost of capital. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations approximated 11.0%. Required rates of return, along with uncertainty inherent in the forecasts of future cash flows, are reflected in the selection of the discount rate. For the yearsperiods 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.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. If current conditions persist longer or deteriorate further than expected, it is reasonably possible that the judgments and estimates described above could change in future periods.

The fair value of purchased intangible assets with indefinite lives, the Express-1 trade name, is estimated and compared to its carrying value. We estimate the fair value of these intangible assets based on an income approach using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates for this category of intellectual property, discount rates and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. The discount rate used in our analysis approximated 11.0%. We recognize an impairment loss when the estimated fair value of the intangible asset is less than the carrying value. For the periods presented, we did not recognize any impairment of intangible assets with indefinite lives as the estimated fair value of our intangible assets with indefinite lives exceeded the book value; however, during the third quarter of 2013, we rebranded our freight forwarding business to XPO Global Logistics from Concert Group Logistics. As a result of this action, we accelerated the amortization of $3.1 million in indefinite-lived intangible assets related to the CGL trade name based on the reduction in remaining useful life. The $3.1 million of accelerated amortization represented the full value of the CGL trade name intangible assets.

IdentifiedIdentifiable Intangible Assets

The Company followsWe follow 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 reviewsWe review 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. Fair value is determined based on the present value of estimated future cash flows of the asset, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for our business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing public company market data for our industry to estimate the weighted average cost of capital. We use discount rates that are commensurate with the risks and uncertainty associated with the recovery of the asset. Required rates of return, along with uncertainty inherent in the forecasts of future cash flows, are reflected in the selection of the discount rate. Determining whether an impairment loss has occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. 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. During 2011, 20102013, 2012 and 20092011, there was no impairment of the identified intangible assets.

The Company’sOur intangible assets subject to amortization consist of trade names,customer relationships, non-compete agreements, customercarrier relationships and other intangibles that are amortized either over the period of economic benefit or on a straight-line basis over the estimated useful lives of the related intangible asset. The estimated useful lives of the respective intangible assets range from four months to 1214 years.

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OFF-BALANCE SHEET ARRANGEMENTSOff-balance Sheet Arrangements

We are not a party to any transactions that would be considered “off-balance sheet arrangements” under Item 303(a)(4) of Regulation S-K.

NEW ACCOUNTING PRONOUNCEMENTS

The Company’s management does not believe that any recent codified pronouncements by the FASB will have a material impact on the Company’s current or future audited Consolidated Financial Statements.

 

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We had $74.0are exposed to market risk related to changes in interest rates and foreign currency exchange rates.

Interest Rate Risk. As of December 31, 2013, we held $21.5 million of cash on December 31, 2011, all of which wasin cash depository and money market funds held in depository accounts at aten financial institution.institutions. The primary market risk associated with these investments is liquidity risk. AWe have exposure to changes in interest rates on our revolving credit facility. The interest rates on our revolving credit facility fluctuate based on LIBOR or a base rate plus an applicable margin. Assuming our $125.0 million revolving credit facility was fully drawn, a hypothetical 100-basis-point change in the interest rate would not have a material effect onincrease our earnings.annual interest expense by $1.3 million. We do not use derivative financial instruments to manage interest rate risk or to speculate on future changes in interest rates. Market risk arising from changes

Foreign Currency Exchange Risk. As a result of our acquisition of the freight brokerage operations of Kelron on August 3, 2012 and the acquisition of 3PD on August 15, 2013, our Canadian-based businesses and results of operations are exposed to movements in the U.S. dollar to Canadian dollar foreign currency exchange rate. A portion of our revenue is denominated in Canadian dollars. If the U.S. dollar strengthens against the Canadian dollar, our revenues reported in U.S. dollars would decline. With regard to operating expense, our primary exposure to foreign currency exchange risk relates to operating expense incurred in Canadian dollars. If the Canadian dollar strengthens, costs reported in U.S. dollars will increase. Movements in the U.S. dollar to Canadian dollar foreign currency exchange rate did not have a material effect on our revenue during 2013. A hypothetical ten percent change in average exchange rates versus the U.S. dollar would not have resulted in a material change to our earnings for 2013.

From time to time, we use foreign currency forward contracts to reduce part of the variability in certain forecasted Canadian dollar denominated cash flows. Generally, these instruments are for maturities of six months or less. We consider several factors when evaluating hedges of our forecasted foreign currency exposures, such as significance of the exposure, offsetting economic exposures and potential costs of hedging. We do not enter into derivative transactions for purposes other than hedging economic exposures. At December 31, 2013, we had no outstanding forward contracts to reduce the variability in our Canadian dollar denominated revenues and operating expenses.

Convertible Debt Outstanding. The fair market value of our outstanding issue of convertible senior notes is not materialsubject to interest rate and market price risk due to the relatively small sizeconvertible feature of the notes and other factors. Generally the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The fair market value of the notes may also increase as the market price of our internationalstock rises and decrease as the market price of our stock falls. Interest rate and market value changes affect the fair market value of the convertible senior notes, and may affect the prices at which we would be able to repurchase such convertible senior notes were we to do so. These changes do not impact our financial position, cash flows or results of operations. For additional information on the fair value of our outstanding convertible senior notes, see Note 2 to our Consolidated Financial Statements.

 

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and supplementary data of the Company required by this Item are included at pages 49-7659-89 of this Annual Report on Form 10-K and are incorporated herein by reference.

 

49


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 evaluation, as required by paragraph (b) of 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 Rules13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2011.2013. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2011.2013.

Management’s Annual Report on Internal Control over Financial Reporting.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 Chief 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 generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

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 material effect on the financial 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 published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’sour internal control over financial reporting as of December 31, 2011.2013. In making this assessment, management used the criteria set forth in the Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management’s assessment, we believe that, as of December 31, 2011,2013, our internal control over financial reporting is effective.

Change in Internal Controls

DuringWe acquired the quarter ended December 31, 2011, there were no changes inassets of East Coast Air Charter, Covered Logistics and Interide Logistics and the capital stock of 3PD, Optima Service Solutions and National Logistics Management (NLM) during 2013. Due to the proximity of certain acquisitions to year-end, we excluded from our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2013, 3PD’s, Optima’s and NLM’s internal control over financial reporting associated with

50


total assets of $554,754,147 and total revenues of $140,001,400 included in the Consolidated Financial Statements of XPO Logistics, Inc. and subsidiaries as of and for the year ended December 31, 2013. For additional information on East Coast Air Charter, Covered Logistics, Interide Logistics, 3PD, Optima Service Solutions and NLM acquisitions, see Note 3 to our audited Consolidated Financial Statements.

KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K, has issued a report on our internal control over financial reporting as of December 31, 2013. Such report is included on page 57 of this Form 10-K.

Changes in Internal Control Over Financial Reporting

Except as described below, there have not been any changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, ourits internal control over financial reporting. On November 13, 2013 and December 28, 2013, the Company completed its acquisitions of Optima and NLM, respectively, and is in the process of integrating the acquired businesses into the Company’s overall internal controls over financial reporting process. For additional information on the acquisitions of Optima and NLM, see Note 3 to Consolidated Financial Statements.

 

ITEM 9B.OTHER INFORMATION

Not applicable.

51


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)10-K) will be set forth in our Proxy Statement relating to the 20122014 Annual Meeting of Stockholders and is incorporated herein by reference.

We have adopted 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 event 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 website.

Section 16(a) Beneficial Ownership Reporting Compliance

No Form 3 was filed in respect of JPE’s entrance into the Voting Agreement disclosed by JPE on Schedule 13D filed on June 13, 2011. JPE had no pecuniary interest in the underlying 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 Proxy Statement relating to the 20122014 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 20122014 Annual Meeting of Stockholders and is incorporated herein by reference.

Equity Compensation Plan

The following table sets forth information, as of December 31, 2011,2013, 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    
  

 

 

   

 

 

 
   Equity Compensation Plan Information 
Plan category  Number of securities
to  be issued upon
exercise of
outstanding options,

warrants and rights
(a)
   Weighted-average
exercise price of
outstanding
options,
warrants  and rights
(b)
   Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in  column
(a))
(c)
 

Equity compensation plans approved by security holders (1)

   1,371,520    $10.91     2,456,692  

Equity compensation plans not approved by security holders (2)

   50,000     14.09     —   
  

 

 

   

 

 

   

 

 

 

Total

   1,421,520    $11.02     2,456,692  
  

 

 

   

 

 

   

 

 

 

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.

(1)These securities include 1,371,520 stock options.
(2)These securities were granted to our Chief Financial Officer in February 2012 outside the security holder-approved plan as an employment inducement grant. These securities include 50,000 stock options.

52


Additionally, the Company has in place an employee stock ownership plan in which 64,39531,234 shares of the Company’s common stock are held on behalf of qualifying employees.

The Company is in the process of terminating and liquidating the employee stock ownership plan, effective as of December 31, 2012.

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 transactions with related persons, which is set forth below) will be set forth in our Proxy Statement relating to the 20122014 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 contemplated 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 collateralized by a mortgage 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 employee’s employment. The note and accrued interest will be paid by the employee in the form of performance bonuses in the future. As of December 31, 2011, the note had an outstanding balance of $143,000, of which approximately $15,000 was classified as a current note receivable based on the expected bonus to be paid to the employee in 2012, and approximately $128,000 was classified as a long-term note receivable.

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 Proxy Statement relating to the 20122014 Annual Meeting of Stockholders and is incorporated herein by reference.

53


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 7790 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 other parties thereto. They are not intended to provide factual information about any of the 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.

54


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on Form 10-Kreport to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Greenwich, CT, on authorized.

February 29, 2012.25, 2014

 

XPO LOGISTICS, INC.
By: 

/s/ BRADLEYBradley S. JACOBS        Jacobs

 Bradley S. Jacobs
 (Chairman of the Board of Directors and Chief Executive Officer)
By: 

/s/ JOHNJohn J. HARDIG        Hardig

 John J. Hardig
 (Chief Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-Kreport has been signed below by the following persons on behalf of the registrant and in the capacities indicated:on the dates indicated.

 

Signature

  

Title

 

Date

/s/ BRADLEYBradley S. JACOBS        Jacobs

Bradley S. Jacobs

  

Chairman of the Board of Directors and Chief Executive Officer

(Principal (Principal Executive Officer)

 February 29, 201225, 2014

/s/ JOHNJohn J. HARDIG        Hardig

John J. Hardig

  

Chief Financial Officer

(Principal (Principal Financial Officer)

 February 29, 201225, 2014

/s/ KENTKent R. RENNER        Renner

Kent R. Renner

  

Senior Vice President—

Chief Accounting Officer

(Principal (Principal Accounting Officer)

 February 29, 201225, 2014

/s/ G. CHRIS ANDERSEN        Chris Andersen

G. Chris Andersen

  

Director

 

February 29, 201225, 2014

/s/ MICHAELMichael G. JESSELSON        Jesselson

Michael G. Jesselson

  

Director

 

February 29, 201225, 2014

/s/ ADRIANAdrian P. KINGSHOTT        Kingshott

Adrian P. Kingshott

  

Director

 

February 29, 201225, 2014

/s/ JAMESJames J. MARTELL        Martell

James J. Martell

  

Director

 

February 29, 201225, 2014

/s/ JASONJason D. PAPASTAVROU        Papastavrou

Jason D. Papastavrou

  

Director

 

February 29, 201225, 2014

/s/ ORENOren G. SHAFFER        Shaffer

Oren G. Shaffer

  

Director

 

February 29, 201225, 2014

55


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

   Page
No.
 

Report of Independent Registered Public Accounting Firm

   5057  

Consolidated Balance Sheets As of December 31, 20112013 and 20102012

   5159  

Consolidated Statements of Operations For the Years Ended December 31, 2011, 20102013, 2012 and 20092011

   5260  

Consolidated Statements of Cash Flows For the Years Ended December 31, 2011, 20102013, 2012 and 20092011

   5361  

Consolidated Statements of Stockholders’ Equity For the Years Ended December  31, 2011, 20102013, 2012 and 20092011

   5462  

Notes to Consolidated Financial Statements

   55-7663  

56


Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

XPO Logistics, Inc.:

We have audited the accompanying consolidated balance sheets of XPO Logistics, Inc. (formerly Express-1 Expedited Solutions, Inc.)and subsidiaries (the Company) as of December 31, 20112013 and 2010,2012, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three yearthree-year period ended December 31, 2011. These2013. We also have audited the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, arefor maintaining effective internal control over financial reporting, and for its assessment of the responsibilityeffectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9a of the Company’s management.December 31, 2013 annual report on Form 10-K. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting 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 auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well asand evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of XPO Logistics, Inc. and subsidiaries as of December 31, 20112013 and 2010,2012, and the results of its operations and its cash flows for each of the years in the three yearthree-year period ended December 31, 20112013, in conformity with U.S. generally accepted accounting principles. Also in our opinion, XPO Logistics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

57


XPO Logistics, Inc. acquired 3PD, Inc. (3PD), Optima Service Solutions, LLC. (Optima) and National Logistics Management (NLM) during 2013, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013, 3PD’s, Optima’s and NLM’s internal control over financial reporting associated with total assets of $554,754,147, and total revenues of $140,001,400, included in the consolidated financial statements of XPO Logistics, Inc. and subsidiaries as of and for the year ended December 31, 2013. Our audit of internal control over financial reporting of XPO Logistics, Inc. also excluded an evaluation of the internal control over financial reporting of 3PD, Optima and NLM.

(signed) KPMG LLP

Chicago, IllinoisIL

February 29, 201225, 2014

58


XPO Logistics, Inc.

Consolidated Balance Sheets

(In thousands, except share data)

   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

   December 31,
2013
  December 31,
2012
 
ASSETS   

Current assets:

   

Cash and cash equivalents

  $21,524   $252,293  

Restricted cash

   2,141    —    

Accounts receivable, net of allowances of $3,539 and $603, respectively

   134,227    61,245  

Prepaid expenses

   3,935    1,555  

Deferred tax asset, current

   3,041    1,406  

Income tax receivable

   1,504    2,569  

Other current assets

   5,800    1,866  
  

 

 

  

 

 

 

Total current assets

   172,172    320,934  
  

 

 

  

 

 

 

Property and equipment, net of $11,803 and $5,323 in accumulated depreciation, respectively

   56,571    13,090  

Goodwill

   363,448    55,947  

Identifiable intangible assets, net of $15,411 and $4,592 in accumulated amortization, respectively

   185,179    22,473  

Deferred tax asset, long-term

   72    —    

Other long-term assets

   2,799    764  
  

 

 

  

 

 

 

Total long-term assets

   608,069    92,274  
  

 

 

  

 

 

 

Total assets

  $780,241   $413,208  
  

 

 

  

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current liabilities:

   

Accounts payable

  $43,111   $22,108  

Accrued salaries and wages

   11,741    3,516  

Accrued expenses, other

   37,769    21,123  

Current maturities of long-term debt

   2,028    491  

Other current liabilities

   4,684    1,789  
  

 

 

  

 

 

 

Total current liabilities

   99,333    49,027  
  

 

 

  

 

 

 

Convertible senior notes

   106,268    108,280  

Revolving credit facility and other long-term debt, net of current maturities

   75,373    676  

Deferred tax liability, long term

   15,200    6,781  

Other long-term liabilities

   28,224    3,385  
  

 

 

  

 

 

 

Total long-term liabilities

   225,065    119,122  
  

 

 

  

 

 

 

Commitments and contingencies

   

Stockholders’ equity:

   

Preferred stock, $.001 par value; 10,000,000 shares; 74,175 shares issued and outstanding

   42,737    42,794  

Common stock, $.001 par value; 150,000,000 shares authorized; 30,583,073 and 18,002,985 shares issued, respectively; and 30,538,073 and 17,957,985 shares outstanding, respectively

   30    18  

Additional paid-in capital

   524,972    262,641  

Treasury stock, at cost, 45,000 shares held

   (107  (107

Accumulated deficit

   (111,789  (60,287
  

 

 

  

 

 

 

Total stockholders’ equity

   455,843    245,059  
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

  $780,241   $413,208  
  

 

 

  

 

 

 

See accompanying notes are an integral part of the Consolidated Financial Statements.to consolidated financial statements.

59


XPO Logistics, Inc.

XPO Logistics, Inc.

Consolidated Statements of Operations

(In thousands)

 

   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  
  

 

 

  

 

 

   

 

 

 

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  
  

 

 

  

 

 

   

 

 

 

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  
  

 

 

  

 

 

   

 

 

 

Income from continuing operations

   759,000    4,888,000     1,690,000  

Income from discontinued operations, net of tax

   —      —       15,000  
  

 

 

  

 

 

   

 

 

 

Net income

   759,000    4,888,000     1,705,000  

Preferred stock beneficial conversion charge and dividends

   (45,336,000  —       —    
  

 

 

  

 

 

   

 

 

 

Net (loss) income available to common shareholders

  $(44,577,000 $4,888,000    $1,705,000  
  

 

 

  

 

 

   

 

 

 

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  
   Year Ended December 31, 
   2013  2012  2011 

Revenue

  $702,303   $278,591   $177,076  

Expenses

    

Direct expense

   578,796    237,765    147,298  
  

 

 

  

 

 

  

 

 

 

Gross margin

   123,507    40,826    29,778  

Sales general and administrative expense

   175,832    68,790    28,054  
  

 

 

  

 

 

  

 

 

 

Operating (loss) income

   (52,325  (27,964  1,724  
  

 

 

  

 

 

  

 

 

 

Other expense

   478    363    56  

Interest expense

   18,169    3,207    191  
  

 

 

  

 

 

  

 

 

 

(Loss) income before income tax provision

   (70,972  (31,534  1,477  

Income tax (benefit) provision

   (22,442  (11,195  718  
  

 

 

  

 

 

  

 

 

 

Net (loss) income

   (48,530  (20,339  759  

Preferred stock beneficial conversion charge

   —      —      (44,211

Cumulative preferred dividends

   (2,972  (2,993  (1,125
  

 

 

  

 

 

  

 

 

 

Net loss available to common shareholders

  $(51,502 $(23,332 $(44,577
  

 

 

  

 

 

  

 

 

 

Basic loss per share

    

Net loss

  $(2.26 $(1.49 $(5.41

Diluted loss per share

    

Net loss

  $(2.26 $(1.49 $(5.41

Weighted average common shares outstanding

    

Basic weighted average common shares outstanding

   22,752    15,694    8,247  

Diluted weighted average common shares outstanding

   22,752    15,694    8,247  

The(Note: All share-related amounts in the financial tables reflect the 4-for-1 reverse stock split that was effected on September 2, 2011.)

See accompanying notes are an integral part of the Consolidated Financial Statements.to consolidated financial statements.

60


XPO Logistics, Inc.

XPO Logistics, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 

   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
  

 

 

  

 

 

  

 

 

 

Cash provided (used) by operating activities

   6,611,000    2,257,000    (99,000
  

 

 

  

 

 

  

 

 

 

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  
  

 

 

  

 

 

  

 

 

 

Cash used by investing activities

   (1,191,000  (1,309,000  (3,474,000
  

 

 

  

 

 

  

 

 

 

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  —      —    
  

 

 

  

 

 

  

 

 

 

Cash provided (used) by financing activities

   68,026,000    (882,000  2,961,000  
  

 

 

  

 

 

  

 

 

 

Net increase (decrease) in cash

   73,446,000    66,000    (612,000

Cash, beginning of period

   561,000    495,000    1,107,000  
  

 

 

  

 

 

  

 

 

 

Cash, end of period

  $74,007,000   $561,000   $495,000  
  

 

 

  

 

 

  

 

 

 

Cash paid during the period for interest

  $110,000   $124,000   $105,000  
  

 

 

  

 

 

  

 

 

 

Cash paid during the period for income taxes

   233,000    3,521,000    396,000  
  

 

 

  

 

 

  

 

 

 

Increase of goodwill due to accrual of acquisition earnout

   —      —      687,000  
  

 

 

  

 

 

  

 

 

 
   Year Ended December 31, 
   2013  2012  2011 

Operating activities

    

Net (loss) income

  $(48,530 $(20,339 $759  

Adjustments to reconcile net (loss) income to net cash from operating activities

    

Provisions for allowance for doubtful accounts

   2,596    916    219  

Depreciation and amortization

   20,795    2,713    1,240  

Stock compensation expense

   4,746    4,398    1,180  

Accretion of debt

   5,973    1,475    —    

Other

   1,307    26    12  

Changes in assets and liabilities, net of effects of acquisitions:

    

Accounts receivable

   (36,975  (13,755  1,627  

Deferred tax expense

   (22,673  (8,260  (327

Income tax receivable

   96    (1,556  239  

Prepaid expense and other current assets

   (3,035  824    425  

Other long-term assets

   18    (276  97  

Accounts payable

   (8,283  (2,585  (191

Accrued expenses and other liabilities

   17,663    12,143    1,331  
  

 

 

  

 

 

  

 

 

 

Cash flows (used) provided by operating activities

   (66,302  (24,276  6,611  
  

 

 

  

 

 

  

 

 

 

Investing activities

    

Acquisition of businesses, net of cash acquired

   (458,794  (57,236  —    

Payment for purchases of property and equipment

   (11,585  (6,981  (754

Other

   125    —      13  
  

 

 

  

 

 

  

 

 

 

Cash flows used by investing activities

   (470,254  (64,217  (741
  

 

 

  

 

 

  

 

 

 

Financing activities

    

Proceeds from issuance of preferred stock, net of issuance costs

   —      —      71,628  

Proceeds from issuance of convertible senior notes, net

   —      138,504    —    

Proceeds from borrowing on revolving debt facility, net of issuance costs

   73,349    —      —    

Proceeds from stock offering, net

   239,496    136,961    —    

Dividends paid to preferred stockholders

   (2,972  (3,000  (375

Other

   (4,086  (5,686  (3,677
  

 

 

  

 

 

  

 

 

 

Cash flows provided by financing activities

   305,787    266,779    67,576  
  

 

 

  

 

 

  

 

 

 

Net (decrease)/increase in cash

   (230,769  178,286    73,446  

Cash and cash equivalents, beginning of period

   252,293    74,007    561  
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents, end of period

  $21,524   $252,293   $74,007  
  

 

 

  

 

 

  

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

  $12,387   $22   $110  

Cash paid for income taxes, net of cash receipts

  $243   $247   $233  

Equity portion of acquisition purchase price

  $10,446   $—     $—    

TheSee accompanying notes are an integral part of the Consolidated Financial Statements.to consolidated financial statements.

61


XPO Logistics, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Years Ended December 31, 2011, 20102013, 2012 and 20092011

(In thousands)

 

             Additional
Paid in
Capital
  Accumulated
Earnings
  Total  Preferred Stock Common Stock Treasury Stock Paid-In
Capital
  Accumulated
Deficit
    
 Preferred Stock Common Stock Treasury Stock  Shares Amount Shares Amount Shares Amount Total 

Balance, December 31, 2010

  —      —      8,172   $8    (45 $(107 $27,233   $6,879   $34,013  
 Shares Amount Shares (a) Amount Shares (a) Amount Additional
Paid in
Capital
  Accumulated
Earnings
  Total  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance, December 31, 2008

    8,053,805   $8,000    (45,000 $(107,000 

Stock compensation expense

  —       —        

Net income

         1,705,000    1,705,000  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance, December 31, 2010

  —      —      8,171,882    8,000    (45,000  (107,000  27,233,000    6,879,000    34,013,000  

Net Income

  —      —      —      —      —      —      —      759   $759  

Issuance of common stock for option exercise

    237,826    —        704,000     704,000    —      —      237    —      —      —      704    —     $704  

Issuance of ESOP shares

    645    —        —       —      —      —      1    —      —      —      —      —     $—    

Issuance of preferred stock and warrants, net of issuance costs

  75,000    42,794,000        28,834,000     71,628,000    75    42,794    —      —      —      —      28,834    —     $71,628  

Deemed distribution for recognition of beneficial conversion feature on preferred stock

        44,211,000    (44,211,000  —      —      —      —      —      —      —      44,211    (44,211 $—    

Dividend paid

  —      —      —      —      —      —      —      (375 $(375

Stock compensation expense

        1,180,000     1,180,000    —      —      —      —      —      —      1,180    —     $1,180  

Excess tax benefit from stock options

        451,000     451,000    —      —      —      —      —      —      451    —     $451  

Dividends paid to preferred stockholders $5 per share

         (375,000  (375,000

Net income

         759,000    759,000  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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    75    42,794    8,410    8    (45  (107  102,613    (36,948  108,360  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net loss

  —      —      —      —      —      —      —      (20,339 $(20,339

Issuance of common stock for exercises, net of withholdings

  (1  —      393    —      —      —      (978  —     $(978

Proceeds from common stock offering, net of issuance costs

  —      —      9,200    10    —      —      136,952    —     $136,962  

Dividend paid

  —      —      —      —      —      —      —      (3,000 $(3,000

Stock compensation expense

  —      —      —      —      —      —      4,398    —     $4,398  

Equity component of convertible debt offering, net of issuance costs and deferred taxes

  —      —      —      —      —      —      19,656    —     $19,656  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance, December 31, 2012

  74    42,794    18,003    18    (45  (107  262,641    (60,287  245,059  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net loss

  —      —      —      —      —      —      —      (48,530 $(48,530

Tax withholdings on restricted shares and other issuances of common stock

  —      —      192    —      —      —      (1,751  —     $(1,751

Conversion of preferred stock to common stock

  —      (57  14    —      —      —      57    —     $—    

Proceeds from common stock offering, net of issuance costs

  —      —      11,148    11    —      —      239,485    —     $239,496  

Issuance of common stock for acquisitions

  —      —      617    1    —      —      10,445    —     $10,446  

Issuance of common stock upon conversion of senior notes, net of tax

  —      —      609    —      —      —      9,373    —     $9,373  

Sale of business interest

  —      —      —      —      —      —      (24  —     $(24

Dividend paid

  —      —      —      —      —      —      —      (2,972 $(2,972

Stock compensation expense

  —      —      —      —      —      —      4,746    —     $4,746  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance, December 31, 2013

  74   $42,737    30,583   $30    (45 $(107 $524,972   $(111,789 $455,843  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

(a)Amounts have been retrospectively adjusted for a 4-for-1 reverse stock split effective September 2, 2011.

TheSee accompanying notes are an integral part of the Consolidated Financial Statements.to consolidated financial statements.

62


XPO Logistics, Inc.

Notes to Consolidated Financial Statements

Years ended December 31, 2011, 20102013, 2012 and 20092011

1. Organization

1.Significant Accounting Policies

Nature of Business

XPO Logistics, Inc.—( (“XPO” or the “Company”)provides premium transportation and logistics services to thousands of customers primarily through itsour three business units:

Expedited TransportationFreight Brokerage—provides time critical expedited transportationservices primarily under the brands XPO Logistics and 3PD to our customers through our wholly owned subsidiary Express-1, Inc. (Express-1). This typically involves dedicating one truckin North America. These services include truckload, less-than truckload, and driver to a load which has a specified timeintermodal brokerage and last-mile delivery requirement. Mostlogistics services for the delivery of theheavy goods. Freight brokerage services provided are completed through a fleet of exclusive usearranged using relationships with subcontracted motor and rail carriers, as well as vehicles that are owned and operated by independent contract drivers. The use

Expedited Transportation—provides services under the brands Express-1, XPO NLM and XPO Air Charter to customers in North America. These services include the management of non-owned resourcestime-critical, urgent shipments, transacted through direct selling and through our web-based technology. Expedited ground services are provided through a fleet of exclusive-use vehicles that are owned and operated by independent contract drivers, referred to provide services minimizes the amount of capital investment requiredas owner operators, and through contracted third-party motor carriers. For shipments requiring air charter, service is often describedarranged using our relationships with the terms “non-asset” or “asset-light.” In January of 2009, certain assets and liabilities of First Class Expediting Services Inc. (FCES) were purchased to complement the operations of Express-1. Express-1 began consolidating the results of FCES as of the purchase date.third-party air carriers.

Freight Forwarding—provides freight forwarding services through a chain of independently owned stations located throughoutunder the United States, along with our two company owned international branches through our wholly owned subsidiarybrand XPO Global Logistics (formerly Concert Group Logistics, Inc. (CGL).Logistics) to North America-based customers with domestic and global interests. These stationsservices are responsible for sellingsold and operating freight forwarding transportation services within their geographic areaarranged under the authority of CGL. In OctoberXPO Global Logistics through a network of 2009, certain assetsCompany-owned and liabilities 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 transportation services to our customers throughoutindependently-owned offices in the United States through our wholly owned subsidiaries Bounce Logistics, Inc. (Bounce) and XPO Logistics, LLC.Canada.

For specific financial information relating to the above subsidiariessegments, refer toNote 17—Operating Segments13—Segment Reporting and Geographic Information.

During 2008, the Company discontinued its Express-1 Dedicated business unit, in anticipation2. Basis of the cessation of these operations in February 2009. All revenuesPresentation 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 inNote 3—Discontinued Operations.Significant Accounting Policies

PrinciplesBasis of ConsolidationPresentation

The accompanying Consolidated Financial Statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminatedprepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in consolidation.accordance with the instructions to Form 10-K. The Company doesbelieves that the disclosures contained herein are adequate to make the information presented not have any variable interest entities whosemisleading.

These Consolidated Financial Statements reflect, in the Company’s opinion, all material adjustments (which include only normal recurring adjustments) necessary to fairly present the Company’s financial position as of December 31, 2013 and 2012, and results are not included inof operations for the years ended December 31, 2013, 2012 and 2011. The preparation of the Consolidated Financial Statements.Statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenue and expense during the reporting period. Estimates have been prepared on the basis of the most current and best available information and actual results could differ materially from those estimates.

Use of Estimates

The Company prepares its Consolidated 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

63


liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenuesrevenue and expensesexpense during the reporting period. The Company reviews its estimates including but not limited to:on a regular basis and makes adjustments based on historical experience and existing and expected future conditions. Estimates are made with respect to, among other matters, accrued revenue, purchased transportation, recoverability of long-lived assets, accrual of acquisition earn-outs, estimated legal accruals, valuation allowances for deferred taxes, reserve 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.accounts. These evaluations are performed and adjustments are made as information is available. Management believes that these estimates, are reasonable andwhich have been discussed with the audit committee;committee of the Company’s board of directors, are reasonable; however, actual results could differ from these estimates.

Concentration of RiskReclassification

Certain reclassifications have been made to the December 31, 2012 consolidated balance sheet and 2012 and 2011 consolidated statements of cash flows in order to conform to the 2013 presentation. These reclassifications had no impact on previously reported results.

Significant Accounting Policies

Revenue Recognition

The Company recognizes revenue at the point in time when delivery is completed, with related costs of delivery being accrued as incurred and expensed within the same period in which the associated revenue is recognized. The Company uses the following supporting criteria to determine that revenue has been earned and should be recognized:

Persuasive evidence of 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 the Financial instruments, that potentially subjectAccounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 605, “Reporting Revenue Gross as Principal Versus Net as an Agent”. The Company believes presentation on a gross basis is appropriate under ASC Topic 605 in light of the following factors:

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 complete discretion to concentrationsselect 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 providing approval for all service providers that can be used by Freight Forwarding’s independently-owned stations. Independently-owned stations may further negotiate the cost of services with Freight Forwarding-approved service providers for individual customer shipments.

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 portion (typically 70-80%) of credit losses. Freight Forwarding retains the risk are cashthat the independent station owners will not meet this obligation.

64


For a subset of Expedited Transportation, revenue is recognized on a net basis in accordance with ASC Topic 605. The Company does not serve as the primary obligor, receives a fixed management fee for its services and cash equivalentsdoes not assume credit risk for these transactions.

The Company’s Freight Forwarding segment collects certain taxes and accounts receivable.duties on behalf of their customers as part of the services offered and arranged for international shipments. The Company’s accounting policy is to present these collections on a gross basis with the revenue recognized of $3.7 million, $2.4 million and $2.0 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Cash and cash equivalents consist primarily of cashCash Equivalents and money market accountsRestricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less and are maintained at financial institutions. At times, these balances may exceed federally insured limits. The Company has not experienced any losses related to these balances. Allas of the non-interest bearingdate of purchase to be cash balances were fully insured at December 31, 2011, due to a temporary federal programequivalents unless the investments are legally or contractually restricted for more than three months. With the acquisition of 3PD in effect from December 31, 2010 through December 31, 2012. UnderAugust 2013, the program, there is no limit to the amount ofCompany acquired restricted cash held as security under 3PD’s captive insurance for 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 again exceed federally insured limits.contracts. At December 31, 2011, $72,344,000 was held in an interest bearing money market account. At December 31, 2010, there were no amounts held in interest bearing accounts.2013, the Company had $2.1 million of restricted cash, which primarily related to 3PD’s captive insurance contracts.

Allowance for Doubtful Accounts

The Company continues to mitigate the concentration of credit risk with respect to trade receivables for any one customer by the expansion of customer base, industry base, and service areas. For the year ended December 31, 2011, a domestic automotive manufacturer accounted for approximately 8% of the Company’s consolidated revenue. During 2011, the Company generated approximately 10% ofrecords its consolidated revenue from the Big Three domestic automotive manufacturers. Additionally, 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 of credit risk extends to major automotive industry suppliers, international automotive manufacturers, and many customers who support and derive revenue from the automotive industry.

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 many customers who support and derive revenue from the automotive industry.

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 accounts receivable, customers’ payment history and customers’ current ability to pay their obligations. The Company writes off accounts receivable against the allowance for doubtful accounts when an account is deemed uncollectible. We do not accrue interestbased upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, credit quality of the Company’s customers, any specific customer collection issues that have been identified, current economic conditions, and other factors that may affect customers’ ability to pay.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets include such items as prepaid rent, software maintenance costs, insurance premiums, other prepaid operating expenses, certain inventories at 3PD, receivables related to certain working capital adjustments from acquisitions, and other miscellaneous receivables.

Income Taxes

Taxes on past due receivables.

Activityincome are provided in accordance with ASC Topic 740, “Income 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. Deferred tax assets and liabilities are determined based on the differences between the book values and the tax basis of particular assets and liabilities, and 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. Management periodically assesses the likelihood that the Company will utilize its existing deferred tax assets and records a valuation allowance for doubtful accountsdeferred tax assets when it is more likely than not that such deferred tax assets will not be realized.

Accounting for uncertainty in income taxes is determined based on ASC Topic 740, which clarifies the years ended December 31, 2011, 2010accounting for uncertainty in income taxes recognized in a company’s financial statements and 2009 were as follows: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. For additional information refer toNote 10—Income Taxes.

 

   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  —    
  

 

 

  

 

 

  

 

 

 

Balance at end of year

  $356,000   $136,000   $225,000  
  

 

 

  

 

 

  

 

 

 

Property and Equipment65

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

3-5

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 CGLInc. trade names.name. The Company follows the provisions of the Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”)ASC Topic 350, “Intangibles—IntangiblesGoodwill and Other”,which requires an annual impairment test for goodwill and intangible assets with indefinite lives. The Company may first choose to perform a qualitative evaluation of the likelihood of goodwill and intangible assets impairment. For the goodwill that was the result of current year acquisitions that are considered to be separate reporting units, the Company chose to perform a qualitative evaluation. 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 usingCompany determined a two-step impairment testquantitative evaluation was necessary, the goodwill at the reporting unit level.was subject to a two-step impairment test. 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 completethe Company completes the second step in order to determine the amount of goodwill impairment loss that we should record.be recorded. In the second step, we determinethe Company determines 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 yearsperiods presented, wethe Company did not recognize any goodwill impairment as the estimated fair value of ourits reporting units with goodwill significantly exceeded the book value of these reporting units. For additional information refer toNote 6—Goodwill.

The fair value of purchased intangible assets with indefinite lives, primarily a trade name, is estimated and compared to their carrying value. The Company estimates the fair value of these intangible assets based on an income approach using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates for this category of intellectual property, discount rates and other variables. The Company bases its fair value estimates on assumptions it believes to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. The Company recognizes an impairment loss when the estimated fair value of the intangible asset is less than the carrying value. The Company performs the annual impairment testing during the third quarter unless events or circumstances indicate impairment of the intangible assets with indefinite lives may have occurred before that time. For the periods presented, the Company did not recognize any impairment of intangible assets with indefinite lives as the estimated fair value of its intangible assets with indefinite lives exceeded the book value of these reporting units; however, during the quarter ended September 30, 2013, the Company rebranded its freight forwarding business to XPO Global Logistics from Concert Group Logistics, Inc. As a result of this action, the Company accelerated the amortization of $3.1 million in indefinite-lived intangible assets related to the CGL trade name based on the reduction in remaining useful life. The $3.1 million of accelerated amortization represented the full value of the CGL trade name intangible assets.

IdentifiedIdentifiable Intangible Assets

The Company follows the provisions of ASC Topic 360, “Property, Plant and Equipment”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 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, theThe 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. During 2011the periods ended December 31, 2013, 2012 and 2010,2011, there was no impairment of the identified intangible assets.

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The Company’s intangible assets subject to amortization consist of trade names,customer relationships, non-compete agreements, customercarrier relationships and other intangibles that are amortized either over the period of economic benefit or on a straight-line basis over the estimated useful lives of the related intangible asset. The estimated useful lives of the respective intangible assets range from four months to 1214 years.

The following table sets forth the Company’s identifiable intangible assets as of December 31, 2013 and 2012 (in thousands):

   December 31,
2013
  December 31,
2012
 

Indefinite Lived Intangibles:

   

Trade name

  $3,346   $6,416  
  

 

 

  

 

 

 

Definite Lived Intangibles:

   

Customer lists and relationships

   168,666    14,281  

Carrier relationships

   12,100    —    

Trade name

   8,041    1,246  

Non-compete agreeements

   6,265    3,050  

Other intangible assets

   2,172    2,072  
  

 

 

  

 

 

 
   197,244    20,649  

Less: acccumulated amortization

   (15,411  (4,592
  

 

 

  

 

 

 

Intangible assets, net

  $181,833   $16,057  
  

 

 

  

 

 

 

Total Identifiable Intangibles

  $185,179   $22,473  
  

 

 

  

 

 

 

Estimated amortization expense for amortizable intangible assets for the next five years is as follows:

   2014   2015   2016   2017   2018 

Estimated amortization expense

  $27,333    $25,452    $21,956    $19,057    $17,206  

Actual amounts of amortization expense may differ from estimated amounts due to changes in foreign currency exchange rates, additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of intangible assets and other events.

Intangible asset amortization expense was $14.1 million, $1.3 million and $0.5 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Property and Equipment

Property and equipment are generally recorded at cost or in the case of internally developed acquired technology at fair value at the date of acquisition. Maintenance and repair expenditures are charged to expense as incurred. When assets are sold, the applicable costs and accumulated depreciation are removed from the accounts, and any gain or loss is included in income. For internal use software, the Company has adopted the provisions of ASC Topic 350, “IntangiblesGoodwill and Other”. Accordingly, certain costs incurred in the planning and evaluation stage of internal use computer software are expensed as incurred. Costs incurred during the application development stage are capitalized and included in property and equipment. Capitalized internal use software also includes the fair value of acquired internally developed technology. Capitalized internal use software totaled $31.7 million and $1.2 million as of December 31, 2013 and 2012, respectively.

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Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:

Classification

Estimated Useful Life

Leasehold improvements

Shorter of term of lease or 15 years

Buildings

39 years

Vehicles

5 years

Office equipment

5 to 7 years

Computer equipment

5 years

Computer software

3 to 5 years

Satellite equipment

3 to 5 years

Warehouse equipment

7 to 10 years

The following table sets forth the Company’s property and equipment as of December 31, 2013 and 2012 (in thousands):

   December 31,
2013
  December 31,
2012
 

Property and Equipment, at cost

   

Leasehold improvements

   7,969    3,971  

Buildings

   1,115    1,115  

Vehicles

   2,723    991  

Office equipment

   6,636    3,265  

Computer equipment

   8,218    4,479  

Computer software

   39,709    3,035  

Satellite equipment

   1,496    1,450  

Warehouse equipment

   508    107  
  

 

 

  

 

 

 
   68,374    18,413  

Less: acccumulated depreciation

   (11,803  (5,323
  

 

 

  

 

 

 

Property and Equipment, net

  $56,571   $13,090  
  

 

 

  

 

 

 

Depreciation of property and equipment was $6.7 million, $1.4 million and $0.7 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Other Long-Term Assets

Other long-term assets consist primarily of balances representing various deposits the long-term portion of the Company’s non-qualified deferred compensation plan and notes receivable from various CGLXPO Global Logistics independent station owners. Also included within this account classification areowners, incentive payments to independent station owners within the CGL network. TheseXPO Global Logistics network, and debt issuance costs related to the Company’s revolving credit facility. The incentive payments are made by CGLXPO Global Logistics to certain station owners as an incentive to join the network. These amountsestablish an independently-owned station and are amortized over the life of each independent station contract and the unamortized portion generally is recoverable in the event of default under the terms of the agreements. The debt issue costs are amortized on a straight-line basis over the term of the Credit Agreement.

Other Long Term Liabilities

Other long-term liabilities consist primarily of the holdback of a portion of the purchase price for resolution of certain indemnifiable matters related to the acquisition of 3PD and deferred rent liabilities. The holdback will be used to fund the cost of litigation, including settlements and judgments, for certain lawsuits pending against 3PD regarding the alleged misclassification of independent contractors, with the remainder to be paid to the former owners following satisfaction of all claims. Upon the final resolution of certain of those lawsuits, designated amounts of the holdback either will be paid to the former owners of 3PD or retained by the Company,

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depending on the nature of the resolution. For additional information, refer to the Litigation subsection ofNote 4—Commitments and Contingencies. The following table outlines the Company’s other long term liabilities as of December 31, 2013 and December 31, 2012 (in thousands):

   As of
December 31,
2013
   As of
December 31,
2012
 

Holdback for resolution of certain indemnifiable matters

  $22,500    $—    

Long term portion of deferred rent liability

   4,387     2,292  

Liability for uncertain tax positions

   916     462  

Acquisition lease liability

   233     280  

Long term portion of vacant rent liability

   143     164  

Other

   45     187  
  

 

 

   

 

 

 

Total Other Long Term Liabilities

  $28,224    $3,385  
  

 

 

   

 

 

 

Foreign Currency Translation

Exchange gains or losses incurred on transactions conducted by business units in a currency other than the business units’ functional currency are normally reflected in direct expense in the consolidated statements of operations. Assets and liabilities of XPO Logistics Canada, which has the U.S. dollar as its functional currency (but which maintains its accounting records in Canadian currency), have their values remeasured into U.S. dollars at period-end exchange rates, except for non-monetary items for which historical rates are used. Exchange gains or losses are not material to the consolidated statements of operations for the periods presented. 3P Delivery Canada (3PD’s Canadian operations), which has the Canadian dollar as its functional currency, has its revenues and expenses translated into U.S. dollars using weighted average exchange rates while assets and liabilities are translated into U.S. dollars using exchange rates at the balance sheet date. The effects of foreign currency translation adjustments are included in stockholders’ equity for 3P Delivery Canada.

Foreign Currency Hedging and Derivative Financial Instruments

The Company enters into derivative contracts to protect against fluctuations in currency exchange rates from time to time. These contracts are for expected future cash flows and not for speculative purposes. The Company reflects changes in fair value of these contracts in the consolidated statements of operations. In accordance with FASB ASC Topic 815 “Derivatives and Hedging”, the Company does not apply hedge accounting to its derivative contracts.

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—

Level 1Quoted 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.

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The following table sets forth the Company’s financial assets and liabilities that were accounted for identical instruments in active markets;at fair value on a recurring basis as of December 31, 2013 and 2012 (in thousands):

 

   Fair Value Measurements as of December 31,
2013
 
   Total   Level 1   Level 2   Level 3 

Assets:

        

Money market funds

  $1,577    $1,577    $—      $—    

Liabilities:

        

Contingent consideration obligations

  $—      $—      $—      $—    
   Fair Value Measurements as of December 31,
2012
 
   Total   Level 1   Level 2   Level 3 

Assets:

        

Money market funds

  $239,443    $239,443    $—      $—    

Liabilities:

        

Contingent consideration obligations

  $392    $—      $—      $392  

Level 2—Quoted pricesSee discussion below for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active;fair value of the convertible senior notes and model-derived valuations in which all significant inputs are observable in active markets; and

Level 3—Valuations basedthe borrowings on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.the revolving credit agreement as of December 31, 2013.

Estimated Fair Value of Financial Instruments

The aggregate net fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain financial instruments approximated their fair values.values as of the years ended December 31, 2013 and 2012. These financial instruments include cash, accounts receivable, notes receivable, accounts payable, accrued expensesexpense, notes payable and short-term borrowings.current maturities of long-term debt. Fair values approximate carrying values for these financial instruments since they are short-term in nature and they are receivable or payable on demand. The fair value of the Company’s long-term debt and CGLFreight Forwarding notes receivable from the owners of the independently-owned stations approximated their respective carrying values based on the interest rates associated 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, whenOn September 26, 2012, the Company makescompleted a registered underwritten public offering of 4.50% Convertible Senior Notes due October 1, 2017 (the “Notes”), in an acquisition oraggregate principal amount of $125.0 million. On October 17, 2012, the underwriters exercised the overallotment option to purchase $18.8 million additional principal amount of the Notes. The Company received $138.5 million in net proceeds after underwriting discounts, commissions and expenses were paid. The Notes were allocated to long-term debt and equity in the amounts of $106.8 million and $31.7 million, respectively. These amounts are net of debt issuance costs of $4.1 million for debt and $1.2 million for equity. On October 10, 2013, the Company entered into an agreement pursuant to which it issued an aggregate of 608,467 shares of its common stock to certain holders of the Notes in connection with goodwillthe conversion of $10.0 million aggregate principal amount of the Notes. The conversion was allocated to long-term debt and trade name impairment testing.

In accordance with FASB ASC Topic 350, “Intangibles—Goodwill and Other”, the Company’s goodwill and indefinite lived intangibles are tested for impairment annually or more frequently if significant events or

changes indicate possible impairment. The Company’s annual impairment analyses were completedequity in the third quarteramounts of fiscal years 2011$7.9 million and 2010, and resulted$3.3 million, respectively. This transaction included an induced conversion pursuant to which we paid the holder a market-based premium in no impairments. Forcash. The negotiated market-based premium, in addition to the years presented, we did not recognize any goodwill impairment asdifference between the estimatedcurrent fair value and the book value of our reporting unit with goodwill significantly exceeded its carrying amount.

As discussed furtherthe Notes, was reflected inNote 11—Acquisitions, the Company completed an acquisition interest expense 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.2013.

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 determine that revenue has been earned and should be recognized:

Persuasive evidence of 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 complete 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 providing approval for all service providers that can be used by Freight Forwarding independently owned stations. Independently owned stations may further negotiate the cost of services with Freight Forwarding approved service providers for individual customer shipments.

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 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 ASC Topic 740, “Income 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. Deferred tax assets and liabilities are determined based on the differences

between the book values, and the tax basis of particular assets and liabilities and 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 2010,2013, the Company accrued approximately $200,000 and $135,000 for certain potential state income taxes.

During 2010had outstanding $133.7 million of 4.50% Convertible Senior Notes due October 1, 2017, which the Internal Revenue Service completed its reviewCompany is obligated to repay at face value unless the holder agrees to a lesser amount or elects to convert all or a portion of such notes into the Company’s common stock. Holders of the Company’s 2006 tax year,convertible senior notes are due interest semiannually in arrears on April 1 and based uponOctober 1 of each year. Payments

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began on April 1, 2013. The conversion rate was initially 60.8467 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $16.43 per share of common stock) and is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The fair value of the review, no assessments or adjustments were required.convertible senior notes was $225.8 million as of December 31, 2013. For additional information refer toNote 5—Debt.

Stock-Based Compensation

The Company accounts for share-based compensation based on the equity instrument’s grant date fair value in accordance with ASC Topic 718,Compensation—Stock Compensation”. The Company has recorded compensation expense related to stock options andfair value of each share-based payment award is established on the date of grant. For grants of restricted stock units, including those subject to service-based vesting conditions and those subject to service and performance or market-based vesting conditions, the fair value is established based on the market price on the date of $1.2 million, $157,000 and $172,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

grant. For grants of options, the Company uses the Black-Scholes option pricing model to estimate the fair value of share-based payment awards. The Company has in place stock-based compensation plans approveddetermination of the fair value of share-based awards is affected by the Company’s stockholders for up to 1,900,000 sharesstock price and a number of its common stock. Through the plan, the Company offers stock optionsassumptions, including expected volatility, expected life, risk-free interest rate and restricted stock units to employees and directors.expected dividends.

Options and restricted stock units generally become fully vested three to five years from the date of grant and expire five to ten years from the grant date. Certain of the restricted stock units also contain performance based vesting criteria. As of December 31, 2011, the Company had no shares available for future equity grants under its existing plans. During the life of the plans 356,000 stock options have been exercised.

The weighted-average fair value of each stock option recorded in expense for the years ended December 31, 2011, 20102013, 2012 and 20092011 was estimated on the date of grant using the Black-Scholes option pricing model and is amortized over the requisite service period of the underlying options.option. The Company has used one grouping for the assumptions, as its option grants have 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 expected 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,
   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, 2011, the Company had approximately $4.0 million of unrecognized compensation cost related to non-vested stock option-based compensation that is anticipated to be recognized over a weighted average period of approximately 4.3 years. Remaining estimated compensation expense related to existing stock-option based plans is $1.2 million, $875,000, $781,000, $652,000 and $395,000 for the years ending December 31, 2012, 2013, 2014, 2015, and 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, 2011 and 2010, the aggregate intrinsic value of options outstanding and exercisable was $12,800,000 and $3,200,000, respectively. During the years ended December 31, 2011, 2010 and 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 $785,000, $159,000 and 199,000 vested, respectively. For additional information regarding our plan refer toNote 10—Stockholders’ Equity.8—Stock-Based Compensation.

Earnings per Share

Earnings per common share are computed in accordance with ASC Topic 260, “Earnings per Share”, which requires companies to present basic earnings per share and diluted earnings per share. Basic earningsFor additional information refer toNote 9—Earnings per Share.

3. Acquisitions

2013 Acquisitions

NLM

On December 11, 2013, the Company entered into a Stock Purchase Agreement with Landstar Supply Chain Solutions, Inc. and Landstar System Holdings, Inc. (the “NLM Stock Purchase Agreement”) to acquire all of the outstanding capital stock of National Logistics Management (“NLM”) (the “NLM Transaction”). NLM is the largest provider of web-based expedited transportation management in North America. The closing of the transaction occurred on December 28, 2013. The fair value of the total consideration paid under the NLM Stock Purchase Agreement was $87.0 million, paid in cash, excluding any working capital adjustments.

The NLM acquisition was accounted for as a purchase business combination in accordance with ASC Topic 805 “Business Combinations”. Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of December 28, 2013 with the remaining unallocated

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purchase price recorded as goodwill. As a result of the acquisition, the Company recorded goodwill of $46.8 million and intangible assets of $26.1 million. In addition, the Company recorded an acquired technology asset of $12.6 million as property, plant and equipment in the consolidated balance sheet. As of December 31, 2013, the purchase price allocation is considered final except for the settlement of any working capital adjustments and the fair value of working capital, intangible assets and other assumed liabilities. The working capital adjustments in connection with this acquisition are being finalized, although the Company does not expect there to be a material change in the purchase price as a result.

Optima Service Solutions

On November 13, 2013, the Company entered into a Membership Interest Purchase Agreement with A-1 Home Services, Inc., Mr. Steve Gordon and Mr. Glenn Lebowitz to acquire all of the outstanding equity interests of Optima Service Solutions, LLC (“Optima”) for $26.6 million in cash consideration and deferred payments, excluding any working capital adjustments. Optima is a non-asset, third-party logistics service provider focusing on arranging in-home complex installation and residential delivery services for major retailers.

The Optima acquisition was accounted for as a purchase business combination in accordance with ASC Topic 805 “Business Combinations”. Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of November 13, 2013 with the remaining unallocated purchase price recorded as goodwill. As a result of the acquisition, the Company recorded goodwill of $13.9 million and intangible assets of $11.3 million. In addition, the Company recorded an acquired technology asset of $0.9 million as property, plant and equipment in the consolidated balance sheet. As of December 31, 2013, the purchase price allocation is considered final except for the settlement of any working capital adjustments and the fair value of intangible assets and assumed liabilities. The working capital adjustments in connection with this acquisition are being finalized, although the Company does not expect there to be a material change in the purchase price as a result.

3PD

On July 12, 2013, the Company entered into a Stock Purchase Agreement with 3PD Holding, Inc., Logistics Holding Company Limited, Mr. Karl Meyer, Karl Frederick Meyer 2008 Irrevocable Trust II, Mr. Randall Meyer, Mr. Daron Pair and Mr. James J. Martell (the “3PD Stock Purchase Agreement”) to acquire all of the outstanding capital stock of 3PD (the “3PD Transaction”). 3PD is a non-asset, third party provider of heavy goods, last-mile logistics in North America. The closing of the transaction occurred on August 15, 2013. The fair value of the total consideration paid under the 3PD Stock Purchase Agreement was approximately $364.3 million, paid in cash, deferred payments (including an escrow), and $7.4 million of restricted shares of the Company’s common stock. The final working capital adjustment in connection with this acquisition has been finalized, and as a result, the cash consideration increased by $1.2 million.

72


The 3PD acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of August 15, 2013, with the remaining unallocated purchase price recorded as goodwill. The following table outlines the Company’s consideration transferred and the identifiable net assets acquired at their estimated fair value as of August 15, 2013 (in thousands).

Consideration

  $364,329  
  

 

 

 

Less: Net Assets Acquired

   21,899  

Intangibles Acquired:

  

Less: Fair value of Trademarks/Tradenames

   5,900  

Less: Fair value of Non-Compete Agreements

   1,550  

Less: Fair value of Customer Relationships

   110,600  

Less: Fair value of Carrier Relationships

   12,100  

Less: Fair value of Acquired Technology

   18,000  

Plus: Net deferred tax liability on fair value adjustments

   (38,040
  

 

 

 

Goodwill

  $232,320  
  

 

 

 

As of December 31, 2013, the purchase price allocation is considered final except for any fair value adjustments for acquired tax assets and liabilities. All goodwill recorded related to the acquisition relates to the Freight Brokerage segment. The carryover of the tax basis in goodwill is deductible for income tax purposes while the step-up in goodwill as a result of the acquisition is non-deductible for income tax purposes.

In connection with the 3PD Transaction, each member of the 3PD senior management team signed an employment agreement with the Company that became effective upon completion of the acquisition. Additionally, in order to incentivize 3PD’s management, the Company granted the 3PD management team time- and performance-based restricted stock unit (“RSU”) awards under the XPO Logistics, Inc. Amended and Restated 2011 Omnibus Incentive Compensation Plan. Pursuant to the RSU award agreements, members of the 3PD management team are eligible to earn up to 600,000 RSUs in the aggregate, of which 150,000 will vest based on the passage of time and 450,000 will vest based on the achievement of certain goals with respect to 3PD’s financial performance during 2016 and 2017 as part of the combined company. The vesting of all such RSUs also are subject to the price of the Company’s common stock exceeding $32.50 per share are computed by dividing net incomefor a designated period of time and continued employment at the Company by the weighted average numbergrantee as of sharesthe vesting date.

The following unaudited pro forma consolidated results 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.

   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  —       —    
  

 

 

  

 

 

   

 

 

 

Net (loss) income available to common shareholders

  $(44,577,000 $4,888,000    $1,705,000  
  

 

 

  

 

 

   

 

 

 

Basic earnings per share

  $(5.41 $0.61    $0.21  
  

 

 

  

 

 

   

 

 

 

Diluted earnings per share

  $(5.41 $0.59    $0.21  
  

 

 

  

 

 

   

 

 

 

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     —       —    
  

 

 

   

 

 

   

 

 

 
   7,445,039     218,649     33,057  
  

 

 

   

 

 

   

 

 

 

The Company has in place an Employee Stock Ownership Plan (“ESOP”). Shares issued to this plan are included in both the basic and diluted weighted average common shares outstanding amounts. Common shares outstanding from the ESOP were 64,395 and 63,750 and 63,750operations for the years ended December 31, 2011, 20102013 and 2009, respectively. For additional2012 present consolidated information refer to Note 14—Employee Benefit Plans.of the Company as if the 3PD acquisition had occurred as of January 1, 2012 (in thousands):

Recently Issued Financial Accounting Standards

   Pro Forma
Year
Ended
December 31,
2013
  Pro Forma
Year
Ended
December 31,
2012
 

Revenue

  $916,760   $743,456  

Operating Loss

  $(54,535) $(49,755)

Net Loss

  $(55,940) $(38,606)

Loss per common share

   

Basic

  $(1.87 $(1.42)

Diluted

  $(1.87 $(1.42)

The Company’s management does not believeunaudited pro forma consolidated results for the twelve-month periods were prepared using the acquisition method of accounting and are based on the historical financial information of 3PD, Turbo (as defined below), Kelron (as defined below) and the Company. The unaudited pro forma consolidated results incorporate historical financial information for all significant acquisitions pursuant to SEC regulations since January 1, 2012.

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The historical financial information has been adjusted to give effect to pro forma adjustments that any recent codified pronouncements byare: (i) directly attributable to the FASB willacquisition, (ii) factually supportable and (iii) expected to have a materialcontinuing impact on the combined results. The unaudited pro forma consolidated results are not necessarily indicative of what the Company’s current or future Consolidated Financial Statements.

2.Subsequent Events

On January 9, 2012, our boardconsolidated results of directors approved the declaration of a dividend payable to holders of our Series A Convertible Perpetual Preferred Stock. The declared dividend equaled $10 per share of preferred stock as specified in the Certificate of Designation of the preferred stock. The total declared dividend equaled $750,000 and was paidoperations actually would have been had it completed these acquisitions on January 17,1, 2012.

Interide Logistics

3.Discontinued Operations

During the fourth quarter of 2008,On May 6, 2013, pursuant to an asset purchase agreement, 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.

Substantiallyacquired substantially all of the assets of Express-1 Dedicated have been redeployed in other operating units of the Company, and therefore, no impairment charges or assets heldInteride Logistics, LC (“Interide”) for sale were recorded on the Company’s financial statements during 2011, 2010 or 2009. Management does not anticipate recording any additional material activity on its discontinued operations in future periods.

The following table reflects the revenue, operating expenses, gross margins, and net income of the Company’s discontinued Express-1 Dedicated business unit for 2011, 2010 and 2009.

   Years Ending December 31, 
   2011   2010   2009 

Operating revenue

  $—      $—      $666,000  

Operating expense

   —       —       532,000  
  

 

 

   

 

 

   

 

 

 

Gross margin

   —       —       134,000  

Selling, general and administrative

   —       —       106,000  
  

 

 

   

 

 

   

 

 

 

Income from discontined operations, before tax provision

   —       —       28,000  

Tax provision

   —       —       13,000  
  

 

 

   

 

 

   

 

 

 

Income from discontined operations, net of tax

  $—      $—      $15,000  
  

 

 

   

 

 

   

 

 

 

4.Property and Equipment

Property and equipment is summarized as follows:

   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  
  

 

 

  

 

 

 
   6,916,000    6,250,000  

Less: accumulated depreciation

   (3,937,000  (3,290,000
  

 

 

  

 

 

 

Total property and equipment, net

  $2,979,000   $2,960,000  
  

 

 

  

 

 

 

Depreciation expense of property and equipment totaled approximately $710,000, $641,000 and $608,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

Within our Consolidated Statements of Operations, depreciation expense is included in both “direct expense” and “selling general and administrative expense”. For 2011, 2010 and 2009 depreciation expense of $193,000, $192,000 and $191,000 was included within “direct expense,” while depreciation expense of $517,000, $449,000 and $417,000 was included within “selling, general and administrative expense”, respectively.

5.Goodwill

The carrying amount of goodwill at both December 31, 2011 and 2010 was $16,959,000.

In October 2009, the Company, through its subsidiary CGL, acquired certain assets of LRG International, Inc., a Florida based international forwarding company (“LRG”). As consideration the former owners of LRG were paid $2,000,000$3.1 million in cash at closing,consideration 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 final earn-out of $450,000 was earned based on 2011 financial criteria being met. The initial fair value liability of the potential earn-out payments were based on the Company’s third-party valuation and was approximately $737,000 as of December 31, 2009. Increases in the liability of approximately $81,000 and $82,000 were recorded as interest expense during 2011 and 2010, respectively. As of December 31, 2011, based on the net present value of the expected cash payments, the earn-out liability was approximately $450,000. The last earn-out payment may be made in cash,36,878 restricted shares of the Company’s common stock orwith a value of $0.6 million, excluding any working capital adjustments, with no assumption of debt. Interide is a non-asset, third-party transportation logistics service provider focusing on freight brokerage with offices in Salt Lake City, UT, Louisville, KY and St. Paul, MN.

The Interide acquisition was accounted for as a purchase business combination in accordance with ASC Topic 805 “Business Combinations”. Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of May 6, 2013 with the remaining unallocated purchase price recorded as goodwill. As a result of the two, atacquisition, the discretionCompany recorded goodwill of $3.2 million and intangible assets of $1.7 million. The working capital adjustments in connection with this acquisition are being finalized, although the Company does not expect there to be a material change in the purchase price as a result.

Covered Logistics & Transportation

On February 26, 2013, pursuant to an asset purchase agreement, the Company acquired substantially all of the Company.assets of Covered Logistics & Transportation LLC (“Covered”) for $8.0 million in cash consideration and 173,712 restricted shares of the Company’s common stock with a value of $3.0 million, excluding any working capital adjustments, with no assumption of debt. Covered is a non-asset, third-party transportation logistics service provider focusing on freight brokerage with offices in Lake Forest, IL and Dallas, TX.

The Covered acquisition was accounted for as a purchase business combination in accordance with ASC Topic 805 “Business Combinations”. Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of February 26, 2013 with the remaining unallocated purchase price recorded as goodwill. As a result of the acquisition, the Company recorded goodwill of $7.2 million and intangible assets of $2.8 million. The working capital adjustments in connection with this acquisition are being finalized, although the Company does not expect there to be a material change in the purchase price as a result.

East Coast Air Charter

On February 8, 2013, pursuant to an asset purchase agreement, the Company purchased substantially all of the operating assets of East Coast Air Charter, Inc. and 9-1-1 Air Charter LLC (together, “ECAC” or “East Coast Air Charter”) for total cash consideration of $9.3 million, excluding any working capital adjustments, with no assumption of debt. ECAC is a non-asset, third party logistics service provider specializing in expedited air charter brokerage in Statesville, NC.

The ECAC acquisition was accounted for as a purchase business combination in accordance with ASC Topic 805 “Business Combinations”. Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of February 8, 2013 with the remaining unallocated purchase price recorded as goodwill. As a result of the acquisition, the Company recorded goodwill of $3.8 million and intangible assets of $4.8 million. The working capital adjustments in connection with this acquisition have been finalized and there was no material change in the purchase price as a result.

74


2012 Acquisitions

Turbo Logistics

On October 24, 2012, pursuant to an asset purchase agreement, the Company purchased substantially all of the assets of Turbo Logistics, Inc. and Turbo Dedicated, Inc. (collectively, “Turbo”) for total cash consideration of $50.1 million, excluding any working capital adjustments, with no assumption of debt. As a result of the final working capital adjustment, the cash consideration was reduced by $0.2 million.

Kelron Logistics

On August 3, 2012, the Company purchased all of the outstanding capital stock of Kelron Corporate Services Inc. and certain related entities (collectively, “Kelron”), a non-asset, third-party logistics business based in Canada. The purchase price was $8.0 million, including $2.6 million of consideration for the outstanding stock and $5.4 million of assumed debt and liabilities. The working capital adjustments in connection with this acquisition have been finalized and there was no material change in the purchase price as a result.

All goodwill recorded related to the acquisition relates to the Freight Brokerage segment and is not deductible for Canadian income tax purposes.

In conjunction with the purchase of CGL in January of 2008,acquisition, the Company recorded goodwill totaling $7,178,000 of which $500,000 represented a noteissued notes payable to the former ownerssellers totaling $1.0 million. The notes do not bear any interest. The notes were treated as consideration transferred as part of CGLthe acquisition and are payable in equal quarterly installments on November 3, February 3, May 3 and August 3 of each year with the final installment to be due and payable on August 3, 2015. The Company used an imputed interest rate of 4.53% to determine the one year anniversaryappropriate discount to apply to the notes. The carrying value of the transaction. In addition tonotes payable at December 31, 2013 was $0.7 million.

Continental Freight Services

On May 8, 2012, the goodwill created at the timeCompany purchased all of the initial transaction,outstanding capital stock of Continental Freight Services, Inc. (“Continental”) and all of the contract provided formembership interests in G & W Tanks, LLC. The cash purchase price was $3.5 million, excluding any working capital adjustments and a potential earn-out of up to $0.3 million. The acquisition of Continental included a contingent consideration arrangement that requires additional consideration to be paid by the Company to theContinental’s former owners of CGL in the event certain performance measures were achieved. Basedbased on the achievementadjusted gross profit of these performance measures and negotiations betweenContinental during the Company andtwelve month period commencing June 1, 2012. Continental’s gross profit during the former owners of CGL, ancontingent consideration measurement period was sufficient to receive the full earn-out of $687,000 was negotiated. The earn-out was comprised of a $600,000 obligation payable to the former owners of CGL in addition to the forgiveness of an $87,000 note receivable due from the former owners of CGL. The $600,000 obligation$0.3 million which was paid in the first

full during August 2013.

4. Commitments and Contingencies

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 an additional $687,000 being added to goodwill for the year ended December 31, 2009. The negotiated earn-out represented payment in full for all future earn-out compensation related to the CGL purchase agreement. For additional information refer toNote 11—Acquisitions.Purchase Commitments

6.Identified Intangible Assets

   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  
  

 

 

   

 

 

   

 

 

 

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  
  

 

 

   

 

 

   

 

 

 
   7.50     1,633,000     2,126,000  
  

 

 

   

 

 

   

 

 

 

Total identifiable intangible assets

    $8,053,000    $8,546,000  
    

 

 

   

 

 

 

The following is a schedule by year of future expected amortization expense related to identifiable intangible assets asAs of December 31, 2011:

2012

  $426,000  

2013

   232,000  

2014

   203,000  

2015

   129,000  

2016

   115,000  

Thereafter

   528,000  
  

 

 

 

Total future expected amortization expense

  $1,633,000  
  

 

 

 

The2013, the Company recorded amortizationhad approximately $2.3 million in future minimum payments required under a non-cancellable contract for services provided in relation to the Company’s customer relationship management platform. Remaining future minimum payments related to this contract amount to approximately $0.7 million, $0.7 million and $0.9 million for the periods ending December 31, 2014, 2015 and 2016, respectively. No expense of approximately $493,000, $649,000 and $580,00 forwas recognized in the years ended December 31, 2011, 20102013, 2012 and 2009, respectively.

7.Long-term Debt and Capital Leases

The Company enters into long-term debt and capital leases with various third parties from time to time to finance certain operational equipment 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.

The table below outlines the Company’s long-term debt and capital lease obligations as of December 31, 2011 and 2010.

          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  
  

 

 

  

 

 

   

 

 

   

 

 

 

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  
     

 

 

   

 

 

 

Non-current maturities of long term-debt and capital leases

     $454,000    $2,083,000  
     

 

 

   

 

 

 

The Company recorded interest expense for the long-term debt of $75,000, $91,000 and $37,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

The following is a schedule by year of future minimum principal payments required under the terms of the above long-term debt and capital lease obligations as of December 31, 2011:

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 $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 and the term loan described in Note 7 above to extend the maturity date of the revolving credit facility to 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 line of credit of up to $10.0 million. The Company may draw upon this line of credit up to $10.0 million, less amounts outstanding under letters of credit. The proceeds of the line of credit will be used exclusively for working capital purposes.

Substantially all of the assets of the Company and its wholly owned subsidiaries are pledged as collateral securing the Company’s performance under the revolving credit facility and term loan. The revolving credit facility bears interest based at the one-month LIBOR plus an initial 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 covenants related to the Company’s 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. As of December 31, 2011, the Company was not in compliance with the terms of the credit agreement with respect to the declaration and payment of cash dividends in 2011 by the Company to the holders of the Company’s Series A Convertiblethis contract.

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 agreement and no other events of default existed under the terms of such 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, 2011 and 2010, respectively. The line of credit carries a maturity date of March 31, 2013. As of December 31, 2011 and 2010 the line of credit balance was $0 and $2,749,000, respectively.

9.Commitments and Contingencies

Lease Commitments

The following is a schedule by yearAs of December 31, 2013, the Company had approximately $43.9 million in future minimum payments required under operating leases for various real estate, transportation and office equipment and real estate lease commitments that have an initial or remaining non-cancelable lease term as ofterm. Remaining future minimum payments related to these operating leases amount to approximately $9.0 million, $8.8 million, $8.1 million, $6.7 million, and $11.3 million for the periods ending December 31, 2011.2014, 2015, 2016, 2017, and 2018 and thereafter, respectively.

 

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  
  

 

 

 

75


Rent expense was approximately $514,000, $472,000$6.9 million, $1.9 million and $446,000$0.5 million for the years ended December 31, 2011, 20102013, 2012 and 2009,2011, respectively.

Litigation

The Company is involved in litigation in the Fourth Judicial District Court of Hennepin County, Minnesota relating to its hiring of former employees of C.H. Robinson Worldwide, Inc. (“CHR”). In the courselitigation, CHR asserts claims for breach of its business,contract, breach of fiduciary duty and duty of loyalty, tortious interference with contractual relationships and prospective contractual relationships, misappropriation of trade secrets, violation of the federal Computer Fraud and Abuse Act, inducing, aiding and abetting breaches and conspiracy. CHR seeks temporary, preliminary and permanent injunctions, as well as direct and consequential damages and attorneys’ fees. CHR has asserted that it may seek punitive damages as well. On January 17, 2013, following a hearing, the Court issued an Order Regarding Motion for Temporary Injunction (the “Order”). The Order (as amended on April 16, 2013) prohibits the Company mayfrom engaging in business with certain CHR customers (the “Restricted Customers”) within a specified radius of Phoenix, AZ, until July 1, 2014. On November 6, 2013, CHR moved to compel compliance with the Order, requesting discovery and expanded enforcement of the Order. On November 18, 2013, the Company opposed CHR’s motion and cross moved to modify the Order. On February 19, 2014, the Court denied the majority of CHR’s motion, granting only CHR’s request for a report of the Company’s remediation efforts under the Order. At the same time, the Court granted the Company’s motion and modified the Order to allow XPO to do business with Restricted Customers in the Phoenix area if: (a) XPO obtained that business as the result of a merger or acquisition; or (b) the business is part of a competitive bidding process with an entity seeking nationwide services. The Court also clarified that the business restrictions in the Order do not apply to XPO’s servicing of other independent third party logistics entities who might be working for the ultimate benefit of the Restricted Customers.

On February 7, 2013, CHR filed a First Amended Complaint against the Company and eight individual defendants who are current or former employees of XPO, including its Chief Operating Officer, Senior Vice President—Strategic Accounts and Vice President—Carrier Procurement and Operations. On April 11, 2013, the Company moved to dismiss the new claims asserted in that First Amended Complaint and moved to stay discovery pending the Court’s resolution of the motion to dismiss. On August 29, 2013, the Court granted in part and denied in part the motion to dismiss and denied as moot the motion to stay discovery. On September 23, 2013, the Company filed its Answer to the First Amended Complaint and asserted counterclaims against CHR for violations of the Minnesota Antitrust, Unlawful Trade Practices, and Deceptive Trade Practices Act, as well as tortious interference with contractual relations and prospective contractual relations. CHR moved to dismiss the Company’s counterclaims on November 12, 2013, and the Company opposed that motion. A hearing on CHR’s motion to dismiss was held on February 10, 2013. The Court has not yet issued a ruling on CHR’s motion to dismiss. The Company intends to vigorously defend the action in court. The outcome of this litigation is uncertain and could have a material adverse effect on the Company’s business and results of operations.

The Company is a party to a variety of other legal actions, both as a plaintiff and as a defendant that arose in the ordinary course of business, and may in the future become involved in other legal actions. The Company does not currently anticipateexpect any of these matters or anythese matters in the aggregate to have a materiallymaterial adverse effect on the Company’s business or its financial position or results of operations.operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

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 Company’s financial condition, results of operations or cash flows and earnings of the Company could be negatively impacted.

During 2008, Express-1, Inc. became involved

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5. Debt

Debt Facilities

The Company uses financing for acquisitions and business start-ups, among other things. The Company also enters into long-term debt and capital leases with various third parties from time to time to finance certain operational equipment and other assets used in litigation relating to a vehicular accident involving an Express-1 vehicle. Throughout 2009, legal discovery took placeits business operations. Generally, these loans and during Novembercapital leases bear interest at market rates, and are collateralized with accounts receivable, equipment and certain other assets of 2009the Company.

On October 18, 2013, the Company receivedand certain of its wholly-owned subsidiaries, as borrowers, entered into a $125.0 million multicurrency secured Revolving Loan Credit Agreement (the “Credit Agreement”) with the lender parties thereto and Morgan Stanley Senior Funding, Inc., as administrative agent for such lenders, with a maturity of five years. The principal amount of the commitments under the Credit Agreement may be increased by an order fromaggregate amount of up to $75.0 million, subject to certain terms and conditions specified in the courtCredit Agreement.

The proceeds of the Credit Agreement may be used by the Company for ongoing working capital needs and other general corporate purposes, including strategic acquisitions. Borrowings under the Credit Agreement bear interest at a per annum rate equal to, begin mediation. Asat the Company’s option, the one, two, three or six month (or such other period less than one month or greater than six months as the lenders may agree) LIBOR rate plus a resultmargin of mediation,1.75% to 2.25%, or a base rate plus a margin of 0.75% to 1.25%. The Company is required to pay an agreement was reachedundrawn commitment fee equal to settle0.25% or 0.375% of the litigation for an amount in excessquarterly average undrawn portion of the commitments under the Credit Agreement, as well as customary letter of credit fees. The margin added to LIBOR, or base rate, will depend on the quarterly average availability of the commitments under the Credit Agreement.

All obligations under the Credit Agreement are secured by substantially all of the Company’s insured limits. As such,assets and are unconditionally guaranteed by certain of its subsidiaries, provided that no foreign subsidiary guarantees, and no assets of any foreign subsidiary secures, any obligations of any of the Company’s domestic borrower subsidiaries. The borrowings under the Credit Agreement are guaranteed by substantially all of the Company’s subsidiaries. Within the meaning ofRegulation S-X,Rule 3-10, XPO Logistics, Inc. (the parent company) has no independent assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries are minor. The Credit Agreement contains representations, warranties and covenants that are customary for agreements of this type. Among other things, the covenants in the Credit Agreement limit the Company’s ability to, with certain exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make certain investments and restricted payments; and enter into certain transactions with affiliates. In certain circumstances, the Credit Agreement also requires the Company recorded $400,000to maintain certain minimum EBITDA or, at the Company’s election, maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than 1.00 to 1.00. If an event of default under the Credit Agreement shall occur and be continuing, the commitments thereunder may be terminated and the principal amount outstanding thereunder, together with all accrued unpaid interest and other amounts owed thereunder, may be declared immediately due and payable. Certain subsidiaries acquired by the Company in the future may be excluded from the restrictions contained in certain of the foregoing covenants. The Company does not believe that the covenants contained in the Credit Agreement will impair its ability to execute its strategy. At December 31, 2013, the Company had $75.0 million drawn under the Credit Agreement. The Company was in compliance, in all material respects, with all covenants related to the Credit Agreement as of December 31, 2013.

On September 26, 2012, the Company completed the registered underwritten public offering of 4.50% Convertible Senior Notes due October 1, 2017 (the “Notes”), in an aggregate principal amount of $125.0 million. The Notes were allocated to long-term debt and equity in the amounts of $92.8 million and $27.5 million, respectively. These amounts are net of debt issuance costs of $3.6 million for debt and $1.1 million for equity. On October 17, 2012, as part of the underwritten registered public offering on September 26, 2012 of the 4.50% convertible senior notes due October 1, 2017, the underwriters exercised the overallotment option to purchase $18.8 million additional principal amount of the Notes. The Company received approximately $18.2 million in

77


net proceeds after underwriting discounts, commissions and expenses were paid. The overallotment option was allocated to long-term debt and equity in the amounts of $14.0 million and $4.2 million, respectively. These amounts are net of debt issuance costs of $0.5 million for debt and $0.1 million for equity. Interest is payable on the Notes on April 1 and October 1 of each year, beginning on April 1, 2013.

On October 10, 2013, the Company entered into an agreement pursuant to which it issued an aggregate of 608,467 shares of the Company’s common stock to certain holders of the Notes in connection with the conversion of $10.0 million aggregate principal amount of the Notes. The transactions provided in the agreement closed on October 15, 2013. The conversion was allocated to long-term debt and equity in the amounts of $7.9 million and $3.3 million, respectively. This transaction included an induced conversion pursuant to which the Company paid the holder a market-based premium in cash. The negotiated market-based premium, in addition to the difference between the current fair value and the book value of the Notes, was reflected in interest expense induring the fourth quarter of 20092013. The number of shares of common stock issued in the foregoing transaction equals the number of shares of common stock presently issuable to holders of the Notes upon conversion under the original terms of the Notes.

Under certain circumstances at the election of the holder, the convertible senior notes may be converted until the close of business on the business day immediately preceding April 1, 2017, into cash, shares of the Company’s common stock, or a combination of cash and shares of common stock, at the Company’s election, at the initial conversion rate of approximately 60.8467 shares of common stock per $1,000 in principal amount, which is equivalent to an initial conversion price of approximately $16.43 per share. In addition, following certain corporate events that was includedoccur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its convertible senior notes in sales, general and administrative expense.

Regulatory Complianceconnection with such corporate event in certain circumstances. On or after April 1, 2017, until the close of business on the business day immediately preceding the maturity date, holders may convert their convertible senior notes at any time.

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 thatconvertible senior notes may be takenredeemed by these third parties that could require changes to the mannerCompany on or after October 1, 2015 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company operates.provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The Company may redeem the convertible senior notes in whole but not in part, at a redemption price in cash equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest, but excluding, the redemption date, plus a make-whole premium payment. The “make whole premium” payment or delivery will be made, as the case may be, in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, equal to the present values of the remaining scheduled payments of interest on the convertible senior notes to be redeemed through October 1, 2017 (excluding interest accrued to, but excluding, the redemption date), computed using a discount rate equal to 4.5%. The make-whole premium is paid to holders whether or not they convert the convertible senior notes following the Company’s issuance of a redemption notice.

 

10.Stockholders’ Equity

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The following table outlines the Company’s debt obligations (in thousands) as of December 31, 2013 and 2012:

   Interest
rates
  Term
(months)
   As of
December 31,
2013
   As of
December 31,
2012
 

Convertible senior notes

   4.50  60    $133,742    $143,750  

Revolving credit facility

   3.63  60     75,000     —    

Notes payable

   N/A    N/A     2,205     863  

Capital leases for equipment

   14.02  59     196     154  

Line of credit

   5.00  N/A     —       150  
     

 

 

   

 

 

 

Total debt

      211,143     144,917  

Less: unamortized bond discount and debt issuance costs

      27,474     35,470  

Less: current maturities of long-term debt

      2,028     491�� 
     

 

 

   

 

 

 

Total long-term debt, net of current maturities

     $181,641    $108,956  
     

 

 

   

 

 

 

Equity Investment-Convertible Preferred Stock6. Goodwill

The following table is a roll-forward of goodwill from December 31, 2012 to December 31, 2013. The current period additions are the result of the goodwill recognized as the excess of the purchase price over identified tangible and Warrantsintangible assets in the acquisitions of ECAC, Covered, Interide, 3PD, Optima and NLM (in thousands):

   Expedited
Transportation
   Freight
Forwarding
   Freight
Brokerage
   Total 

Goodwill at December 31, 2012

  $7,737    $9,222     38,988    $55,947  

Acquisitions and other adjustments

   50,675     —       256,826     307,501  
  

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill at December 31, 2013

  $58,412    $9,222    $295,814    $363,448  
  

 

 

   

 

 

   

 

 

   

 

 

 

7. Stockholder’s Equity

On August 13, 2013, the Company closed a registered underwritten public offering of 9,694,027 shares of common stock, and on August 16, 2013, the Company closed as part of the same public offering the sale of an additional 1,454,104 shares as a result of the full exercise of the underwriters’ overallotment option, in each case at a price of $22.75 per share (together, the “August 2013 Offering”). The Company received $239.5 million in net proceeds from the August 2013 Offering after underwriting discounts and expenses.

On March 20, 2012, the Company closed a registered underwritten public offering of 9,200,000 shares of common stock (the “March 2012 Offering”), including 1,200,000 shares issued and sold as a result of the full exercise of the underwriters’ overallotment option, at a price of $15.75 per share. The Company received $137.0 million in net proceeds from the March 2012 Offering after underwriting discounts and expenses.

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, the Company issued to the Investors, for $75,000,000$75.0 million in cash:

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(i) an aggregate of 75,000 shares of Series A Convertible Perpetualthe 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.8. Stock-Based Compensation

The authorized preferred stock of the Company consists of 10,000,000 shares at $.001 par value, of which 75,000 shares were issued and outstanding as of December 31, 2011. No shares were issued and 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 Company’s stockholders approved the amendment to the Company’s certificate of incorporation effecting the reverse stock split at the special meeting of the 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 the per share exercise price of those options.

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 our board of 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 45,000 shares of its common stock from the holders thereof in settlement of certain loans and deposits between the Company and these stockholders. The shares were recorded at market price on the dates on which they were acquired by the Company.

Options and Restricted Stock Units

The Company has in place stock-based compensation plans in which 1,900,000 shares of its common stock have been approved by the shareholders to be issued. Through the plans, the Company offers shares to assist in the recruitment and retention of qualified employees and non-employee directors. 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 units granted to employees and non-employee directors totaled 695,000 and zero as of December 31, 2011 and 2010, respectively.

The following table summarizes the Company’s equity awards outstanding and exercisable as of December 31, 20112013 and 2010:2012:

��

   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     —      
  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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       —      
  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Outstanding at December 31, 2011

   1,381,958   $8.53     2.28 – 16.92     9.0     695,000     10.34  
  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Vested & Exercisable at December 31, 2011

   471,653   $5.52     2.68 - 10.56     6.2     —      
   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, 2012

   1,383,332    $10.06     $2.28 - $18.07     8.29     883,816    $11.31  

Granted

   111,000    $20.18     $16.57 - $23.19       755,714    $14.84  

Exercised

   57,464    $4.59     $2.96 - $6.08       219,875    $11.64  

Forfeited

   15,348    $14.25     $6.08 - $16.57       68,000    $10.65  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Outstanding at December 31, 2013

   1,421,520    $11.02     $2.28 - $23.19     6.93     1,351,655    $13.26  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Of the 695,000The stock-based compensation expense for outstanding restricted stock units 583,000(“RSUs”) was $3.2 million, $3.3 million and $0.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. Of the 1,351,655 outstanding RSUs, 669,155 vest subject to service conditions and 112,000682,500 vest subject to service and a combination of market and performance-based conditions.

11.Acquisitions

First Class

In JanuaryAs of 2009,December 31, 2013, the Company purchased 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 ownershad approximately $9.6 million of FCES $250,000 in cash and received approximately $40,000 of net assets consisting primarily of fixed assets, net ofunrecognized compensation cost related debt. The Company funded the transaction through cash available from working capital.

For financial reporting purposes, FCESto non-vested RSU compensation that is included with the operating results of Express-1. The Company hasanticipated to be recognized identifiable intangible assets of $210,000 amortizable over a 2-5 year period.weighted-average period of approximately 2.26 years. Remaining estimated compensation expense related to outstanding restricted stock-based grants is $4.0 million, $3.2 million, $2.2 million, $0.1 million and $0.1 million for the years ending December 31, 2014, 2015, 2016, 2017 and 2018, respectively.

The purchase price allocation for FCES asAs of January 2009 was as follows:

Property and equipment

  $82,000  

Intangibles

   210,000  

Liabilities assumed

   (42,000
  

 

 

 

Total purchase price

  $250,000  
  

 

 

 

LRG

On October 1, 2009, CGL purchased certain assets and liabilities of Tampa, Florida based LRG International, Inc. (LRG), an international freight forwarder. The LRG purchase complements and expands CGL’s ability to move international freight competitively. LRG’s financial activity is included within CGL’s segment information.

At closingDecember 31, 2013, the Company paid the former ownershad 703,020 options vested and exercisable and $3.8 million of LRG $2 million in cash.unrecognized compensation cost related to stock options. The Company used its then-existing line of credit to finance the transaction. On the one year anniversary of the closing, the Company paid the former owners $500,000. The transaction also provided for potential earn-outs of $900,000 provided certain performance criteria are met within the new CGL International division over a 2 year period. During the first quarter of 2011, the Company paid a $450,000 cash earn-out. One additional potential earn-out of $450,000 can also be earned based on 2011 financial criteria being met. At the October 1, 2009 closing date the company recorded approximately $1,237,000 in liabilitiesremaining estimated compensation expense related to the fair value of these future payments, which are measured using Level 3 fair value inputs (seeNote 6—Identified Intangible Assets).

The Company accountedexisting stock options is $1.1 million, $1.7 million, $0.8 million and $0.2 million for the acquisition as a purchase and included the results of operation of the acquired business in the Consolidated Financial Statements from the effective date of the acquisition.

The purchase price allocation for LRG as of October 1, 2009 was as follows:

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 of LRG:

   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    
  

 

 

   

The following unaudited Pro forma consolidated information presents the results of operations of the Company for the twelve monthsyears ended December 31, 2009, as2014, 2015, 2016 and 2017, respectively.

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9. Earnings per Share

Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share are computed by dividing net income available to common shareholders by the combined weighted average number of shares of common stock outstanding and the potential dilution of stock options, warrants, RSUs, convertible senior notes and Company’s Series A Convertible Perpetual Preferred Stock, par value $0.001 per share (“preferred stock”), outstanding during the period, if dilutive. The weighted average of potentially dilutive securities excluded from the acquisitioncomputation of LRG had taken place atdiluted earnings per share for the beginningthree years ended December 31, 2013 is shown per the table below.

   Year Ended December 31, 
   2013   2012   2011 

Basic common stock outstanding

   22,752,320     15,694,430     8,246,577  
  

 

 

   

 

 

   

 

 

 

Potentially Dilutive Securities:

      

Shares underlying the conversion of preferred stock to common stock

   10,607,309     10,695,326     3,522,505  

Shares underlying the conversion of the convertible senior notes

   8,623,331     2,238,758     —    

Shares underlying warrants to purchase common stock

   6,900,642     5,717,284     3,618,061  

Shares underlying stock options to purchase common stock

   356,815     473,421     298,017  

Shares underlying restricted stock units

   367,183     249,139     6,456  
  

 

 

   

 

 

   

 

 

 
   26,855,280     19,373,928     7,445,039  
  

 

 

   

 

 

   

 

 

 
      
  

 

 

   

 

 

   

 

 

 

Diluted weighted shares outstanding

   49,607,600     35,068,358     15,691,616  
  

 

 

   

 

 

   

 

 

 

The impact of this dilution was not reflected in the year presented.earnings per share calculations in the consolidated statements of operations because the impact was anti-dilutive. The 2010treasury method was used to determine the shares underlying warrants, stock options and RSUs for potential dilution with an average market price of $19.69 per share, $15.01 per share and $10.57 per share for the years ended December 31, 2013, 2012 and 2011, Consolidated Financial Statements include a full yearrespectively.

10. Income Taxes

A summary of LRG (currently CGL International) results. Pro forma results presented within the table do not include adjustments for amortization of intangiblesincome taxes related to U.S. and depreciation of fixed assetsnon U.S. operations are as a result of the LRG acquisition.follows (in thousands):

 

   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  
  

 

 

 
   Year Ended December 31, 
   2013  2012  2011 

Operations

    

U.S. domestic

  $(69,207 $(29,378 $1,477  

Foreign

   (1,765  (2,156  —    
  

 

 

  

 

 

  

 

 

 

Total pre-tax (loss) income

  $(70,972 $(31,534 $1,477  
  

 

 

  

 

 

  

 

 

 

12.Income Taxes

81


The components of the income tax provision consist of the following:following (in thousands):

 

  Year Ended December 31,   Year Ended December 31, 
  2011 2010   2009   2013 2012 2011 

Current

         

Federal

  $738,000   $1,968,000    $172,000    $—     $(2,254 $738  

State

   269,000    330,000     453,000     285    56    269  

Foreign

   (55  (751  —    
  

 

  

 

   

 

   

 

  

 

  

 

 
   1,007,000    2,298,000     625,000     230    (2,949  1,007  
  

 

  

 

   

 

   

 

  

 

  

 

 

Deferred

         

Federal

   (249,000  798,000     591,000     (22,047  (7,494  (249

State

   (40,000  117,000     122,000     (636  (893  (40

Foreign

   11    141    —    
  

 

  

 

  

 

 
   (22,672  (8,246  (289
  

 

  

 

   

 

   

 

  

 

  

 

 
   (289,000  915,000     713,000      
  

 

  

 

   

 

   

 

  

 

  

 

 

Total income tax provision

   718,000    3,213,000     1,338,000    $(22,442 $(11,195 $718  

Income tax provision included in discontinued operations

   —      —       13,000  
  

 

  

 

   

 

   

 

  

 

  

 

 

Income tax provision included in continuing operations

  $718,000   $3,213,000    $1,325,000  
  

 

  

 

   

 

 

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 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
  

 

 

  

 

 

   

 

 

 

Total provision for income tax

  $718,000   $3,213,000    $1,338,000  
  

 

 

  

 

 

   

 

 

 
   Year Ended December 31, 
   2013  2012  2011 

Income tax (benefit)/provision at statutory rate

   -34.0  -34.0  34.0

Increase (decrease) in income tax due to:

    

State and local taxes, net

   -0.6  -3.6  9.3

Transaction expense

   1.1  0.7  —    

Loss on convertible debt

   1.1  —      —    

Change in valuation allowance

   0.6  1.6  —    

Change in uncertain tax position provision

   -0.3  -1.1  4.4

All other non-deductible items

   0.3  0.4  0.9

Foreign tax rate differences

   0.2  0.5  —    
  

 

 

  

 

 

  

 

 

 

Total (benefit)/provision for income tax

   -31.6  -35.5  48.6
  

 

 

  

 

 

  

 

 

 

The Company’s 2013 consolidated effective tax rate was (31.6%), as compared to (35.5%) in 2012 and 48.6% in 2011. The 2013 effective income tax rate varied from the statutory rate of 34% due primarily to state income taxes, the tax treatment of certain transaction related expenses and changes in the valuation allowance.

82


The tax effects of temporary differences that give rise to significant portions of the current deferred tax asset and non-current deferred tax liability at December 31, 20112013 and 20102012 are as follows:follows (in thousands):

 

  Year Ended December 31,   Year Ended
December 31,
 
  2011 2010   2013 2012 

Current deferred tax items

   

Deferred tax assets

   

Net operating loss carryforward

  $37,054   $8,145  

Accrued expenses

   3,673    1,601  

Equity based compensation

   2,145    1,297  

Allowance for doubtful accounts

  $141,000   $53,000     1,227    177  

Prepaid expenses

   (142,000  (93,000

Accrued expenses

   896,000    294,000  

Deferred rent

   1,248    —    

AMT credit

   262    133  

Accrued insurance claims

   60,000    60,000     55    62  
  

 

  

 

   

 

  

 

 

Total deferred tax asset, current

  $955,000   $314,000  

Total deferred tax asset

   45,664    11,415  
  

 

  

 

   

 

  

 

 

Non-current deferred tax items

   

Valuation allowance

   (2,628  (759
  

 

  

 

 

Total deferred tax asset, net

   43,036    10,656  
  

 

  

 

 

Deferred tax liabilities

   

Convertible debt discount

   (8,734  (11,354

Intangible assets

   (39,582  (3,634

Property, plant & equipment

  $(478,000 $(396,000   (6,260  (628

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  

Prepaid expenses

   (547  (415
  

 

  

 

   

 

  

 

 

Total deferred tax liability, long-term

   (2,346,000  (2,032,000
   (55,123  (16,031
  

 

  

 

 
   
  

 

  

 

   

 

  

 

 

Net deferred tax liability

  $(1,391,000 $(1,718,000  $(12,087 $(5,375
  

 

  

 

   

 

  

 

 

At December 31, 2013, the Company had federal and state net operating losses (“NOLs”) of $104.9 million and $111.0 million, respectively. If not utilized, the federal NOLs will expire in 2028, and the state NOLs will expire at various times between 2016 and 2033. Included in the federal and state NOLs to be carried forward are $6.4 million of windfall tax benefits for stock compensation that has not been recognized as a deferred tax asset and will be recorded as an adjustment to additional paid-in-capital when recognized. Although currently not anticipated, the Company’s ability to use its federal and state net operating loss carryforwards may become subject to restrictions attributable to equity transactions in the future resulting from changes in ownership as defined under Internal Revenue Code Section 382. At December 31, 2013, the Company had foreign NOLs of $4.8 million available to offset future income. These foreign loss carryforwards of $4.8 million will expire at various times between 2014 and 2033. During 2013, the Company recognized tax benefits related to NOLs of $14.3 million and filed a U.S. Federal net operating loss carryback refund claim for $2.2 million. The Company anticipates receiving the refund in early 2014. This amount has been recorded as a current receivable.

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2011,2013, the Company had no remaining federal net operating loss carry forward. The Company’s gross state net operating loss carry forward at December 31, 2011, totaled approximately $1,600,000 and will begin expiring in 2021. The Company is subject to examination by the IRS for the calendar years 2007 through 2010. The Company is also subject to examination by various state taxing authorities for the calendar years 2006 through 2010. The Company does not anticipate any significant increase or decrease in unrecognized tax benefit within the next 12 months. The Company has not recordedmade a valuation allowanceprovision for U.S. or additional foreign withholding taxes for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration, if any exists. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to the current deferred tax asset as of December 31, 2011 and 2010 as the current and historical taxable income supports the realization of the assets.investments in these foreign subsidiaries.

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 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 forDuring the year ended December 31, 20112013, the Company reassessed its U.S. and 2010. foreign valuation allowance requirements. The Company evaluated all available evidence in its analysis, including reversal of the deferred tax liabilities, carrybacks available and historical and projected pre-tax profits generated by the

83


Company’s U.S. operations. The Company also considered tax planning strategies that are prudent and can be reasonably implemented. The reversal of deferred tax liabilities prior to expiration of the deferred tax assets was the most significant factor in the Company’s determination of the valuation allowance under the “more likely than not” criteria. The Company’s valuation allowance as of December 31, 2013 was $1.6 million for domestic deferred tax assets and $1.0 million for foreign jurisdictions where it is not more likely than not that the deferred tax assets will be utilized. At December 31, 2012, the Company had a valuation allowance of $0.3 million on its domestic deferred tax assets of $0.5 million on its foreign deferred tax assets, respectively.

A reconciliation of the beginning toand ending amount of the recognized uncertainunrecognized tax position liabilitybenefits, excluding interest and penalties, is as follows:follows (in thousands):

 

   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  
  

 

 

   

 

 

 
   Year Ended
December 31,
 
   2013  2012 

Uncertain tax positions, beginning of the year

  $600   $200  

Additions for tax positions of prior years

   399    612  

Reductions due to the statute of limitations

   (188  (212
  

 

 

  

 

 

 

Uncertain tax positions, end of the year

  $811   $600  
  

 

 

  

 

 

 

The Company recognizes interest accrued to unrecognized tax benefits in interest expense and penalties accrued related to uncertain tax positions in sales, general and administrative expense.the provision for income taxes. During the years ended December 31, 20112013 and 2010,2012, the Company recognized $0$0.0 million and $0.2 million, respectively, for interest and penalties duepenalties. During the next twelve months, $0.3 million of unrecognized tax benefits net of accrued interest will be reduced as a result of a lapse of the applicable statute of limitation. For the years ended December 31, 2013 and 2012, the unrecognized tax benefits, if resolved favorably, would impact our effective tax rates.

The Company files income tax returns in the U.S. federal jurisdiction and various states. As a matter of course, various taxing authorities, including the IRS, regularly audit the Company. These audits may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. Currently, the Company’s 2010 tax year is under examination by the IRS. The remaining tax years from 2010 to 2013 are currently not under examination by U.S. state jurisdictions. The Company believes that its tax positions comply with applicable tax law and that it has adequately provided for these matters.

11. Related Party Transactions

On August 15, 2013, the Company completed its acquisition of 3PD, pursuant to the immaterial nature of both items.

13.Related Party Transactions

Pursuant3PD Stock Purchase Agreement to the termswhich Mr. James J. Martell was a party. Mr. Martell is a member of the Investment Agreement, on September 2, 2011,board of directors of the Company paid JPE $1,000,000 as reimbursement for certain expenses incurred by JPEand also was an investor in, connection with the transactions contemplated by the Investment Agreement, which reduced the net proceeds received for the Series A Preferred Stock and the Warrants. With the approvalmember of the audit committeeboard of directors of, 3PD. Mr. Martell recused himself from, and did not participate in, deliberations of the Company’s board of directors with respect to the Company also agreedacquisition of 3PD. Other than his interest in the purchase price paid pursuant to pay an incremental $261,000 of expenses incurred by JPEthe 3PD Stock Purchase Agreement, Mr. Martell did not receive compensation in connection with the transactions contemplated by the Investment Agreement. In addition,acquisition of 3PD. On July 12, 2013, Mr. Martell entered into a subscription agreement with the approvalCompany pursuant to which, on August 15, 2013, he invested $0.7 million of the after-tax proceeds he received in the transaction in restricted shares of the Company’s board of directors, the Company agreed to pay JPE $297,000 as reimbursement for certain executive search firm andcommon stock.

There were no 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 collateralized by a mortgage 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 employee’s employment. The note and accrued interest will be paid by the employee in the form of performance bonuses in the future. As of December 30, 2011, the note had an outstanding balance of $143,000, of which approximately $15,000 was classified as a current note receivable based on the expected bonus to be paid to the employee in 2012, and approximately $128,000 was classified as a long-term note receivable.

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.

The aboverelated party transactions are not necessarily indicative of amounts, terms and conditions that the Company may have received in transactions with unrelated third parties.

14.Employee Benefit Plans

The Company has a defined contribution 401(k) salary reduction plan intended to qualify under Section 401(a) of the Internal Revenue Code of 1986 (the “401(k) Plan”). The 401(k) Plan allows eligible employees, as defined in the plan document, to defer up to the federally allowed limits of their eligible compensation, with the Company contributing an amount determined at the discretion of the board of directors. The Company contributed approximately $120,000, $120,000 and $65,000 to the 401(k) Plan foroccurred during the years ended December 31, 2011, 20102013 and 2009, respectively.2012.

The Company also maintained a Non-qualified Deferred Compensation Plan12. Quarterly Financial Data (Unaudited)

Our unaudited results of operations for certain employees. This plan allowed participants to defer a portion of their salary on a pre-tax basis and accumulate tax-deferred earnings plus interest. These deferrals were in addition to those allowed under the 401(k) Plan. The Company provided a discretionary matching contribution of 25 percenteach of the employee contribution, subject to a maximum Company contribution of $2,500 per employee. The Company’s matching contribution expense for such plans was $0, $0 and $0 forquarters in the years ended December 31, 2013, 2012 and 2011 2010 and 2009, respectively. During the fourth quarter of 2009, the Company decided to terminate this plan effective in January 2010. Liabilities totaling $350,000 were paid out to plan participants during 2011 in conjunction with the termination of the plan.are summarized below (in thousands, except per share data).

The Company has in place an Employee Stock Ownership Plan (“ESOP”) for all employees. The ESOP allows employer contributions, at the sole discretion of the board of directors. To be eligible to receive contributions, an employee must complete one year of full time service and be employed on the last day of the year. Contributions to the ESOP vest over a five-year period. The following table reflects activity to the Company’s ESOP plan:

 

   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  
  

 

 

       

 

 

 

84

15.Employment Agreements

The Company has in place with certain managers and executives employment agreements calling for base compensation payments totaling $4,154,000, $3,600,000, $3,600,000, $3,432,000 and $2,063,000 for the years ending December 31, 2012 2013, 2014, 2015 and 2016, respectively. These agreements expire on various dates within the listed periods and also provide for performance based bonus and equity awards, provided the Company’s performance meets defined performance objectives. These employment contracts vary in length and provide for continuity of employment pending termination “for cause” for the covered individuals.

16.Quarterly Financial Data (Unaudited)

XPO Logistics, Inc.

Quarterly Financial Data

(In thousands)

   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
  

 

 

   

 

 

   

 

 

  

 

 

 

Net income (loss) available to common shareholders

  $1,117,000    $914,000    $(44,396,000 $(2,212,000
  

 

 

   

 

 

   

 

 

  

 

 

 

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  
  

 

 

   

 

 

   

 

 

  

 

 

 

Gross margin

   5,599,000     7,239,000     8,139,000    6,423,000  
  

 

 

   

 

 

   

 

 

  

 

 

 

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  
  

 

 

   

 

 

   

 

 

  

 

 

 

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, 2013  June 30, 2013  September 30,
2013
  December 31,
2013
 

Revenue

  $113,999   $137,091   $193,982   $257,231  

Direct expense

   97,739    117,751    159,147    204,159  
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross margin

   16,260    19,340    34,835    53,072  
  

 

 

  

 

 

  

 

 

  

 

 

 

Sales, general and administrative expense

   27,627    33,355    53,254    61,596  

Other expense

   (109  167    235    185  

Interest expense

   3,064    3,106    6,415    5,584  
  

 

 

  

 

 

  

 

 

  

 

 

 

Income before income tax

   (14,322  (17,288  (25,069  (14,293

Income tax provision

   222    74    (19,044  (3,694
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

  $(14,544 $(17,362 $(6,025 $(10,599

Cumulative preferred dividends

   (743  (743  (743  (743
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss available to common shareholders

  $(15,287 $(18,105 $(6,768 $(11,342
  

 

 

  

 

 

  

 

 

  

 

 

 

Basic loss per share

     

Net loss

  $(0.85 $(1.00 $(0.28 $(0.37

Diluted loss per share

     

Net loss

  $(0.85 $(1.00 $(0.28 $(0.37

 

17.Operating Segments
   March 31, 2012  June 30, 2012  September 30,
2012
  December 31,
2012
 

Revenue

  $44,560   $54,540   $70,988   $108,503  

Direct expense

   37,787    46,074    61,064    92,840  
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross margin

   6,773    8,466    9,924    15,663  
  

 

 

  

 

 

  

 

 

  

 

 

 

Sales, general and administrative expense

   10,997    11,834    19,204    26,755  

Other (income) expense

   (21  26    314    44  

Interest expense

   12    3    15    3,177  
  

 

 

  

 

 

  

 

 

  

 

 

 

Loss before income tax

   (4,215  (3,397  (9,609  (14,313

Income tax (benefit) provision

   (1,521  1,780    (6,460  (4,994
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

   (2,694  (5,177  (3,149  (9,319

Cumulative preferred dividends

   (750  (750  (750  (743
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss available to common shareholders

  $(3,444 $(5,927 $(3,899 $(10,062
  

 

 

  

 

 

  

 

 

  

 

 

 

Basic loss per share

     

Net loss

  $(0.36 $(0.34 $(0.22 $(0.57

Diluted loss per share

     

Net loss

  $(0.36 $(0.34 $(0.22 $(0.57

85


   March 31, 2011   June 30, 2011   September 30,
2011
  December 31,
2011
 

Revenue

  $41,508    $44,094    $47,389   $44,085  

Direct expense

   34,301     36,914     39,169    36,914  
  

 

 

   

 

 

   

 

 

  

 

 

 

Gross margin

   7,207     7,180     8,220    7,171  
  

 

 

   

 

 

   

 

 

  

 

 

 

Sales, general and administrative expense

   5,207     5,537     7,750    9,560  

Other expense (income)

   29     33     —      (6

Interest expense

   49     47     49    46  
  

 

 

   

 

 

   

 

 

  

 

 

 

Income (loss) before income tax

   1,922     1,563     421    (2,429

Income tax provision (benefit)

   805     649     231    (967
  

 

 

   

 

 

   

 

 

  

 

 

 

Net income (loss)

   1,117     914     190    (1,462

Preferred stock beneficial conversion charge and dividends

   —       —       (44,586  (750
  

 

 

   

 

 

   

 

 

  

 

 

 

Net income (loss) available to common shareholders

  $1,117    $914    $(44,396 $(2,212
  

 

 

   

 

 

   

 

 

  

 

 

 

Basic income (loss) per share

       

Net income (loss)

  $0.14    $0.11    $(5.38 $(0.27

Diluted income (loss) per share

       

Net income (loss)

  $0.13    $0.11    $(5.38 $(0.27

13. Segment Reporting and Geographic Information

The Company has three reportabledetermines its operating segments based on the type of service provided,information utilized by the chief operating decision maker, the Company’s Chief Executive Officer, to its customers:

Expedited Transportation—provides time critical expedited transportation to its customers. This typically involves dedicating one truck to a loadallocate resources and assess performance. Based on this information, the Company has determined that it has five operating segments, which has a specified time delivery requirement. Mostare aggregated into three reportable segments as described in Note 1 of the services providedConsolidated Financial Statements.

These reportable segments are completedstrategic business units through a fleetwhich the Company offers different services. The Company evaluates the performance of exclusive use vehicles that are owned and operated by independent contract drivers. The use of non-owned resources to provide transportation 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 chain of independently owned stations located throughout the United States, along with our two CGL-owned CGL International branches. These stations are responsible for sellingsegments primarily based on their respective revenues, gross margin and operating freight forwarding transportation services within their geographic area underincome. Accordingly, interest expense and other non-operating items are not reported in segment results. In addition, the authority of CGL. In October of 2009, certain assetsCompany has disclosed a corporate segment, which is not an operating segment and liabilities of LRG International (currently CGL International) were purchased to complementincludes the operations of CGL.

Freight Brokerage—provides premium truckload brokerage transportation services to its customers throughout the United States.

The costs of the Company’s executive and shared service teams, professional services such as legal and consulting, board of directors, executive team and certain other corporate costs associated with operating as a public company are referred to as “corporate” charges. In additioncompany. The Company allocates charges to the aforementioned items, the Company also commonly records items suchreportable segments for IT services, depreciation of IT fixed assets as its income tax provisionwell as centralized recruiting and other charges that are reported on a consolidated basis within the corporate classification item.training resources.

86


The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating incomevarious financial measures of the respective business segments.

The following schedule identifies select financial data for each of the business segments.Company’s reportable segments for the years ended December 31, 2013, 2012 and 2011, respectively (in thousands):

XPO Logistics, Inc.

Operating Segment Data

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    —    
(In thousands)

  Freight
Brokerage
  Expedited
Transportation
  Freight
Forwarding
  Corporate  Eliminations  Total 

Year Ended December 31, 2013

      

Revenue

 $541,389   $101,817   $73,154   $—     $(14,057 $702,303  

Operating (loss) income from operations

  (11,422  5,204    (995  (45,112  —      (52,325

Depreciation and amortization

  14,892    1,351    3,477    1,075    —      20,795  

Interest expense

  11    8    —      18,150    —      18,169  

Tax provision (benefit)

  (2,376  —      —      (20,066  —      (22,442

Goodwill

  295,814    58,412    9,222    —      —      363,448  

Total assets

  870,598    192,778    60,045    1,009,427    (1,352,607  780,241  

Year Ended December 31, 2012

      

Revenue

 $125,121   $94,008   $67,692   $—     $(8,230 $278,591  

Operating (loss) income from operations

  (5,554  6,825    1,108    (30,343  —      (27,964

Depreciation and amortization

  1,223    525    574    391    —      2,713  

Interest expense

  4    5    1    3,197    —      3,207  

Tax benefit

  (610  —      —      (10,585  —      (11,195

Goodwill

  38,988    7,737    9,222    —      —      55,947  

Total assets

  109,601    35,480    23,324    371,939    (127,136  413,208  

Year Ended December 31, 2011

      

Revenue

 $29,186   $87,558   $65,148   $—     $(4,816 $177,076  

Operating (loss) income from operations

  1,305    8,199    1,545    (9,325  —      1,724  

Depreciation and amortization

  44    596    576    24    —      1,240  

Interest expense

  33    4    150    4    —      191  

Tax provision (benefit)

  42    356    —      320    —      718  

Goodwill

  —      7,737    9,222    —      —      16,959  

Total assets

  4,854    22,448    23,394    97,667    (20,722  127,641  

87


For segment reporting purposes by geographic region, revenues are attributed to the sales office location. The following table presents revenues generated by geographical area for the years ended December 31, 2013, 2012 and 2011, respectively (in thousands):

   Year Ended December 31, 
   2013   2012   2011 

Total revenues

      
  

 

 

   

 

 

   

 

 

 

United States

  $627,969    $247,869    $177,076  

Canada

   74,334     30,722     —    
  

 

 

   

 

 

   

 

 

 

Total

  $702,303    $278,591    $177,076  
  

 

 

   

 

 

   

 

 

 

All material assets are located in the United States of America.

14. Subsequent Events

Preferred Stock Dividend

On December 12, 2013, the Company’s board of directors approved the declaration of a dividend payable to holders of the preferred stock. The declared dividend equaled $10 per share of preferred stock as specified in the Certificate of Designation of the preferred stock. The total declared dividend equaled $0.7 million and was paid on January 15, 2014.

Pending Acquisition of Pacer International

On January 5, 2014, XPO entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Pacer International, Inc. (“Pacer”), a Tennessee corporation, and Acquisition Sub, Inc., a Tennessee corporation and a wholly owned subsidiary of XPO (the “Merger Subsidiary”), providing for the acquisition of Pacer by XPO. Pursuant to the terms of Merger Agreement, Merger Subsidiary will be merged with and into Pacer (the “Merger”), with Pacer continuing as the surviving corporation and an indirect wholly owned subsidiary of XPO.

Pursuant to the terms of the Merger Agreement and subject to the conditions thereof, at the effective time of the Merger, each outstanding share of common stock of Pacer, par value $0.01 per share (the “Pacer Common Stock”), other than shares of Pacer Common Stock held by Pacer, XPO, Merger Subsidiary or their respective subsidiaries, will be converted into the right to receive (1) $6.00 in cash and (2) subject to the limitations in the following sentence, a fraction (the “Exchange Ratio”) of a share of XPO common stock, par value $0.001 per share (the “XPO Common Stock”), equal to $3.00 divided by the volume-weighted average price per share of XPO Common Stock for the last 10 trading days prior to the closing date (such average, the “VWAP,” and, such cash and stock consideration together, the “Merger Consideration”). For the purpose of calculating the Exchange Ratio, the VWAP may not be less than $23.12 per share or greater than $32.94 per share. If the VWAP for purposes of the Exchange Ratio calculation is less than or equal to $23.12 per share, then the Exchange Ratio will be fixed at 0.1298 of a share of XPO Common Stock. If the VWAP for purposes of the Exchange Ratio calculation is greater than or equal to $32.94 per share, then the Exchange Ratio will be fixed at 0.0911 of a share of XPO Common Stock.

The completion of the Merger is subject to customary closing conditions, including approval of the Merger by the holders of a majority of the outstanding shares of Pacer common stock. XPO’s and Merger Subsidiary’s obligations to consummate the Merger are not subject to any condition related to the availability of financing.

Conversions of Convertible Senior Notes

On January 21, 2014 and February 18, 2014, the Company issued an aggregate of 795,814 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), to certain holders of the

88


Company’s 4.50% Convertible Senior Notes due 2017 (the “Notes”) in connection with the conversion of $13.1 million aggregate principal amount of the Notes. These transactions represented induced conversions pursuant to which the Company paid the holder a market-based premium in cash. The negotiated market-based premiums, in addition to the difference between the current fair value and the book value of the Notes, will be reflected in interest expense in the first quarter of 2014. The number of shares of common stock issued in the foregoing transactions equals the number of shares of common stock presently issuable to holders of the Notes upon conversion under the original terms of the Notes.

Common Stock Offering

On February 5, 2014, the Company closed a registered underwritten public offering of 15,000,000 shares of common stock, and on February 11, 2014 we closed as part of the same public offering the sale of an additional 2,250,000 shares as a result of the full exercise of the underwriters’ overallotment option, in each case at a price of $25.00 per share (together, the “February 2014 Offering”). The Company received $413.3 million in net proceeds from the February 2014 Offering after underwriting discounts and expenses.

89


EXHIBIT INDEX

 

Exhibit
Number

 

Description

Sequential Page
Number

    2.1 *‡ Investment Agreement, dated as of June 13, 2011, by and among Jacobs Private Equity, LLC (“JPE”), each of the other investors party thereto and the registrant (incorporated herein by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K dated June 14, 2011 (the “June 2011 Form 8-K”)).
    2.2 *‡ *‡Share Purchase Agreement dated August 3, 2012 among XPO Logistics Canada Inc., 1272387 Ontario Inc. and 1272393 Ontario Inc., and Keith Matthews and Geoff Bennett (incorporated herein by reference to Exhibit 2.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012).
    2.3 *‡Asset Purchase Agreement dated August 3, 2012 among XPO Logistics, LLC, Kelron Distribution Systems (Cleveland) LLC, and Keith Matthews and Geoff Bennett (incorporated herein by reference to Exhibit 2.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012).
    2.4 *Asset Purchase Agreement, dated October 24, 2012, by and among XPO Logistics, Inc., XPO Logistics, LLC, Turbo Logistics, Inc., Turbo Dedicated, Inc., Ozburn-Hessey Logistics, LLC, and OHH Acquisition Corporation (incorporated herein by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K dated October 24, 2012).
    2.5 *Stock Purchase Agreement, dated July 12, 2013, by and among 3PD Holding, Inc., Logistics Holding Company Limited, Mr. Karl Meyer, Karl Frederick Meyer 2008 Irrevocable Trust II, Mr. Randall Meyer, Mr. Daron Pair, Mr. James J. Martell and XPO Logistics, Inc. (incorporated herein by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K dated July 12, 2013).
    2.6 *Amendment No. 1 dated August 14, 2013 to Stock Purchase Agreement dated July 12, 2013 by and among the Company, 3PD, Logistics Holding Company Limited, Mr. Karl Meyer, Karl Frederick Meyer 2008 Irrevocable Trust II, Mr. Randall Meyer, Mr. Daron Pair and Mr. James J. Martell (incorporated herein by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K dated August 15, 2013).
    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 * Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the 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 * 2nd Amended and 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).*

90


Exhibit
Number

Description

    4.2 *  Form of 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).
    4.4 *  *Senior Indenture dated as of September 26, 2012 between XPO Logistics, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated herein by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K dated September 26, 2012 (the “September 2012Form 8-K”).
    4.5 *First Supplemental Indenture dated as of September 26, 2012 between XPO Logistics, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, supplementing the Senior Indenture dated as of September 26, 2012 (incorporated herein by reference to Exhibit 4.2 of the September 2012 Form 8-K).
10.1    4.6 *  Form of Indenture for Senior Debt Securities between the Company and one or more banking institutions to be qualified as Trustee pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939 (incorporated herein by reference to Exhibit 4.6 to the registrant’s Registration Statement on Form S-3, registration statement no. 333-188848, filed with the Securities and Exchange Commission on May 24, 2013 (the “May 2013 Form S-3”)).
    4.7 *Form of Indenture for subordinated Debt Securities between the Company and one or more banking institutions to be qualified as Trustee pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939 (incorporated herein by reference to Exhibit 4.8 to the registrant’s May 2013 Form S-3).
  10.1 +*Amended and Restated 2011 Omnibus Incentive Compensation Plan (incorporated herein by reference to Exhibit DA to Exhibit 2.1 toXPO Logistics, Inc.’s definitive proxy statement on Schedule 14A filed with the June 2011 Form 8-K)Securities and Exchange Commission on April 27, 2012).+
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
Number

10.5Employment Agreement between the registrant and Michael R. Welch, dated July 9, 2004 (incorporated herein by reference to Exhibit 99.4 to the registrant’s Current Report on Form 8-K/A dated October 22, 2004).+
10.6Amendment 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).+
10.7Amendment 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”)).+
10.8Amendment 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).+
10.9Amendment 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 22, 2011).+
10.11  10.6 +*  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 Current Report on Form 8-K dated July 2011 Form 8-K)22, 2011).+
10.12  10.7 +*  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  10.8 +*  Employment Agreement between the registrant and Gregory W. Ritter, dated October 5, 2011.+2011 (incorporated herein by reference to Exhibit 10.13 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011).

91


10.14

Exhibit
Number

Description

  10.9 +*  Employment Agreement between the registrant and Mario A. Harik, dated October 10, 2011.+2011 (incorporated herein by reference to Exhibit 10.14 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011).
10.15  10.10 +*  Employment Agreement between the registrant and Gordon E. Devens, dated October 31, 2011.+
10.16Employment 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).+
10.17Amendment No. 1 to Employment Agreement between the registrant and Daniel Para, effective July 18, 2011 (incorporated herein by reference to Exhibit 10.310.15 to the September 2011registrant’s Annual Report on Form 10-Q)10-K for the fiscal year ended December 31, 2011).+
10.18  10.11 +*  Form of Restricted Stock Unit Award Agreement (Service-Vesting) (2011 Omnibus Incentive Compensation Plan) (incorporated herein by reference to Exhibit 10.18 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011).+
10.19  10.12 +*  Form of Performance-Based Restricted Stock Unit Award Agreement (2011 Omnibus Incentive Compensation Plan) (incorporated herein by reference to Exhibit 10.19 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011).+

Exhibit Number

Description

Sequential Page
Number

  10.2010.13 +*  Form of Option Award Agreement (2011 Omnibus Incentive Compensation Plan) (incorporated herein by reference to Exhibit 10.20 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011).+
  10.2110.14 +*  Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (2011 Omnibus Incentive Compensation Plan) (incorporated herein by reference to Exhibit 10.21 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011).+
  10.2210.15 +*  Form of Option Award Agreement for Non-Employee Directors (2011 Omnibus Incentive Compensation Plan) (incorporated herein by reference to Exhibit 10.22 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011).+
  10.2310.16 +*  Form of Option Award Agreement (2001 Amended and Restated Stock Option Plan) (grants from June 2011 through September 2011) (incorporated herein by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011).+
  10.2410.17 +*  Form of Option Award Agreement (2001 Amended and Restated Stock Option Plan) (grants through May 2011) (incorporated herein by reference to Exhibit 10.24 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011).+
  10.2510.18 *Revolving and Term Loan Agreement dated January 31, 2008 among National City Bank,Express-1 Expedited Solutions, Inc., Express 1, Inc., Express-1 Dedicated, Inc., Concert Group Logistics, Inc. and Bounce Logistics, Inc. (incorporated herein by reference to Exhibit 10.18 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012).
  10.19 *  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”)).*
  10.2610.20 *  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).*
  10.2710.21 *  CommericalCommercial Term Note (incorporated herein by reference to Exhibit 99.3 to the March 2010 Form 8-K).*
  10.2810.22 *  CommericalCommercial Revolving Note (incorporated herein by reference to Exhibit 99.2 to the registrant’s Current Report on Form 8-K dated March 31, 2011).
  10.23 +*  *Employment Agreement between the registrant and John J. Hardig, dated February 3, 2012 (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated on February 7, 2012).

92


Exhibit
Number

Description

  10.24 *Revolving Loan Credit Agreement, dated as of October 18, 2013, by and among XPO Logistics, Inc. and certain subsidiaries, Morgan Stanley Bank, N.A., Morgan Stanley Senior Funding, Inc., Credit Suisse AG, Cayman Islands Branch, and Deutsche Bank AG New York Branch as Lenders, and Morgan Stanley Senior Funding, Inc., as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated October 18, 2013).
  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, 2011.2013.
  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, 2011.2013.
  32.132.1ł  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.ł2013.
  32.232.2ł  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.ł2013.
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
Number

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.
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Act of 1934 and otherwise are not subject liability under those sections.

 

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