Table of Contents
As filed with the Securities and Exchange Commission on
October 7, 2008
Registration No. 333-152504
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
AMENDMENT NO. 2
TO
TO
Form S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Roadrunner Transportation
Services Holdings, Inc.
(Exact Name of Registrant as
Specified in Its Charter)
| Delaware | 4731 | 20-2454942 | ||
|
(State or Other Jurisdiction
of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
4900 S. Pennsylvania Ave.
Cudahy, Wisconsin 53110
(414) 615-1500
(Address, Including Zip Code,
and Telephone Number, Including Area Code,
of Registrant’s Principal
Executive Offices)
Mark A. DiBlasi
President and Chief Executive Officer
Roadrunner Transportation Services Holdings, Inc.
4900 S. Pennsylvania Ave.
Cudahy, Wisconsin 53110
(414) 615-1500
(Name, Address Including Zip
Code, and Telephone Number,
Including Area Code, of Agent
for Service)
Copies to:
|
Michael L. Kaplan, Esq. Brandon F. Lombardi, Esq. Greenberg Traurig, LLP 2375 East Camelback Road Phoenix, Arizona 85016 (602) 445-8000 |
Jay O. Rothman, Esq. Foley & Lardner LLP 777 East Wisconsin Ave. Milwaukee, Wisconsin 53202 (414) 271-2400 |
Approximate Date of Commencement
of Proposed Sale to the Public:
As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
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.
| Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer þ | Smaller Reporting Company o |
(Do not check if a smaller
reporting company)
|
Proposed Maximum Aggregate |
Amount of |
|||||||||
| Title of Each Class of Securities to be Registered | Offering Price(1) | Registration Fee(2) | ||||||||
|
Common Stock, $.01 par value per share, offered by the
registrant
|
$ | 130,000,000 | .00 | $ | 5,109 | .00 | ||||
|
Common Stock, $.01 par value per share, offered by the
selling stockholders
|
$ | 20,000,000 | .00 | $ | 786 | .00 | ||||
|
Total
|
$ | 150,000,000 | .00 | $ | 5,895 | .00 | ||||
| (1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. |
| (2) | Previously paid in connection with the initial filing of this form in July 2008. |
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), may determine.
Table of Contents
|
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted. |
Subject to Completion,
Dated ,
2008.
Roadrunner Transportation
Services Holdings, Inc.
Shares
of Common Stock
We are
selling shares
of our common stock and the selling stockholders identified in
this prospectus are selling an aggregate
of shares.
We will not receive any proceeds from the shares of our common
stock sold by the selling stockholders.
Prior to this offering, there has been no public market for our
common stock. We currently expect the initial public offering
price of our common stock will be between
$ and
$ per share. We have applied to
list our common stock on the Nasdaq Global Market under the
symbol “RRTS.”
Investing in our common stock involves risks. See
“Risk Factors” beginning on page 8 for a
description of various risks you should consider in evaluating
an investment in our common stock.
| Per Share | Total | |||||||
|
Initial public offering price
|
$ | $ | ||||||
|
Underwriting discount
|
$ | $ | ||||||
|
Proceeds, before expenses, to us
|
$ | $ | ||||||
|
Proceeds, before expenses, to selling stockholders
|
$ | $ | ||||||
We have granted the underwriters a
30-day
option to purchase up to an
additional shares
of our common stock to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares of our common
stock to purchasers on or
about ,
2008.
| Robert W. Baird & Co. | BB&T Capital Markets |
,
2008.
Table of Contents
| Flexible and Responsive Supply-Chain Solutions Third-Party Logistics (3PL) / Transportation Management Solutions (TMS) Customized / Expedited Less-than-Truckload (LTL) Truckload (TL) Brokerage Parcel Intermodal Domestic / International Air Non-Asset Based Services We provide transportation and logistics services throughout the contiguous United States, Hawaii, Alaska, Mexico, Puerto Rico, and Canada LTL Delivery Agent TL Brokerage Location LTL Service Center North American Network |
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| F-1 | ||||||||
| EXHIBIT 5 | ||||||||
| EXHIBIT 23.1 | ||||||||
| EXHIBIT 23.2 | ||||||||
| EXHIBIT 23.3 | ||||||||
| EXHIBIT 23.4 | ||||||||
No dealer, salesperson, or other person is authorized to give
any information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby and only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of the date of
this prospectus.
Through and
including ,
2008 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer’s obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
MARKET AND
INDUSTRY DATA AND FORECASTS
This prospectus includes estimates of market share and industry
data and forecasts that we obtained from industry publications
and surveys. Industry publications and surveys and forecasts
generally state that the information contained therein has been
obtained from sources believed to be reliable, but there can be
no assurance as to the accuracy or completeness of included
information. We have not independently verified any of the data
from third-party sources, nor have we ascertained the underlying
economic assumptions relied upon therein.
Table of Contents
Prospectus
Summary
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all the
information that you should consider before investing in our
common stock. You should read this entire prospectus carefully,
including “Risk Factors” and our financial statements
and related notes.
Unless otherwise stated in this prospectus, the term
“RRTS” means Roadrunner Transportation Services
Holdings, Inc. and its subsidiaries; “GTS” means Group
Transportation Services Holdings, Inc. and its subsidiaries;
“GTS merger” means the merger of GTS with a wholly
owned subsidiary of RRTS, which will occur simultaneously with
the consummation of this offering and add third-party
transportation management solutions to RRTS’ suite of
services; references to “we,” “us,” or
“our company” refer to Roadrunner Transportation
Services Holdings, Inc. and its subsidiaries, giving effect to
the GTS merger.
Unless otherwise indicated, all information in this
prospectus reflects the GTS merger. The pro forma financial data
in this prospectus are unaudited and reflect our historical
results as adjusted to give pro forma effect to the GTS merger
and this offering.
Our Business and
Recent Developments
We are a leading non-asset based transportation and logistics
services provider offering a full suite of solutions, including
third-party
logistics, less-than-truckload, truckload brokerage, parcel,
intermodal (transporting a shipment by more than one mode,
primarily via rail and truck), and domestic and international
air. We utilize a broad third-party network of transportation
providers to serve a diverse customer base in terms of end
market focus and annual freight expenditures. Our third-party
transportation providers consist of individuals or small teams
that own or lease their own over-the-road transportation
equipment and provide us with dedicated freight capacity, which
we refer to as independent contractors, and asset-based,
over-the-road transportation companies that provide us with
freight capacity under non-exclusive contractual arrangements,
which we refer to as purchased power. Across all transportation
modes, from pickup to delivery, we leverage relationships with a
diverse group of over 9,000 third-party carriers to provide
scalable capacity and reliable, customized service to our more
than 25,000 customers in North America. Although we service
large national accounts, we primarily focus on small to mid-size
shippers, which we believe represent an expansive and
underserved market. Our customized transportation and logistics
solutions are designed to allow our customers to reduce
operating costs, redirect resources to core competencies,
improve supply chain efficiency, and enhance customer service.
Our business model is highly scalable and features a variable
cost structure that requires minimal investment in
transportation equipment and facilities, thereby enhancing free
cash flow generation and returns on our invested capital. Our
pro forma
capital expenditures as a percentage of pro forma revenues was
% in 2007, as discussed in
“Summary Historical and Unaudited Pro Forma Consolidated
Financial and Other Data.”
Less-than-truckload services involve the transport of
consolidated freight of several shippers to multiple
destinations on one vehicle. Based on our research, we believe
that we are the largest non-asset based provider of
less-than-truckload services in North America in terms of
revenue. Our less-than-truckload business achieved revenues of
$361.8 million and $188.5 million for the year ended
December 31, 2007 and the six months ended June 30,
2008, respectively, and operating income of $10.2 million
and $5.4 million for the same periods. Within our LTL
business, we operate 18 service centers throughout the United
States and complement our service center network with over
215 delivery agents, which are independent companies that
de-consolidate and deliver a portion of our less-than-truckload
freight. Our less-than-truckload model allows for more direct
transportation of freight from shipper to end user than does the
traditional hub and spoke model employed by many other
less-than-truckload service providers. With fewer handlings,
consolidations, and de-consolidations per less-than-truckload
shipment, we believe we are positioned to deliver freight more
cost-efficiently, faster, and with fewer claims than many of our
competitors.
Truckload brokerage involves the sale and management of
transportation services related to the transport of a single
shipper’s freight to a single destination. This includes
locating a qualified truckload carrier that can move the freight
on schedule, negotiating favorable rates for our customers, and
managing the entire process from pickup through delivery. Based
on our research, we believe that we are among the 15 largest
truckload brokerage operations in North America in terms of
revenue. Our truckload business achieved revenues of
$176.3 million and $88.7 million for the year ended
December 31, 2007 and the six months ended June 30,
2008, respectively, and operating income of $7.8 million
and $3.4 million for the same periods. Within our truckload
brokerage business, we operate 12 company dispatch offices
and augment our dispatch office network with an additional 24
brokerage agents, which are exclusive third parties that
originate a portion of our truckload brokerage revenues and
receive a percentage of the net margin generated.
The addition of a third-party logistics provider and
transportation management solutions offering to RRTS’
existing suite of services through the GTS merger allows us to
offer our customers a “one-stop” transportation and
logistics solution, including access to the most cost-effective
and time-sensitive modes of transportation within our broad
network. A third-party logistics provider outsources customized
transportation management solutions, which include the planning,
implementation, and control of the efficient, effective
transport and storage of freight and related information from
pickup through delivery. As supply chain complexity has
increased, the U.S. third-party logistics sector has grown at a
13.3% compound annual growth rate, or CAGR, from 1998 through
2007, according to Armstrong & Associates, a leading
supply chain market research firm. GTS has capitalized on this
trend and
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generated revenue growth at a CAGR of 24.8% from 2005 through
2007. With minimal integration requirements and a similar focus
on small to mid-size shippers, we believe that RRTS and GTS are
well-positioned
to realize synergies as a combined entity. Since February 2008,
RRTS and GTS have been under common control and the management
teams of both companies have developed a strong working
relationship and are implementing a cohesive plan to enhance our
collective growth initiatives. On a pro forma basis reflecting
the GTS merger, we achieved revenues of
$ million and
$ million for the year ended
December 31, 2007 and the six months ended June 30,
2008, respectively, and operating income of
$ million and
$ million for the same
periods. Pro forma operating income for the six months ended
June 30, 2008 includes a transaction bonus paid to GTS
personnel in the amount of $3.6 million, which is a
one-time, non-recurring charge.
According to the American Trucking Associations, or the ATA,
beginning in the fourth quarter of 2006, the over-the-road
freight sector began to experience year-over-year declines in
tonnage, primarily reflecting a weakening freight environment in
the U.S. construction, manufacturing, and retail sectors.
During 2007, less-than-truckload tonnage at RRTS increased 4.5%
over 2006, while less-than-truckload tonnage in the
U.S. over-the-road freight sector declined 2.8% during the
same period. Throughout this downturn, we have actively managed
our less-than-truckload business by adding new customers and
streamlining our cost structure to enhance our operating
efficiency and improve margins. We believe our variable cost,
non-asset based operating model serves as a competitive
advantage and allows us to provide our customers with
cost-effective transportation solutions regardless of broader
economic conditions. We believe we are well-positioned for
continued growth, profitability, and market share expansion in
the event of a rebound in the over-the-road freight sector.
Our Competitive
Strengths
We consider the following to be our principal competitive
strengths:
Comprehensive Logistics and Transportation Management
Solutions. Our broad offering of transportation and
logistics services allows us to manage a shipper’s freight
from dispatch through final delivery. We can provide third-party
transportation management solutions to shippers seeking to
redirect resources to core competencies, improve service, and
reduce costs, and we can also provide them access to the
appropriate modes of transportation. We leverage our scalable,
proprietary technology systems to manage our multi-modal
nationwide network of service centers, delivery agents, dispatch
offices, brokerage agents, independent contractors, and
purchased power. As a result of our integrated offering, we
believe we have a competitive advantage in terms of service,
delivery time, and customized solutions. The key attributes of
our service offerings include the following:
| n | Leading Non-Asset Based, Customized Less-than-Truckload Services. Based on our research, we believe we are the largest non-asset based provider of customized less-than-truckload services in North America in terms of revenue. We believe our point-to-point less-than-truckload model allows us to offer faster transit times with lower incidence of damage and reduced fuel consumption, providing us with a distinct competitive advantage over asset-based less-than-truckload carriers employing the traditional hub and spoke model. In addition, we believe our variable cost structure and the utilization of our dedicated independent contractor base positions us to maintain consistent operating margins, even during periods of economic decline. |
| n | Leading Truckload Freight Brokerage Services. Based on our research, we believe we are among the 15 largest truckload brokerage operations in North America in terms of revenue, offering temperature-controlled, dry van, and flatbed services. While we serve a diverse customer base and provide a comprehensive truckload solution, we specialize in the transport of refrigerated foods, poultry, and beverages. We believe this specialization provides consistent shipping volume year-over-year. Similar to our less-than-truckload services, we utilize our dedicated independent contractor base in an effort to maintain consistent operating margins, even during periods of economic decline. |
| n | Comprehensive Outsourced Transportation Management Solutions. After giving effect to the GTS merger, we will offer transportation management solutions, which includes pricing, contract management, carrier selection, freight tracking, freight bill payment and audit, cost reporting and analysis, and dispatch. With a flexible operating model, scalable technology system, and access to a dynamic multi-modal carrier network, we believe we can tailor our services to each customer’s individual needs and desired level of outsourcing. |
Flexible Operating Model. Because we utilize a
broad network of purchased power, independent contractors, and
other third-party transportation providers to transport our
customers’ freight, our business is not characterized by
the high level of fixed costs and required concentration on
asset utilization that is common among many asset-based
transportation providers. As a result, we are able to focus
solely on providing quality service and specialized
transportation and logistics solutions to our customers, which
we believe provides a significant competitive advantage.
Furthermore, our operating model requires minimal investment in
transportation equipment and facilities, which enhances our
returns on invested capital and assets.
Focus on Serving a Diverse, Underserved Customer
Landscape. We serve over 25,000 customers, with
no single customer accounting for more than 2% of our 2007 pro
forma revenue. In addition, we serve a diverse mix of end
markets, with no industry sector accounting for more than 18% of
our 2007 pro forma revenue. We concentrate primarily on small to
mid-size shippers with annual transportation expenditures of
less than $25 million, which we believe represents an
underserved market. Our services are designed to satisfy these
customers’ unique needs and desired level of integration.
We believe our expansive target customer base
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presents attractive growth opportunities for each of our service
offerings, given that many small to mid-size companies have not
yet capitalized on the benefits of third-party transportation
management.
Scalable Technology Systems. Our web-enabled
technology is designed to serve our customers’ distinct
logistics needs and provide them with cost-effective solutions
and consistent service on a
shipment-by-shipment
basis. In addition to managing the physical movement of freight,
we offer contract management, real-time shipment tracking, order
processing, and automated data exchange. Our technology also
enables us to more efficiently manage our multi-modal
capabilities and broad carrier network, and provides the
scalability necessary to accommodate significant growth.
Experienced and Motivated Management Team. We
have assembled an experienced and motivated management team, led
by our chief executive officer, Mark A. DiBlasi.
Mr. DiBlasi has over 29 years of industry experience
and previously managed a $1.2 billion division of FedEx
Ground, Inc., a division of FedEx Corporation. Although our
senior management team has limited experience managing a public
company, its members have an average of 24 years of
industry experience leading high-growth logistics operations and
draw on substantial knowledge gained from previous leadership
positions at FedEx Ground, Inc., FedEx Global Logistics, Inc.,
DHL Exel Supply Chain, Yellow Transportation, Inc., and United
Parcel Service, Inc.
Our Growth
Strategies
We believe our business model has positioned us well for
continued growth and profitability, which we intend to pursue
through the following initiatives:
Continue Expanding Customer Base. We intend to
pursue greater market share across all of our service offerings
by leveraging GTS’ network to provide greater
less-than-truckload coverage throughout North America,
geographically expanding our truckload brokerage operation
beyond its current footprint in the Eastern United States and
Canada, and aggressively expanding GTS’ sales team and
utilizing our
110-person
less-than-truckload sales force to enhance the market reach and
penetration of our transportation management solutions offering.
Based on our research, we also believe the pool of potential
customers will continue to grow as the benefits of third-party
logistics and transportation management continue to be embraced
by shippers. Additionally, a broader service offering through
the GTS merger provides us with the opportunity to penetrate new
customers seeking a “one-stop” transportation and
logistics solution.
Increase Penetration with Existing
Customers. With a more comprehensive service
offering and an expanded network resulting from the GTS merger,
we believe there are substantial cross-selling opportunities and
the potential to capture a greater share of each customer’s
annual transportation and logistics expenditures. Along with our
planned cross-selling initiatives, we believe that macroeconomic
factors will provide us with additional opportunities to further
penetrate existing customers. During the current economic
downturn, existing customers have generally reduced the number
of shipments and pounds per shipment. We believe an economic
rebound will result in increased revenue through greater
shipping volume and improved load density, and will allow us to
increase profits at a rate exceeding our revenue growth.
Continue Generating Operating Improvements. We
believe our ongoing efforts to streamline our cost structure and
improve operating efficiency will enhance our margins and
improve customer service in the event industry conditions
improve and overall freight capacity tightens. We have
implemented a number of targeted initiatives to drive operating
improvements, such as
| n | enhancing our real-time metrics to reduce operating expenses, | |
| n | increasing utilization of our flexible IC base, | |
| n | reducing per-mile costs, | |
| n | reducing dock handling costs, | |
| n | aggressively recouping increased fuel costs, and | |
| n | improving routing efficiency throughout our network. |
We believe these initiatives will enable us to continue to
enhance our competitive position, compel continued earnings
growth, and further improve profitability.
Pursue Selective Acquisitions. The
transportation and logistics industry is highly fragmented,
consisting of many smaller, regional service providers covering
particular shipping lanes and providing niche services. We built
our less-than-truckload, truckload brokerage, and transportation
management solutions platforms by successfully completing and
integrating accretive acquisitions. We intend to continue to
pursue acquisitions that will complement our existing suite of
services and extend our geographic reach. With a scalable,
non-asset based business model, we believe we can execute our
acquisition strategy with minimal investment in additional
infrastructure and overhead. We do not currently have any
specific acquisition under consideration and do not have any
proposals or arrangements with respect to such a transaction.
Our
History
Our principal strategy has been to develop a full-service
transportation and logistics provider under a non-asset based
structure through the integration and internal growth of
complementary businesses. In March 2005, we acquired Dawes
Transport, Inc., which we refer to as Dawes Transport, a
non-asset based less-than-truckload provider primarily using a
blend of purchased power and
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independent contractors. In June 2005, we acquired Roadrunner
Freight Systems, Inc., which we refer to as Roadrunner Freight,
a provider of less-than-truckload services similar to Dawes
Transport in its business model, scale, and customer mix, but
utilizing primarily purchased power.
In January 2006, Mark A. DiBlasi joined us as chief executive
officer to lead the final integration of the two
less-than-truckload businesses and the transformation of RRTS
into a full-service transportation and logistics provider. In
March 2007, we expanded our service offerings through the
acquisition of Sargent Transportation Group, Inc. and related
entities, providers of truckload brokerage services, which we
collectively refer to as Sargent.
Our next objective was to identify and acquire a third-party
transportation management solutions operation with a scalable
technology system and management infrastructure capable of
assimilating and enhancing our collective growth initiatives.
Simultaneous with the consummation of this offering, GTS, a
rapidly growing provider of transportation management solutions
based in Hudson, Ohio, will merge with and into a wholly owned
subsidiary of RRTS. With the addition of a transportation
management solutions offering, we are able to provide shippers
with a “one-stop” transportation and logistics
solution, including access to the most cost-effective and
time-sensitive modes of transportation within our broad network
of third-party carriers.
GTS
Merger
Simultaneous with the consummation of this offering, GTS will
merge with and into a wholly owned subsidiary of RRTS. As a
result of the GTS merger, the stockholders of GTS will become
stockholders of RRTS. Upon consummation of the GTS merger, each
share of GTS outstanding common stock will be exchanged
for shares
of RRTS common stock. The GTS merger is conditioned upon the
consummation of this offering, the approval of the GTS merger by
RRTS’ creditors, the termination of the RRTS and GTS
management agreements described elsewhere in this prospectus,
the repayment of RRTS’ subordinated debt and the GTS credit
facility, and upon other conditions set forth in the merger
agreement, which is filed as an exhibit to the registration
statement of which this prospectus forms a part. The GTS merger
is more fully described on page 65 of this prospectus in
the section entitled “Certain Relationships and Related
Transactions.”
The following chart represents our business segments immediately
following the consummation of the GTS merger.
Risk
Factors
There are a number of risks and uncertainties that may affect
our financial and operating performance. You should carefully
consider the risks discussed in “Risk Factors”
beginning on page 8 before investing in our common stock,
which include but are not limited to the following:
| n | the competitive nature of the transportation industry; | |
| n | fluctuations in the price or availability of fuel; | |
| n | our ability to maintain the level of service that we currently provide to our customers; | |
| n | the ability of our carriers to meet our needs and expectations, and those of our customers; | |
| n | our reliance on ICs to provide transportation services to our customers; | |
| n | general economic, political, and other risks that are out of our control, including any prolonged delay in a recovery of the U.S. over-the-road freight sector; | |
| n | the limited experience of our senior management in managing a public company; | |
| n | seasonal fluctuations in our business; and | |
| n | our ability to maintain, enhance, or protect our proprietary technology systems. |
Our
Offices
We maintain our principal executive offices at
4900 S. Pennsylvania Ave., Cudahy, Wisconsin 53110.
Our telephone number is
(414) 615-1500.
Our website is located at www.rrts.com. The information
contained on our website or that can be accessed through our
website does not constitute part of this prospectus.
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The
Offering
Common stock offered:
| By us | shares | |
| By the selling stockholders | shares | |
| Total common stock offered | shares | |
| Common stock to be outstanding after this offering | shares |
| Use of proceeds | We estimate that our net proceeds from this offering will be approximately $ million, assuming an initial public offering price of $ per share of common stock, the midpoint of the range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and estimated offering expenses. We intend to use approximately $ million of such net proceeds to prepay approximately $ under the RRTS credit facility, approximately $ of RRTS senior subordinated notes, and approximately $ under the GTS credit facility. In addition, we intend to use approximately (i) $2.5 million to pay a transaction fee to affiliates of our two largest stockholders in connection with this offering, and (ii) $ million of remaining net proceeds for general corporate purposes, including to finance our working capital needs and for the potential acquisition of complementary businesses. See “Use of Proceeds.” We will not receive any proceeds from sales by the selling stockholders in this offering. |
| Nasdaq Global Market Symbol | RRTS |
The number of shares of common stock to be outstanding after
this offering is based upon our outstanding shares as of
June 30, 2008, including the issuance
of shares
of our common stock in connection with the GTS merger, and
excludes the following:
| n | shares of common stock issuable upon the exercise of options outstanding at June 30, 2008 with a weighted average exercise price of $ per share; |
| n | shares of common stock issuable upon the exercise of options to purchase GTS common stock outstanding at June 30, 2008 with a weighted average exercise price of $ per share, which will be assumed upon consummation of the GTS merger; and |
| n | shares of common stock issuable upon the exercise of warrants outstanding at June 30, 2008 with an exercise price of $ per share. |
Unless otherwise noted, all information in this prospectus
assumes no exercise of the underwriters’ over-allotment
option and reflects (i) the GTS merger, and (ii) the
conversion of our Class A common stock and Class B
common stock into a single class of common stock on
a -for-one
basis pursuant to an amendment to our certificate of
incorporation, both of which will be effected in connection
with, and are conditioned upon, the consummation of this
offering.
5
Table of Contents
Summary
Historical and Unaudited Pro Forma
Consolidated Financial and Other Data
Consolidated Financial and Other Data
The following table summarizes selected historical and pro forma
consolidated financial and other data as of and for the periods
indicated. You should read the following information together
with the more detailed information contained in
“Capitalization,” “Unaudited Pro Forma
Consolidated Financial Data,” “Selected Consolidated
Financial and Other Data,” “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” and the consolidated financial statements and
the related notes included elsewhere in this prospectus.
The statement of operations data for RRTS for the period from
February 22, 2005 (date of inception) to December 31,
2005, and for the years ended December 31, 2006 and 2007,
are derived from our audited consolidated financial statements
included in this prospectus. The statement of operations data
for the six-month period ended June 30, 2008, and the
balance sheet data as of June 30, 2008, have been derived
from our unaudited consolidated financial statements. Our
unaudited consolidated financial statements include adjustments,
all of which are normal recurring adjustments, that we consider
necessary for a fair presentation of our results for this
unaudited period. The results of operations for the six-month
period ended June 30, 2008 are not necessarily indicative
of the results that may be expected for the full year ending
December 31, 2008.
All outstanding shares of Roadrunner Freight were acquired at
the close of business on April 29, 2005. As such, the
consolidated statement of operations data, consolidated balance
sheet data, and other data include the results of Roadrunner
Freight subsequent to the close of business on April 29,
2005. In addition, RRTS and Sargent have been under common
control since October 4, 2006. As such, the consolidated
statement of operations data, consolidated balance sheet data,
and other data include the results of Sargent from
October 4, 2006.
GTS completed the acquisition of Group Transportation Services,
Inc., which we refer to as Group Transportation Services, and
GTS Direct, LLC, which we refer to as GTS Direct, at the close
of business on February 29, 2008, which we refer to as the
GTS acquisition. GTS had no substantive operations from
February 12, 2008 (date of inception) until it acquired
Group Transportation Services and GTS Direct on
February 29, 2008. Group Transportation Services and GTS
Direct were under common control prior to the GTS acquisition
and GTS is considered the successor entity to Group
Transportation Services and GTS Direct for periods subsequent to
the date of the GTS acquisition. The combined results of
operations of Group Transportation Services and GTS Direct
(predecessor entities) for the year ended December 31, 2007
and the period from January 1, 2008 through
February 29, 2008, which are included in the unaudited pro
forma consolidated financial data, are presented under the
historical company basis. The consolidated results of operations
of GTS (successor entity) for the period February 12, 2008
(date of inception) through June 30, 2008, and the balance
sheet data as of June 30, 2008, are presented under the new
company basis, using the purchase method of accounting.
The pro forma consolidated statement of operations data for the
year ended December 31, 2007, and for the six-month period
ended June 30, 2008, give effect to the GTS acquisition,
the GTS merger, and this offering as if they had occurred on
January 1, 2007. The pro forma consolidated balance sheet
data as of June 30, 2008 give effect to the GTS
acquisition, the GTS merger, and this offering, as if they had
occurred on June 30, 2008. The pro forma adjustments are
based upon information and assumptions that management of RRTS
believes are reasonable; however, such adjustments are subject
to change. RRTS’ management does not expect any final
adjustments to be materially different from the preliminary
amounts presented in this prospectus. The pro forma consolidated
statements of operations data do not necessarily indicate the
results that would have actually occurred if the GTS
acquisition, the GTS merger, and this offering had occurred on
January 1, 2007, or that may occur in the future.
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| (In thousands, except per share data) | ||||||||||||||||||||||||||||
| RRTS |
Pro Forma |
RRTS |
Pro Forma |
|||||||||||||||||||||||||
|
Years Ended |
Year Ended |
Six Months |
Six Months |
|||||||||||||||||||||||||
|
Feb. 22, 2005 - |
Dec. 31, |
Dec. 31, |
Ended June 30, |
Ended June 30, |
||||||||||||||||||||||||
| Dec. 31, 2005 | 2006 | 2007 | 2007 | 2007 | 2008 | 2008 | ||||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||
|
Consolidated Statement of Operations Data:
|
||||||||||||||||||||||||||||
|
Revenues, net
|
$ | 250,950 | $ | 399,441 | $ | 538,007 | $ | $ | 261,168 | $ | 276,802 | $ | ||||||||||||||||
|
Operating income
|
13,410 | 13,324 | 17,934 | 7,918 | 8,750 | (a) | ||||||||||||||||||||||
|
Net income (loss) available to common stockholders
|
1,452 | 683 | 935 | (302 | ) | 1,334 | (a) | |||||||||||||||||||||
|
Earnings (loss) per share available to common stockholders:
|
||||||||||||||||||||||||||||
|
Basic
|
$ | 17.22 | $ | 7.73 | $ | 9.24 | $ | (b) | $ | (2.98 | ) | $ | 13.18 | $ | (b) | |||||||||||||
|
Diluted
|
17.22 | 7.73 | 9.23 | (b) | (2.98 | ) | 13.08 | (b) | ||||||||||||||||||||
|
Weighted average common stock outstanding:
|
||||||||||||||||||||||||||||
|
Basic
|
84,315 | 88,437 | 101,220 | (b) | 101,220 | 101,220 | (b) | |||||||||||||||||||||
|
Diluted
|
84,315 | 88,437 | 101,354 | (b) | 101,220 | 101,993 | (b) | |||||||||||||||||||||
|
Other Data:
|
||||||||||||||||||||||||||||
|
Capital expenditures
|
$ | 1,531 | $ | 1,052 | $ | 1,867 | $ | 1,943 | $ | 429 | $ | 289 | $ | 369 | ||||||||||||||
|
Capital expenditures as a percentage of
revenues(c)
|
0.6 | % | 0.3 | % | 0.3 | % | % | 0.2 | % | 0.1 | % | % | ||||||||||||||||
| As of June 30, 2008 | ||||||||
|
Pro Forma |
||||||||
|
(In thousands) |
Actual | as Adjusted | ||||||
| (unaudited) | ||||||||
|
Consolidated Balance Sheet Data:
|
||||||||
|
Cash
|
$ | 580 | ||||||
|
Total current assets
|
65,557 | |||||||
|
Property and equipment, net
|
5,040 | |||||||
|
Total assets
|
258,954 | |||||||
|
Total current liabilities
|
48,278 | |||||||
|
Current maturities of long-term debt
|
5,250 | |||||||
|
Total debt
|
101,225 | |||||||
|
Working capital
|
17,279 | |||||||
|
Mezzanine equity
|
1,765 | |||||||
|
Total stockholders’ investment
|
105,556 | |||||||
| (a) Includes a transaction bonus paid to GTS personnel as a result of the GTS acquisition in the amount of $3.6 million. This one-time, non-recurring charge has been reflected in the historical financial statements of GTS for the six months ended June 30, 2008, and has not been excluded from the pro forma financial statements. |
| (b) Pro forma earnings (loss) per share available to common stockholders and weighted average common stock outstanding reflect (i) the reclassification of all outstanding classes of common stock into one class of common stock in a -for-one stock split. Earnings (loss) per share available to common stockholders for all periods was computed in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share (SFAS 128). See “Unaudited Pro Forma Consolidated Financial Data” beginning on page 19. |
| (c) Our management uses capital expenditures as a percentage of revenues to evaluate our operating performance and measure the effectiveness of our non-asset based structure. We believe this financial measure is useful in evaluating the efficiency of our operating model compared to other companies in our industry. This operating measure is based on the amount of historical capital expenditures and revenues as shown in our financial statements, adjusted for pro forma intercompany revenue eliminations between RRTS and GTS, and may not be comparable to other companies in our industry. |
7
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Risk Factors
You should carefully consider the following risks and other
information set forth in this prospectus before deciding to
invest in shares of our common stock. If any of the events or
developments described below actually occurs, our business,
financial condition, and results of operations may suffer. In
that case, the trading price of our common stock may decline and
you could lose all or part of your investment.
Risks Related to
Our Business
We operate in
a highly competitive industry and, if we are unable to
adequately address factors that may adversely affect our revenue
and costs, our business could suffer.
Competition in the transportation services industry is intense.
Increased competition may lead to revenue reductions, reduced
profit margins, or a loss of market share, any one of which
could harm our business. There are many factors that could
impair our ability to maintain our current profitability,
including the following:
| n | competition with other transportation services companies, some of which have a broader coverage network, a wider range of services, and greater capital resources than we do; | |
| n | reduction by our competitors of their freight rates to gain business, especially during times of declining growth rates in the economy, which reductions may limit our ability to maintain or increase freight rates, maintain our operating margins, or maintain significant growth in our business; | |
| n | solicitation by shippers of bids from multiple carriers for their shipping needs and the resulting depression of freight rates or loss of business to competitors; | |
| n | development of a technology system similar to ours by a competitor with sufficient financial resources and comparable experience in the transportation services industry; and | |
| n | establishment by our competitors of cooperative relationships to increase their ability to address shipper needs. |
Fluctuations
in the price or availability of fuel and limitations on our
ability to collect fuel surcharges may adversely affect our
results of operations.
We are subject to risks associated with fuel charges from our
ICs and purchased power in our LTL and TL businesses. The
tractors operated by our ICs and purchased power require large
amounts of diesel fuel, and the availability and price of diesel
fuel are subject to political, economic, and market factors that
are outside of our control. For example, average weekly diesel
fuel prices reached all-time highs ranging from $3.96 per gallon
to $4.72 per gallon in the second quarter of 2008, compared with
$2.77 per gallon to $2.88 per gallon in the second quarter of
2007, according to the U.S. Energy Information
Administration. Our ICs and purchased power pass along the cost
of diesel fuel to us, and we in turn attempt to pass along some
or all of these costs to our customers through fuel surcharge
revenue programs. There can be no assurance that our fuel
surcharge revenue programs will be effective in the future.
Market pressures may limit our ability to assess our fuel
surcharges. At the request of our customers, we have at times
temporarily capped the fuel surcharges at a fixed percentage
pursuant to contractual arrangements that vary by customer.
Currently, approximately 4% of our customers have contractual
arrangements with varying levels of capped fuel surcharges. If
fuel surcharge revenue programs, base freight rate increases, or
other cost-recovery mechanisms do not offset our exposure to
rising fuel costs, our results of operations could be adversely
affected.
If we are
unable to maintain the level of service we currently provide to
our customers, our reputation may be damaged resulting in a loss
of business.
We compete with other transportation providers based on
reliability, delivery time, security, visibility, and
personalized service. Our reputation is based on the level of
customer service that we currently provide. If this level of
service deteriorates, or if we are prevented from delivering on
our services in a timely, reliable, safe, and secure manner, our
reputation and business may suffer.
Our
third-party carriers must meet our needs and expectations, and
those of our customers, and their inability to do so could
adversely affect our results of operations.
Our business depends to a large extent on our ability to provide
consistent, high quality, technology-enabled transportation and
logistics solutions. We 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.
We rely on third parties to provide LTL, TL, parcel, intermodal,
and domestic and international air services and to report
certain information to us, including information relating to
delivery status and freight claims. This reliance could cause
delays in providing our customers with timely delivery of
freight,
8
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important service data, and in the financial reporting of
certain events, including recognizing revenue and recording
claims. If we are unable to secure sufficient transportation
services to meet our customer commitments, or if any of the
third parties we rely on do not meet our needs or expectations,
or those of our customers, our results of operations could be
adversely affected, and our customers could switch to our
competitors temporarily or permanently.
Our reliance
on ICs to provide transportation services to our customers could
limit our expansion.
Our transportation services are conducted in part by ICs who are
generally responsible for paying for their own equipment, fuel,
and other operating costs. Our ICs are responsible for providing
the tractors and trailers they use related to our business.
Certain factors such as increases in fuel costs, insurance
costs, and the cost of new and used tractors, as well as reduced
financing sources available to ICs for the purchase of
equipment, have combined to create a difficult operating
environment for ICs. As a result of the current operating
environment, turnover and bankruptcy among ICs in the
over-the-road freight sector is high. Due to the limited pool of
qualified ICs, the competition among carriers for their services
is intense. If we are required to increase the amounts paid to
ICs in order to obtain their services, our results of operations
could be adversely affected to the extent increased expenses are
not offset by higher freight rates. Additionally, our agreements
with our ICs are terminable by either party upon short notice
and without penalty. Consequently, we regularly need to recruit
qualified ICs to replace those who have left our pool. If we are
unable to retain our existing ICs or recruit new ICs, our
results of operations and ability to expand could be adversely
affected.
A decrease in
levels of capacity in the over-the-road freight sector could
have an adverse impact on our business.
Based on our research, we believe the over-the-road freight
sector has experienced levels of excess capacity. The current
operating environment in the over-the-road freight sector
resulting from an economic recession, rising fuel costs, and
other economic factors is beginning to cause a reduction in
capacity in the sector generally, and in our carrier network
specifically, which could have an adverse impact on our ability
to execute our business strategy and on our business.
If we are
unable to expand the number of our sales representatives and
brokerage agents, or if a significant number of our sales
representatives and brokerage agents leave us, our ability to
increase our revenue could be negatively impacted.
Our ability to expand our business will depend, in part, on our
ability to attract additional sales representatives and
brokerage agents. Competition for qualified sales
representatives and brokerage agents can be intense, and we may
be unable to attract such persons. Any difficulties we
experience in expanding the number of our sales representatives
and brokerage agents could have a negative impact on our ability
to expand our customer base, increase our revenue, and continue
our growth.
In addition, we must retain our current sales representatives
and brokerage agents and properly incentivize them to obtain new
customers and maintain existing customer relationships. If a
significant number of our sales representatives and brokerage
agents leave us, our revenue could be negatively impacted. A
significant increase in the turnover rate among our current
sales representatives and brokerage agents could also increase
our recruiting costs and decrease our operating efficiency.
We may not be
able to successfully execute our acquisition strategy, and any
acquisitions that we undertake could be difficult to integrate,
disrupt our business, dilute stockholder value, and adversely
affect our results of operations.
We plan to increase our revenue and the market regions that we
serve through the acquisition of complementary businesses. In
the future, suitable acquisition candidates may not be available
at purchase prices attractive to us. In pursuing acquisition
opportunities, we will compete with other companies, some of
which have greater financial and other resources than we do. We
may not have available funds or common stock with a sufficient
market price to complete a desired acquisition, or acquisition
candidates may not be willing to receive our common stock in
exchange for their businesses. If we are unable to secure
sufficient funding for potential acquisitions, we may not be
able to complete strategic acquisitions that we otherwise find
advantageous. Further, if we make any future acquisitions, we
could incur additional debt or assume contingent liabilities.
Consummation of strategic acquisitions involves numerous risks,
including the following:
| n | failure of the acquired company to achieve anticipated revenues, earnings, or cash flows; | |
| n | assumption of liabilities that were not disclosed to us or that exceed our estimates; | |
| n | problems integrating the purchased operations with our own, which could result in substantial costs and delays or other operational, technical, or financial problems; | |
| n | potential compliance issues with regard to acquired companies that did not have adequate internal controls; | |
| n | diversion of management’s attention or other resources from our existing business; |
9
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| n | risks associated with entering markets in which we have limited prior experience; and | |
| n | potential loss of key employees and customers of the acquired company. |
One or more
significant claims, our failure to adequately reserve for such
claims, or the cost of maintaining our insurance for such
claims, could have an adverse effect on our results of
operations.
We use the services of thousands of transportation companies and
their drivers in connection with our transportation operations.
From time to time, these drivers are involved in accidents, and
goods carried by these drivers are lost or damaged, and the
carriers may not have adequate insurance coverage. Such
accidents usually result in equipment damage and, unfortunately,
can also result in injuries or death. Although these drivers are
not our employees and all of these drivers are ICs or work for
third-party carriers, from time to time claims may be asserted
against us for their actions or for our actions in retaining
them. Claims against us may exceed the amount of our insurance
coverage, or may not be covered by insurance at all. A material
increase in the frequency or severity of accidents, claims for
lost or damaged goods, liability claims, or workers’
compensation claims, or unfavorable resolutions of any such
claims, could adversely affect our results of operations to the
extent claims are not covered by our insurance or such losses
exceed our reserves. Significant increases in insurance costs or
the inability to purchase insurance as a result of these claims
could also reduce our profitability and have an adverse effect
on our results of operations.
A significant
or prolonged economic downturn, particularly the current
downturn in the over-the-road freight sector, or a substantial
downturn in our customers’ business, could adversely affect
our revenue and results of operations.
The over-the-road freight sector has historically experienced
cyclical fluctuations in financial results due to, among other
things, economic recession, downturns in business cycles,
increasing costs and taxes, fluctuations in energy prices, price
increases by carriers, changes in regulatory standards, license
and registration fees, interest rate fluctuations, and other
economic factors beyond our control. All of these factors could
increase the operating costs of a vehicle and impact capacity
levels in the over-the-road freight sector. Carriers may charge
higher prices to cover higher operating expenses, and our
operating income may decrease if we are unable to pass through
to our customers the full amount of higher purchased
transportation costs. Additionally, economic conditions may
adversely affect our customers, their need for our services, or
their ability to pay for our services. If the current economic
downturn causes a reduction in the volume of freight shipped by
our customers, our results of operations could be adversely
affected.
Our executive
officers and key personnel are important to our business, and
these officers and personnel may not remain with us in the
future.
We depend substantially on the efforts and abilities of our
senior management. Our success will depend, in part, on our
ability to retain our current management and to attract and
retain qualified personnel in the future. Competition for senior
management is intense, and we may not be able to retain our
management team or attract additional qualified personnel. The
loss of a member of senior management would require our
remaining executive officers to divert immediate and substantial
attention to fulfilling the duties of the departing executive
and to seeking a replacement. The inability to adequately fill
vacancies in our senior executive positions on a timely basis
could adversely affect our ability to implement our business
strategy, which could negatively impact our results of
operations.
Seasonal sales
fluctuations and weather conditions could have an adverse impact
on our results of operations.
The transportation industry is subject to seasonal sales
fluctuations as shipments generally are lower during and after
the winter holiday season. The productivity of our carriers
historically decreases during the winter season because
companies have the tendency to reduce their shipments during
that time and inclement weather can impede operations. At the
same time, our operating expenses could increase because harsh
weather can lead to increased accident frequency rates and
increased claims. If we were to experience lower-than-expected
revenue during any such period, our expenses may not be offset,
which could have an adverse impact on our results of operations.
The cost of
compliance with, liability for violations of, or modifications
to existing or future governmental regulations could adversely
affect our business and results of operations.
Our operations are subject to certain federal, state, and local
regulatory requirements. These regulations and requirements are
subject to change based on new legislation and regulatory
initiatives, which could affect the economics of the
transportation industry by requiring changes in operating
practices or influencing the demand for, and the cost of
providing, transportation services. The U.S. Department of
Transportation, or the DOT, and its agencies, such as the
Federal Motor Carrier Safety Administration, and various state
and local agencies exercise broad powers over our business,
generally governing such activities as authorization to engage
in motor carrier operations, freight forwarding, and freight
brokerage operations, as well as regulating safety. As a motor
carrier authorized by the DOT, we must comply with the safety
and fitness
10
Table of Contents
regulations promulgated by the DOT, including those relating to
drug and alcohol testing, driver qualification, and
hours-of-service. There also are regulations specifically
relating to the trucking industry, including testing and
specifications of equipment, product handling requirements, and
hazardous material requirements. In addition, we must comply
with certain safety, insurance, and bonding requirements
promulgated by the DOT and various state agencies. Compliance
with existing, new, or more stringent measures could disrupt or
impede the timing of our deliveries and our ability to satisfy
the needs of our customers. In addition, we may experience an
increase in operating costs, such as security costs, as a result
of governmental regulations that have been and will be adopted
in response to terrorist activities and potential terrorist
activities. The cost of compliance with existing or future
measures could adversely affect our results of operations.
Further, we could become subject to liabilities as a result of a
failure to comply with applicable regulations.
Our operations
are subject to various environmental laws and regulations, the
violation of which could result in substantial fines or
penalties.
From time to time, we arrange for the movement of hazardous
materials at the request of our customers. As a result, we are
subject to various environmental laws and regulations relating
to the handling, transport, and disposal of hazardous materials.
If our customers or carriers are involved in an accident
involving hazardous materials, or if we are found to be in
violation of applicable laws or regulations, we could be subject
to substantial fines or penalties, remediation costs, or civil
and criminal liability, any of which could have an adverse
effect on our business and results of operations. In addition,
current and future laws and regulations relating to carbon
emissions and the effects of global warming can be expected to
have a significant impact on the transportation sector generally
and the operations and profitability of some of our carriers in
particular, which could adversely affect our business and
results of operations.
If our ICs are
deemed by regulators to be employees, our business and results
of operations could be adversely affected.
Tax and other regulatory authorities have in the past sought to
assert that independent contractors in the trucking industry are
employees rather than independent contractors. There can be no
assurance that these authorities will not successfully assert
this position or that tax laws and other laws that consider
these persons independent contractors will not change. If our
ICs are determined to be our employees, we would incur
additional exposure under federal and state tax, workers’
compensation, unemployment benefits, labor, employment, and tort
laws, including for prior periods, as well as potential
liability for employee benefits and tax withholdings. Our
business model relies on the fact that our ICs are independent
contractors and not deemed to be our employees, and exposure to
any of the above factors could have an adverse effect on our
business and results of operation.
If we are
unable to maintain and enhance our proprietary technology
systems, demand for our services and our revenue could
decrease.
Our business relies heavily on our proprietary technology
systems to track and store externally and internally generated
market data, analyze the capabilities of our carrier network,
and recommend cost-effective carriers in the appropriate
transportation mode. To keep pace with changing technologies and
customer demands, we must correctly interpret and address market
trends and enhance the features and functionality of our
proprietary technology systems in response to these trends. We
may be unable to implement the appropriate features and
functionality of our technology systems in a timely and
cost-effective manner, which could result in decreased demand
for our services and a corresponding decrease in our revenue.
We may be
required to incur substantial expenses and resources in
defending intellectual property litigation against
us.
Our use of our proprietary technology systems could be
challenged by claims that such use infringes, misappropriates,
or otherwise violates the intellectual property rights of third
parties. We do not currently have any patent protection with
respect to our technology systems and cannot be certain that our
technologies do not and will not infringe issued patents or
other proprietary rights of others. Any claim, with or without
merit, could result in significant litigation costs and
diversion of resources, and could require us to enter into
royalty and licensing agreements, all of which could have an
adverse effect on our business. We may not be able to obtain
such licenses on commercially reasonable terms, or at all, and
the terms of any offered licenses may not be acceptable to us.
If forced to cease using such intellectual property, we may not
be able to develop or obtain alternative technologies.
Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary
licenses could prevent us from offering the affected services to
our customers, which could have an adverse effect on our
business and results of operations.
11
Table of Contents
Terrorist
attacks, anti-terrorism measures, and war could have broad
detrimental effects on our business operations.
As a result of the potential for terrorist attacks, federal,
state, and municipal authorities have implemented and continue
to follow various security measures, including checkpoints and
travel restrictions on large trucks. Such measures may reduce
the productivity of our ICs or increase the costs associated
with their operations, which we could be forced to bear. For
example, security measures imposed at bridges, tunnels, border
crossings, and other points on key trucking routes may cause
delays and increase the non-driving time of our ICs, which could
have an adverse effect on our results of operations. War, risk
of war, or a terrorist attack also may have an adverse effect on
the economy. A decline in economic activity could adversely
affect our revenues or restrict our future growth. Instability
in the financial markets as a result of terrorism or war also
could impact our ability to raise capital. In addition, the
insurance premiums charged for some or all of the coverage
currently maintained by us could increase dramatically or such
coverage could be unavailable in the future.
Our senior
management has limited experience managing a public company, and
regulatory compliance may divert its attention from the
day-to-day management of our business.
Our senior management has limited experience managing a publicly
traded company and limited experience complying with the
increasingly complex laws pertaining to public companies.
Obligations associated with being a public company will require
substantial attention from our senior management and partially
divert their attention away from the day-to-day management of
our business, which could adversely impact our operations.
We will incur
increased costs as a result of being a public
company.
As a public company, we will incur significant legal,
accounting, and other administrative expenses that we did not
incur as a private company. In addition, the Sarbanes-Oxley Act
of 2002, or
Sarbanes-Oxley,
as well as rules of the Securities and Exchange Commission and
the Nasdaq Stock Market, impose significant corporate governance
practices on public companies. We expect these rules and
regulations to increase our legal and financial compliance costs
and to make some activities more time consuming and costly. In
addition, we will incur additional costs associated with our
public company reporting requirements. We also expect these
rules and regulations to make it more difficult and more
expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced policy
limits and coverage or incur substantially higher costs to
obtain the same or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified persons to
serve on our board of directors or as executive officers.
If we fail to
maintain adequate internal control over financial reporting in
accordance with Section 404 of Sarbanes-Oxley or to prevent
or detect material misstatements in our annual or interim
consolidated financial statements in the future, it could result
in inaccurate financial reporting, sanctions, or securities
litigation, or could otherwise harm our business.
As a public company, we will be required to comply with the
standards adopted by the Public Company Accounting Oversight
Board in compliance with the requirements of Section 404 of
Sarbanes-Oxley regarding internal control over financial
reporting. Prior to becoming a public company, we are not
required to be compliant with the requirements of
Section 404. The process of becoming compliant with
Section 404 may divert internal resources and will take a
significant amount of time and effort to complete. We may
experience higher than anticipated operating expenses, as well
as increased independent auditor fees during the implementation
of these changes and thereafter. We are required to be compliant
under Section 404 by the end of fiscal 2009, and at that
time our management will be required to deliver a report that
assesses the effectiveness of our internal control over
financial reporting, and we will be required to deliver an
attestation report of our auditors on our management’s
assessment of our internal controls. Completing documentation of
our internal control system and financial processes, remediation
of control deficiencies, and management testing of internal
controls will require substantial effort by us. We cannot assure
you that we will be able to complete the required management
assessment by our reporting deadline. Failure to implement these
changes in a timely, effective or efficient manner could harm
our operations, financial reporting or financial results, and
could result in our being unable to obtain an unqualified report
on internal controls from our independent auditors.
Our independent auditors identified a material weakness in our
internal control over financial reporting with respect to our
accounting close and financial reporting processes. Our
independent auditors noted that we lack sufficient personnel
with an appropriate level of knowledge and experience in the SEC
financial reporting and technical accounting requirements we
will face as a public company.
We are developing a remediation plan. In connection with our
remediation efforts, we expect to assess our internal financial
control and accounting resources and hire additional employees
as necessary, including a director of financial reporting. In
addition, we intend to establish formal technical accounting
training for tax, accounting and financial reporting
12
Table of Contents
personnel, and ensure the technical proficiency of the audit
committee we are establishing in connection with this offering
to oversee our financial reporting function.
If the steps we intend to take do not remediate this material
weakness in a timely manner, we will not be able to conclude
that we have and maintain effective internal control over
financial reporting, and our independent registered accounting
firm may not be able to issue an unqualified report on the
effectiveness of our internal control over financial reporting.
As a result, our ability to report our financial results on a
timely and accurate basis may be adversely affected, we may be
subject to sanctions or investigation by regulatory authorities,
including the SEC or the Nasdaq Stock Market, and investors may
lose confidence in our financial information, which in turn
could adversely affect the market price of our common stock.
Our ability to
raise capital in the future may be limited, and our failure to
raise capital when needed could prevent us from achieving our
growth objectives.
We may in the future be required to raise capital through public
or private financing or other arrangements. Such financing may
not be available on acceptable terms, or at all, and our failure
to raise capital when needed could harm our business. Additional
equity financing may dilute the interests of our stockholders,
and debt financing, if available, may involve restrictive
covenants and could reduce our profitability. If we cannot raise
funds on acceptable terms, we may not be able to grow our
business or respond to competitive pressures.
Risks Related to
this Offering
The market
price for our common stock may be volatile, and you may not be
able to sell our stock at a favorable price or at
all.
Before this offering, there has been no public market for our
common stock. An active public market for our common stock may
not develop or be sustained after this offering. The price of
our common stock in any such market may be higher or lower than
the price you pay in this offering. If you purchase shares of
common stock in this offering, you will pay a price that was not
established in a competitive market. Rather, you will pay the
price that we negotiated with the representatives of the
underwriters. Many factors could cause the market price of our
common stock to rise and fall, including the following:
| n | the gain or loss of customers; | |
| n | introductions of new pricing policies by us or by our competitors; | |
| n | variations in our quarterly results; | |
| n | announcements of technological innovations by us or by our competitors; | |
| n | acquisitions or strategic alliances by us or by our competitors; | |
| n | recruitment or departure of key personnel; | |
| n | changes in the estimates of our operating performance or changes in recommendations by any securities analysts that follow our stock; and | |
| n | market conditions in our industry, the industries our customers serve, and the economy as a whole. |
In addition, public announcements by our competitors concerning,
among other things, their performance, accounting practices, or
legal problems could cause the market price of our common stock
to decline regardless of our actual operating performance.
Our current
principal stockholders will continue to have significant
influence over us after this offering, and they could delay,
deter, or prevent a change of control or other business
combination or otherwise cause us to take action with which you
might not agree.
Upon the closing of this offering, investment funds affiliated
with Thayer | Hidden Creek Partners, L.L.C., collectively
referred to in this prospectus as Thayer | Hidden Creek, will
together beneficially own
approximately % of our outstanding
common stock and Eos Partners, L.P. and affiliated investment
funds, referred to in this prospectus as Eos, will together
beneficially own approximately % of our outstanding
common stock, assuming the exercise by Eos of the option to
purchase shares of GTS common stock granted to it by
Thayer | Hidden Creek in connection with the GTS
merger. In addition, four of our eight directors immediately
following this offering will be affiliated with
Thayer | Hidden Creek. As a result, these stockholders
will have significant influence over the election of our board
of directors and our decision to enter into any corporate
transaction and may have the ability to prevent any transaction
that requires the approval of stockholders,
13
Table of Contents
regardless of whether or not other stockholders believe that
such a transaction is in their own best interests. Such
concentration of voting power could have the effect of delaying,
deterring, or preventing a change of control or other business
combination that might otherwise be beneficial to our
stockholders or could limit the price that some investors might
be willing to pay in the future for shares of our common stock.
The interests of these stockholders may not always coincide with
our interests as a company or the interests of our other
stockholders. Accordingly, these stockholders could cause us to
enter into transactions or agreements that you would not approve
or make decisions with which you may disagree.
The large
number of shares eligible for public sale could depress the
market price for our common stock.
The market price for our common stock could decline as a result
of sales of a large number of shares of our common stock in the
market after this offering, and the perception that these sales
could occur may depress the market price. Based on shares
outstanding as of September 30, 2008, we will have
outstanding shares
of common stock after this offering. Of these shares, the common
stock sold in this offering will be freely tradable, except for
any shares purchased by our “affiliates” as defined in
Rule 144 under the Securities Act of 1933, as amended.
Substantially all of the
remaining shares
of common stock will be subject to
180-day
lock-up
agreements with the underwriters. After the
180-day
lock-up
period, these shares may be sold in the public market, subject
to prior registration or qualification for an exemption from
registration, including, in the case of shares held by
affiliates, compliance with volume restrictions.
Any time after we are eligible to register our common stock on a
Form S-3
registration statement under the Securities Act or if we propose
to file a registration statement under the Securities Act for
any underwritten sale of shares of any of our equity securities,
certain of our stockholders will be entitled to require us to
register our securities owned by them for public sale. Sales of
common stock as restrictions end or pursuant to registration
rights may make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem
appropriate.
You will incur
immediate and substantial dilution in your investment because
our earlier investors paid substantially less than the initial
public offering price when they purchased their
shares.
If you purchase shares in this offering, you will incur
immediate and substantial dilution in net tangible book value
per share because the price that you pay will be substantially
greater than the net tangible book value per share of the shares
acquired. This dilution arises because our earlier investors
paid substantially less than the initial public offering price
when they purchased their shares of common stock. In addition,
there will be options and warrants to purchase shares of common
stock outstanding upon the completion of this offering that have
exercise prices below the initial public offering price. To the
extent such options or warrants are exercised in the future,
there may be further dilution to new investors.
Provisions in
our certificate of incorporation, our bylaws, and Delaware law
could make it more difficult for a third party to acquire us,
discourage a takeover, and adversely affect existing
stockholders.
Our certificate of incorporation, our bylaws, and the Delaware
General Corporation Law contain provisions that may make it more
difficult or delay attempts by others to obtain control of our
company, even when these attempts may be in the best interests
of stockholders. These include provisions limiting the
stockholders’ powers to remove directors or take action by
written consent instead of at a stockholders’ meeting. Our
certificate of incorporation also authorizes our board of
directors, without stockholder approval, to issue one or more
series of preferred stock, which could have voting and
conversion rights that adversely affect or dilute the voting
power of the holders of common stock. In addition, our
certificate of incorporation provides for our board to be
divided into three classes, serving staggered terms. The
classified board provision could have the effect of discouraging
a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us. Delaware law also imposes
conditions on the voting of “control shares” and on
certain business combination transactions with “interested
stockholders.”
These provisions and others that could be adopted in the future
could deter unsolicited takeovers or delay or prevent changes in
our control or management, including transactions in which
stockholders might otherwise receive a premium for their shares
over then current market prices. These provisions may also limit
the ability of stockholders to approve transactions that they
may deem to be in their best interests.
14
Table of Contents
Special
Note Regarding Forward-Looking Statements
The statements and information contained in this prospectus that
are not purely historical are forward-looking statements.
Forward-looking statements include statements regarding our
“expectations,” “anticipation,”
“intentions,” “beliefs,” or
“strategies” regarding the future. Forward-looking
statements also include statements regarding revenue, margins,
expenses, and earnings analysis for 2008 and thereafter;
potential acquisitions or strategic alliances; and liquidity and
anticipated cash needs and availability. All forward-looking
statements included in this prospectus are based on information
available to us as of the date of this prospectus, and we assume
no obligation to update any such forward-looking statements. Our
actual results could differ materially from the forward-looking
statements. Among the factors that could cause actual results to
differ materially are the factors discussed under “Risk
Factors,” which include, but are not limited to, the
following:
| n | the competitive nature of the transportation industry; | |
| n | fluctuations in the price or availability of fuel; | |
| n | our ability to maintain the level of service that we currently provide to our customers; | |
| n | the ability of our carriers to meet our needs and expectations, and those of our customers; | |
| n | our reliance on ICs to provide transportation services to our customers; | |
| n | fluctuations in the levels of capacity in the over-the-road freight sector; | |
| n | our ability to attract and retain sales representatives and brokerage agents; | |
| n | our ability to successfully execute our acquisition strategy; | |
| n | the effects of auto liability, general liability, and workers’ compensation claims; | |
| n | general economic, political, and other risks that are out of our control, including any prolonged delay in a recovery of the U.S. over-the-road freight sector; | |
| n | our reliance on our executive officers and key personnel; | |
| n | seasonal fluctuations in our business; | |
| n | the costs associated with being a public company and our ability to comply with the internal control and financial reporting obligations of the SEC and Sarbanes-Oxley; | |
| n | the effects of governmental and environmental regulations; and | |
| n | our ability to maintain, enhance, or protect our proprietary technology systems. |
See the section entitled “Risk Factors” for a more
complete discussion of these risks and uncertainties and for
other risks and uncertainties. These factors and the other risk
factors described in this prospectus are not necessarily all of
the important factors that could cause actual results to differ
materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors also could
harm our results. Consequently, there can be no assurance that
the actual results or developments anticipated by us will be
realized or, even if substantially realized, that they will have
the expected consequences to, or effects on, us.
15
Table of Contents
Use
of Proceeds
Assuming an initial public offering price of
$ per share, we estimate that we
will receive net proceeds of
$ million after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us. A $1.00 increase (decrease) in the
assumed initial public offering price of
$ per share would increase
(decrease) the net proceeds to us from this offering by
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us.
We intend to use approximately
$ million of the net proceeds
of this offering to prepay an aggregate of
$ million of the
$ million of outstanding debt
under the RRTS credit facility and approximately
$ million to prepay the RRTS
senior subordinated notes and accrued interest. In addition, we
intend to use approximately
$ million of the net proceeds
of this offering to prepay an aggregate of
$ million of outstanding debt
under the GTS credit facility.
The RRTS credit facility consists of a term loan facility of
$40.0 million, of which approximately $33.5 million
was outstanding as of June 30, 2008, and a
five-year
revolving credit facility of up to $50.0 million in
revolving credit loans, letters of credit, and swingline loans,
of which approximately $29.7 million was outstanding as of
June 30, 2008. The RRTS senior subordinated notes were
issued in an aggregate principal amount of approximately
$36.4 million and have a maturity date of
September 15, 2012. As of June 30, 2008, there was
approximately $38.1 million in aggregate principal amount
of RRTS senior subordinated notes outstanding. The GTS credit
facility consists of a term loan facility of $8.0 million,
of which approximately $7.8 million was outstanding as of
June 30, 2008, and a five-year revolving credit facility of
up to $3.0 million, none of which was outstanding as of
June 30, 2008.
In addition to the purposes described above, we intend to use
approximately $2.5 million to pay a transaction fee upon
completion of this offering to affiliates of our two largest
stockholders. See “Certain Relationships and Related
Transactions.”
We intend to use the remaining net proceeds of approximately
$ for general corporate purposes,
including to finance our working capital needs and to fund
potential future acquisitions of complementary businesses. As of
the date of this prospectus, we have no binding commitment or
agreement relating to any acquisition or investment.
Pending the uses described above, we will retain broad
discretion in the allocation of any remaining proceeds from this
offering and plan to invest such remaining proceeds, if any, in
interest-bearing securities.
We will not receive any of the net proceeds from the sale of
shares of common stock by the selling stockholders, which are
estimated to be approximately
$ million. See
“Principal and Selling Stockholders.”
Dividend
Policy
Historically, we have not paid dividends on our common stock,
and we currently do not intend to pay any dividends on our
common stock after the completion of this offering. We currently
plan to retain any earnings to finance the growth of our
business rather than to pay cash dividends. Payments of any cash
dividends in the future will depend on our financial condition,
results of operations, and capital requirements as well as other
factors deemed relevant by our board of directors. Our current
debt agreements prohibit us from paying dividends without the
consent of our lenders.
16
Table of Contents
Capitalization
The following table sets forth our capitalization at
June 30, 2008 and as adjusted to reflect (1) the sale
of
the shares
of common stock offered by us in this offering at an assumed
initial public offering price of $
per share, after deducting estimated underwriting discounts and
offering expenses and giving effect to our application of the
estimated net proceeds; (2) the GTS merger; and
(3) the conversion of all of our currently outstanding
shares of Class A common stock and Class B common
stock into newly authorized shares of common stock on
a -for-one
basis, all of which are conditioned upon, and will occur
immediately prior to or simultaneously with, the consummation of
this offering.
| (unaudited, in thousands) | As of June 30, 2008 | |||||||
| Actual | As Adjusted | |||||||
|
Debt:
|
||||||||
|
RRTS credit facility
|
$ | 63,150 | $ | |||||
|
RRTS senior subordinated notes
|
38,075 | |||||||
|
Total debt
|
101,225 | |||||||
|
Preferred stock subject to mandatory redemption,
$.01 par value; 5,000 shares authorized;
5,000 shares issued and outstanding, actual and as adjusted
|
5,000 | |||||||
|
Redeemable common stock:
Class A common stock $.01 par value; 1,765 shares issued and outstanding |
1,765 | |||||||
|
Stockholders’ investment
(a):
|
||||||||
|
Class A common stock, $.01 par value;
97,563 shares issued and outstanding,
actual; shares
issued and outstanding, as adjusted
|
1 | |||||||
|
Class B common stock, $.01 par value;
2,000 shares authorized; 1,892 shares issued and
outstanding,
actual; shares
issued and outstanding, as adjusted
|
– | |||||||
|
Newly issued common stock, $.01 par value; 100,000,000 shares
authorized; no shares issued and outstanding,
actual; shares
issued and outstanding, as adjusted
|
– | |||||||
|
Additional paid-in capital
|
101,151 | |||||||
|
Retained earnings
|
4,404 | |||||||
|
Total stockholders’ investment
|
105,556 | |||||||
|
Total capitalization
|
$ | 213,546 | $ | |||||
| (a) | The number of shares of common stock excludes (i) shares issuable upon exercise of options outstanding at June 30, 2008 with a weighted average exercise price of $ per share; (ii) shares of common stock issuable upon the exercise of options to purchase GTS common stock outstanding at June 30, 2008 with a weighted average exercise price of $ per share, which will be assumed upon consummation of the GTS merger; and (iii) shares issuable upon exercise of warrants outstanding at June 30, 2008 with an exercise price of $ per share. |
Please read the capitalization table together with the sections
of this prospectus entitled “Unaudited Pro Forma
Consolidated Financial Data,” “Selected Consolidated
Financial and Other Data,” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and our financial statements and related notes
included elsewhere in this prospectus.
17
Table of Contents
Dilution
Our pro forma net tangible book value as of June 30, 2008
was approximately $ million, or
$ per share of common stock. Pro
forma net tangible book value per share represents the amount of
our total tangible assets less total liabilities, divided by the
pro forma aggregate number of shares of our common stock
outstanding. Pro forma outstanding shares of common stock as of
June 30, 2008 gives retroactive effect to (1) the
proposed modification of our capital structure in connection
with this offering to, among other things, convert our
Class A common stock and Class B common stock into a
single class of common stock on
a -for-one basis; and (2) the
GTS merger.
Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of
shares of our common stock in this offering and the pro forma
net tangible book value per share of our common stock
immediately after completion of this offering. After giving
effect to our sale
of shares
at an assumed initial public offering price of
$ per share and after deducting
estimated underwriting discounts and our estimated offering
expenses, our adjusted pro forma net tangible book value at
June 30, 2008 would have been approximately
$ million, or
$ per share. This represents an
immediate increase in net tangible book value of
$ per share to existing
stockholders and an immediate dilution in net tangible book
value of $ per share to purchasers
of shares in this offering. The following table illustrates this
per share dilution:
|
Initial public offering price per share
|
$ | |||||||
|
Pro forma net tangible book value per share as of June 30,
2008
|
$ | |||||||
|
Increase per share attributable to new investors
|
||||||||
|
Adjusted pro forma net tangible book value per share after the
offering
|
||||||||
|
Dilution per share to new investors
|
$ | |||||||
The following table summarizes on a pro forma basis as of
June 30, 2008, the differences between the number of shares
purchased from us, the total consideration paid to us, and the
average price per share paid by existing stockholders and by the
new investors at an assumed initial public offering price of
$ per share, before deducting the
estimated underwriting discounts and commissions and estimated
expenses of this offering.
| Shares Purchased | Total Consideration |
Average Price |
||||||||||||||||||
| Number | Percent | Amount | Percent | Per Share | ||||||||||||||||
|
Existing stockholders
|
% | $ | % | $ | ||||||||||||||||
|
New investors
|
% | % | ||||||||||||||||||
|
Total
|
100.0 | % | 100.0 | % | $ | |||||||||||||||
If the underwriters’ over-allotment option is exercised in
full, the number of shares held by new investors will increase
to shares,
or % of the total number of shares
of common stock to be outstanding after this offering.
In the discussion and tables above, we assume no exercise of
outstanding (i) options to
purchase shares
of our common stock at a weighted average exercise price of
$ per
share; (ii) shares
of common stock issuable upon the exercise of options to
purchase GTS common stock outstanding at June 30, 2008 with
a weighted average exercise price of
$ per share, which will be assumed
upon consummation of the GTS merger; and (iii) warrants to
purchase shares
of our common stock at an exercise price of
$ per share. The issuance of
common stock in connection with the exercise of these options
and warrants will result in further dilution to new investors.
18
Table of Contents
Unaudited
Pro Forma Consolidated Financial Data
The following unaudited pro forma consolidated financial data
reflect our historical results as adjusted to give pro forma
effect to the GTS acquisition, the GTS merger, and this
offering. The adjustments are described in the notes to the
unaudited pro forma consolidated financial data. The unaudited
pro forma consolidated financial data exclude adjustments to
reflect one-time, non-recurring charges that are expected to
occur as a result of the GTS acquisition, GTS merger, and this
offering, which are described in the notes to the Unaudited Pro
Forma Consolidated Financial Data.
Consistent with the provisions of SFAS No. 141,
Business Combinations (SFAS 141), transfers of net
assets or exchanges of equity interests between entities under
common control do not constitute business combinations. Upon
consummation of the GTS merger, each share of GTS’
outstanding common stock will be exchanged
for shares
of RRTS common stock. Because RRTS and GTS will have had the
same control group immediately before and after the GTS merger,
which will take place simultaneous with the consummation of this
offering, the GTS merger has been presented as a combination of
entities under common control on a historical cost basis in a
manner similar to a pooling of interests. In accordance with
SFAS 141, all intercompany balances and transactions
related to the GTS merger have been eliminated in consolidation.
The unaudited pro forma consolidated balance sheet data have
been prepared to give effect to the GTS acquisition, the GTS
merger, the conversion of our Class A common stock and Class B
common stock into a single class of common stock on
a -for-one
basis, and the receipt and application of assumed proceeds
received by us in this offering, as if each had occurred on
June 30, 2008. The GTS balance sheet as of June 30,
2008 is presented under the new company basis, which has been
accounted for using the purchase method of accounting.
The unaudited pro forma consolidated statement of operations
data for the year ended December 31, 2007 and the six
months ended June 30, 2008 have been prepared to give
effect to the GTS acquisition, the GTS merger, the conversion of
our Class A common stock and Class B common stock into a single
class of common stock on
a -for-one
basis, and the receipt and application of assumed net proceeds
received by us in this offering, as if each had occurred on
January 1, 2007. The combined results of operations of
Group Transportation Services and GTS Direct (predecessor
entities) for the year ended December 31, 2007 and the
period from January 1, 2008 through February 29, 2008
is presented under the historical company basis. The
consolidated results of operations of GTS (successor entity) for
the period February 12, 2008 (date of inception) through
June 30, 2008 is presented under the new company basis,
which has been accounted for using the purchase method of
accounting.
The unaudited pro forma consolidated financial data have been
prepared in accordance with the rules and regulations of the SEC
and are provided for comparison and analysis purposes only. The
unaudited pro forma consolidated financial data should not be
considered indicative of actual results that would have been
achieved had the GTS acquisition, the GTS merger, and this
offering actually been consummated on the dates indicated. The
unaudited pro forma consolidated financial data do not purport
to be indicative or to forecast what our balance sheet data,
results of operations, cash flows, or other data will be as of
any future date or for any future period. A number of factors
may affect our results. See “Special Note Regarding
Forward-Looking Statements” and “Risk Factors.”
The pro forma adjustments are based on preliminary estimates and
currently available information and assumptions that we believe
are reasonable. RRTS’ management does not expect any final
adjustments to be materially different from the preliminary
amounts presented in this prospectus. The final allocation of
shares of common stock to be offered by us and the selling
stockholders in this offering may affect the pro forma
adjustments. The notes to the unaudited pro forma consolidated
balance sheet data and consolidated statement of operations data
provide a detailed discussion of how such adjustments were
derived and presented herein. The following data should be read
in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,”
“Selected Consolidated Financial and Other Data,” and
the consolidated financial statements and related notes thereto
included elsewhere in this prospectus.
19
Table of Contents
Roadrunner
Transportation Services Holdings, Inc.
Unaudited Pro
Forma Consolidated Balance Sheet
As of June 30,
2008
|
Merger |
Offering |
|||||||||||||||||||
|
(In thousands, except per share data) |
Pro Forma |
Pro Forma |
Pro Forma |
|||||||||||||||||
| RRTS | GTS | Adjustments | Adjustments | Consolidated | ||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
CURRENT ASSETS:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 580 | $ | 542 | $ | – | $ | (b)(c) | $ | |||||||||||
|
Accounts receivable, net
|
56,158 | 3,324 | (45 | )(a) | ||||||||||||||||
|
Deferred income taxes
|
2,285 | – | – | |||||||||||||||||
|
Prepaid expenses and other current assets
|
6,534 | 34 | – | |||||||||||||||||
|
Total current assets
|
65,557 | 3,900 | (45 | ) | ||||||||||||||||
|
PROPERTY AND EQUIPMENT, net
|
5,040 | 2,758 | – | |||||||||||||||||
|
OTHER ASSETS:
|
||||||||||||||||||||
|
Goodwill
|
185,096 | 23,248 | – | |||||||||||||||||
|
Other noncurrent assets
|
3,261 | 883 | – | |||||||||||||||||
|
Total other assets
|
188,357 | 24,131 | – | |||||||||||||||||
|
TOTAL ASSETS
|
$ | 258,954 | $ | 30,789 | $ | (45 | ) | $ | $ | |||||||||||
|
LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’
INVESTMENT
|
||||||||||||||||||||
|
CURRENT LIABILITIES:
|
||||||||||||||||||||
|
Current maturities of long-term debt
|
$ | 5,250 | $ | 820 | $ | – | $ | (c) | $ | |||||||||||
|
Accounts payable
|
34,295 | 3,198 | (45 | )(a) | ||||||||||||||||
|
Accrued expenses and other liabilities
|
8,733 | 1,805 | – | |||||||||||||||||
|
Total current liabilities
|
48,278 | 5,823 | (45 | ) | ||||||||||||||||
|
LONG-TERM DEBT, net of current maturities
|
95,975 | 6,980 | – | (c) | ||||||||||||||||
|
OTHER LONG-TERM LIABILITIES
|
2,380 | 1,166 | – | |||||||||||||||||
|
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
|
5,000 | – | – | |||||||||||||||||
|
Total liabilities
|
151,633 | 13,969 | (45 | ) | ||||||||||||||||
|
REDEEMABLE COMMON STOCK
|
1,765 | – | – | |||||||||||||||||
|
STOCKHOLDERS’ INVESTMENT:
|
||||||||||||||||||||
|
Common stock
|
101,152 | 16,676 | – | (b) | ||||||||||||||||
|
Retained earnings
|
4,404 | 144 | – | |||||||||||||||||
|
Total stockholders’ investment
|
105,556 | 16,820 | – | |||||||||||||||||
|
TOTAL LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’
INVESTMENT
|
$ | 258,954 | $ | 30,789 | $ | (45 | ) | $ | $ | |||||||||||
See Notes to Unaudited Pro Forma
Consolidated Financial Data
20
Table of Contents
Roadrunner
Transportation Services Holdings, Inc.
Unaudited Pro
Forma Consolidated Statement of Operations
For the Year
Ended December 31, 2007
|
(In thousands, except per share data) |
||||||||||||||||||||
|
Merger |
Offering |
|||||||||||||||||||
|
GTS |
Pro Forma |
Pro Forma |
Pro Forma |
|||||||||||||||||
| RRTS | Pre-acquisition | Adjustments | Adjustments | Consolidated | ||||||||||||||||
|
Revenues, net
|
$ | 538,007 | $ | 27,473 | $ | (518 | )(a) | $ | $ | |||||||||||
|
Purchased transportation costs
|
425,568 | 20,959 | (518 | )(a) | ||||||||||||||||
|
Personnel and related benefits
|
55,354 | 3,031 | – | |||||||||||||||||
|
Other operating expenses
|
37,311 | 1,157 | – | (d) | ||||||||||||||||
|
Depreciation and amortization
|
1,840 | 304 | 440 | (e) | ||||||||||||||||
|
Operating income (loss)
|
17,934 | 2,022 | (440 | ) | ||||||||||||||||
|
Interest expense
|
13,937 | 181 | 736 | (f) | (g) | |||||||||||||||
|
Loss on early extinguishment of debt
|
1,608 | – | – | |||||||||||||||||
|
Income (loss) before provision for income taxes
|
2,389 | 1,841 | (1,176 | ) | ||||||||||||||||
|
Provision for (benefit from) income taxes
|
1,294 | – | (470 | )(h) | (h) | |||||||||||||||
|
Net income (loss) before preferred dividends
|
1,095 | 1,841 | (706 | ) | ||||||||||||||||
|
Preferred dividends
|
160 | – | – | |||||||||||||||||
|
Net income (loss) available to common stockholders
|
$ | 935 | $ | 1,841 | $ | (706 | ) | $ | $ | |||||||||||
|
Earnings (loss) per share available to common stockholders:
|
||||||||||||||||||||
|
Basic
|
$ | |||||||||||||||||||
|
Diluted
|
$ | |||||||||||||||||||
|
Weighted average common stock outstanding:
|
||||||||||||||||||||
|
Basic
|
(i) | |||||||||||||||||||
|
Diluted
|
(i) | |||||||||||||||||||
See Notes to Unaudited Pro Forma
Consolidated Financial Data
21
Table of Contents
Roadrunner
Transportation Services Holdings, Inc.
Unaudited Pro
Forma Consolidated Statement of Operations
For the Six Months Ended
June 30, 2008
|
(In thousands, except per share data) |
Merger |
Offering |
||||||||||||||||||||||
| GTS |
Pro Forma |
Pro Forma |
Pro Forma |
|||||||||||||||||||||
| RRTS | Pre-acquisition | Post-acquisition | Adjustments | Adjustments | Consolidated | |||||||||||||||||||
|
Revenues, net
|
$ | 276,802 | $ | 4,302 | $ | 10,442 | $ | (224 | )(a) | $ | $ | |||||||||||||
|
Purchased transportation costs
|
222,011 | 3,249 | 8,049 | (224 | )(a) | |||||||||||||||||||
|
Personnel and related benefits
|
27,588 | 4,093 | (j) | 1,220 | ||||||||||||||||||||
|
Other operating expenses
|
17,469 | 295 | 501 | (d | ) | |||||||||||||||||||
|
Depreciation and amortization
|
984 | 45 | 208 | 73 | (e) | |||||||||||||||||||
|
Operating income
|
8,750 | (3,380 | ) | 464 | (73 | ) | ||||||||||||||||||
|
Interest expense
|
6,298 | 29 | 241 | 144 | (f) | (g | ) | |||||||||||||||||
|
Income (loss) before provision for income taxes
|
2,452 | (3,409 | ) | 223 | (217 | ) | ||||||||||||||||||
|
Provision for (benefit from) income taxes
|
1,018 | – | 79 | (87 | )(h) | (h) | ||||||||||||||||||
|
Net income (loss) before preferred dividends
|
1,434 | (3,409 | ) | 144 | (130 | ) | ||||||||||||||||||
|
Preferred dividends
|
100 | – | – | – | ||||||||||||||||||||
|
Net income (loss) available to common stockholders
|
$ | 1,334 | $ | (3,409 | ) | $ | 144 | $ | (130 | ) | $ | $ | ||||||||||||
|
Earnings (loss) per share available to common stockholders:
|
||||||||||||||||||||||||
|
Basic
|
$ | |||||||||||||||||||||||
|
Diluted
|
$ | |||||||||||||||||||||||
|
Weighted average common stock outstanding:
|
||||||||||||||||||||||||
|
Basic
|
(i) | |||||||||||||||||||||||
|
Diluted
|
(i) | |||||||||||||||||||||||
See Notes to Unaudited Pro Forma
Consolidated Financial Data
22
Table of Contents
Roadrunner
Transportation Services Holdings, Inc.
Notes to
Unaudited Pro Forma Consolidated Financial Data
(in thousands,
except share data)
| (a) | Reflects an adjustment for intercompany eliminations. |
| (b) | Reflects an adjustment to apply assumed net proceeds of approximately $ million from this offering for the purposes of this pro forma data. |
| (c) | Reflects the repayment of obligations under the RRTS credit facility, the repayment of obligations under the GTS credit facility, and the redemption of RRTS’ senior subordinated notes. |
| (d) | Reflects an adjustment to eliminate the historical management fee paid by RRTS. The management agreement will be terminated upon consummation of this offering and no management fees will be paid thereafter. In connection with this offering, we will pay an aggregate of $2.5 million in transaction fees to Thayer | Hidden Creek Management and Eos Management related to this offering. This amount is a one-time, non-recurring charge that is not reflected in the “Unaudited Pro Forma Consolidated Financial Data.” For more information, see “Certain Relationships and Related Transactions — Management and Consulting Agreements.” |
| (e) | Reflects the increase in depreciation and amortization expense as a result of the GTS acquisition due to the preliminary February 29, 2008 GTS purchase price allocation which resulted in (1) an increase in depreciation expense resulting from the step up of a technology system depreciated on a straight-line basis over a five-year period, and (2) the amortization of identifiable intangibles using the straight-line method over an estimated useful life of five years, as follows: |
|
Six Months |
||||||||
|
Year Ended |
Ended |
|||||||
|
December 31, |
June 30, |
|||||||
| 2007 | 2008 | |||||||
|
Depreciation of GTS’ technology system
|
$ | 300 | $ | 150 | ||||
|
Amortization of GTS’ customer relationship
|
140 | 70 | ||||||
|
Less: Historical amount recorded
|
– | (147 | ) | |||||
|
Pro forma adjustment
|
$ | 440 | $ | 73 | ||||
| (f) | GTS had no debt outstanding prior to the GTS acquisition. The purchase price of the GTS acquisition was $24.1 million, which was financed with proceeds from the sale of common stock by GTS of $13.4 million, a $3.2 million non-cash issuance of stock, and borrowings under the GTS credit facility of $8.0 million. This pro forma adjustment reflects an adjustment to record interest expense on the incremental debt of $8.0 million, assuming the debt was issued under the RRTS credit facility, at an interest rate of 9.2% for the year ended December 31, 2007 and 7.9% for the six months ended June 30, 2008, as if the GTS merger had occurred on January 1, 2007, as follows: |
|
Six Months |
||||||||
|
Year Ended |
Ended |
|||||||
|
December 31, |
June 30, |
|||||||
| 2007 | 2008 | |||||||
|
Total pro forma interest expense on incremental borrowings of
$8.0 million
|
$ | 736 | $ | 314 | ||||
|
Less: Historical interest expense recorded under the GTS credit
facility
|
– | (170 | ) | |||||
|
Pro forma adjustment
|
$ | 736 | $ | 144 | ||||
| (g) | Reflects an adjustment to record a reduction in interest expense from a reduction in net borrowings at a weighted average interest rate of 9.2%, the rate in effect at December 31, 2007. |
| (h) | Reflects an adjustment to record income tax expense at the estimated statutory tax rate of 40%. |
| (i) | Number of shares include only those shares of common stock whose proceeds are sufficient to execute the transactions as described in “Use of Proceeds.” |
| (j) | Includes a transaction bonus paid to GTS personnel in connection with the GTS acquisition in the amount of $3.6 million. This one-time, non-recurring charge has been reflected in the historical financial statements of GTS for the six months ended June 30, 2008, and has not been excluded from the pro forma financial statements. |
23
Table of Contents
Selected
Consolidated Financial and Other Data
The following table sets forth selected consolidated financial
and other data as of and for the periods indicated. You should
read the following information together with the more detailed
information contained in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and the related notes
included elsewhere in this prospectus.
We acquired all outstanding shares of Dawes Transport at the
close of business on March 31, 2005. As such, the periods
ending on or before March 31, 2005 are herein referred to
as the Predecessor periods. The periods beginning after
March 31, 2005 are herein referred to as the Successor
periods. The consolidated statements of operations and other
data for the years ended December 31, 2003 and 2004, and
for the period from January 1, 2005 to March 31, 2005,
and the consolidated balance sheet data as of December 31,
2003 and 2004 (which are not included in this prospectus), are
derived from Dawes Transport financial statements. The
consolidated statements of operations and other data for the
period February 22, 2005 (date of inception) to
December 31, 2005, and for the years ended
December 31, 2006 and 2007, and the consolidated balance
sheet data as of December 31, 2006 and 2007, are derived
from the Successor’s audited consolidated financial
statements included in this prospectus. There were no
substantive operations from February 22, 2005 (date of
inception) until the acquisition of Dawes Transport on
March 31, 2005. The consolidated statements of operations
data for the six months ended June 30, 2007 and 2008 and
the consolidated balance sheet data as of June 30, 2007 and
2008 have been derived from our unaudited consolidated financial
statements. Our selected consolidated financial and other data
as of and for the six months ended June 30, 2008 do not
include data for GTS. Our unaudited consolidated financial
statements include all adjustments, all of which are normal
recurring adjustments, that we consider necessary for a fair
presentation of our results for these unaudited periods. The
results of operations for the six months ended June 30,
2008 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2008.
All outstanding shares of Roadrunner Freight were acquired at
the close of business on April 29, 2005 by our controlling
stockholder through Thayer LTL Holding Corp., referred to as
THC. On June 3, 2005, THC was merged into RRTS. As such,
because we were under common control with Roadrunner Freight as
of April 29, 2005, the statement of operations,
consolidated balance sheet, and other data for the Successor
periods include the results of Roadrunner Freight subsequent to
the close of business on April 29, 2005.
In addition, on October 4, 2006, our controlling
stockholder, through Sargent Transportation Group, Inc.,
referred to as STG, acquired all of the outstanding capital
stock of a group of companies collectively referred to as
Sargent. On March 14, 2007, STG was merged into RRTS. As
such, because we were under common control with Sargent as of
October 4, 2006, the statements of operations, consolidated
balance sheet, and other data for the Successor periods include
the results of Sargent from October 4, 2006.
24
Table of Contents
| (In thousands, except per share data) | Predecessor | Successor | ||||||||||||||||||||||||||||||
|
Six Months |
||||||||||||||||||||||||||||||||
| Years Ended Dec. 31, |
Jan. 1, 2005 - |
Feb. 22, 2005 - |
Years Ended Dec. 31, | Ended June 30, | ||||||||||||||||||||||||||||
| 2003 | 2004 | Mar. 31, 2005 | Dec. 31, 2005 | 2006 | 2007 | 2007 | 2008 | |||||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||||||||||
|
Consolidated Statement of Operations Data:
|
||||||||||||||||||||||||||||||||
|
Revenues, net
|
$ | 158,496 | $ | 181,544 | $ | 43,428 | $ | 250,950 | $ | 399,441 | $ | 538,007 | $ | 261,168 | $ | 276,802 | ||||||||||||||||
|
Purchased transportation costs
|
108,685 | 126,366 | 30,225 | 180,920 | 302,296 | 425,568 | 206,592 | 222,011 | ||||||||||||||||||||||||
|
Personnel and related expenses
|
25,226 | 27,549 | 12,197 | 33,138 | 49,716 | 55,354 | 26,871 | 27,588 | ||||||||||||||||||||||||
|
Other operating expenses
|
17,163 | 18,507 | 4,957 | 22,280 | 33,033 | 37,311 | 18,915 | 17,469 | ||||||||||||||||||||||||
|
Depreciation and amortization
|
703 | 697 | 145 | 556 | 1,072 | 1,840 | 872 | 984 | ||||||||||||||||||||||||
|
Restructuring expense
|
– | – | – | 646 | – | – | – | – | ||||||||||||||||||||||||
|
Operating income (loss)
|
6,719 | 8,425 | (4,096 | ) | 13,410 | 13,324 | 17,934 | 7,918 | 8,750 | |||||||||||||||||||||||
|
Interest expense
|
935 | 1,009 | 288 | 7,529 | 11,457 | 13,937 | 6,835 | 6,298 | ||||||||||||||||||||||||
|
Loss on early extinguishment of debt
|
– | – | – | 3,239 | – | 1,608 | 1,608 | – | ||||||||||||||||||||||||
|
Income (loss) before provision for (benefit from) income taxes
|
5,784 | 7,416 | (4,384 | ) | 2,642 | 1,867 | 2,389 | (525 | ) | 2,452 | ||||||||||||||||||||||
|
Provision for (benefit from) income taxes
|
174 | 263 | – | 1,190 | 1,184 | 1,294 | (283 | ) | 1,018 | |||||||||||||||||||||||
|
Net income (loss) before preferred dividends
|
5,610 | 7,153 | (4,384 | ) | 1,452 | 683 | 1,095 | (242 | ) | 1,434 | ||||||||||||||||||||||
|
Preferred dividends
|
– | – | – | – | – | 160 | 60 | 100 | ||||||||||||||||||||||||
|
Net income (loss) available to common stockholders
|
$ | 5,610 | $ | 7,153 | $ | (4,384 | ) | $ | 1,452 | $ | 683 | $ | 935 | $ | (302 | ) | $ | 1,334 | ||||||||||||||
|
Earnings (loss) per share available to common stockholders:
|
||||||||||||||||||||||||||||||||
|
Basic
|
$ | 1,051.89 | $ | 1,341.49 | $ | (822.05 | ) | $ | 17.22 | $ | 7.73 | $ | 9.24 | $ | (2.98 | ) | $ | 13.18 | ||||||||||||||
|
Diluted
|
1,051.89 | 1,341.49 | (822.05 | ) | 17.22 | 7.73 | 9.23 | (2.98 | ) | 13.08 | ||||||||||||||||||||||
|
Weighted average common stock outstanding:
|
||||||||||||||||||||||||||||||||
|
Basic
|
5,333 | 5,333 | 5,333 | 84,315 | 88,437 | 101,220 | 101,220 | 101,220 | ||||||||||||||||||||||||
|
Diluted
|
5,333 | 5,333 | 5,333 | 84,315 | 88,437 | 101,354 | 101,220 | 101,993 | ||||||||||||||||||||||||
|
Consolidated Balance Sheet Data (at end of period):
|
||||||||||||||||||||||||||||||||
|
Working capital
|
$ | (7,234 | ) | $ | (11,811 | ) | $ | (19,220 | ) | $ | 7,171 | $ | 19,946 | $ | 15,539 | $ | 22,393 | $ | 17,279 | |||||||||||||
|
Total assets
|
35,370 | 38,438 | 34,738 | 206,066 | 259,711 | 255,880 | 260,134 | 258,954 | ||||||||||||||||||||||||
|
Total debt
|
7,334 | 2,628 | 10,993 | 93,122 | 116,306 | 102,420 | 111,046 | 101,225 | ||||||||||||||||||||||||
|
Mezzanine
equity(b)
|
– | – | – | 2,150 | 1,865 | 1,765 | 1,765 | 1,765 | ||||||||||||||||||||||||
|
Total stockholders’
investment(b)
|
1,261 | 1,384 | (3,321 | ) | 84,036 | 102,317 | 103,870 | 102,280 | 105,556 | |||||||||||||||||||||||
|
Other Data:
|
||||||||||||||||||||||||||||||||
|
EBITDA(a)
|
$ | 7,422 | $ | 9,122 | $ | (3,951 | ) | $ | 10,727 | $ | 14,396 | $ | 18,166 | $ | 7,182 | $ | 9,734 | |||||||||||||||
|
Capital expenditures
|
496 | 710 | 144 | 1,531 | 1,052 | 1,867 | 429 | 289 | ||||||||||||||||||||||||
|
Net cash provided by (used in) operating activities
|
7,951 | 9,196 | (6,820 | ) | 9,119 | 9,516 | 12,470 | 2,210 | 2,368 | |||||||||||||||||||||||
|
Net cash provided by (used in) investing activities
|
(787 | ) | (904 | ) | (159 | ) | (179,638 | ) | (41,857 | ) | (3,187 | ) | (1,778 | ) | (738 | ) | ||||||||||||||||
|
Net cash provided by (used in) financing activities
|
(7,773 | ) | (8,210 | ) | 7,030 | 171,627 | 34,285 | (11,535 | ) | (2,155 | ) | (1,850 | ) | |||||||||||||||||||
| (a) | EBITDA represents earnings before interest, taxes, depreciation, and amortization. Our management uses EBITDA as a supplemental measure in evaluating our operating performance and when determining executive incentive compensation. Our management believes that EBITDA is useful to investors in evaluating our operating performance compared to other companies in our industry because it assists in analyzing and benchmarking the performance and value of our business. The calculation of EBITDA eliminates the effects of financing, income taxes, and the accounting effects of capital spending. These items may vary for different companies for reasons unrelated to the overall operating performance of a company’s business. EBITDA is not a financial measure presented in accordance with U.S. generally accepted accounting principles, or GAAP. Although our management uses EBITDA as a financial measure to assess the performance of our business compared to that of others in our industry, EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: |
| n | EBITDA does not reflect our cash expenditures, future requirements for capital expenditures, or contractual commitments; | |
| n | EBITDA does not reflect changes in, or cash requirements for, our working capital needs; | |
| n | EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debts; | |
| n | although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and | |
| n | other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure. |
25
Table of Contents
Because of these limitations, EBITDA should not be considered a
measure of discretionary cash available to us to invest in the
growth of our business. We compensate for these limitations by
relying primarily on our GAAP results and using EBITDA only
supplementally. See the consolidated statements of cash flows
included in our consolidated financial statements included
elsewhere in this prospectus. The following is a reconciliation
of net income (loss) before preferred dividends to EBITDA.
| (In thousands) | Predecessor | Successor | ||||||||||||||||||||||||||||||
|
Six Months |
||||||||||||||||||||||||||||||||
| Years Ended Dec. 31, |
Jan. 1, 2005 - |
Feb. 22, 2005 - |
Years Ended Dec. 31, | Ended June 30, | ||||||||||||||||||||||||||||
| 2003 | 2004 | Mar. 31, 2005 | Dec. 31, 2005 | 2006 | 2007 | 2007 | 2008 | |||||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||||||||||
|
Net income (loss) before preferred dividends
|
$ | 5,610 | $ | 7,153 | $ | (4,384 | ) | $ | 1,452 | $ | 683 | $ | 1,095 | $ | (242 | ) | $ | 1,434 | ||||||||||||||
|
Plus: Provision for income taxes
|
174 | 263 | – | 1,190 | 1,184 | 1,294 | (283 | ) | 1,018 | |||||||||||||||||||||||
|
Plus: Interest expense
|
935 | 1,009 | 288 | 7,529 | 11,457 | 13,937 | 6,835 | 6,298 | ||||||||||||||||||||||||
|
Plus: Depreciation and amortization
|
703 | 697 | 145 | 556 | 1,072 | 1,840 | 872 | 984 | ||||||||||||||||||||||||
|
EBITDA
|
$ | 7,422 | $ | 9,122 | $ | (3,951 | ) | $ | 10,727 | $ | 14,396 | $ | 18,166 | $ | 7,182 | $ | 9,734 | |||||||||||||||
|
The following charges are non-recurring, but have not been added
to net income (loss) before preferred dividends in the
calculation of EBITDA above.
|
||||||||||||||||||||||||||||||||
| (In thousands) | Predecessor | Successor | ||||||||||||||||||||||||||||||
|
Years Ended |
Years Ended |
Six Months |
||||||||||||||||||||||||||||||
| Dec. 31, |
Jan. 1, 2005 - |
Feb. 22, 2005 - |
Dec. 31, | Ended June 30, | ||||||||||||||||||||||||||||
| 2003 | 2004 | Mar. 31, 2005 | Dec. 31, 2005 | 2006 | 2007 | 2007 | 2008 | |||||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||||||||||
|
Loss on early extinguishment of debt
|
$ | – | $ | – | $ | – | $ | 3,239 | $ | – | $ | 1,608 | $ | 1,608 | $ | – | ||||||||||||||||
|
Restructuring expense
|
– | – | – | 646 | – | – | – | – | ||||||||||||||||||||||||
| (b) | We have corrected the presentation of Class A common stock that may be subject to redemption by reclassifying these shares from permanent equity to mezzanine equity. See Note 14 to the RRTS 2007 Consolidated Financial Statements for more information. |
26
Table of Contents
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
You should read the following discussion and analysis in
conjunction with the information set forth under “Selected
Consolidated Financial and Other Data” and our consolidated
financial statements and the notes to those statements included
elsewhere in this prospectus. The statements in this discussion
regarding industry outlook, our expectations regarding our
future performance, liquidity and capital resources, and other
non-historical statements in this discussion are forward-looking
statements. See “Special Note Regarding Forward-Looking
Statements.” These forward-looking statements are subject
to numerous risks and uncertainties, including, but not limited
to, the risks and uncertainties described under “Risk
Factors.” Our actual results may differ materially
from those contained in or implied by any forward-looking
statements.
Company
Overview
We are a leading non-asset based transportation and logistics
services provider offering a full suite of solutions, including
third-party
logistics (3PL), customized and expedited less-than-truckload
(LTL), truckload (TL) brokerage, parcel, intermodal, and
domestic and international air. We utilize a broad third-party
network of transportation providers, comprised of independent
contractors (ICs) and purchased power, to serve a diverse
customer base in terms of end market focus and annual freight
expenditures. Although we service large national accounts, we
primarily focus on small to mid-size shippers, which we believe
represent an expansive and underserved market. Our customized
transportation and logistics solutions are designed to allow our
customers to reduce operating costs, redirect resources to core
competencies, improve supply chain efficiency, and enhance
customer service. Our business model is highly scalable and
features a variable cost structure that requires minimal
investment in transportation equipment and facilities, thereby
enhancing free cash flow generation and returns on our invested
capital and assets.
Because the GTS merger will not occur until the consummation of
this offering, our discussion and analysis of financial
condition and results of operations will include only a
discussion of our LTL and TL brokerage businesses.
Our LTL business, which accounted for 67% of our 2007 revenues,
involves the pickup, consolidation, linehaul, de-consolidation,
and delivery of LTL shipments to most destinations in the
contiguous United States, Hawaii, Alaska, Mexico, Puerto Rico,
and parts of Canada. With a network of 18 leased service centers
and over 215 third-party delivery agents, we employ a
point-to-point LTL model that we believe represents a
competitive advantage over the traditional hub and spoke LTL
model in terms of faster transit times, lower incidence of
damage, and reduced fuel consumption.
Within our TL brokerage business, which accounted for 33% of our
2007 revenues, we arrange the pickup and delivery of TL freight
through our network of 12 company dispatch offices and 24
independent brokerage agents located throughout the United
States and Canada. We offer temperature-controlled, dry van, and
flatbed services and specialize in the transport of refrigerated
foods, poultry, and beverages. We believe this specialization
provides consistent shipping volume year-over-year.
Our success principally depends on our ability to generate
revenues through our network of sales personnel and independent
brokerage agents and to deliver freight safely, on time, and
cost-effectively. Customer shipping demand and over-the-road
freight tonnage levels, which are subject to overall economic
conditions, ultimately drive increases or decreases in revenues.
Our ability to operate profitably and generate cash is also
impacted by over-the-road freight capacity, pricing dynamics,
customer mix, and our ability to manage costs, including
fluctuations in fuel costs, effectively. Within our LTL
business, we typically generate revenues by charging our
customers a flat or
per-mile
rate to haul their freight. This amount is typically comprised
of a base rate and fuel surcharge. Within our TL brokerage
business, we typically charge a flat rate negotiated on each
load.
We incur costs that are directly related to the transportation
of freight, including purchased transportation costs and
commissions paid to our brokerage agents. We also incur indirect
costs associated with the transportation of freight that include
other operating costs, such as insurance and claims. In
addition, we incur
personnel-related
costs and other operating expenses, collectively discussed
herein as other operating expenses, essential to administering
our operations. We continually monitor all components of our
cost structure and establish annual budgets which, in general,
are used to benchmark costs incurred on a monthly basis.
Purchased transportation costs within our LTL business represent
amounts we pay to ICs or purchased power providers and are
generally contractually
agreed-upon
rates. Purchased transportation costs within our TL brokerage
business are typically based on negotiated rates for each load
hauled. We pay commissions to our brokerage agents based on
percentages of revenues generated. Purchased transportation
costs are the largest component of our cost structure and are
generally higher as a percentage of revenues within our TL
brokerage business than within our LTL business. On a
consolidated basis, purchased transportation costs typically
increase or decrease in proportion to revenues.
Our ability to maintain or grow existing tonnage levels is
impacted by overall economic conditions, shipping demand, and
over-the-road freight capacity in North America, as well as by
our ability to offer a competitive solution in terms of pricing,
safety, and on-time delivery. We have experienced significant
fluctuations in year-over-year tonnage levels in recent years.
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According to the ATA, beginning in the fourth quarter of 2006,
the over-the-road freight sector began to experience
year-over-year declines in tonnage, primarily reflecting a
weakening freight environment in the U.S. construction,
manufacturing, and retail sectors. During 2007, LTL tonnage at
RRTS increased 4.5% over 2006, while LTL tonnage in the U.S.
over-the-road freight sector declined 2.8% during the same
period.
The industry pricing environment also impacts our operating
performance. Our LTL pricing is typically measured by billed
revenue per hundredweight and is dictated primarily by factors
such as average shipment size, shipment frequency and
consistency, average length of haul, freight density, and
customer and geographic mix. Pricing within our TL brokerage
business generally has fewer influential factors than pricing
within our LTL business, but is also typically driven by
shipment frequency and consistency, average length of haul, and
customer and geographic mix. The pricing environment for both
our LTL and TL operations generally becomes more competitive
during periods of lower market tonnage levels and increased
capacity within the over-the-road freight sector.
The transportation industry is dependent upon the availability
of adequate fuel supplies. We have experienced significantly
higher fuel prices in the first half of 2008 compared to the
same period in 2007. Our LTL business typically charges a fuel
surcharge based on changes in diesel fuel prices compared to a
national index. Although revenues from fuel surcharges generally
more than offset increases in fuel costs, other operating costs
have been, and may continue to be, impacted by fluctuating fuel
prices. The total impact of higher energy prices on other
nonfuel-related expenses is difficult to ascertain. We cannot
predict future fuel price fluctuations, the impact of higher
energy prices on other cost elements, recoverability of higher
fuel costs through fuel surcharges, and the effect of fuel
surcharges on our overall rate structure or the total price that
we will receive from our customers. Depending on the changes in
the fuel rates and the impact on costs in other fuel- and
energy-related areas, operating margins could be impacted.
Whether fuel prices fluctuate or remain constant, our operating
income may be adversely affected if competitive pressures limit
our ability to recover fuel surcharges. The operating income of
our TL brokerage business is not impacted directly by changes in
fuel rates as we are able to pass through fuel costs to our
customers.
Significant
Transactions
On February 22, 2005, Thayer | Hidden Creek formed
Dawes Holding Corporation, which acquired, at the close of
business on March 31, 2005, all of the outstanding capital
stock of Dawes Transport, a non-asset based LTL provider
primarily serving shipping lanes between the Midwest and West
Coast using a blend of purchased power and ICs. The purchase
price, net of cash acquired of $0.4 million, was
$85.6 million. The purchase price, including financing fees
of $2.4 million, was financed with proceeds of
$42.4 million from the sale of our common stock and
borrowings under credit facilities of $46.0 million. Our
2005 results of operations include the results of Dawes
Transport beginning February 22, 2005 (date of inception).
There were no substantive operations from date of inception
until the acquisition of Dawes Transport on March 31, 2005.
On April 29, 2005, a company sponsored by
Thayer | Hidden Creek acquired all of the capital
stock of Roadrunner Freight, a provider of LTL services similar
to Dawes Transport in scale and customer mix, but utilizing
primarily purchased power. The purchase price, net of cash
acquired of $0.8 million, was $92.6 million. The
purchase price, including financing fees of $1.4 million,
was financed with proceeds of $42.2 million from the sale
of common stock of the purchaser and borrowings under credit
facilities of $52.6 million. Our 2005 results of operations
include the results of Roadrunner Freight beginning
April 30, 2005.
On June 3, 2005, the parent holding company of Roadrunner
Freight was merged with and into us. As a result, Dawes
Transport and Roadrunner Freight became our wholly owned
subsidiaries as of the merger date. Concurrently with the
merger, we and our subsidiaries entered into financing
agreements, the proceeds of which were used to retire amounts
outstanding under the former credit facilities of Dawes
Transport and Roadrunner Freight existing or entered into at the
time of their respective acquisitions.
Financial information presented for periods prior to
March 31, 2005 were prepared using Dawes Transport’s
historical basis of accounting and are designated as Predecessor
periods. As a result of the application of purchase accounting,
the RRTS balances and amounts presented after March 31,
2005 are not comparable with those of the Predecessor.
On October 4, 2006, Sargent was acquired by a company
sponsored by Thayer | Hidden Creek. Sargent is a TL
brokerage operation serving shipping lanes throughout the
Eastern United States and Canada. The aggregate purchase price
of Sargent, net of cash acquired of $2.2 million and before
impact of any contingent earnout consideration, was
$46.2 million. The purchase price, including financing fees
of $0.9 million, was financed with proceeds of
$16.9 million from the sale of common stock of the
purchaser, borrowings under credit facilities of
$26.5 million, and a subordinated note payable to the
former owners of Sargent of $5.0 million. In addition to
the cash paid at closing, the former owners of Sargent could
receive a contingent payment equal to the amount by which
Sargent’s earnings before income taxes, depreciation, and
amortization exceeds $8.0 million for each of 2006, 2007,
2008, and 2009.
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On March 14, 2007, Sargent merged with and into us. At the
time of the merger, each share of Sargent common stock was
converted into two-tenths of a share of our Class A common
stock. In addition,
10-year
warrants to purchase an aggregate of 15,198 shares of our
Class A common stock at a purchase price of $2,000 per
share were issued to the existing stockholders of Sargent. In
connection with the merger, all $5.0 million of
subordinated notes payable to the former owners of Sargent was
converted into $5.0 million of preferred stock.
Our 2006 results of operations include Dawes Transport and
Roadrunner Freight results from January 1, 2006 through
December 31, 2006 and Sargent’s results from
October 4, 2006 through December 31, 2006.
On February 29, 2008, GTS acquired all of the outstanding
capital stock of Group Transportation Services and all of the
outstanding membership units of GTS Direct. The purchase price
was $24.1 million, which was comprised of
$20.9 million of cash and 3,200 shares of GTS common stock
with an estimated fair value of $3.2 million. Simultaneous
with the consummation this offering, GTS will be merged into a
wholly owned subsidiary of RRTS. In addition to the cash paid at
the closing of the GTS acquisition, the former owner of Group
Transportation Services and GTS Direct could receive up to an
additional $3.5 million in cash contingent upon the
achievement of certain levels of earnings before interest,
taxes, depreciation and amortization and management fees by
Group Transportation Services and GTS Direct beginning with the
calendar year ending December 31, 2008.
Results of
Operations
The following table sets forth RRTS’ consolidated statement
of operations data for the periods presented.
| (In thousands) | Predecessor | Successor | ||||||||||||||||||||||
|
Six Months Ended |
||||||||||||||||||||||||
|
Jan. 1, 2005 - |
Feb. 22, 2005 - |
Years Ended Dec. 31, | June 30, | |||||||||||||||||||||
| Mar. 31, 2005 | Dec. 31, 2005 | 2006 | 2007 | 2007 | 2008 | |||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
|
Revenues, net
|
$ | 43,428 | $ | 250,950 | $ | 399,441 | $ | 538,007 | $ | 261,168 | $ | 276,802 | ||||||||||||
|
Purchased transportation costs
|
30,225 | 180,920 | 302,296 | 425,568 | 206,592 | 222,011 | ||||||||||||||||||
|
Personnel and related benefits
|
12,197 | 33,138 | 49,716 | 55,354 | 26,871 | 27,588 | ||||||||||||||||||
|
Other operating expenses
|
4,957 | 22,280 | 33,033 | 37,311 | 18,915 | 17,469 | ||||||||||||||||||
|
Depreciation and amortization
|
145 | 556 | 1,072 | 1,840 | 872 | 984 | ||||||||||||||||||
|
Restructuring expense
|
– | 646 | – | – | – | – | ||||||||||||||||||
|
Operating income (loss)
|
(4,096 | ) | 13,410 | 13,324 | 17,934 | 7,918 | 8,750 | |||||||||||||||||
|
Interest expense
|
288 | 7,529 | 11,457 | 13,937 | 6,835 | 6,298 | ||||||||||||||||||
|
Loss on early extinguishment of debt
|
– | 3,239 | – | 1,608 | 1,608 | – | ||||||||||||||||||
|
Income (loss) before provision for (benefit from) income taxes
|
(4,384 | ) | 2,642 | 1,867 | 2,389 | (525 | ) | 2,452 | ||||||||||||||||
|
Provision for (benefit from) income taxes
|
– | 1,190 | 1,184 | 1,294 | (283 | ) | 1,018 | |||||||||||||||||
|
Net income (loss) before preferred dividends
|
(4,384 | ) | 1,452 | 683 | 1,095 | (242 | ) | 1,434 | ||||||||||||||||
|
Preferred dividends
|
– | – | – | 160 | 60 | 100 | ||||||||||||||||||
|
Net income (loss) available to common stockholders
|
$ | (4,384 | ) | $ | 1,452 | $ | 683 | $ | 935 | $ | (302 | ) | $ | 1,334 | ||||||||||
Six Months Ended
June 30, 2008 Compared to Six Months Ended June 30,
2007
Revenues
Revenues increased by $15.6 million, or 6.0%, to
$276.8 million during the six months ended June 30,
2008 from $261.2 million during the six months ended
June 30, 2007. Despite continued weakness in the
over-the-road freight sector and difficult weather conditions,
revenues within our LTL business increased by
$13.5 million, or 7.7%, to $188.5 million during the
six months ended June 30, 2008 from $175.0 million
during the six months ended June 30, 2007. This growth is
due in part to a 5.1% tonnage increase primarily associated with
net new business and a 7.3% increase in revenues related to
rising fuel costs and related fuel surcharges. Our TL brokerage
business also achieved revenue growth of $2.5 million, or
2.9%, to $88.7 million during the six months ended
June 30, 2008 from $86.2 million during the six months
ended June 30, 2007. This increase is primarily the result
of net new business and price increases related to fuel.
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Purchased
Transportation Costs
Purchased transportation costs increased by $15.4 million,
or 7.5%, to $222.0 million during the six months ended
June 30, 2008 from $206.6 million during the six
months ended June 30, 2007. This is due in part to an
increase in purchased transportation costs within our LTL
business of $13.2 million, or 10.2%, to $143.0 million
during the six months ended June 30, 2008 from
$129.8 million during the six months ended June 30,
2007. As a percentage of LTL revenues, this represents an
increase to 75.9% from 74.1%. This is primarily the result of
increased fuel costs paid to carriers and pricing pressures,
partially offset by improvements from tonnage increases and
continued emphasis on building fuller, more cost-efficient
loads. Within our TL brokerage business, purchased
transportation costs increased by $2.5 million, or 3.3%, to
$79.3 million during the six months ended June 30,
2008 from $76.8 million during the six months ended
June 30, 2007. As a percentage of TL brokerage revenues,
this represents an increase to 89.5% from 89.2%. This increase
is primarily attributable to rising fuel costs and pricing
pressure due to competition resulting from excess capacity
within the truckload sector.
Other Operating
Expenses
Other operating expenses decreased by $0.7 million, or
1.6%, to $45.1 million during the six months ended
June 30, 2008 from $45.8 million during the six months
ended June 30, 2007. Within our LTL business, other
operating expenses decreased by $0.8 million, or 1.9%, to
$39.4 million during the six months ended June 30,
2008 from $40.2 million during the six months ended
June 30, 2007. As a percentage of LTL revenues, this
represents an improvement to 20.9% during the six months ended
June 30, 2008 from 23.0% during the six months ended
June 30, 2007. This is primarily a result of improvements
in operating efficiency, partially offset by higher costs
associated with handling increased tonnage. Within our TL
brokerage business, other operating expenses were
$5.6 million during both the six months ended June 30,
2008 and the six months ended June 30, 2007. As a
percentage of TL brokerage revenues, this represents a modest
improvement to 6.4% during the six months ended June 30,
2008 from 6.5% during the six months ended June 30, 2007.
This is primarily attributable to increased operating efficiency
gained through revenue growth.
Depreciation and
Amortization
Depreciation and amortization increased to $1.0 million
during the six months ended June 30, 2008 from
$0.9 million during the six months ended June 30,
2007. Within our LTL business, depreciation and amortization
increased to $0.7 million during the six months ended
June 30, 2008 from $0.6 million during the six months
ended June 30, 2007 due to higher capital expenditures in
the second half of 2007. Within our TL brokerage business,
depreciation and amortization was $0.3 million during both
the six months ended June 30, 2008 and the six months ended
June 30, 2007.
Operating
Income
Operating income increased by $0.9 million, or 10.5%, to
$8.8 million during the six months ended June 30, 2008
from $7.9 million during the six months ended June 30,
2007. As a percentage of revenues, operating income increased to
3.2% during the six months ended June 30, 2008 from 3.0%
during the six months ended June 30, 2007. Within our LTL
business, operating income increased by $0.9 million, or
18.7%, to $5.4 million during the six months ended
June 30, 2008 from $4.5 million during the six months
ended June 30, 2007. As a percentage of LTL revenues, this
represents a modest improvement to 2.8% during the six months
ended June 30, 2008 from 2.6% during the six months ended
June 30, 2007. Within our TL brokerage business, operating
income was $3.4 million during both the six months ended
June 30, 2008 and the six months ended June 30, 2007.
As a percentage of TL brokerage revenues, this represents a
modest decline to 3.8% during the six months ended June 30,
2008 from 4.0% during the six months ended June 30, 2007.
On a consolidated basis, the improvement in operating income as
a percentage of revenues reflects the increase in revenues that
outpaced the combined increase in purchased transportation
costs, other operating expenses, and depreciation and
amortization.
Interest Expense
and Loss on Early Extinguishment of Debt
Interest expense decreased by $0.5 million, or 7.9%, to
$6.3 million during the six months ended June 30, 2008
from $6.8 million during the six months ended June 30,
2007. This decrease is due to lower average debt balances and
interest rates during the six months ended June 30, 2008.
Loss on early extinguishment of debt was $1.6 million
during the six months ended June 30, 2007 and was related
to the refinancing on March 14, 2007 in conjunction with
RRTS’ merger with Sargent.
Income
Tax
Income tax provision was $1.0 million during the six months
ended June 30, 2008 compared to a tax benefit of
$0.3 million during the six months ended June 30,
2007. The effective income tax rate was 41.5% during the six
months
30
Table of Contents
ended June 30, 2008 compared to 53.9% during the six months
ended June 30, 2007. The effective income tax rate in each
period exceeds the federal statutory rate of 35% primarily due
to the impact of permanent items, the largest of which is meals
and entertainment and the relative size of such permanent items
compared to our pre-tax book income.
Net Income (Loss)
Available to Common Stockholders
Net income increased by $1.6 million to $1.3 million
during the six months ended June 30, 2008 from a loss of
$0.3 million during the six months ended June 30, 2007.
Year Ended
December 31, 2007 Compared to Year Ended December 31,
2006
Revenues
Revenues increased by $138.6 million, or 34.7%, to
$538.0 million during 2007 from $399.4 million during
2006. Of this increase, $148.8 million is related to the
inclusion of Sargent’s results for a full year in 2007
compared to three months in 2006, offset by a $19.9 million
decline in TL brokerage revenues. This is primarily due to the
closure of two brokerage agents and market tonnage declines.
Despite declines in over-the-road freight tonnage and a
competitive pricing environment, LTL revenues increased by
$9.8 million. This increase was primarily due to net new
business awards.
Purchased
Transportation Costs
Purchased transportation costs increased by $123.3 million,
or 40.8%, to $425.6 million during 2007 from
$302.3 million during 2006. Of this increase,
$133.0 million is related to the inclusion of
Sargent’s results for a full year in 2007 compared to three
months in 2006, offset by a $18.3 million decrease in TL
brokerage purchased transportation costs. As a percentage of TL
brokerage revenues, this decrease represents a modest
improvement to 88.9% from 89.2%. This primarily results from the
elimination of two brokerage agents. LTL purchased
transportation costs increased by $8.7 million
year-over-year, and increased modestly as a percentage of LTL
revenues to 74.3% from 73.9%. Increases in fuel costs paid to
carriers and lower freight density were partially offset by
targeted cost reduction initiatives implemented during 2007 to
streamline our cost structure and position us well for a market
rebound. These initiatives included increasing our recruitment
and utilization of ICs where more cost-effective, improving
carrier selection tools within our technology system,
renegotiating more favorable contracts with delivery agents, and
increasing the number of deliveries direct to end users and
through our service centers.
Other Operating
Expenses
Other operating expenses increased by $10.0 million, or
12.0%, to $92.7 million during 2007 from $82.7 million
during 2006. $8.8 million of this increase is related to
the inclusion of Sargent’s results for a full year in 2007
compared to three months in 2006. Other operating expenses
within our LTL business increased by $1.2 million over
prior year levels but declined as a percentage of LTL revenues
to 22.5% from 22.8%. This is primarily as a result of increased
operating efficiency and savings under a consolidated insurance
program.
Depreciation and
Amortization
Depreciation and amortization increased by $0.7 million, or
71.6%, to $1.8 million in 2007 from $1.1 million in
2006. Of this increase, $0.2 million is related to the
inclusion of Sargent’s results for a full year in 2007
compared to three months in 2006, in addition to a
$0.4 million increase in TL brokerage depreciation and
amortization. As a percentage of TL brokerage revenues, the
$0.4 million increase in depreciation and amortization
represents an increase to 0.4% from 0.1%. The increase is
primarily attributable to amortization expense of
$0.5 million recorded in 2007 related to Sargent’s
customer relationship intangible asset. Within our LTL business,
depreciation and amortization increased by $0.2 million to
$1.2 million in 2007 from $1.0 million in 2006. As a
percentage of LTL revenues, depreciation and amortization was
0.3% for both 2007 and 2006.
Operating
Income
Operating income increased by $4.6 million, or 34.6%, to
$17.9 million during 2007 ($10.2 million from our LTL
business and $7.7 million from our TL brokerage business)
from $13.3 million during 2006 ($10.5 million from our
LTL business and $2.8 million from our TL brokerage
business). As a percentage of revenue, operating income was 3.3%
for both periods. Of the $4.6 million increase,
$6.8 million is related to the inclusion of Sargent’s
results for a full year in 2007 compared to three months in
2006, offset by a $1.9 million decrease in TL brokerage
operating income. As a percentage of TL brokerage revenues, this
decrease represents a decline to 4.4% during the year ended
December 31, 2007 from 4.9% during the year ended
December 31, 2006. LTL operating income declined by
$0.3 million year-over-year, and declined modestly as a
percentage of LTL revenues to 2.8% during the year ended
December 31, 2007 from 3.0% during the year ended
December 31, 2006.
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Table of Contents
Interest Expense
and Loss on Early Extinguishment of Debt
Interest expense increased by $2.4 million, or 21.6%, to
$13.9 million during 2007 from $11.5 million during
2006. This increase is primarily related to the inclusion of
Sargent’s results for a full year in 2007 compared to three
months in 2006.
Loss on early extinguishment of debt of $1.6 million during
2007 relates to the refinancing on March 14, 2007 in
conjunction with our merger with Sargent.
Income
Tax
Income tax provision was $1.3 million during 2007 compared
to $1.2 million during 2006. The effective tax rate was
58.0% during the year ended December 31, 2007 compared to
63.4% for the year ended December 31, 2006. The effective
income tax rate in each year exceeds the federal statutory rate
of 35.0% primarily due to state and Canadian income taxes and
due to the impact of permanent items, the largest of which is
meals and entertainment.
Net Income
Available to Common Stockholders
Net income increased by $0.2 million to $0.9 million
during 2007 from $0.7 million during 2006.
Year Ended
December 31, 2006 Compared to the Period from
February 22, 2005 to December 31, 2005
Revenues
Revenues increased by $148.4 million, or 59.2%, to
$399.4 million during 2006 from $251.0 million during
the period from February 22, 2005 to December 31,
2005. Of this growth, $92.2 million is attributable to the
inclusion of a full year of our results in 2006 compared to nine
months in 2005, and $47.4 million of the increase is
related to the inclusion of three months of Sargent’s
results in 2006. These increases are partially enhanced by more
favorable pricing and net new business. Predecessor revenues for
the Predecessor period were $43.4 million.
Purchased
Transportation Costs
Purchased transportation costs increased by $121.4 million,
or 67.1%, to $302.3 million during 2006 from
$180.9 million during the period from February 22,
2005 to December 31, 2005. Of this increase,
$65.1 million is attributable to the inclusion of a full
year of our results in 2006 compared to nine months in 2005,
$42.0 million of this increase is related to the inclusion
of three months of Sargent’s results in 2006, and the
remaining increase is primarily due to record TL volumes, a
shortage of drivers, and a legislative change in driver hours of
service that caused a tightening in truck capacity and an
increase in our purchased power rates. Predecessor purchased
transportation costs for the Predecessor period were
$30.2 million.
Other Operating
Expenses
Other operating expenses increased by $27.3 million, or
49.3%, to $82.7 million during 2006 from $55.4 million
during the period from February 22, 2005 to
December 31, 2005. Of this increase, $31.4 million is
attributable to the inclusion of a full year of our results in
2006 compared to nine months in 2005, and $2.5 million of
the increase is due to the inclusion of three months of Sargent
results in 2006. These increases were partially offset by cost
synergies realized through a reduction in headcount,
consolidation of back office requirements, and the closure of
certain leased facilities. Predecessor other operating expenses
were $17.2 million for the Predecessor period.
Depreciation and
Amortization
Depreciation and amortization increased by $0.5 million, or
92.8%, to $1.1 million during 2006 from $0.6 million
during the period from February 22, 2005 to
December 31, 2005. Nearly all of this increase is
attributable to the inclusion of a full year of our results in
2006 compared to nine months in 2005. Predecessor recorded
$0.1 million of depreciation and amortization during the
Predecessor period.
Restructuring
Expense
Restructuring expense was $0.6 million during the period
from February 22, 2005 to December 31, 2005 and
relates to expenses incurred in connection with the merger of
Roadrunner Freight into us on June 3, 2005.
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Operating
Income
Operating income declined by $0.1 million, or 0.6%, to
$13.3 million during 2006 ($10.5 million from our LTL
business and $2.8 million from our TL brokerage business)
from $13.4 million of LTL operating income during the
period from February 22, 2005 to December 31, 2005. Of
this decline, $4.8 million is attributable to the inclusion
of a full year of LTL results in 2006 compared to nine months in
2005, offset by the addition of $2.8 million related to the
inclusion of three months of Sargent’s results in 2006 and
a $1.9 million increase in LTL operating income. The merger
with Sargent in October 2006 initiated our TL brokerage segment.
Periods prior to the merger reflect our LTL segment only.
Predecessor reported an operating loss of $4.1 million for
the Predecessor period.
Interest Expense
and Loss on Early Extinguishment of Debt
Interest expense increased by $4.0 million, or 52.2%, to
$11.5 million during 2006 from $7.5 million during the
period from February 22, 2005 to December 31, 2005.
This increase is primarily related to the financing arrangements
entered into in conjunction with RRTS’ acquisition of Dawes
Transport and merger of Roadrunner Freight into RRTS on
June 3, 2005.
Loss on early extinguishment of debt was $3.2 million
during the period from February 22, 2005 to
December 31, 2005 related to the financing arrangements
entered into in conjunction with our acquisition of Dawes
Transport and the merger of Roadrunner Freight into us on
June 3, 2005.
Income
Tax
Income tax expense was $1.2 million during both 2006 and
the period from February 22, 2005 to December 31,
2005. The effective income tax rate was 63.4% during the year
ended December 31, 2006 compared to 45.0% during the period
from February 22, 2005 to December 31, 2005. The
effective income tax rate in each period exceeds the federal
statutory rate of 35% primarily due to the impact of permanent
items, the largest of which is meals and entertainment, and the
relative size of such permanent items compared to our pre tax
book income.
Net
Income
Net income declined by $0.8 million to $0.7 million
during 2006 from $1.5 million during the period from
February 22, 2005 to December 31, 2005.
Unaudited Pro
Forma Results of Operations
The following unaudited pro forma results of operations reflect
our historical results as adjusted to give pro forma effect to
the GTS merger only. See page 19 of this prospectus for the
unaudited pro forma results of operations and related notes
giving effect to the GTS acquisition, the GTS merger, and this
offering. This information should not be considered indicative
of actual results that would have been achieved had the GTS
merger been consummated on the dates indicated. This unaudited
pro forma data does not purport to be indicative or to forecast
what our results of operations will be as of any future date or
for any future period.
Six Months Ended
June 30, 2008 (Pro Forma)
Revenues
Pro forma revenues for the six months ended June 30, 2008
were $291.3 million, which included $14.5 million of
net revenues related to GTS’ operations.
Purchased
Transportation Costs
Pro forma purchased transportation costs for the six months
ended June 30, 2008 were $233.1 million, which
included $11.1 million related to GTS’ operations.
Other Operating
Expenses
Pro forma other operating expenses for the six months ended
June 30, 2008 were $51.2 million, which included
$6.1 million related to GTS’ operations.
Depreciation and
Amortization
Pro forma depreciation and amortization for the six months ended
June 30, 2008 was $1.3 million, which included
$0.3 million related to GTS’ operations.
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Operating
Income
Pro forma operating income for the six months ended
June 30, 2008 was $5.8 million, which included an
operating loss of $3.0 million related to GTS’
operations. The operating loss at GTS includes a transaction
bonus paid to GTS personnel in connection with the GTS
acquisition in the amount of $3.6 million, which is a
one-time, non-recurring charge.
Interest
Expense
Pro forma interest expense for the six months ended
June 30, 2008 was $6.7 million, which included
$0.4 million related to GTS’ operations.
Income
Tax
Pro forma income tax provision for the six months ended
June 30, 2008 was $1.0 million, which included $8
thousand related to GTS’ operations.
Net Loss
Available to Common Stockholders
Pro forma net loss for the six months ended June 30, 2008
was $2.1 million, which included a net loss of
$3.4 million related to GTS’ operations. The net loss
at GTS includes a transaction bonus paid to GTS personnel in
connection with the GTS acquisition in the amount of
$3.6 million, which is a one-time, non-recurring charge.
Year Ended
December 31, 2007 (Pro Forma)
Revenues
Pro forma revenues for the year ended December 31, 2007
were $565.0 million, which included $27.0 million of
net revenues related to GTS’ operations.
Purchased
Transportation Costs
Pro forma purchased transportation costs for the year ended
December 31, 2007 were $446.0 million, which included
$20.4 million related to GTS’ operations.
Other Operating
Expenses
Pro forma other operating expenses for the year ended
December 31, 2007 were $96.9 million, which included
$4.2 million related to GTS’ operations.
Depreciation and
Amortization
Pro forma depreciation and amortization for the year ended
December 31, 2007 was $2.6 million, which included
$0.7 million related to GTS’ operations.
Operating
Income
Pro forma operating income for the year ended December 31,
2007 was $19.5 million, which included $1.6 million
related to GTS’ operations.
Interest Expense
and Loss on Early Extinguishment of Debt
Pro forma interest expense for the year ended December 31,
2007 was $14.9 million, which included $0.9 million
related to GTS’ operations.
Pro forma loss on early extinguishment of debt for the year
ended December 31, 2007 was $1.6 million, none of
which was related to GTS’ operations.
Income
Tax
Pro forma income tax provision for the year ended
December 31, 2007 was $0.8 million, which included a
tax benefit of $0.5 million related to GTS’ operations.
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Net Income
Available to Common Stockholders
Pro forma net income for the year ended December 31, 2007
was $2.1 million, which included $1.1 million related
to GTS’ operations.
Liquidity and
Capital Resources
We have historically generated cash from operations, which has
enabled us to fund our organic growth and reduce our
indebtedness. As of June 30, 2008, we had $0.6 million
in cash and cash equivalents, $17.3 million in working
capital, and $17.0 million of availability under the RRTS
revolving credit facility.
Cash Provided by
(Used in) Operating Activities
Cash provided by operating activities was $2.4 million
during the six months ended June 30, 2008, compared to cash
provided of $2.2 million during the six months ended
June 30, 2007. The difference results primarily from growth
in net income.
Cash provided by operating activities was $12.5 million
during 2007, compared to cash provided of $9.5 million
during 2006. The difference results primarily from growth in net
income and larger non-cash expenses incurred during 2007
compared to 2006.
Cash provided by operating activities was $9.5 million
during 2006, compared to $9.1 million during the period
from February 22, 2005 through December 31, 2005. This
was primarily a result of the inclusion of our results for a
full year in 2006 compared to nine months in 2005, and the
inclusion of Sargent’s results for three months in 2006.
Cash Used in
Investing Activities
Cash used in investing activities was $0.7 million during
the six months ended June 30, 2008, compared to cash used
of $1.8 million during the six months ended June 30,
2007. The decrease in cash used resulted from a
$0.4 million Sargent earnout payment made during the six
months ended June 30, 2008 compared to $1.3 million
during the same period in 2007, in addition to a decline in
capital expenditures to $0.3 million during the six months
ended June 30, 2008 from $0.4 million during the same
period in 2007.
Cash used in investing activities was $3.2 million during
2007 compared to cash used of $41.9 million during 2006.
The difference relates primarily to $41.2 million of cash
used related to the acquisition of Sargent on October 4,
2006.
Cash used in investing activities was $41.9 million during
2006 compared to cash used of $179.6 million during the
period from February 22, 2005 through December 31,
2005. The difference relates primarily to the acquisition of
Sargent in 2006, our acquisition of Dawes Transport on
March 31, 2005 for $85.6 million, net of cash acquired
of $0.4 million, and the acquisition of Roadrunner Freight
on April 29, 2005 for $92.6 million, net of cash
acquired of $0.8 million.
Cash Provided by
(Used in) Financing Activities
During the six months ended June 30, 2008, cash used in
financing activities was $1.9 million compared to cash used
in financing activities of $2.2 million during the six
months ended June 30, 2007. The difference results
primarily from the amended and restated financing arrangements
entered into in conjunction with our merger with Sargent on
March 14, 2007 and the corresponding repayment of the
existing debt and a larger repayment of debt under the amended
and restated credit agreement for the six months ended
June 30, 2008 compared to the six months ended
June 30, 2007.
Cash used in financing activities was $11.5 million during
2007 compared to cash provided of $34.3 million during
2006. The difference results primarily to bank financing
received in connection with the acquisition of Sargent on
October 4, 2006.
Cash provided by financing activities was $34.3 million
during 2006 compared to cash provided of $171.6 million
during the period from February 22, 2005 to
December 31, 2005. The difference primarily results from
the relative size of the financing requirements between the
acquisitions of Dawes Transport and Roadrunner Freight in 2005,
and the acquisition of Sargent in 2006.
Credit
Facilities
On March 14, 2007, RRTS entered into an amended and
restated credit agreement, referred to as the RRTS credit
facility, which is secured by all of RRTS’ assets. The RRTS
credit facility includes a $50.0 million revolving credit
facility and a $40.0 million term note. The revolving
credit facility and the term note mature in 2012. Availability
under the revolving credit facility is subject to a borrowing
base of eligible accounts receivable, as defined in the credit
agreement. Interest is payable quarterly at LIBOR plus an
applicable margin or, at RRTS’ option, prime plus an
applicable margin. Principal is payable in
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quarterly installments ranging from $1.3 million per
quarter in 2008 to $1.8 million per quarter through
December 31, 2011. A final payment of $12.5 million is
due in 2012. The revolving credit facility also provides for the
issuance of up to $6.0 million in letters of credit. As of
June 30, 2008, RRTS had approximately $63.2 million
outstanding under the RRTS credit facility. As of June 30,
2008, approximately $33.5 million was outstanding under the
term loan and $29.7 million was outstanding under the
revolving credit facility. In addition, RRTS had approximately
$3.3 million of letters of credit outstanding as of
June 30, 2008. The RRTS credit facility also includes
covenants that require RRTS to, among other things, maintain a
specified fixed charge coverage ratio. RRTS was in compliance
with all debt covenants as of June 30, 2008. See
“Description of Indebtedness” on page 74 for a
more detailed description of the RRTS credit facility.
We intend to prepay all $ of the
term loan outstanding as of the consummation of this offering
and $ of the revolving credit
facility with a portion of the net proceeds of this offering.
See “Use of Proceeds.”
Subordinated
Debt
The RRTS senior subordinated notes were issued in an aggregate
principal amount at maturity of approximately $36.4 million
and will mature on September 15, 2012. The RRTS senior
subordinated notes include cash interest of 12% plus a deferred
margin, payable quarterly, that is treated as deferred interest
and is added to the principal balance of the note each quarter.
The deferred interest ranges from 2.0% to 5.5% depending on
RRTS’ total leverage calculation, payable at maturity in
2012. As of June 30, 2008, there were $38.1 million in
aggregate principal amount of senior subordinated notes
outstanding. We intend to prepay all of the outstanding
subordinated notes with a portion of the net proceeds of this
offering. See “Use of Proceeds.”
Anticipated Uses
of Cash
We anticipate that our operating expenses and planned capital
expenditures will constitute a material use of cash, and we
expect to use available cash to acquire or make strategic
investments in complementary businesses, to pay down debt, and
for working capital and other general corporate purposes. We
also expect to use available cash to make any earnout payments
due to the former owners of Sargent, Group Transportation
Services, and GTS Direct. The former owners of Sargent could
receive a contingent payment equal to the amount by which
Sargent’s earnings before interest, income taxes,
depreciation, and amortization exceeds $8.0 million for
each of 2008 and 2009. For illustrative purposes only, if
Sargent maintained annual earnings before interest, income
taxes, depreciation, and amortization equal to 2007 levels for
each of 2008 and 2009, the former owners of Sargent would
receive an additional $1.6 million in contingent
consideration. This earnings level is not an estimate or
projection of Sargent’s earnings and does not necessarily
indicate the results that could actually occur during the
remaining earnout period. Rather, this assumption is used for
purposes of example only in order to demonstrate the structure
of the Sargent contingent payment obligation. The former owner
of Group Transportation Services and GTS Direct could
receive up to $3.5 million in cash contingent upon the
achievement of certain levels of earnings before interest,
taxes, depreciation and amortization and management fees by
Group Transportation Services and GTS Direct beginning with
the calendar year ending December 31, 2008. We currently
expect to use up to approximately $3.0 million for capital
expenditures through the end of 2009. We also expect that we
will use up to approximately $15.0 million through the end
of 2009 to fund working capital requirements. We expect the use
of cash for working capital purposes will be offset by net
income in addition to non-cash expenses recorded within the
statement of operations.
Although we can provide no assurances, the net proceeds from
this offering, together with our available cash and cash
equivalents and amounts available under our credit agreement,
should be sufficient to meet our cash and operating requirements
for the next twelve months. Thereafter, we may find it necessary
to obtain additional equity or debt financing. In the event
additional financing is required, we may not be able to raise it
on acceptable terms or at all.
Contractual
Obligations
As of December 31, 2007, we had the following contractual
obligations:
| (In thousands) | Payments Due by Period | |||||||||||||||||||
|
Less |
||||||||||||||||||||
|
than 1 |
1-3 |
3-5 |
More than |
|||||||||||||||||
| Total | Year | Years | Years | 5 Years | ||||||||||||||||
|
Long-term debt
|
$ | 154,679 | $ | 15,456 | $ | 31,481 | $ | 107,742 | $ | – | ||||||||||
|
Capital leases
|
– | – | – | – | – | |||||||||||||||
|
Operating leases
|
32,860 | 6,168 | 9,404 | 6,760 | 10,528 | |||||||||||||||
|
Preferred stock
|
5,000 | – | – | – | 5,000 | |||||||||||||||
|
Total
|
$ | 192,539 | $ | 21,624 | $ | 40,885 | $ | 114,502 | $ | 15,528 | ||||||||||
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Contractual obligations for long-term debt include required
principal and interest payments on the RRTS credit facility and
RRTS senior subordinated notes. The interest rates on these
long-term debt obligations are variable and the amounts in the
table represent payments on the RRTS credit facility and RRTS
senior subordinated notes assuming rates of 9.2% and 16.0%,
respectively, as were in effect on December 31, 2007.
Borrowings under the RRTS credit facility bear interest at a
floating rate and may be maintained as alternate base rate loans
or as LIBOR rate loans. Alternate base rate loans bear interest
at (i) the Federal Funds Rate plus 0.5%, and (ii) the prime
rate, plus the applicable base rate margin, which margin is 1%
to 2.5%. LIBOR rate loans bear interest at the LIBOR rate, as
described in the RRTS credit facility, plus the applicable LIBOR
rate margin, which margin is 2.5% to 4%. The RRTS senior
subordinated notes include cash interest of 12% plus a deferred
margin that is treated as payment of deferred interest and is
added to the principal balance of the notes each quarter. The
payment deferred interest ranges from 2.0% to 5.5% depending on
RRTS’ total leverage calculation.
The table does not reflect our planned repayment of
$ million of the RRTS credit
facility and all of the RRTS senior subordinated notes with the
proceeds of this offering. See “Use of Proceeds.”
Off-Balance Sheet
Arrangements
We do not have any off-balance sheet arrangements, other than
operating leases as disclosed in the table of Contractual
obligations.
Seasonality
The transportation industry is subject to seasonal sales
fluctuations as shipments generally are lower during and
immediately after the winter holiday season because shippers
generally tend to reduce the number of shipments during that
time. In addition, inclement weather can impede operations and
increase operating expenses because harsh weather can lead to
increased accident frequency and increased claims.
Effects of
Inflation
Based on our analysis of the periods presented, we believe that
inflation has not had a material effect on our operating results
as inflationary increases in fuel and labor costs have generally
been offset through fuel surcharges and price increases.
Quantitative and
Qualitative Disclosures about Market Risk
Commodity
Risk
In our LTL and TL businesses, our primary market risk centers on
fluctuations in fuel prices, which can affect our profitability.
Diesel fuel prices fluctuate significantly due to economic,
political, and other factors beyond our control. Our ICs and
purchased power pass along the cost of diesel fuel to us, and we
in turn attempt to pass along some or all of these costs to our
customers through fuel surcharge revenue programs. There can be
no assurance that our fuel surcharge revenue programs will be
effective in the future. Market pressures may limit our ability
to pass along our fuel surcharges.
Interest Rate
Risk
We have exposure to changes in interest rates on our revolving
credit facility and term notes. The interest rate on these
credit facilities fluctuates based on the prime rate or LIBOR
plus an applicable margin. Assuming the $50.0 million
revolving credit facility was fully drawn, a 1.0% increase in
the borrowing rate would increase our annual interest expense by
$0.5 million. We do not use derivative financial
instruments for speculative trading purposes and are not engaged
in any interest rate swap agreements.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions. In
certain circumstances, those estimates and assumptions can
affect amounts reported in the accompanying financial statements
and related footnotes. In preparing our financial statements, we
have made our best estimates and judgments of certain amounts
included in the financial statements, giving due consideration
to materiality. Application of the accounting policies described
below involves the exercise of judgment and use
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of assumptions as to future uncertainties and, as a result,
actual results could differ from these estimates. The following
is a brief discussion of our critical accounting policies and
estimates.
Goodwill and
Other Intangibles
Goodwill represents the excess of purchase price over the
estimated fair value assigned to the net tangible and
identifiable intangible assets of a business acquired. Under
SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), goodwill is not amortized, but
instead is tested for impairment annually, or more frequently if
circumstances indicate a possible impairment may exist. Goodwill
is tested for impairment at least annually using a two-step
process that begins with an estimation of the fair value at the
“reporting unit” level. Our reporting units are our
operating segments as this is the lowest level for which
discrete financial information is prepared and regularly
reviewed by management. The first step is a screen for potential
impairment and the second measures the amount of the impairment,
if any. No goodwill impairments were identified in 2007, 2006 or
2005.
We changed the date of our annual goodwill impairment test under
SFAS 142 in 2007 from December 31 to July 1. The
change in the annual impairment test date was made as July 1
better approximates our internal budgeting and forecasting
process. We believe that the resulting change in accounting
principle related to the annual testing date will not delay,
accelerate, or avoid an impairment charge. We determined that
the change in accounting principle related to the annual testing
date is preferable under the circumstances and does not result
in adjustments to our financial statements when applied
retrospectively.
SFAS 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to the estimated residual values, and
reviewed for the impairment whenever impairment indicators exist
in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets. Our customer
relationship intangible asset is being amortized straight-line
over its five year useful life. As of June 30, 2008,
the net book value of our intangible asset was $1.2 million.
Stock-Based
Compensation
Effective January 1, 2006, we adopted
SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS 123(R)), using the modified prospective method of
accounting, which requires that the fair value of unvested stock
options be recognized in the income statement over the remaining
vesting period. The grant date fair value of stock options,
which have been awarded prior to the adoption of
SFAS 123(R), was estimated based on a Black-Scholes option
pricing model that utilizes several assumptions, including
expected volatility, expected life, and a risk-free interest
rate. Expected volatilities were estimated using the historical
share price volatility of publicly traded companies within the
transportation and logistics sector as a surrogate for the
expected volatility of our stock. The expected life of the
option represents the period of time that options are estimated
to remain outstanding. The risk-free interest rate for periods
within the estimated life of the option was based on the
U.S. Treasury rate in effect at the time of the grant for a
note with a similar lifespan. As of June 30, 2008, we had
$1.2 million of total unrecognized compensation cost
related to non-vested options. This cost is expected to be
recognized over a four-year period ending in April 2011. Prior
to us adopting SFAS 123(R), as permitted under
SFAS 123, Accounting for Stock-Based Compensation,
we elected to measure and account for stock options using the
intrinsic value based method of accounting as prescribed under
Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25). Under the intrinsic
value method of accounting, compensation cost is the excess, if
any, of the estimated market price of the stock at grant date
over the amount paid to acquire the stock.
Income
Taxes
We account for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS 109), which requires an asset and liability
approach to financial accounting and reporting for income taxes.
In accordance with SFAS 109, deferred income tax assets and
liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based
on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Income
tax expense (benefit) is the tax payable or refundable for the
period plus or minus the change during the period in deferred
tax assets and liabilities.
At December 31, 2007, RRTS had $17.2 million of gross
federal net operating losses, which were available to reduce
federal income taxes in future years and expire in the years
2025 through 2028.
Effective January 1, 2007, we adopted the provisions of
FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes — an Interpretation of FASB Statement
No. 109 (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in
financial statements in accordance with SFAS 109.
FIN 48 prescribes a recognition threshold and
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measurement process for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. Under FIN 48, our policy is to record any
interest and penalties as a component of the income tax
provision. During 2007, related activity under FIN 48 was
immaterial.
Revenue
Recognition
We record revenue when all of the following have occurred: an
agreement of sale exists; pricing is fixed or determinable;
delivery has occurred; and our obligation to fulfill a
transaction is complete and collection of revenue is reasonably
assured.
In accordance with Emerging Issues Task Force Issue
99-19,
Reporting Revenue Gross as a Principal Versus Net as an
Agent, we recognize revenue on a gross basis, as opposed to
a net basis, because we bear the risks and benefits associated
with revenue-generating activities by, among other things,
(1) acting as a principal in the transaction,
(2) establishing prices, (3) managing all aspects of
the shipping process, and (4) taking the risk of loss for
collection, delivery, and returns.
Recent Accounting
Pronouncements
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51, Consolidated
Financial Statements (SFAS 160). SFAS 160
establishes accounting and reporting guidance for a
noncontrolling ownership interest in a subsidiary and
deconsolidation of a subsidiary. The standard requires that a
noncontrolling ownership interest in a subsidiary be reported as
equity in the consolidated statement of financial position and
any related net income attributable to the parent be presented
on the face of the consolidated statement of income.
SFAS 160 is effective as of the beginning of an
entity’s first fiscal year that begins after
December 15, 2008. We will be required to adopt
SFAS 160 on January 1, 2009, and do not expect the
standard to have a material effect on our financial position or
results of operations.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations (SFAS 141(R)),
which replaces SFAS No. 141, Business
Combinations (SFAS 141), and establishes principles and
requirements for how an acquirer: (1) recognizes and
measures in its financial statements the identifiable assets
acquired, liabilities assumed, and any noncontrolling interest
in the acquiree; (2) recognizes and measures the goodwill
acquired in a business combination or gain from a bargain
purchase; and (3) determines what information to disclose.
SFAS 141(R) is effective for business combinations in which
the acquisition date is in the first fiscal year after
December 15, 2008. We will be required to adopt
SFAS 141(R) on January 1, 2009. We are currently
evaluating the impact, if any, SFAS 141(R) will have on our
financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is
the relevant measurement attribute. Accordingly, this Statement
does not require any new fair value measurements. SFAS 157
is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those fiscal years. We adopted this statement on
January 1, 2008. The adoption of SFAS 157 did not have
a material effect on our financial position or results of
operations.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities – Including an Amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159 expands the use
of fair value accounting but does not affect existing standards
which require assets or liabilities to be carried at fair value.
Under SFAS 159, a company may elect to use fair value to
measure accounts and loans receivable, available-for-sale and
held-to-maturity securities, equity method investments, accounts
payable, guarantees and issued debt. If the use of the fair
value is elected, any upfront costs and fees related to the item
must be recognized in earnings and cannot be deferred. The fair
value election is irrevocable and generally made on an
instrument-by-instrument
basis, even if a company has similar instruments that it elects
not to measure based on fair value. At the adoption date,
unrealized gains and losses on existing items for which fair
value has been elected are reported as a cumulative adjustment
to beginning retained earnings. Subsequent to the adoption of
SFAS 159, changes in fair value are recognized in earnings.
SFAS 159 is effective for fiscal years beginning after
November 15, 2007 and therefore we adopted this statement
on January 1, 2008. We have not elected to use fair value
for measuring financial assets and financial liabilities.
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Business
Introduction
We are a leading non-asset based transportation and logistics
services provider offering a full suite of solutions, including
third-party logistics, customized and expedited LTL, TL
brokerage, parcel, intermodal, and domestic and international
air. We utilize a broad third-party network of transportation
providers, comprised of ICs and purchased power, to serve a
diverse customer base in terms of end market focus and annual
freight expenditures. Although we service large national
accounts, we primarily focus on small to mid-size shippers,
which we believe represent an expansive and underserved market.
Our transportation and logistics solutions are designed to allow
our customers to reduce operating costs, redirect resources to
core competencies, improve supply chain efficiency, and enhance
customer service. Our business model is highly scalable and
features a variable cost structure that requires minimal
investment in transportation equipment and facilities, thereby
enhancing free cash flow generation and returns on our invested
capital and assets.
According to the ATA, beginning in the fourth quarter of 2006,
the over-the-road freight sector began to experience
year-over-year declines in tonnage, primarily reflecting a
weakening freight environment in the U.S. construction,
manufacturing, and retail sectors. During 2007, LTL tonnage at
RRTS increased 4.5% over 2006, while LTL tonnage in the
U.S. over-the-road freight sector declined 2.8% during the
same period. Throughout this downturn, we have actively managed
our LTL business by adding significant new customers and
streamlining our cost structure to enhance our operating
efficiency and improve margins. We believe our variable cost,
non-asset based operating model serves as a competitive
advantage and allows us to provide our customers with
cost-effective transportation solutions regardless of broader
economic conditions. We believe we are well-positioned for
continued growth, profitability, and market share expansion in
the event of a rebound in the over-the-road freight sector.
Our
History
We were formed in February 2005 for the purpose of acquiring
Dawes Transport. Dawes Transport was established in Milwaukee,
Wisconsin in 1981 to provide LTL service primarily between the
Midwest and West Coast using a blend of purchased power and ICs.
From 1997 to 2001, Dawes Transport acquired JBT Express, Team
Express, and Phantom Express in order to geographically expand
to other regions of the United States. Shortly thereafter,
Roadrunner Freight, a provider of LTL services similar to Dawes
Transport in scale and customer mix, but utilizing primarily
purchased power, was acquired by a company sponsored by
Thayer | Hidden Creek and other stockholders. In June
2005, the parent holding company of Roadrunner Freight was
merged with and into us. As a result, Dawes Transport and
Roadrunner Freight became our wholly owned subsidiaries as of
the merger date, resulting in RRTS. Based on our research, we
believe RRTS is the largest non-asset based provider of LTL
services in North America in terms of revenue.
In January 2006, Mark A. DiBlasi joined us as chief executive
officer to lead the final integration of the two businesses and
the transformation of RRTS into a full-service transportation
and logistics provider. Our strategy throughout the
transformation was to develop a comprehensive suite of services
while maintaining a non-union, non-asset based structure. In
October 2006, Sargent was acquired by a company sponsored by
ThayerïHidden
Creek. In March 2007, we expanded our service offerings through
our merger with Sargent, a TL brokerage operation serving
primarily the Eastern United States and Canada.
Our next objective was to identify and acquire a third-party
transportation management solutions operation with a scalable
technology system and management infrastructure capable of
assimilating and enhancing our collective growth initiatives. In
order to accommodate the timing and other considerations of
GTS’ stockholder, Thayer | Hidden Creek, acting
through GTS, acquired Group Transportation Services and GTS
Direct in February 2008 with the intent of merging GTS with
RRTS, which will occur simultaneously with the consummation of
this offering. GTS is a rapidly growing provider of
transportation management solutions (TMS) solutions based in
Hudson, Ohio, led by Michael Valentine and Paul Kithcart, both
former executives of FedEx Global Logistics, Inc. With the
addition of a TMS offering through the GTS merger, we are able
to provide shippers with a “one-stop” transportation
and logistics solution, including access to the most
cost-effective and time-sensitive modes of transportation within
our broad network of third-party carriers. Since February 2008,
the management teams of RRTS and GTS have developed a strong
working relationship and are implementing a cohesive plan to
enhance our collective growth initiatives.
Our Market
Opportunity
The transportation and logistics industry involves the physical
movement of goods using a variety of transportation modes and
the exchange of information related to the flow, transportation,
and storage of goods between points of origin and destination.
The domestic transportation and logistics industry is an
integral part of the U.S. supply chain and the broader
economy, representing estimated annual spending of approximately
$1.3 trillion in 2007, according to Armstrong &
Associates.
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Within the industry, transportation and logistics providers are
generally categorized as “asset-based” or
“non-asset based” depending on their ownership of
transportation equipment and facilities. Many large
transportation and logistics providers are asset-based and have
significant capital expenditure and infrastructure requirements.
As a result of their significant fixed cost bases, these
companies are focused on maintaining high asset utilization in
order to maximize returns on invested capital. Conversely,
non-asset based providers maintain greater operational
flexibility to adapt to changes in freight volumes because they
own minimal transportation equipment and facilities and
therefore have minimal capital expenditure and infrastructure
requirements.
The U.S. domestic over-the-road freight sector has been
experiencing a downturn that began in late 2006 and has
continued into 2008. We believe our variable cost, non-asset
based operating model serves as a competitive advantage in this
market environment. We believe we are well-positioned for
continued growth, profitability, and market share expansion in
the event of a rebound in the over-the-road freight sector.
Industry
Sectors
Third-Party
Logistics
Third-party logistics providers offer transportation management
and distribution services including the movement, storage, and
assembly of inventory. From 1998 to 2007, the U.S. 3PL market
has grown at a CAGR of approximately 13.3% and is projected to
reach $150 billion in 2010, according to
Armstrong & Associates. Only 16% of logistics
expenditures by U.S. businesses were outsourced in 2007,
according to Armstrong & Associates. Based on our
research, we believe the market penetration of third-party
logistics in the United States will continue to expand as
companies increasingly redirect their resources to core
competencies and outsource their transportation and logistics
requirements.
Over-the-Road
Freight
According to the ATA, the U.S. over-the-road freight sector
represented approximately $646 billion in revenue in 2006
and accounted for approximately 84% of domestic spending on
freight transportation. The ATA estimates that
U.S. over-the-road freight transportation will increase to
over $1 trillion by 2018. The over-the-road freight sector
includes both private fleets and “for-hire” carriers
(ICs and purchased power). Private fleets consist of tractors
and trailers owned and operated by shippers that move their own
goods and, according to the ATA, accounted for approximately
$288 billion of revenue in 2006. For-hire carriers
transport freight belonging to others, including LTL and TL, and
accounted for approximately $358 billion in revenue in
2006, according to the ATA.
LTL carriers specialize in consolidating shipments from multiple
shippers into truckload quantities for delivery to multiple
destinations. LTL carriers are traditionally divided into two
segments – national and regional. National carriers
typically focus on
two-day or
longer service across distances greater than 1,000 miles
and often operate without time-definite delivery, while regional
carriers typically offer time-definite delivery in less than two
days. According to the ATA, the U.S. LTL market generated
$48 billion of revenue in 2006.
TL carriers dedicate an entire trailer to one shipper from
origin to destination and are categorized by the type of
equipment they use to haul a shipper’s freight, such as
temperature-controlled, dry van, tank, or flatbed trailers.
According to the ATA, excluding private fleets, revenues in the
U.S. TL segment were approximately $310 billion in
2006.
Industry
Trends
We believe the following trends will continue to drive growth in
the transportation and logistics industry:
Growing Demand
for “One-Stop” Transportation and Logistics Service
Providers
We believe that shippers are increasingly seeking
“one-stop” transportation and logistics providers that
can offer a comprehensive suite of services to meet all of their
shipping needs. We believe shippers will continue to consolidate
their vendor base to increase outsourcing efficiencies and focus
on core competencies. As a result, we believe that
transportation and logistics providers that offer broad
geographic coverage and multiple modes of transportation in
conjunction with technology-enabled solutions are positioned to
gain market share from smaller providers that typically lack the
scale, resources, and expertise to remain competitive.
Recognition of
Outsourcing Efficiencies
We believe that companies are increasingly recognizing the
potential cost savings, improved service, and increased
financial returns gained from outsourcing repetitive and
non-core activities to specialized third-party providers. By
utilizing third-party transportation and logistics providers,
companies can benefit from the specialists’ technology,
achieve greater operational
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flexibility, and redeploy resources to core operations. We
believe this recognition is evidenced by the increased
penetration of third-party logistics services from 6.2% of
logistics expenditures in 1996 to 16% in 2007, according to
Armstrong & Associates.
Increasing Demand
for Customized Transportation and Logistics Solutions
| n | Complexity of Supply Chains. Companies are facing increasingly complex supply chains. Rapidly changing freight patterns, the proliferation of outsourced manufacturing and just-in-time inventory systems, increasingly demanding shipper fulfillment requirements, and pressures to reduce costs continue to support the demand for third-party transportation management. | |
| n | Demand for More Frequent, Smaller Deliveries. Companies are increasingly employing lean inventory management practices to reduce inventory carrying costs. As a result, they are demanding more frequent, smaller deliveries. We believe that by outsourcing transportation management to a specialized 3PL provider, companies are better positioned to maximize efficiency under a lean inventory system. | |
| n | Demand for Improved Customer Service. Shippers and end users are increasingly demanding total supply chain visibility and real-time transaction processing. By providing information regarding the status and location of goods in transit and verifying safe delivery, successful technology-enabled transportation and logistics providers allow clients to improve customer service. |
Consolidation in
the Highly Fragmented 3PL, LTL, and TL Sectors
The transportation and logistics industry is highly fragmented
with no single third-party transportation and logistics provider
accounting for more than 5% of the overall U.S. market,
according to the Transportation Intermediaries Association.
Given the large number of small industry participants, we
believe there is a significant opportunity for growth and
consolidation, especially during periods of economic
uncertainty. We also believe better-capitalized companies with
scalable operating models, like us, will have significant
opportunities to improve profit margins and gain market share as
smaller, less flexible competitors exit our industry over time.
Our Competitive
Strengths
We consider the following to be our principal competitive
strengths:
Comprehensive Logistics and Transportation Management
Solutions. We believe our broad offering of 3PL,
customized and expedited LTL, TL, parcel, intermodal, and
domestic and international air services presents an attractive
“one-stop” value proposition to shippers. Not only can
we provide third-party transportation management solutions to
shippers seeking to redirect resources to core competencies,
improve service, and reduce costs, but we can also provide them
access to the appropriate modes of transportation and manage
their freight from dispatch through final delivery. We can
accommodate the diverse needs and preferred means of
communication of shippers of varying sizes with any combination
of services we offer. We leverage our scalable, proprietary
technology systems to manage our multi-modal nationwide network
of service centers, delivery agents, dispatch offices, brokerage
agents, ICs, and purchased power. As a result of our integrated
offering, we believe we have a competitive advantage in terms of
service, delivery time, and customized solutions.
Flexible Operating Model. Because we utilize a broad
network of purchased power, ICs, and other third-party
transportation providers to transport our customers’
freight, our business is not characterized by the high level of
fixed costs and required concentration on asset utilization that
is common among many asset-based transportation providers. As a
result, we are able to focus solely on providing customized
transportation and logistics services to each of our customers,
which we believe provides higher levels of satisfaction and
represents a significant competitive advantage. Furthermore, our
flexible operating model allows us to generate significant free
cash flows and attractive returns on our invested capital and
assets.
Focus on Serving a Diverse, Underserved Customer
Landscape. We serve over 25,000 customers, with no
single customer accounting for more than 2% of our 2007 pro
forma revenue. In addition, we serve a diverse mix of end
markets, with no industry sector accounting for more than 18% of
our 2007 pro forma revenue. We concentrate primarily on small to
mid-size shippers with annual transportation expenditures of
less than $25 million, which we believe represents an
under-served market. Our highly customized solution is designed
to satisfy these customers’ unique needs and desired level
of integration.
Scalable Technology Systems. We have invested
significant resources to develop and continually enhance our
scalable, proprietary technology systems. Our web-enabled
technology is designed to serve our customers’ distinct
logistics needs and provide them with cost-effective solutions
and consistent service on a
shipment-by-shipment
basis. In addition to managing the physical movement of freight,
we offer contract management, real-time shipment tracking, order
processing, and
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automated data exchange. Our technology also enables us to
efficiently manage our multi-modal capabilities and broad
carrier network, and provides the scalability necessary to
accommodate significant growth.
Experienced and Motivated Management Team. We have
been successful in attracting a knowledgeable and talented
senior management team with an average of 24 years of
industry experience and a complementary mix of operational and
technical capabilities, sales and marketing experience, and
financial management skills. Our management team is led by our
chief executive officer, Mark A. DiBlasi. Mr. DiBlasi has
over 29 years of industry experience and previously managed
a $1.2 billion business unit of FedEx Ground, Inc., a
division of FedEx Corporation. Our executives have experience
leading high-growth logistics companies
and/or
business units such as FedEx Ground, Inc., FedEx Global
Logistics, Inc., DHL Exel Supply Chain, Yellow Transportation,
Inc., and United Parcel Service, Inc. Additionally, several
members of our management team founded and ran their own
transportation and logistics companies prior to joining us or
being acquired by RRTS. We believe this provides us with an
entrepreneurial culture and a team capable of executing our
growth strategies.
Our Growth
Strategies
We believe our business model has positioned us well for
continued growth and profitability, which we intend to pursue
through the following initiatives:
Continue Expanding Customer Base. We intend to
pursue geographic expansion in all of our service offerings. By
leveraging GTS’ network, we will have greater LTL coverage
throughout North America and be in a better position to
accommodate all of a shipper’s transportation needs. We
also intend to geographically expand our TL brokerage operation
beyond its current footprint in the Eastern United States and
Canada, and recently hired a vice president of business
development to expand our network of brokerage agents and
dispatch offices to accomplish this goal. Although GTS has
achieved attractive historical growth with a small Midwest-based
sales force, we began actively expanding its sales team in
February 2008. In addition, we are utilizing our
110-person
LTL sales force to enhance the market reach and penetration of
our TMS offering, which will be added to our suite of services
through the GTS merger. Based on our research, we also believe
the pool of potential customers will continue to grow as the
benefits of third-party transportation management continue to be
recognized by shippers. Additionally, a broader menu of services
better positions us to penetrate new customers seeking a
“one-stop” transportation and logistics solution.
Increase Penetration with Existing Customers. With a
broader offering of complementary services and expanded network
resulting from the GTS merger, we believe there are substantial
cross-selling opportunities and the potential to capture a
greater share of each customer’s annual transportation and
logistics expenditures. Along with our planned cross-selling
initiatives, we believe that macroeconomic factors will provide
us with additional opportunities to further penetrate existing
customers. During the current economic downturn, existing
customers have generally reduced the number of shipments and
pounds per shipment. We believe an economic rebound would result
in increased revenue through greater shipping volume and
improved load density, and allow us to increase profits at a
rate exceeding our revenue growth.
Continue Generating Operating Improvements. In the
event of an improvement in industry conditions and tightening of
overall freight capacity, we believe our ongoing efforts to
streamline our cost structure will enhance margins. We have
implemented a number of targeted initiatives to drive operating
improvements, such as enhancing our real-time metrics in order
to reduce operating expenses, increasing utilization of a
flexible IC base, reducing per-mile costs, reducing dock
handling costs, aggressively recouping increased fuel costs, and
improving routing efficiency throughout our network. We believe
these initiatives will enable us to further enhance our
competitive position, drive continued earnings growth, and
further improve profitability.
Pursue Selective Acquisitions. The transportation
and logistics industry is highly fragmented, consisting of many
smaller, regional service providers covering particular shipping
lanes and providing niche services. We built our LTL, TL
brokerage, and TMS platforms by successfully completing and
integrating accretive acquisitions. We intend to continue to
pursue acquisitions that will complement our existing suite of
services and extend our geographic reach. Our LTL delivery
agents also present an opportunity for growth via acquisition.
If we decide to offer outbound LTL service from a new strategic
location, we could potentially acquire one of our delivery
agents and train them to manage local
pick-up,
consolidation, and linehaul dispatch using our technology
systems. We believe we can execute our acquisition strategy with
minimal investment in additional infrastructure and overhead. We
do not currently have any specific acquisition under
consideration and do not have any proposals or arrangements with
respect to such a transaction.
Our
Services
We are a leading non-asset based transportation services
provider offering a full suite of customized transportation
solutions with a primary focus on serving the specialized needs
of small to mid-size shippers. Because we do not own the
transportation equipment used to transport our customers’
freight, we are able to focus solely on providing quality
service rather than on asset utilization. Our customers
generally communicate their freight needs to one of our
transportation
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specialists on a
shipment-by-shipment
basis via telephone, fax, Internet,
e-mail, or
electronic data interchange. We leverage our propriety
technology systems and a diverse group of over 9,000 third-party
carriers to provide scalable capacity and reliable service to
more than 25,000 customers in North America.
Less-than-Truckload
Based on our research, we believe we are the largest non-asset
based provider of LTL transportation services in North America
in terms of revenue. We provide LTL service originating from
points within approximately 150 miles of our service
centers to most destinations in the contiguous United States,
Hawaii, Alaska, Mexico, Puerto Rico, and parts of Canada.
Through GTS’ network relationships, we have substantially
expanded our coverage area and can now service points beyond
those historically served by our service center locations.
Within the contiguous United States, we offer national,
long-haul service (1,000 miles or greater), inter-regional
service (between 500 and 1,000 miles), and regional service
(500 miles or less). We serve a diverse group of customers
within a variety of industries, including retail, industrial,
paper goods, manufacturing, food and beverage, health care,
chemicals, computer hardware, and automotive.
As the diagram below illustrates, we utilize a point-to-point
LTL model that is differentiated from the traditional,
asset-based hub and spoke LTL model. Our model does not require
intermediate handling at a break-bulk hub (a large terminal
where freight is offloaded, sorted, and reloaded), which we
believe represents a competitive advantage in terms of
timeliness, lower incidence of damage, and reduced fuel
consumption. For example, we can transport LTL freight from
Cleveland, Ohio to Los Angeles, California without stopping at a
break-bulk hub, while the same shipment traveling through a
traditional hub and spoke LTL model would likely be unloaded and
reloaded at break-bulk hubs in, for example, Akron, Ohio and
Adelanto, California prior to reaching its destination.
Representative
Asset-Based National Hub and Spoke LTL Model
versus Non-Asset Based National Point-to-Point LTL Model
versus Non-Asset Based National Point-to-Point LTL Model
Asset-based
national hub and spoke LTL model
national hub and spoke LTL model
Non-asset
based
national point-to-point LTL model
national point-to-point LTL model
We believe our model allows us to offer LTL average transit
times more comparable to that of deferred airfreight service
than to standard national LTL service, yet more cost-effective.
Our LTL claims ratio (the ratio of damage claims to revenues
including fuel surcharge) averaged 0.9% from 2005 through 2007.
Key aspects of our LTL service offering include the following:
| n | Pickup. In order to stay as close as possible to our customers, we prefer to handle customer pick-ups whenever cost-effective. We generally pick up freight within 150 miles of one of our service centers, utilizing primarily city ICs. In 2007, we picked up approximately 87% of our customers’ LTL shipments, the remainder of which was handled by agents with whom we generally have long-standing relationships. | |
| n | Consolidation at Service Centers. Key to our model is a network of 18 service centers, as illustrated by the map below, that we lease in strategic markets throughout the United States. At these service centers, numerous smaller |
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| LTL shipments are unloaded, consolidated into truckload shipments, and loaded onto a linehaul unit scheduled for a destination city. In order to continually emphasize optimal load building and enhance operating margins, dock managers review nearly every load before it is dispatched from one of our service centers. |
| n | Linehaul. Linehaul is the longest leg of the LTL shipment process. In dispatching a load, a linehaul coordinator at one of our service centers uses our proprietary technology to optimize cost-efficiency and service by assigning the load to the appropriate third-party transportation provider, either an IC or purchased power provider. In 2007, ICs handled approximately 44% of our linehaul volume, up from 36% in 2005. As industry-wide freight capacity tightens with an anticipated market rebound, we believe our recruitment and retention efforts will allow us to increase IC utilization in order to maintain service and cost stability. | |
| n | De-consolidation and Delivery. Within our unique model, linehaul shipments are transported to service centers, delivery agents, or direct to end users without stopping at a break-bulk hub, as is often necessary under the traditional, asset-based hub and spoke LTL model. This generally reduces physical handling and damage claims, and reduces delivery times by one to three days on average. In 2007, we delivered approximately 19% of LTL shipments through our service centers, 78% through our delivery agents, and 2% direct to end users. | |
| n | Benefits of a Delivery Agent Network. While many national asset-based LTL providers are encumbered by the fixed overhead associated with owning or leasing most or all of their de-consolidation and delivery facilities, we maintain our variable cost structure through the extensive use of delivery agents. As illustrated on the map below, we use over 215 delivery agents to complement our service center footprint and to provide cost-effective full state, national, and North American delivery coverage. Delivery agents also enhance our ability to handle special needs of the final consignee, such as scheduled deliveries and specialized delivery equipment. |
LTL Service
Center and Delivery Agent Network
We believe a rebound in the over-the-road freight sector would
provide greater freight density and increased shipping volumes,
thereby allowing us to build full trailer loads more quickly and
deliver freight faster under our point-to-point model. We
believe this will further distinguish our LTL service offering
as even more comparable in speed to deferred airfreight service,
leading to enhanced market share and improved operating margins.
Truckload
Brokerage
Based on our research, we believe we are among the 15 largest TL
brokerage operations in North America in terms of revenue. We
provide a comprehensive range of TL solutions for our customers
by leveraging our broad base of over 7,500 third-party carriers
who operate temperature-controlled, dry van,
and/or
flatbed capacity. While we serve a diverse customer base and
provide a comprehensive TL solution, we specialize in the
transport of refrigerated foods, poultry and beverages. We
believe this specialization provides consistent shipping volume
year-over-year. In addition to refrigerated shipments, we
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also provide a variety of TL transportation solutions for dry
goods ranging from paper products to steel, as well as flatbed
service for larger industrial load requirements.
We arrange the pickup and delivery of TL freight either through
our 12 company dispatch offices (operated by RRTS
employees) or through our network of 24 independent brokerage
agents. Our dispatch offices and brokerage agents are located
primarily throughout the Eastern United States and Canada, as
illustrated on the map below.
TL Dispatcher and
Agent Network
Company Dispatchers. Our 46 company brokers,
whom we refer to as dispatchers, not only engage in the routing
and selection of our transportation providers, but also serve as
our internal TL sales force, responsible for managing existing
customer relationships and generating new customer
relationships. Because the performance of these individuals is
essential to our success, we offer attractive incentive-based
compensation packages that we believe keep our dispatchers
motivated, focused, and service-oriented.
We typically earn a margin ranging from 8-15% of the cost of a
standard TL shipment. On shipments generated by one of our
dispatchers, we retain 100% of this margin. This differs for
shipments generated by our brokerage agents, to whom we pay a
commission as described below.
Dispatch Office Expansion. We have traditionally
expanded our dispatch operations based upon the need of our
customers. Going forward, we plan to open new dispatch offices,
particularly in geographic areas where we lack coverage of the
local freight market. Importantly, opening a new dispatch office
requires only a modest amount of capital; it usually involves
leasing a small amount of office space and purchasing
communication and information technology equipment. Typically
the largest investment required is in working capital as we
generate revenue growth from new customers. While the majority
of growth within our dispatch operations has been organic, we
will continue to evaluate selective acquisitions that would
allow us to quickly penetrate new customers and geographic
markets.
Independent Brokerage Agents. In addition to our
dispatchers, we also maintain a network of independent brokerage
agents that have partnered with us for a number of years.
Brokerage agents complement our network of dispatch offices by
bringing pre-existing customer relationships, new customer
prospects,
and/or
access to new geographic markets. Furthermore, they typically
provide immediate revenue and do not require us to invest in
incremental overhead. Brokerage agents own or lease their own
office space and pay for their own communications equipment,
insurance, and any other costs associated with running their
operation. We only invest in the working capital required to
execute our quick pay strategy and pay a commission to our
brokerage agents ranging from 40-60% of the margin we earn on a
TL shipment. Similar to our
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dispatchers, our brokerage agents engage in the routing and
selection of transportation providers for our customer base and
perform sales and customer service functions on our behalf.
Brokerage Agent Expansion. We believe we offer
brokerage agents a very attractive partnership opportunity. We
offer access to our reliable network of over 550 ICs and over
7,000 purchased power providers and invest in the working
capital required to pay these carriers promptly and assume
collection responsibility. We have historically experienced low
turnover within our brokerage agent network, as our 24 brokerage
agents have been with us for an average of approximately
4.7 years. We believe this has contributed to our
reputation for quality and reliable service, as well as to the
consistent growth of our brokerage agent network. Additionally,
14 of our brokerage agents each generated more than
$1 million in revenue in 2007.
In order to more proactively grow our brokerage agent network,
we hired a vice president of agent development to source and
facilitate brokerage agent expansion opportunities. Our vice
president of agent development has significant industry
experience and was responsible for expanding the brokerage agent
base of another national transportation and logistics services
company prior to joining us. We believe our enhanced development
efforts and attractive value proposition will allow us to
increase our brokerage agent business.
Transportation
Management Solutions
Our TMS offering, which will be added to our suite of services
through the GTS merger, is designed to provide comprehensive or
a la carte third-party logistics services. We provide the
necessary operational expertise, information technology
capabilities, and relationships with third-party transportation
providers to meet the unique needs of our customers. For
customers that use our most comprehensive service plans, we
complement their internal logistics and transportation
management personnel and operations, enabling them to redirect
resources to core competencies, reduce internal transportation
management personnel costs, and in many cases, achieve
substantial annual freight savings. We have access to a variety
of transportation modes, including customized and expedited LTL,
TL, parcel, intermodal, and domestic and international air. Key
aspects of our TMS capabilities include the following:
| n | Procurement. After an in-depth consultation and analysis with our customer to identify cost savings opportunities, we develop an estimate of our customer’s potential savings and cultivate a plan for implementation. If necessary, we manage a targeted bid process based on a customer’s traffic lanes, shipment volumes, and product characteristics, and negotiate rates with reputable carriers. In addition to a cost-efficient rate, the customer receives a summary of projected savings as well as our carrier recommendation. | |
| n | Shipment Planning. Utilizing our proprietary technology systems and an expansive multi-modal network of third-party transportation providers, we determine the appropriate mode of transportation and select the ideal provider. In addition, we provide load optimization services based on freight patterns and consolidation opportunities. We also provide rating and routing services, either on-site with one of our transportation specialists, off-site through our centralized call center, or online at our website. Finally, we offer merge-in-transit coordination to synchronize the arrival and pre-consolidation of high-value components integral to a customer’s production process, enabling them to achieve reduced cycle times, lower inventory holding costs, and improved supply chain visibility. | |
| n | Shipment Execution. Our transportation specialists are adept at managing time-critical shipments. Our proprietary technology system prompts our specialist to hold less time-sensitive shipments until other complementary freight can be found to complete the shipping process in the most cost-effective manner. We maintain constant communication with third-party transportation providers from dispatch through final delivery. As a result, our expedited services can meet virtually any customer transit or delivery requirement. Finally, we provide the ability to track and trace shipments either online or by phone through one of our transportation specialists. | |
| n | Audit and Payment Services. We capture and consolidate our customers’ entire shipping activity and offer weekly electronic billing. We also provide freight bill audit and payment services designed to eliminate excessive or incorrect charges from our customers’ bills. | |
| n | Performance Reporting and Improvement Analysis. Customers utilizing our web reporting system can query freight bills, develop customized reports online, and access data to assist in financial and operational reporting and planning. Our specialists are also actively driving process improvement, continually using our proprietary technology to identify incremental savings opportunities and efficiencies for our customers. |
With a broad TMS offering, we believe we can accommodate a
shipper’s unique needs with any combination of services
along our entire spectrum, and cater to their preferred means of
shipment processing and communication.
We believe our comprehensive service approach and our focus on
building long-term customer relationships lead to greater
retention of existing business compared to a more short-term
gain sharing model employed by many 3PLs. We
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believe our approach is more sustainable as industry freight
capacity tightens and it becomes more difficult for 3PLs
employing the gain sharing model to generate substantial
incremental savings for shippers after the first year of
implementation. Before becoming fully operational with a
customer, we conduct thorough feasibility and cost savings
analyses and collaborate with our customer to create a project
scope and timeline with measurable milestones. We believe this
approach enables us to identify any potential issues, ensure a
smooth integration process, and set the stage for long-term
customer satisfaction. Within our TMS operation, we have
consistently met customer implementation deadlines and achieved
anticipated levels of freight savings.
Capacity
We offer scalable capacity and reliable service to our more than
25,000 customers in North America through a diverse third-party
network of over 9,000 transportation providers. Our various
transportation modes include LTL, TL, parcel, intermodal, and
domestic and international air. No single carrier accounted for
more than 3% of our 2007 pro forma purchased transportation
costs. We ensure that each carrier is properly licensed and
regularly monitor their capacity, reliability, and pricing
trends. With enhanced visibility provided by our proprietary
technology systems, we leverage the competitive dynamics within
our network to renegotiate freight rates that we believe are out
of market. This enables us to provide our customers with more
cost-effective transportation solutions while enhancing our
operating margins.
We continually focus on building and enhancing our relationships
with reliable transportation providers to ensure that we not
only secure competitive rates, but that we also gain access to
consistent capacity, especially during peak shipping seasons.
Because we do not own any transportation equipment used to
deliver our customers’ freight, these relationships are
critical to our success. We typically pay our third-party
carriers either a contracted per mile rate or the cost of a
shipment less our contractually agreed upon commission, and
generally pay within seven to ten days from the delivery of a
shipment. We pay our third-party carriers promptly in order to
drive loyalty and reliable capacity.
Our third-party network of transportation providers can be
divided into the following groups:
Independent Contractors. Independent contractors are
individuals or small teams that own or lease their own
over-the-road transportation equipment and provide us with
dedicated freight capacity. ICs are a key part of our long-term
strategy to maintain service and provide cost stability. In the
event of a rebound in the transportation sector, freight
capacity would likely tighten and purchased power providers
would likely reduce fleet sizes to eliminate under-utilized
assets. Should this occur, we believe we are well positioned to
increase our utilization of ICs as a more cost-effective and
reliable solution.
In October 2006, we created the position of director of linehaul
development as part of an initiative to enhance IC recruitment
and retention. In selecting our ICs, we adhere to specific
screening guidelines in terms of safety records, length of
driving experience, and personnel evaluations. Within our LTL
business, we increased our IC base from an average of
364 units (single drivers and teams) during the fourth
quarter of 2006 to an average of 450 units during the fourth
quarter of 2007. In total, we had access to over 1,100 ICs as of
June 30, 2008.
To enhance our relationship with our ICs, we offer per mile
rates that, based on our research, we believe are highly
competitive and often above prevailing market rates. In
addition, we focus on keeping our ICs fully utilized in order to
limit the number of “empty” miles they drive. We
regularly communicate with our ICs and seek new ways to enhance
their quality of life. As a result of our efforts, we have
experienced increased IC retention. In our opinion, this
ultimately leads to better service for our customers.
Purchased Power. In addition to our large base of
ICs, we have access to approximately 8,000 unrelated asset-based
over-the-road companies who provide freight capacity to us under
non-exclusive contractual arrangements. We have established
relationships with carriers of all sizes, including large
national trucking companies and small to mid-size regional
fleets. With the exception of safety incentives, purchased power
providers are generally paid under a similar structure as ICs
within our LTL and TL brokerage businesses. In contrast to
contracts established with our ICs, however, we do not cover the
cost of liability insurance for our purchased power providers.
Delivery Agents. For the de-consolidation and
delivery stages of our LTL shipment process, our network of 18
service centers is complemented by over 215 delivery agents. The
use of delivery agents is also a key part of our long-term
strategy to maintain a variable cost, scalable operating model
with minimal overhead.
Parcel. We perform preliminary rate analysis for
each customer and provide an estimate of savings achievable
based on parcel characteristics and our ability to secure volume
discounts with parcel carriers such as United Parcel Service,
Inc., FedEx Corporation, and Deutsche Post AG. We renegotiate
customers’ current rates and contracts with parcel
carriers, identify questionable assessorial charges, apply for
credits, posts credits, and report weekly results.
Intermodal. We maintain intermodal capability
through relationships with third-party carriers who rent
capacity on Class 1 railroads throughout North America.
Intermodal transportation rates are typically negotiated between
us and the capacity provider on a customer-specific basis.
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Domestic/International Air Carriers. For our
customers’ domestic/international air freight needs, we
operate under an exclusive arrangement with FreightCo Logistics,
a third-party provider, to provide such services to our
customers. Under our arrangement, FreightCo Logistics is
responsible for all services, and we receive a commission based
on a percentage of the total bill.
Customers
Our goal is to establish long-term customer relationships and
achieve year-over-year growth in recurring business by providing
reliable, timely, and cost-effective transportation and
logistics solutions. While we possess the scale, operational
expertise, and capabilities to serve shippers of all sizes, we
focus primarily on small to mid-size shippers, which we believe
represent a large and underserved market. We serve over 25,000
customers within a variety of end markets, with no customer
accounting for more than 2% of 2007 pro forma revenue and no
industry sector accounting for more than 18% of 2007 pro forma
revenue. We believe this reduces our exposure to a decline in
shipping demand from any customer and a cyclical downturn within
any end market.
Sales and
Marketing
In addition to our 24 TL brokerage agents, we currently market
and sell our transportation and logistics solutions through over
150 sales personnel located throughout the United States
and Canada. We are focused on actively expanding our sales
force, particularly as it relates to our TL and TMS offerings,
to new geographic markets where we lack a strong presence. In
2007, we began using our
110-person
LTL sales force to expand the market reach of our TL brokerage
services, and we plan to do the same to enhance the geographic
presence of our TMS offering. Our objective is to leverage our
collective, national sales force to sell our full suite of
transportation services. In addition to expanding our sales
force, we intend to leverage a broader service offering and
capitalize on substantial cross-selling opportunities with
existing and new customers. We believe this will allow us to
capture a greater share of a shipper’s annual
transportation and logistics expenditures.
Our sales force can be categorized by primary service offering:
| n | Less-than-Truckload. Our 110-person LTL sales force consists of corporate account executives, account executives, sales managers, inside sales representatives, and commission sales representatives. In March 2007, we hired a vice president of sales and marketing to lead the implementation of a detailed strategy to drive positive new business trends with significant growth in new account shipments and revenue. Under his leadership, we significantly upgraded a large portion of our sales force by replacing underperforming personnel. Since the beginning of 2007, over 1,400 new target accounts have begun shipping with us. | |
| n | Truckload Brokerage. We have 46 dispatchers and 24 independent brokerage agents located throughout the Eastern United States and Canada. We believe that this decentralized structure enables our salespeople to better serve our customers by developing an understanding of local and regional market conditions, as well as the specific transportation and logistics issues facing individual customers. Our dispatchers and brokerage agents seek additional business from existing customers and pursue new customers based on this knowledge and an understanding of the value proposition we can provide. | |
| n | Transportation Management Solutions. In addition to a recently added vice president of sales, our TMS sales force currently consists of two directors of corporate sales, three regional sales representatives, and four inside sales representatives. While our TMS operation generated revenue growth at a CAGR of 24.8% from 2005 through 2007 with a small Midwest-based sales force, we began actively expanding our sales team in February 2008. In addition, we are utilizing our 110-person LTL sales force to enhance the market reach and penetration of our TMS offering and to capitalize on the opportunity to cross-sell a broader menu of services to new and existing customers. |
Competition
We compete in the North American transportation and logistics
services sector. Our marketplace is extremely competitive and
highly fragmented. We compete against a large number of other
non-asset based logistics companies, asset-based carriers,
integrated logistics companies, and third-party freight brokers,
many of whom have larger customer bases and more resources than
we do. For our TMS business, which we will add through the GTS
merger, we believe the largest group of competitors is internal
shipping departments at companies that have complex multi-modal
transportation requirements, many of which represent potential
sales opportunities for us. Based on our research, we believe we
are among the 15 largest LTL providers and we believe we
are the largest non-asset based provider of customized LTL
services in North America in terms of revenue. In addition,
based on our research, we believe we are among the
15 largest TL brokerage operations in North America in
terms of revenue. Our TMS operation generated revenue growth at
a CAGR of 24.8% from 2005 through 2007, while revenues in the
U.S. 3PL sector as a whole grew at 8.5% over the same
period, according to Armstrong & Associates.
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Active participants in our markets include:
| n | global asset-based integrated logistics companies such as FedEx Corporation and United Parcel Service, Inc., against whom we compete in all of our service lines; | |
| n | asset-based freight haulers such as YRC Worldwide, Inc. and Con-Way, Inc., against whom we compete in our core LTL and TL service offerings; | |
| n | non-asset based freight brokerage companies such as C.H. Robinson Worldwide, Inc., Landstar System, Inc., and Total Quality Logistics, Inc., against whom we compete in our core LTL and TL service offerings; | |
| n | third-party logistics providers that offer comprehensive transportation management solutions such as Transplace, Inc., Echo Global Logistics, Inc., and Schneider Logistics, Inc., against whom we compete in our TMS offering; and | |
| n | smaller, niche transportation and logistics companies that provide services within a specific geographic region or end market. |
We believe we effectively compete with various market
participants by offering shippers attractive transportation and
logistics solutions designed to deliver the optimal combination
of cost and service. To that end, we believe our most
significant competitive advantages include:
| n | our comprehensive suite of transportation and logistics services, which allows us to offer a “one-stop” value proposition to shippers of varying sizes and accommodate their diverse needs and preferred means of processing and communication; | |
| n | our non-asset based, variable cost business model, which allows us to focus greater attention on providing optimal customer service than on maintaining high levels of asset utilization; | |
| n | our focus on an expansive market of small to mid-size shippers who often lack the internal resources necessary to manage complex transportation and logistics requirements and whose freight volumes may not garner the same level of attention and customer service from many of our larger competitors; | |
| n | our proprietary technology systems, which allow us to provide scalable capacity and high levels of customer service across a variety of transportation modes; and | |
| n | our knowledgeable management team with experience leading high-growth logistics companies and/or business units, which allows us to benefit from a collective entrepreneurial culture focused on growth. |
Seasonality
Our operations are subject to seasonal trends that have been
common in the North American over-the-road freight sector for
many years. Our results of operations for the quarter ending in
March are on average lower than the quarters ending in June,
September, and December. Typically, this pattern has been the
result of factors such as inclement weather, national holidays,
customer demand, and economic conditions.
Technology
We believe the continued development and innovation of our
technology systems is essential not only to improving our
internal operations and financial performance, but also to
providing our customers with the most cost-effective, timely,
and reliable transportation and logistics solutions. We
regularly evaluate our technology systems and personnel to
ensure that we maintain a competitive advantage and that all
critical applications are scalable and operational as we grow.
Through ongoing investment of time and financial resources, we
have developed numerous proprietary, customized applications
that allow us to track, query, manipulate, and interpret a range
of different variables related to our operations, our network of
third-party transportation providers, and our customers. Our
web-based technology allows us to process and service customer
orders, track shipments in real time, select optimal modes of
transportation, execute customer billing, provide carrier rates,
establish customer specific profiles and retain critical
information for analysis. Our objective is to allow our
customers and vendors to easily do business with us via the
Internet. Our customers have the ability, through a paperless
process, to receive immediate pricing, place orders, track
shipments, process remittance, receive updates on arising
issues, and review historical shipping data through a variety of
reports over the Internet.
Our LTL operation utilizes a combination of an IBM
Series I5 computer system and web-based servers with
customized software applications to improve every aspect of our
LTL model and manage our broad carrier base from pickup through
final delivery. Our corporate headquarters and service centers
are completely integrated, allowing real-time data to flow
between
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locations. Additionally, we make extensive use of electronic
data interchange, or EDI, to allow our service centers to
communicate electronically with our carriers’ and
customers’ internal systems. We offer our EDI-capable
customers a paperless process, including document imaging and
shipment tracking and tracing. As part of our ongoing initiative
to enhance our information technology capabilities, our LTL
operation has developed a proprietary carrier selection tool
used to characterize carriers based on total cost to maximize
usage of the lowest available linehaul rates.
Our TL brokerage operation uses a customized OMNI technology
system to broker our customers’ freight. Our software
enhances our ability to track our third-party drivers, tractors,
and trailers, which provides customers with visibility into
their supply chains. Additionally, our systems allow us to
operate as a paperless operation through electronic order entry,
resource planning and dispatch.
We continually enhance our proprietary TMS technology system and
have integrated other proven transportation management software
packages with the goal of providing our customers with
broad-based, highly competitive solutions. Through an extensive
use of database configuration and integration techniques,
hardware and software applications, communication mediums, and
security devices, we are able to design a customized solution to
address each customer’s unique shipping needs and preferred
method of processing. We use this system to maximize supply
chain efficiency through mode, carrier, and route optimization.
All of our operations have multiple levels of contingency and
disaster recovery plans focused on ensuring continuous service
to our customers. We do not currently have registered
intellectual property rights, such as patents, with respect to
our technology systems. We maintain trade secret protection over
our technology systems and keep strictly confidential our
proprietary, customized applications.
Facilities
Our corporate headquarters are located in Cudahy, Wisconsin,
where we lease 28,824 square feet of space. The primary
functions performed at our corporate headquarters are
accounting, treasury, marketing, human resources, linehaul
support, claims, safety and information technology support. We
lease 5,170 square feet of space in Mars Hill, Maine, which
houses our TL brokerage operation headquarters, and
approximately 24,000 square feet of space in Hudson, Ohio,
which houses our TMS operation.
We lease 18 service centers for our LTL operation, each of which
is interactively connected. Each service center manages and is
responsible for the freight that originates in its service area.
The typical service center is configured to perform cross-dock
and limited short-term warehouse operations. In addition, our TL
brokerage operation leases 12 company dispatch offices
throughout the Eastern United States and Canada. We believe that
our current facilities are capable of supporting our operations
for the foreseeable future; however, we will continue to
evaluate leasing additional space as needed to accommodate
growth.
Employees
As of June 30, 2008, we employed approximately
1,125 personnel, which includes approximately 15 management
personnel, approximately 150 sales and marketing personnel,
approximately 400 operations and other personnel, approximately
200 accounting and administrative personnel, approximately 10
information technology personnel, and approximately 350 LTL dock
personnel. None of our employees are covered by a collective
bargaining agreement and we consider relations with our
employees to be good.
Regulation
The federal government has substantially deregulated the
provision of ground transportation and logistics services via
the enactment of the Motor Carrier Act of 1980, the Trucking
Industry Regulatory Reform Act of 1994, the Federal Aviation
Administration Authorization Act of 1994, and the ICC
Termination Act of 1995. Prices and services are now largely
free of regulatory controls, although states have the right to
require compliance with safety and insurance requirements, and
interstate motor carriers remain subject to regulatory controls
imposed by the DOT and its agencies, such as the Federal Motor
Carrier Safety Administration. Motor carrier, freight
forwarding, and freight brokerage operations are subject to
safety, insurance, and bonding requirements prescribed by the
DOT and various state agencies. Any airfreight business is
subject to commercial standards set forth by the International
Air Transport Association and federal regulations issued by the
Transportation Security Administration.
We are also subject to various environmental and safety
requirements, including those governing the handling, disposal
and release of hazardous materials, which we may be asked to
transport in the course of our operations. If hazardous
materials are released into the environment while being
transported, we may be required to participate in, or may have
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liability for response costs and the remediation of such a
release. In such case, we also may be subject to claims for
personal injury, property damage, and damage to natural
resources.
Our business is also subject to changes in legislation and
regulations, which can affect our operations and those of our
competitors. For example, new laws and initiatives to reduce and
mitigate the effects of greenhouse gas emissions could
significantly impact the transportation industry. Future
environmental laws in this area could adversely affect our
ICs’ costs and practices and our operations.
We are also subject to regulations to combat terrorism that the
Department of Homeland Security (including Customs and Border
Protection agencies) and other agencies impose.
We believe that we are in substantial compliance with current
laws and regulations. Our failure to continue in compliance
could result in substantial fines or revocation of our permits
or licenses.
Insurance
We insure our ICs against third-party claims for accidents or
damaged shipments and we bear the risk of such claims. We
maintain insurance for vehicle liability, general liability, and
cargo damage claims. In our LTL and TL operations, we maintain
an aggregate of $20.0 million of vehicle liability and
general liability insurance. The vehicle liability insurance has
a $500,000 deductible. In our LTL operation, we carry aggregate
insurance against the first $1.0 million of cargo claims,
with a $100,000 deductible. In our TL operations, we carry
aggregate insurance against the first $100,000 to $300,000 of
cargo claims, with a $5,000 deductible. In our TMS operation, we
maintain insurance against the first $1.0 million of claims
for vehicle liability and against the first $2.0 million of
general liability claims. We do not have a deductible against
this coverage. In addition, our TMS operation maintains
$1.0 million of excess umbrella coverage. Our TMS operation
also carries insurance against the first $50,000 of cargo claims
with a $500 deductible. Because we maintain insurance for our
ICs, if our insurance does not cover all or any portion of the
claim amount, we may be forced to bear the financial loss. We
attempt to mitigate this risk by carefully selecting carriers
with quality control procedures and safety ratings.
In addition to vehicle liability, general liability, and cargo
claim coverage, our insurance policies also cover other standard
industry risks related to workers’ compensation and other
property and casualty risks. We believe our insurance coverage
is comparable in terms and amount of coverage to other companies
in our industry. We also establish additional reserves for
anticipated losses and expenses related to vehicle liability,
cargo, and property damage claims, and we will establish
reserves relating to vehicle liability, workers’
compensation and general liability claims in the future as
appropriate. Our reserves have been and will be periodically
evaluated and adjusted to reflect our experience.
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Management
Directors and
Executive Officers
The following table sets forth certain information regarding our
directors and executive officers:
|
Name
|
Age |
Position
|
||||
|
Mark A. DiBlasi
|
52 | President, Chief Executive Officer, and Director | ||||
|
Peter R. Armbruster
|
49 | Vice President – Finance, Chief Financial Officer, Treasurer, and Secretary | ||||
|
Brian J. van Helden
|
40 | Vice President – Operations | ||||
|
Scott L. Dobak
|
45 | Vice President – Sales and Marketing | ||||
|
Ivor J. Evans
|
66 | Chairman of the Board | ||||
|
Scott D. Rued
|
51 | Director | ||||
|
Judith A. Vijums
|
42 | Director | ||||
|
James J. Forese
|
72 | Director | ||||
|
Samuel B. Levine
|
41 | Director | ||||
|
Brian D. Young
|
53 | Director | ||||
|
Chris H. Carey
|
37 | Director | ||||
Mark A. DiBlasi has served as our President and Chief
Executive Officer since January 2006. Mr. DiBlasi has
served as a director of our company since July 2006. Prior to
joining our company, Mr. DiBlasi served as Vice
President – Southern Division for FedEx Ground, Inc.,
a division of FedEx Corporation, from July 2002 to January 2006.
Mr. DiBlasi was responsible for all operational matters of
the $1.2 billion Southern Division, which represented
one-fourth of FedEx Ground, Inc.’s total operations. From
February 1995 to June 2002, Mr. DiBlasi served as the
Managing Director of two different regions within the FedEx
Ground, Inc. operation network. From August 1979 to January
1995, Mr. DiBlasi held various positions in operations,
sales, and terminal management at Roadway Express before
culminating as the Chicago Breakbulk Manager.
Peter R. Armbruster has served as our Vice
President – Finance, Chief Financial Officer,
Treasurer, and Secretary since December 2005. From March 2005 to
December 2005, Mr. Armbruster served as our Vice
President – Finance. Mr. Armbruster held various
executive positions at Dawes Transport from August 1990 to March
2005. Prior to joining Dawes Transport, Mr. Armbruster was
with Ernst & Young LLP from June 1981 to July 1990,
where he most recently served as Senior Manager.
Brian J. van Helden has served as our Vice
President – Operations since April 2007. Prior to
joining our company, Mr. van Helden served as a Managing
Director for FedEx Ground, Inc., a division of FedEx
Corporation, from July 2003 to April 2007, where he was
responsible for operational matters in the Midwest and New
England.
Scott L. Dobak has served as our Vice
President – Sales and Marketing since January 2007.
Prior to joining our company, Mr. Dobak served as Vice
President – Corporate Sales for Yellow Transportation,
Inc. where he was responsible for the $1.5 billion
Corporate Sales Division from December 2000 to January 2007.
Mr. Dobak was the Regional Vice President of Sales and
Marketing – Chicago from July 1997 to December 2000
with Yellow Transportation, Inc. Prior to that, Mr. Dobak
served as an Area General Manager for Yellow Transportation,
Inc. from January 1995 to July 1997.
Ivor (“Ike”) J. Evans has served as our
Chairman of the Board since July 2008 and has been a director of
our company since March 2005. Mr. Evans has served as
Operating Partner of Thayer | Hidden Creek since May
2005. Mr. Evans served as a director of both Union Pacific
Corporation and Union Pacific Railroad from 1999 until February
2005, and as Vice Chairman of Union Pacific Railroad from
January 2004 until his retirement in February 2005. From 1998
until his election as Vice Chairman, Mr. Evans served as
the President and Chief Operating Officer of Union Pacific
Railroad. From 1990 to 1998, Mr. Evans served in various
executive positions at Emerson Electric Company. Mr. Evans also
serves on the board of directors of Arvin Meritor, Inc., Textron
Inc., Cooper Industries, Ltd., and Spirit AeroSystems Holdings,
Inc.
Scott D. Rued has served as a director of our company
since March 2005 and served as our Chairman of the Board from
March 2005 to July 2008. Mr. Rued has been a Managing
Partner of Thayer | Hidden Creek since 2003.
Mr. Rued also serves as Chairman of the Board of Commercial
Vehicle Group, Inc., a publicly traded supplier of integrated
system solutions for the global commercial vehicle market. From
1989 to 2003, Mr. Rued held various executive positions at
Hidden Creek Industries.
Judith A. Vijums has served as a director of our company
since March 2005. Ms. Vijums has served as a Managing
Director of Thayer
ï
Hidden Creek since 2003. From 1993 to 2003, Ms. Vijums held
various leadership positions at Hidden Creek Industries and
actively participated in the management of several Hidden Creek
Industries portfolio companies,
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including Commercial Vehicle Group, Inc., Dura Automotive
Systems, Inc., Tower Automotive, Inc. and Automotive Industries
Holdings, Inc.
James J. Forese has served as a director of our company
since March 2005. Mr. Forese has served as an Operating
Partner of Thayer
ï
Hidden Creek since 2003. Prior to joining Thayer
ï
Hidden Creek, Mr. Forese served as President and Chief
Executive Officer of IKON Office Solutions, Inc. (formerly Alcoa
Standard Corporation) from 1998 to 2002 and retired as Chairman
in February 2003. Prior to joining IKON, Mr. Forese served
as Controller and Vice President of Finance for IBM Corporation
and Chairman of IBM Credit Corporation. Mr. Forese also
serves on the board of directors of Anheuser-Busch Companies,
Inc. and Spherion Corporation, and has served as a member of the
board of directors of various IBM subsidiaries, Lexmark
International, Inc., NUI Corporation, Southeast Bank
Corporation, Unisource Worldwide, Inc., IKON Office Solutions,
Inc. and American Management Systems, Incorporated.
Samuel B. Levine has served as a director of our company
since June 2005. Mr. Levine has served as Managing Director
of Eos Management, L.P., an affiliate of Eos Partners, L.P.,
since 1999.
Brian D. Young has served as a director of our company
since June 2005. Mr. Young has served as General Partner of
Eos Partners, L.P. since 1994.
Chris H. Carey has served as a director of our company
since June 2007. Mr. Carey has served as a Principal of
American Capital, Ltd. since April 2007. Prior to joining
American Capital, Ltd., Carey served as a principal
investor of Prudential Capital Group in debt private placements
and mezzanine financing from August 1998 to March 2007.
Key
Employees
Our TMS operations are managed by a senior management team lead
by Michael P. Valentine and W. Paul Kithcart, who have a track
record of growing GTS’ revenue at a CAGR of 24.8% from 2005
through 2007.
Michael P. Valentine has served as Chief Executive
Officer of GTS since February 2008. Mr. Valentine founded
Group Transportation Services in January 1995 and served in
various officer positions, including President and Chief
Executive Officer, until February 2008. Mr. Valentine
founded GTS Direct in October 1999 and served as its President
until February 2008. Prior to founding Group Transportation
Services, Mr. Valentine was an independent sales agent with
Roberts Express, Inc. from 1988 to 1995.
W. Paul Kithcart has served as President of GTS,
Group Transportation Services, and GTS Direct since February
2008. Prior to that, Mr. Kithcart served as Vice President
of Group Transportation Services from August 2000 to January
2008. Prior to joining Group Transportation Services,
Mr. Kithcart held various positions with FedEx Global
Logistics, Inc. from 1994 to 2000.
There are no family relationships among any of our directors,
officers, or key employees.
Board of
Directors and Committees
Our board of directors currently consists of eight members. We
expect to add new directors
shortly after the consummation of this offering. In compliance
with the transitional rules of the SEC and the Nasdaq Stock
Market, we expect that a majority of our directors will be
independent within one year from the closing of this offering.
Prior to the effectiveness of the registration statement of
which this prospectus forms a part, Messrs. Levine and
Young plan to resign from our board of directors.
Our amended and restated certificate of incorporation, which
will be filed and become effective prior to the completion of
this offering, will provide for a board of directors consisting
of three classes serving three-year staggered terms. The initial
term of each Class I director will expire at the annual
meeting of stockholders in 2009. The initial term of each
Class II director will expire at the annual meeting of
stockholders in 2010. The initial term of each Class III
director will expire at the annual meeting of stockholders in
2011.
Our amended and restated bylaws, which will be filed prior to
the completion of this offering, will authorize our board of
directors to appoint among its members one or more committees,
each consisting of one or more directors. Upon completion of
this offering, our board of directors will have three standing
committees: an audit committee, a compensation committee, and a
nominations committee. Each of our audit, compensation, and
nominations committees will initially consist of at least one
independent director. In accordance with the transitional rules
of the SEC and the Nasdaq Stock Market, each committee will have
a majority of independent directors within 90 days
following the completion of this offering and all members of
each committee will be independent within one year following the
completion of this offering. We plan to adopt charters for the
audit, nominations, and compensation committees describing the
authority and responsibilities delegated to each committee by
our board of directors substantially as set forth below.
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We also plan to adopt a Code of Conduct and a Code of Ethics for
the CEO and Senior Financial Officers. We will post on our
website, at www.rrts.com, the charters of our audit,
compensation, and nominations committees; our Code of Conduct
and our Code of Ethics for the CEO and Senior Financial
Officers, and any amendments or waivers thereto; and any other
corporate governance materials contemplated by SEC or Nasdaq
Stock Market regulations. These documents will also be available
in print to any stockholder requesting a copy in writing from
our corporate secretary at our executive offices set forth in
this prospectus.
The Audit
Committee
The primary purpose of the audit committee, among other
functions, will be to assist our board of directors in the
oversight of the integrity of our financial statements, our
compliance with legal and regulatory requirements, our
independent auditors’ qualifications and independence, the
performance of our internal audit function and our independent
auditors, and the review and approval of related party
transactions. The primary responsibilities of the audit
committee will be set forth in its charter.
In compliance with the transitional rules of the SEC and the
Nasdaq Stock Market, our audit committee will ultimately consist
entirely of independent directors, as defined under Nasdaq Stock
Market listing standards as well as under rules adopted by the
SEC pursuant to Sarbanes-Oxley. Our board of directors will also
select a director to be an audit committee member who qualifies
as an “audit committee financial expert” in accordance
with applicable rules and regulations of the SEC.
Compensation
Committee
The primary responsibilities of the compensation committee,
among other functions, will be to review and approve corporate
goals and objectives relevant to the compensation of our chief
executive officer and other executive officers; evaluate the
performance of our chief executive officer and other executive
officers in light of those goals and objectives; and determine
and approve the compensation level of our chief executive
officer and other executive officers based on this evaluation.
The compensation committee will have the authority to discharge
the responsibilities of our board of directors in establishing
the compensation of our chief executive officer and other
executive officers. Our chief executive officer will provide
input regarding compensation for executive officers other than
himself. The compensation committee chairman will report the
committee’s recommendations on executive compensation to
our board of directors. The committee’s charter will
authorize the committee to delegate any or all of its
responsibilities to a subcommittee consisting solely of
independent directors.
In compliance with the transitional rules of the SEC and the
Nasdaq Stock Market, our compensation committee will ultimately
consist entirely of independent directors, as defined under
Nasdaq Stock Market listing standards as well as under rules
adopted by the SEC pursuant to Sarbanes-Oxley.
Nominations
Committee
The principal duties and responsibilities of our nominations
committee will be, among other functions, to identify candidates
qualified to become members of our board of directors,
consistent with criteria approved by our board of directors;
select, or recommend that our board of directors select, the
director nominees for the next annual meeting of stockholders;
and oversee the selection and composition of committees of our
board of directors.
The nominations committee will consider persons recommended by
stockholders for inclusion as nominees for election to our board
of directors if the names, biographical data, and qualifications
of such persons are submitted in writing in a timely manner
addressed and delivered to our company’s secretary at the
address listed herein. The nominations committee will identify
and evaluate nominees for our board of directors, including
nominees recommended by stockholders, based on numerous factors
it considers appropriate, some of which may include strength of
character, mature judgment, career specialization, relevant
technical skills, diversity, and the extent to which the nominee
would fill a present need on our board of directors.
In compliance with the transitional rules of the SEC and the
Nasdaq Stock Market, our nominations committee will ultimately
consist entirely of independent directors, as defined under
Nasdaq Stock Market listing standards as well as under rules
adopted by the SEC pursuant to Sarbanes-Oxley.
Until the establishment of the audit, compensation, and
nominations committees, these functions will continue to be
performed by our board of directors.
Compensation
Committee Interlocks and Insider Participation
We do not currently have a compensation committee. Compensation
decisions for our executive officers were made by our board of
directors as a whole. Mr. DiBlasi participated in
discussions with the board of directors concerning executive
officer compensation other than his own. Following the closing
of this offering, our compensation committee is expected to be
comprised of directors who have not, at any time, had any
contractual or other relationship with our company.
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Compensation
Discussion and Analysis
This section discusses the principles underlying our executive
compensation policies and decisions and the most important
factors relevant to an analysis of these policies and decisions.
It provides qualitative information regarding the manner and
context in which compensation is awarded to and earned by our
executive officers and places in perspective the data presented
in the narrative and tables that follow.
Overview
The objectives of our compensation program for our executive
officers are to motivate and reward those individuals who
perform over time at or above the levels that we expect and to
attract, as needed, individuals with the skills necessary to
achieve our business objectives. Our compensation program is
also designed to reinforce a sense of ownership and to link
rewards to measurable corporate and individual performance.
Our executive compensation package is generally based on a mix
of three primary components:
| n | base compensation or salary; | |
| n | annual cash bonuses under our management incentive plan; and | |
| n | option awards granted under our key employee equity plan. |
Our practice has been and will continue to be to combine the
components of our executive compensation program to achieve a
total compensation level appropriate for our size and corporate
performance. We target a total compensation amount to be paid to
each of our executive officer positions. We then determine the
amount of each element based on our compensation objectives. Our
philosophy is to make a greater percentage of an employee’s
compensation based on our company’s performance as he or
she becomes more senior, with a significant portion of the
compensation of our executive officers based on the achievement
of company performance goals.
Historically, our board of directors has reviewed the total
compensation of our executive officers and the mix of components
used to compensate those officers on an annual basis. In
determining the total amount and mix of compensation components,
our board of directors strives to create incentives and rewards
for performance consistent with our short-term and long-term
company objectives. Our board of directors relies on its
judgment about each individual rather than employing a formulaic
approach to compensation decisions. As a result, our board of
directors has not assigned a fixed weighting among each of the
compensation components. Our board of directors assesses each
executive officer’s overall contribution to our business,
scope of responsibilities, and historical compensation and
performance to determine his annual compensation. In making
compensation decisions, our board takes into account input from
our board members and our chief executive officer based on their
experiences with other companies. We have not engaged
third-party consultants to benchmark our compensation packages
against our peers. However, going forward, we anticipate that
our compensation committee may, from time to time as it sees
fit, retain third-party executive compensation specialists in
connection with determining cash and equity compensation and
related compensation policies in the future.
The GTS merger is not currently anticipated to impact our
compensation policies or practices relating to our executive
officers for 2008. As we evaluate the impact of the GTS merger
on our executive officers’ responsibilities on a go-forward
basis, we will adjust our compensation practices accordingly.
Role of Our
Compensation
Committee
Historically, our board of directors determined and administered
the compensation of our chief executive officer and our chief
executive officer determined the compensation of our other
executive officers. Going forward, our compensation committee
will make the ultimate decisions regarding executive officer
compensation. Our chief executive officer and other executive
officers may from time to time attend meetings of our
compensation committee or our board of directors, but will have
no final decision authority with respect to executive officer
compensation. Annually, our compensation committee will evaluate
the performance of our chief executive officer and determine our
chief executive officer’s compensation in light of the
goals and objectives of the compensation program. The final
decisions relating to our chief executive officer’s
compensation will be made in executive session of our board of
directors without the presence of management. Decisions
regarding the other executive officers will be made by our
compensation committee after considering recommendations from
our chief executive officer.
Specific
Components of Our Compensation Program
Base Salary. Our board of directors annually
reviews, and adjusts from time to time, the base salaries for
our executive officers. In setting 2007 base salaries, our board
of directors considered each individual officer’s
contribution to the business, scope of responsibilities,
individual performance, and length of service and gave modest
base salary increases.
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Incentive Compensation. We utilize cash bonuses to
reward the achievement of annual company and individual
performance goals. In 2007, the cash bonus portion of annual
compensation was based on our LTL business management incentive
plan, which pays a cash bonus based on the achievement of annual
company and personal performance goals in order to emphasize pay
for company performance and individual performance. At maximum
performance levels, cash incentive compensation can equal up to
100% of our chief executive officer’s base salary and 75%
of the base salary of our other executive officers. We
anticipate that the annual cash incentive awards for 2008 will
remain in this range.
Our 2007 cash incentive plan was comprised of two targets:
(1) financial performance related to the achievement of
targeted levels of earnings before interest, taxes,
depreciation, and amortization, or EBITDA, and
(2) individual performance objectives. A description of
these targets and the percentage of the maximum annual incentive
compensation tied to each follows:
| n | EBITDA – 90% of the maximum annual incentive compensation payable to our executive officers (100% in the case of our chief executive officer) was based on achieving specific EBITDA goals. In order for any bonus to be paid based on the individual performance criterion discussed below, the minimum EBITDA goal of approximately $17.5 million within the LTL business had to be achieved. If the minimum EBITDA threshold was met, an executive officer was eligible to receive a bonus equal to 30% (38% in the case of our chief executive officer) of his base salary. If the minimum EBITDA goal was exceeded by 25%, an executive officer was eligible to receive a bonus equal to 55% (75% in the case of our chief executive officer) of his base salary. If the minimum EBITDA goal was exceeded by 40%, an executive officer was eligible to receive a bonus equal to 75% (100% in the case of our chief executive officer) of his base salary. Our performance did not meet the minimum threshold and therefore no bonuses were paid. | |
| n | Individual Performance – Ten percent of the maximum annual incentive compensation payable to our executive officers (other than our chief executive officer) was based on individual performance. Our chief executive officer makes this determination based on performance metrics designed for each of our other executive officers’ position and level of responsibility. If the minimum EBITDA threshold above is met, and an executive officer’s individual performance meets the standards for a bonus, then that executive will receive up to 10% of the maximum bonus he was eligible to receive under the EBITDA criterion above. For example, in the case of an executive officer (other than our chief executive officer), if the minimum EBITDA threshold was met, that executive officer would be entitled to receive up to 30% of his base salary. However, 10% of such 30% is comprised of the individual performance criterion. Therefore, if the EBITDA threshold was met, but the individual performance criterion was not, the executive officer would receive 27% of his base salary as a bonus. Since the minimum EBITDA criterion discussed above was not met, no bonuses were paid. Our chief executive officer is not eligible to receive a bonus based on individual performance criteria. |
The components of our 2008 cash incentive plan are substantially
the same as our 2007 plan. For 2009, we expect that the
financial performance targets for our cash incentive plan will
be expanded to include other financial measurements for the
entire organization, including net income, in addition to EBITDA.
Equity Compensation. We grant stock options to align
the interests of our executive officers with the interests of
our stockholders and to reward our executive officers for
superior corporate performance. Historically we have granted
stock options to our executive officers upon their joining our
company.
We first granted stock options to our chief financial officer in
March 2005, when he joined our company. In January 2006, we
granted stock options to our chief executive officer when he
joined our company. In January and April 2007, we granted stock
options to our other executive officers when they joined our
company. In March 2007, we made a one-time additional grant of
stock options to our chief executive officer in recognition of
his outstanding service to our company. All of our stock options
vest over a four-year period, with 25% vesting on the first
anniversary of the grant date and 6.25% at the end of each
subsequent three-month period thereafter. The stock options were
all granted with an exercise price per share equal to the fair
market value of our stock on the grant date, as determined by
our board of directors. The exercise price per share and the
number of shares issuable upon exercise of these options will be
adjusted in connection with the conversion of our Class A
common stock into shares of our new common stock on
a -for-one basis.
In the future, we plan to grant equity awards annually to our
executive officers and key employees. The equity-based grant
program may include the award of stock options,
performance-based vesting restricted stock units, and/or
time-based vesting restricted stock units. Equity will be
awarded to executive officers and key employees based upon
performance and potential to contribute to our company’s
success. In fiscal 2005, 2006, and 2007, awards were made to key
employees throughout our company, including all locations and
business units. We do not plan on granting equity awards to any
of our employees in connection with this offering.
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Benefits and Perquisites. Our executive officers
participate in the employee benefits that are available to all
employees. In addition, we provide each of our executive
officers with the use of a company car. We also provide term
life insurance policies on all of our executive officers.
Severance Payments. We provide our executive
officers with severance arrangements that are intended to
attract and retain qualified executives who have alternatives
that may appear to them to be less risky absent these
arrangements. These arrangements are also intended to mitigate a
potential disincentive for the executive officers to pursue and
execute an acquisition of us, particularly where the services of
these executive officers may not be required by the acquirer.
For quantification of these severance benefits, please see the
discussion under “Compensation Discussion and
Analysis – Potential Payments Upon Termination or
Change in Control” in this prospectus.
Tax and
Accounting Considerations
Compliance with Internal Revenue Code
Section 162(m). Section 162(m) of the
Internal Revenue Code (Section 162(m)) imposes a
$1 million limit on the amount that a public company may
deduct for compensation paid to the company’s chief
executive officer or any of the company’s four other most
highly compensated executive officers who are employed as of the
end of the year. This limitation does not apply to compensation
that meets the requirements under Section 162(m) for
“qualifying performance-based” compensation (i.e.,
compensation paid only if the individual’s performance
meets pre-established objective goals based on performance
criteria approved by the stockholders). Prior to this offering,
we were not subject to Section 162(m). Going forward, we
will seek to maximize the compensation deduction of our
executive officers and to structure the performance-based
portion of the compensation of our executive officers in a
manner that complies with Section 162(m). However, because
we will compensate our executive officers in a manner designed
to promote our varying corporate objectives, our compensation
committee may not adopt a policy requiring all compensation to
be deductible. For 2007, cash compensation paid to our executive
officers did not exceed the $1 million limit.
SFAS 123(R). In determining equity compensation
awards for 2006 and 2007, we generally considered the potential
expense of those programs under SFAS 123(R). We concluded
that the award levels were in the best interests of stockholders
given competitive compensation practices among companies similar
to ours, the awards’ potential expense, our performance,
and the impact of the awards on employee motivation and
retention.
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Summary
Compensation Table
The following table sets forth, for the periods indicated, the
total compensation for services in all capacities to us received
by our chief executive officer, our chief financial officer, and
our two other executive officers for the fiscal year ended
December 31, 2007.
|
Name and |
Option |
All Other |
||||||||||||||||||
|
Principal Position
|
Year | Salary | Awards(1) | Compensation(2) | Total | |||||||||||||||
|
Mark A. DiBlasi
|
2007 | $ | 275,000 | $ | 183,292 | $ | 29,290 | $ | 487,582 | |||||||||||
|
President, Chief Executive Officer, and Director
|
||||||||||||||||||||
|
Peter R. Armbruster
|
2007 | $ | 175,100 | $ | 81,193 | $ | 28,901 | $ | 285,194 | |||||||||||
|
Chief Financial Officer
|
||||||||||||||||||||
|
Brian J. van Helden
|
2007 | $ | 124,231 | $ | 51,921 | $ | 63,995 | (4) | $ | 240,147 | ||||||||||
|
Vice President –
Operations(3)
|
||||||||||||||||||||
|
Scott L. Dobak
|
2007 | $ | 230,769 | $ | 69,070 | $ | 93,984 | (6) | $ | 393,823 | ||||||||||
|
Vice President – Sales and
Marketing(5)
|
||||||||||||||||||||
| (1) | The amount reflects the dollar amount recognized for financial reporting purposes in accordance with SFAS 123(R). Assumptions used in the calculation of the amounts for the fiscal years ended December 31, 2007 are included in footnote 7 of our consolidated financial statements for the fiscal year ended December 31, 2007, included in this prospectus. | |
| (2) | Amounts represent matching contributions to our 401(k) plan of $6,770, $2,308, $7,004, and $0 on behalf of Messrs. DiBlasi, Dobak, Armbruster, and van Helden, respectively. We also paid premiums on term life insurance policies on behalf of the executive officers. The taxable portion of the premiums paid for the term life insurance policies is computed based on Internal Revenue Service guidelines and totaled $708, $522, $708, and $336 on behalf of Messrs. DiBlasi, Dobak, Armbruster, and van Helden, respectively. In addition, each of our executive officers also receives the benefit of the use of a company issued automobile, the taxable value of which did not exceed $10,000, except for Messrs. DiBlasi and Armbruster, who received a value of $11,270 and $10,747 of company issued automobile use, respectively. In addition, the amounts also include medical and disability insurance benefits paid on behalf of our executive officers. | |
| (3) | Mr. van Helden became our Vice President – Operations in April 2007. | |
| (4) | Includes $56,141 paid by us in connection with Mr. van Helden’s relocation. | |
| (5) | Mr. Dobak became our Vice President – Sales and Marketing in January 2007. | |
| (6) | Includes $71,591 paid by us in connection with Mr. Dobak’s relocation. |
Employment and
Other Agreements
We have no written employment contracts with any of our
executive officers. We have, however, provided employment letter
agreements to our named executive officers setting forth their
title, base salary, health benefits, and severance benefits in
the event of termination. As part of the compensation package
provided to our named executive officers, we will provide them
with (i) the right to participate our LTL business
management incentive plan and to receive awards under our 2008
incentive compensation plan, (ii) the right to participate
in all medical, group life insurance, retirement, and other
fringe benefit plans as may from time to time be provided to our
executives, and (iii) severance benefits. If we terminate
the executive’s employment for any reason other than for
“cause,” or if he terminates his employment
voluntarily for “good reason” (as such terms are
defined in the employment letters), he is entitled to receive
his current base salary for a period of 12 months in
accordance with our normal payroll practices and will be
eligible to receive all benefits under welfare benefit plans,
practices, policies, and programs provided by us (including
medical and group life plans and programs) for the same period.
If, during the one-year period following a “change of
control” (as defined in the employment letters), the
executive’s employment is terminated without cause, he is
entitled to receive his current base salary for a period of
12 months in accordance with our normal payroll practices
and will be eligible to receive all benefits under welfare
benefit plans, practices, policies, and programs provided by us
(including medical and group life plans and programs) for the
same period. See “Compensation Discussion and
Analysis — Potential Payments Upon Termination or
Change of Control” in this prospectus.
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Grants of
Plan-Based Awards
The following table shows the plan-based incentive awards made
to our executive officers during 2007.
|
All Other |
||||||||
|
Option Awards: |
||||||||
|
Number of |
Exercise or |
|||||||
|
Securities |
Base Price of |
Grant Date Fair Value |
||||||
|
Underlying |
Option Awards |
of Stock and Option |
||||||
|
Name
|
Grant Date | Options(1) | ($/Sh)(1) | Awards | ||||
|
Mark A. DiBlasi
|
||||||||
|
Peter R. Armbruster
|
||||||||
|
Brian J. van Helden
|
||||||||
|
Scott L. Dobak
|
| (1) | All share numbers and exercise prices reflect the conversion of our Class A common stock into our new common stock on a -for-one basis, as described in “Description of Capital Stock.” |
Outstanding
Equity Awards at December 31, 2007
The following table provides information with respect to
outstanding vested and unvested option awards held by our named
executive officers as of December 31, 2007.
|
Number of |
Number of |
|||||||
|
Securities |
Securities |
|||||||
|
Underlying |
Underlying |
|||||||
|
Unexercised |
Unexercised |
Option |
||||||
|
Options (#) |
Options (#) |
Exercise |
Option |
|||||
|
Name
|
Exercisable(1) | Unexercisable(1) | Price ($)(1) | Expiration Date | ||||
|
Mark A. DiBlasi
|
||||||||
|
Peter R. Armbruster
|
||||||||
|
Brian J. van Helden
|
||||||||
|
Scott L. Dobak
|
| (1) | All share numbers and exercise prices reflect the conversion of our Class A common stock into our new common stock on a -for-one basis, as described in “Description of Capital Stock.” |
2007 Option
Exercises
During 2007, none of our named executive officers exercised any
stock options.
Post-Employment
Compensation
Pension
Benefits
We do not offer any defined benefit pension plans for any of our
employees. We do have a 401(k) plan in which our employees may
participate. In 2007, we made matching contributions to our
401(k) plan of $6,770, $2,308, $7,004, and $0 on behalf of
Messrs. DiBlasi, Dobak, Armbruster, and van Helden,
respectively.
Potential
Payments Upon Termination or Change in Control
The tables below reflect the amount of compensation to certain
of our executive officers in the event of termination of such
executive’s employment or a change in control. Other than
as set forth below, no amounts will be paid to our named
executive officers in the event of termination.
Severance
Arrangements Upon Termination
We have employment letter agreements with our named executive
officers. The arrangements reflected in these letter agreements
are designed to encourage the officers’ full attention and
dedication to our company currently and, in the event of any
proposed change of control, provide these officers with
individual financial security. Pursuant to the employment
letters, if the executive is terminated for any reason other
than for “cause,” or if he terminates his employment
voluntarily for “good reason” (as such terms are
defined in the employment letters), he is entitled to receive
his current base salary for a period of 12 months in
accordance with our normal payroll practices and will be
eligible to receive all benefits under welfare benefit
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plans, practices, policies, and programs provided by us
(including medical and group life plans and programs) for the
same period.
Assuming these agreements were in place on December 31,
2007, if our named executive officers were terminated without
cause or for good reason (as those terms are defined in the
employment letters) on December 31, 2007, they would
receive the following salaries over a 12-month period pursuant
to their letter agreements:
|
Name
|
Salary | |||
|
Mark A. DiBlasi
|
$ | 275,000 | ||
|
Peter R. Armbruster
|
$ | 175,100 | ||
|
Brian J. van Helden
|
$ | 170,000 | ||
|
Scott L. Dobak
|
$ | 250,000 | ||
Severance
Arrangements Upon Change of Control
Pursuant to the employment letters with our named executive
officers, if, during the one-year period following a
“change of control” (as defined in the employment
letters), the executive’s employment is terminated without
cause, he is entitled to receive his current base salary for a
period of 12 months in accordance with our normal payroll
practices and will be eligible to receive all benefits under
welfare benefit plans, practices, policies, and programs
provided by us (including medical and group life plans and
programs) for the same period.
Assuming those letter agreements were in place on
December 31, 2007 and a change in control of our company
occurred on December 31, 2007 and each of the executive
officers listed below was terminated as a result of the change
of control, our named executive officers would receive the
following salaries over a 12-month period pursuant to their
employment letter agreements:
|
Name
|
Salary | |||
|
Mark A. DiBlasi
|
$ | 275,000 | ||
|
Peter R. Armbruster
|
$ | 175,100 | ||
|
Brian J. van Helden
|
$ | 170,000 | ||
|
Scott L. Dobak
|
$ | 250,000 | ||
Nonqualified
Deferred Compensation
We do not offer any deferred compensation plans for any of our
named executive officers.
2008 Incentive
Compensation Plan
Our board of directors plans to adopt, subject to approval by
our stockholders, a 2008 incentive compensation plan. The
incentive plan will terminate no later than
(1) ,
2018, or (2) 10 years after the board approves an
increase in the number of shares subject to the plan (so long as
such increase is also approved by the stockholders). The
incentive plan will provide for the grant of nonstatutory stock
options, restricted stock awards, stock appreciation rights,
phantom stock, dividend equivalents, other stock-related awards
and performance awards. Awards may be granted to employees,
including executive officers, non-employee directors, and
consultants.
Share
Reserve
An aggregate
of shares
of common stock have been reserved for issuance under the
incentive compensation plan. As of the date hereof, no shares of
common stock have been issued under the incentive compensation
plan.
Certain types of shares issued under the incentive compensation
plan may again become available for the grant of awards under
the incentive compensation plan, including restricted stock that
is repurchased or forfeited prior to it becoming fully vested;
shares withheld for taxes; shares that are not issued in
connection with an award, such as upon the exercise of a stock
appreciation right; and shares used to pay the exercise price of
an option in a net exercise.
In addition, shares subject to stock awards that have expired or
otherwise terminated without having been exercised in full may
be subject to new equity awards. Shares issued under the
incentive compensation plan may be previously unissued shares or
reacquired shares bought on the market or otherwise.
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Administration
Our board of directors will have the authority to administer the
incentive compensation plan as the plan administrator. However,
our board of directors will have the authority to delegate its
authority as plan administrator to one or more committees,
including its compensation committee. Subject to the terms of
the incentive compensation plan, the plan administrator will
determine recipients, grant dates, the numbers and types of
equity awards to be granted, and the terms and conditions of the
equity awards, including the period of their exercisability and
vesting. Subject to the limitations set forth below, the plan
administrator will also determine the exercise price of options
granted, the purchase price for rights to purchase restricted
stock and, if applicable, phantom stock and the strike price for
stock appreciation rights.
Grant
Limits
To the extent that Section 162(m) applies to the incentive
compensation plan, no participant will receive an award for more
than 2,000,000 shares in any calendar year. In addition, no
participant will receive a performance bonus for more than
$5,000,000 per twelve-month period (as adjusted on a
straight-line basis for the actual length of the performance
period).
Stock
Options
Each stock option granted pursuant to the incentive compensation
plan must be set forth in a stock option agreement. The plan
administrator determines the terms of the stock options granted
under the incentive compensation plan, including the exercise
price, vesting schedule, the maximum term of the option and the
period of time the option remains exercisable after the
optionee’s termination of service. The exercise price of a
stock option, however, may not be less than the fair market
value of the stock on its grant date and the maximum term of a
stock option may not be more than ten years. All options granted
under the incentive compensation plan will be nonstatutory stock
options.
Acceptable consideration for the purchase of common stock issued
under the incentive compensation plan will be determined by the
plan administrator and may include cash, common stock, a
deferred payment arrangement, a broker assisted exercise, the
net exercise of the option, and other legal consideration
approved by the board of directors.
Generally, an optionee may not transfer a stock option other
than by will or the laws of descent and distribution unless the
stock option agreement provides otherwise. However, an optionee
may designate a beneficiary who may exercise the option
following the optionee’s death.
Restricted Stock
Awards
Restricted stock awards must be granted pursuant to a restricted
stock award agreement. The plan administrator determines the
terms of the restricted stock award, including the purchase
price, if any, for the restricted stock, and the vesting
schedule, if any, for the restricted stock award. The plan
administrator may grant shares fully vested as a bonus for the
recipient’s past services performed for us. The purchase
price for a restricted stock award may be payable in cash, the
recipient’s past services performed for us, or any other
form of legal consideration acceptable to our board of
directors. Shares under a restricted stock award may not be
transferred other than by will or by the laws of descent and
distribution until they are fully vested or unless otherwise
provided for in the restricted stock award agreement.
Stock
Appreciation Rights
Each stock appreciation right granted pursuant to the incentive
compensation plan must be set forth in a stock appreciation
rights agreement. The plan administrator determines the terms of
the stock appreciation rights granted under the incentive
compensation plan, including the strike price, vesting schedule,
the maximum term of the right and the period of time the right
remains exercisable after the recipient’s termination of
service.
Generally, the recipient of a stock appreciation right may not
transfer the right other than by will or the laws of descent and
distribution unless the stock appreciation rights agreement
provides otherwise. However, the recipient of a stock
appreciation right may designate a beneficiary who may exercise
the right following the recipient’s death.
Stock
Units
Stock unit awards must be granted pursuant to stock unit award
agreements. The plan administrator determines the terms of the
stock unit award, including any performance or service
requirements. A stock unit award may require the payment of at
least par value. Payment of any purchase price may be made in
cash, the recipient’s past services performed for us, or
any other form of legal consideration acceptable to the board of
directors. Rights to acquire shares under a stock unit award
agreement may not be transferred other than by will or by the
laws of descent and distribution unless otherwise provided in
the stock unit award agreement.
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Dividend
Equivalents
Dividend equivalents must be granted pursuant to a dividend
equivalent award agreement. Dividend equivalents may be granted
either alone or in connection with another award. The plan
administrator determines the terms of the dividend equivalent
award.
Bonus
Stock
The plan administrator may grant stock as a bonus or in lieu of
our obligations to pay cash or deliver other property under a
compensatory arrangement with one of our service providers.
Other Stock-Based
Awards
The plan administrator may grant other awards based in whole or
in part by reference to our common stock. The plan administrator
will set the number of shares under the award, the purchase
price, if any, the timing of exercise and vesting, and any
repurchase rights associated with such awards. Unless otherwise
specifically provided for in the award agreement, such awards
may not be transferred other than by will or by the laws of
descent and distribution.
Performance
Awards
The right of a participant to exercise or receive a grant or
settlement of an award, and the timing thereof, may be subject
to such performance conditions, including subjective individual
goals, as may be specified by the plan administrator. In
addition, the incentive compensation plan authorizes specific
performance awards to be granted to persons whom the plan
administrator expects will, for the year in which a deduction
arises, be “covered employees” (as defined below) so
that such awards should qualify as “performance-based”
compensation not subject to the limitation on tax deductibility
by us under Section 162(m). For purposes of
Section 162(m), the term “covered employee” means
our chief executive officer and our four highest compensated
officers as of the end of a taxable year determined in
accordance with federal securities laws. If, and to the extent
required under Section 162(m), any power or authority
relating to a performance award intended to qualify under
Section 162(m) will be exercised by a committee that
qualifies under Section 162(m), rather than by our board of
directors. We believe that our compensation committee qualifies
for this role under Section 162(m).
Subject to the requirements of the incentive compensation plan,
our compensation committee will determine performance award
terms, including the required levels of performance with respect
to specified business criteria, the corresponding amounts
payable upon achievement of such levels of performance,
termination and forfeiture provisions, and the form of
settlement. One or more of the following business criteria based
on our consolidated financial statements or those of our
subsidiaries, divisions or business or geographical units will
be used by our compensation committee in establishing
performance goals for performance awards designed to comply with
the performance-based compensation exception to
Section 162(m): (1) earnings per share;
(2) revenues or margins; (3) cash flows;
(4) operating margin; (5) return on net assets,
investment, capital, or equity; (6) economic value added;
(7) direct contribution; (8) net income; pretax
earnings; earnings before interest and taxes; earnings before
interest, taxes, depreciation, and amortization; earnings after
interest expense and before extraordinary or special items;
operating income; income before interest income or expense,
unusual items and income taxes, local, state, or federal and
excluding budgeted and actual bonuses which might be paid under
any of our ongoing bonus plans; (9) working capital;
(10) management of fixed costs or variable costs;
(11) identification or consummation of investment
opportunities or completion of specified projects in accordance
with corporate business plans, including strategic mergers,
acquisitions or divestitures; (12) total stockholder
return; and (13) debt reduction. Any of the above goals may
be determined on an absolute or relative basis or as compared to
the performance of a published or special index deemed
applicable by our compensation committee including, but not
limited to, the Standard & Poor’s 500 Stock Index
or a group of companies that are comparable to us. Our
compensation committee shall exclude the impact of an event or
occurrence which our compensation committee determines should
appropriately be excluded, including without limitation
(1) restructurings, discontinued operations, extraordinary
items, and other unusual or non-recurring charges, (2) an
event either not directly related to our operations or not
within the reasonable control of our management, or (3) a
change in accounting standards required by generally accepted
accounting principles.
Changes in
Control
In the event of certain corporate transactions, all outstanding
options and stock appreciation rights under the incentive
compensation plan either will be assumed, continued, or
substituted by any surviving or acquiring entity. If the awards
are not assumed, continued, or substituted for, then such awards
shall become fully vested and, if applicable, fully exercisable
and will terminate if not exercised prior to the effective date
of the corporate transaction. In addition, at the time of the
transaction, the plan administrator may accelerate the vesting
of such equity awards or make a cash payment for the value of
such equity awards in connection with the termination of such
awards. Other forms of equity awards such as restricted stock
awards may
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Table of Contents
have their repurchase or forfeiture rights assigned to the
surviving or acquiring entity. If such repurchase or forfeiture
rights are not assigned, then such equity awards may become
fully vested. The vesting and exercisability of certain equity
awards may be accelerated on or following a change in control
transaction if specifically provided in the respective award
agreement.
Adjustments
In the event that certain corporate transactions or events (such
as a stock split or merger) affects our common stock, our other
securities or any other issuer such that the plan administrator
determines an adjustment to be appropriate under the incentive
compensation plan, then the plan administrator shall, in an
equitable manner, substitute, exchange, or adjust (1) the
number and kind of shares reserved under the incentive
compensation plan, (2) the number and kind of shares for
the annual per person limitations, (3) the number and kind
of shares subject to outstanding awards, (4) the exercise
price, grant price, or purchase price relating to any award
and/or make
provision for payment of cash or other property in respect of
any outstanding award, and (5) any other aspect of any
award that the plan administrator determines to be appropriate.
401(k)
Plan
We maintain a defined contribution profit sharing plan for our
full-time employees, which is intended to qualify as a
tax-qualified plan under Section 401 of the Internal
Revenue Code. The plan provides that each participant may
contribute up to 100% of his or her pre-tax compensation, up to
the statutory limit. Additionally, we match 100% of each
participant’s contributions up to 4% of his or her pre-tax
compensation, up to the statutory limit. Under the plan, each
employee is fully vested in his or her deferred salary
contributions. The plan also permits us to make discretionary
contributions of up to an additional 50% of each
participant’s contributions up to 4% of his or her pre-tax
compensation, up to the statutory limit, which generally vest
over three years. In 2007, we made approximately $939,942 of
matching contributions to the plan on behalf of participating
employees.
Director
Compensation
We intend to use a combination of cash and stock-based incentive
compensation to attract and retain qualified candidates to serve
on our board of directors. In setting director compensation, we
will consider the amount of time that directors spend fulfilling
their duties as a director, including committee assignments.
Cash Compensation
Paid to Directors
Prior to the closing of this offering, we did not pay our
directors any compensation. Going forward, we expect to pay each
independent director an annual retainer fee of
$ , plus
$ for each board meeting attended,
$ for each audit committee meeting
attended, and $ for each other
committee meeting attended, with all meeting fees reduced
by % if attendance is by
teleconference. The chairman of the audit committee will receive
an extra $ per year over the
standard independent director compensation and each other audit
committee member will receive an extra
$ per year. The chairman of the
compensation committee will receive an extra
$ per year over the standard
independent director compensation and each other compensation
committee member will receive an extra
$ per year. The chairman of the
nominations committee will receive an extra
$ per year over the standard
independent director compensation and each other nominations
committee member will receive an extra
$ per year. We will also reimburse
each director for travel and related expenses incurred in
connection with attendance at board and committee meetings.
Stock-Based
Compensation Paid to Directors
Prior to the closing of this offering, we did not pay our
directors any stock-based compensation. We expect to grant each
independent director options to
acquire shares
of our common stock upon the closing of this offering with
exercise prices equal to the price at which our common stock is
sold to the public in this offering. Going forward, each
independent director will receive an annual grant of options to
acquire shares
of our common stock.
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Table of Contents
Certain
Relationships and Related Transactions
GTS
Merger
Simultaneous with the consummation of this offering, GTS will
merge with and into GTS Transportation Logistics, Inc., a wholly
owned subsidiary of RRTS, and GTS Transportation Logistics, Inc.
will be the surviving corporation and a wholly owned subsidiary
of RRTS. As a result of the GTS merger, the stockholders of GTS
will become stockholders of RRTS. The merger agreement provides
that the issued and outstanding common stock of GTS will be
converted into such number of shares of RRTS common stock so
that the stockholders of GTS will own
approximately % and the
stockholders of RRTS will own
approximately % of the issued and
outstanding common stock of RRTS on the effective date of the
merger assuming that all RRTS outstanding options and warrants
are exercised or converted in accordance with their terms as of
the effective date of the merger. Each outstanding share of GTS
common stock will be exchanged
for shares
of RRTS common stock.
Upon consummation of the GTS merger, RRTS will assume all
outstanding options to purchase GTS common stock issued by GTS
to its employees. Each such option outstanding immediately prior
to the effective time of the merger will become an option to
purchase RRTS common stock, on the same terms, on the basis
of shares of RRTS common stock for
each share of GTS common stock for which the option was
exercisable, with the option price to be adjusted accordingly.
The obligations of the parties to complete the merger depend on
(1) the consummation of this offering; (2) the
approval of the GTS merger by RRTS’ creditors; (3) the
termination of the RRTS and GTS management agreements (described
below); (4) the satisfaction of the RRTS senior
subordinated notes and GTS credit facility; (5) no GTS
stockholder having exercised its appraisal rights pursuant to
Delaware law; (6) the representations and warranties of the
other party being true and correct in all material respects upon
completion of the merger; (7) the other party having
performed, in all material respects, all of its agreements and
covenants under the merger agreement on or prior to the
completion of the merger; (8) the other party having
obtained all required corporate approvals of its directors and
stockholders; (9) the receipt of all required consents to
the transactions contemplated by the merger agreement from
governmental, quasi-governmental and private third parties;
(10) no suit, action or other proceeding by any
governmental agency having been pending or threatened that would
restrain or prohibit or seeking damages with respect to the
merger; and (11) no proceeding in which any party is
involved under any U.S. or state bankruptcy or insolvency
law.
Thayer | Hidden Creek is currently the beneficial
owner of % of RRTS’
outstanding Class A common stock and
approximately % of GTS’
outstanding common stock. Eos is currently the beneficial owner
of % of RRTS’ outstanding
common stock and will be granted an option by
Thayer | Hidden Creek to purchase from
Thayer | Hidden Creek up
to shares of GTS common
stock, or % of GTS’
outstanding common stock. Upon consummation of the GTS merger,
assuming the exercise in full of such option and the sale
of shares in this offering,
Thayer | Hidden Creek will be the beneficial owner
of % of our common stock and Eos
will be the beneficial owner of %
of our common stock.
We have attached the Agreement and Plan of Merger, or merger
agreement, which is the legal document that governs the merger,
as an exhibit to the registration statement of which this
prospectus forms a part. The foregoing description of the merger
agreement and the transactions contemplated thereby is qualified
in its entirety by reference to the full text of the merger
agreement.
Management and
Consulting Agreements
In April 2005, Dawes Transport, entered into a Management and
Consulting Agreement with Thayer | Hidden Creek
Management, L.P., an affiliate of Thayer | Hidden
Creek. In May 2005, Roadrunner Freight entered into a management
and consulting agreement with Thayer | Hidden Creek
Management, L.P. as well. In June 2005, each of such agreements
was superseded by an amended and restated management and
consulting agreement between Dawes Transport, Roadrunner
Freight, Thayer | Hidden Creek Management, and Eos
Management, Inc., an affiliate of Eos. In March 2007, the
amended and restated management and consulting agreement was
further amended and restated and superseded by an amended and
restated management and consulting agreement among
Thayer | Hidden Creek Management, Eos Management, us,
Roadrunner Freight, and Sargent, pursuant to which
Thayer | Hidden Creek Management and Eos Management
provide financial, management, and operations consulting
services to these companies. These services include general
executive and management, marketing, and human resource
services, advice in connection with the negotiation and
consummation of agreements, support, and analysis of
acquisitions and financing alternatives, and assistance with
monitoring compliance with financing arrangements. In exchange
for such services, Thayer | Hidden Creek Management
and Eos Management are paid aggregate annual management fees,
subject to increase upon certain events, of $0.4 million,
and are reimbursed for their expenses. Each of
Thayer | Hidden Creek Management and Eos Management
are also entitled to additional fees for assisting
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Table of Contents
with acquisitions, dispositions, and financings, including this
offering. In connection with our acquisitions of Dawes Transport
and Roadrunner Freight, we paid Thayer | Hidden Creek
Management and Eos Management aggregate transaction fees of
$2.8 million. In 2005, 2006, and 2007, we paid
Thayer | Hidden Creek Management and Eos Management
aggregate fees of $0.4 million, $0.4 million, and $0,
respectively. The management fees for 2007 were deferred and
will be paid in connection with the consummation of this
offering. Four of our current directors are affiliated with
Thayer | Hidden Creek Management, and two of our
current directors are affiliated with Eos Management. We expect
each of the directors who are affiliated with Eos Management to
resign from our board of directors prior to the effectiveness of
the registration statement of which this prospectus forms a
part. Upon consummation of this offering, we will pay
Thayer | Hidden Creek Management and Eos Management an
aggregate transaction fee of $2.5 million and the amended
and restated management and consulting agreement will be
terminated.
Real Estate Lease
Agreement
In July 2005, Group Transportation Services entered into a lease
agreement for its headquarters facility with GTS Services LLC, a
company owned by Michael Valentine, one of our key employees and
former owner of Group Transportation Services and GTS Direct.
The lease was amended on February 28, 2008 in connection
with GTS’ acquisition of Group Transportation Services.
Under the lease agreement, we lease 24,000 square feet of
office space. The initial term of the amended lease expires June
2020. Our current monthly rent under the lease is approximately
$31,000, plus our proportionate share of the common area costs.
Annual rent under the lease was $0.1 million,
$0.2 million, and $0.2 million during the years ended
December 31, 2005, 2006, and 2007, respectively.
Stockholders’
Agreements
We are party to agreements with each of our common stockholders,
including Thayer | Hidden Creek, Eos, and our
executive officers, providing for “piggy back”
registration rights. Such agreements provide that if, at any
time after the consummation of this offering, we propose to file
a registration statement under the Securities Act for any
underwritten sale of shares of any of our equity securities, the
stockholders may request that we include in such registration
the shares of common stock held by them on the same terms and
conditions as the securities otherwise being sold in such
registration.
In addition to the piggyback registration rights discussed
above, Thayer | Hidden Creek, Eos, and certain of our
other stockholders have demand registration rights. In March
2007, we entered into a second amended and restated
stockholders’ agreement, pursuant to which
Thayer | Hidden Creek, Eos, and certain other of our
stockholders were granted
Form S-3
registration rights. The amended and restated stockholders’
agreement provides that, any time after we are eligible to
register our common stock on a
Form S-3
registration statement under the Securities Act,
Thayer | Hidden Creek, Eos, and certain other of our
stockholders may request registration under the Securities Act
of all or any portion of their shares of common stock subject to
certain limitations. These stockholders are each limited to a
total of two of such registrations. In addition, if, at any time
after the consummation of this offering, we propose to file a
registration statement under the Securities Act for any
underwritten sale of shares of any of our equity securities,
Thayer | Hidden Creek and the other stockholders party
to the amended and restated stockholders’ agreement may
request that we include in such registration the shares of
common stock held by them on the same terms and conditions as
the securities otherwise being sold in such registration.
Transactions with
Management
Between June 2005 and April 2007, certain of our executive
officers were granted options to purchase an aggregate
of shares
of our common stock at a weighted average exercise price of
$ ,
adjusted to reflect the conversion of our Class A common
stock into new common stock on
a -for-one basis. The stock options
vest over a four-year period, with 25% vesting on the first
anniversary of the grant date and 6.25% at the end of each
subsequent three-month period thereafter, and are included in
the principal and selling stockholders table.
In February 2008, Thayer | Hidden Creek, through GTS,
acquired Group Transportation Services and GTS Direct from its
sole stockholder, Michael P. Valentine, one of GTS’
directors and its chief executive officer, for a purchase price
of $24.1 million. The purchase price, including financing
fees of approximately $0.9 million, was financed with
proceeds from the sale of common stock by GTS of
$13.4 million, the $3.2 million non-cash issuance of
common stock, and borrowings under the GTS credit facility of
$8.0 million. In addition, Mr. Valentine is entitled
to receive earn-out payments of up to $3.5 million through
March 2014 based on the operating results of GTS.
Sargent
Merger
In March 2007, we acquired Sargent by way of a merger. At that
time, Sargent was owned by affiliates of
Thayer | Hidden Creek, our largest stockholder. By
virtue of the merger, each share of Sargent Transportation
Group, Inc. that was not otherwise cancelled pursuant to the
terms of the merger agreement was converted into the right to
receive two-tenths
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Table of Contents
of a share of our Class A common stock. In addition, we
issued warrants to purchase an aggregate of 15,198 shares
of our Class A common stock at a purchase price of $2,000,
which expire in 2017. Of such warrants, 15,041 were issued to
affiliates of Thayer | Hidden Creek. The warrants will
be modified in connection with the amendment to our certificate
of incorporation to reflect the recapitalization of our common
stock, which will take effect prior to the consummation of this
offering. See “Description of Capital Stock.”
Repayment of
Senior Subordinated Notes
In March 2007, we issued an aggregate principal amount at
maturity of approximately $36.4 million of senior
subordinated notes in connection with the merger of Sargent into
us. One of the purchasers of our senior subordinated notes was
American Capital, Ltd., one of our 5% stockholders included in
the principal and selling stockholders table. As of
June 30, 2008, the aggregate principal amount of our
outstanding senior subordinated notes was $38.1 million.
This amount includes $19.0 million owed to American
Capital, Ltd., which we intend to pay from the net proceeds of
this offering.
Directed Share
Program
All members of our board of directors, our executive officers,
our full-time employees, and certain other individuals,
including members of the immediate family of our board of
directors and executive officers, will be eligible to
participate in the directed share program described under
“Underwriting” at levels that may exceed $120,000.
There is no maximum number of shares of our common stock that
may be purchased by these individuals.
Other than set forth above, there has not been, nor is there
currently proposed, any transaction or series of similar
transactions to which we were or are to be a party in which the
amount involved exceeds $120,000, and in which any director,
executive officer, or holder of more than 5% of any class of our
voting securities and members of such person’s immediate
family had or will have a direct or indirect material interest.
In the future, our audit committee will be responsible for
reviewing, approving, and ratifying any such transaction or
series of similar transactions.
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Table of Contents
Principal
and Selling Stockholders
The following table sets forth certain information regarding the
beneficial ownership of our common stock on June 30, 2008
by the following:
| n | each person known by us to own more than 5% of our common stock; | |
| n | each stockholder selling shares in this offering; | |
| n | each of our directors and executive officers; and | |
| n | all of our directors and executive officers as a group. |
Except as otherwise indicated, each person named in the table
has sole voting and investment power with respect to all common
stock beneficially owned, subject to applicable community
property law. Except as otherwise indicated, each person may be
reached as follows:
c/o Roadrunner
Transportation Services Holdings, Inc.,
4900 S. Pennsylvania Ave., Cudahy, Wisconsin 53110.
The percentages shown are calculated based
on shares
of common stock outstanding on June 30, 2008. The table
assumes (i) the recapitalization of all outstanding shares
of our Class A common stock and Class B common stock
into shares of our common stock on approximately
a -for-one
basis, and (ii) the consummation of the GTS merger and the
exchange
of
shares of our new common stock for all of the outstanding
capital stock of GTS. The numbers and percentages shown include
the shares of common stock actually owned as of June 30,
2008 (giving effect to the GTS merger) and the shares of common
stock that the identified person or group had the right to
acquire within 60 days of such date. In calculating the
percentage of ownership, all shares of common stock that the
identified person or group had the right to acquire within
60 days of June 30, 2008 upon the exercise of options
or warrants are deemed to be outstanding for the purpose of
computing the percentage of the shares of common stock owned by
that person or group, but are not deemed to be outstanding for
the purpose of computing the percentage of the shares of common
stock owned by any other person or group.
|
Shares |
Shares |
|||||||||||||||||||
|
Beneficially |
Beneficially |
|||||||||||||||||||
|
Owned Prior to |
Owned after the |
|||||||||||||||||||
| the Offering |
Shares Offered |
Offering | ||||||||||||||||||
|
Name of Beneficial Owner
|
Number | Percent | for Sale | Number | Percent | |||||||||||||||
|
5% Stockholders:
|
||||||||||||||||||||
|
Thayer | Hidden Creek
Entities(1)
|
||||||||||||||||||||
|
Eos
Funds(2)
|
||||||||||||||||||||
|
American Capital
Entities(3)
|
||||||||||||||||||||
|
Directors and Executive Officers:
|
||||||||||||||||||||
|
Mark A. DiBlasi
|
||||||||||||||||||||
|
Peter R. Armbruster
|
||||||||||||||||||||
|
Brian J. van Helden
|
||||||||||||||||||||
|
Scott L. Dobak
|
||||||||||||||||||||
|
Ivor J.
Evans(4)
|
||||||||||||||||||||
|
Scott D.
Rued(4)
|
||||||||||||||||||||
|
Judith A.
Vijums(4)
|
||||||||||||||||||||
|
James F.
Forese(4)
|
||||||||||||||||||||
|
Samuel B.
Levine(5)
|
||||||||||||||||||||
|
Brian D.
Young(5)
|
||||||||||||||||||||
|
Chris H.
Carey(6)
|
||||||||||||||||||||
|
All directors and executive officers as a group (11 persons)
|
||||||||||||||||||||
| * | Less than one percent. | |
| (1) | Represents shares held by Thayer Equity Investors V, L.P., TC Roadrunner-Dawes Holdings, L.L.C., TC Sargent Holdings, L.L.C., Thayer | Hidden Creek Partners II, L.P., and THC Co-investors II, L.P., all of which are affiliates and referred to collectively as the Thayer | Hidden Creek Entities. Includes shares issuable upon exercise of outstanding warrants. Mr. Scott Rued exercises shared voting and dispositive power over all shares held by the Thayer | Hidden Creek Entities. The address of each of the Thayer | Hidden Creek Entities is 1455 Pennsylvania Avenue, N.W., Suite 350, Washington, D.C. 20004. |
| (2) | Represents shares held by Eos Capital Partners III, L.P. and Eos Partners, L.P., which are affiliates and referred to as the Eos Funds. Such number also assumes the exercise of the option granted to Eos by Thayer | Hidden Creek to purchase from Thayer | Hidden Creek up to shares of GTS common stock in connection with the GTS merger. As a General Partner of Eos Partners, L.P., Mr. Young has voting and investment control over and may be considered the beneficial owner of stock owned by the Eos Funds. As a Managing Director of Eos Management, L.P., Mr. Levine |
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| has voting and investment control over and may be considered the beneficial owner of stock owned by the Eos Funds. Mr. Levine disclaims any beneficial ownership of the stock owned by the Eos Funds. The address of each of the Eos Funds is 320 Park Avenue, New York, NY 10022. |
| (3) | Represents shares held by American Capital, Ltd. and American Capital Equity I, LLC. Mr. Carey is an officer of each of the American Capital Entities and exercises sole voting and dispositive power over all shares held by the American Capital Entities. Mr. Carey disclaims beneficial ownership of any such shares. The address of each of the American Capital Entities is 2 Bethesda Metro Center, 14th Floor, Bethesda, MD 20814. |
| (4) | Represents shares held by the Thayer | Hidden Creek Entities, as described in note 1. Messrs. Evans, Rued, and Forese, and Ms. Vijums, are each officers of certain of the Thayer | Hidden Creek Entities or their affiliates. Accordingly, Messrs. Evans, Rued, and Forese, and Ms. Vijums, may be deemed to beneficially own the shares owned by the Thayer | Hidden Creek Entities. Each of Messrs. Evans, Rued, and Forese, and Ms. Vijums disclaims beneficial ownership of any such shares in which he or she does not have a pecuniary interest. The address of each of Messrs. Evans, Rued, and Forese, and Ms. Vijums is c/o Thayer | Hidden Creek, 80 South 8th Street, Suite 4508, Minneapolis, Minnesota 55402. |
| (5) | Represents shares held by the Eos Funds, as described in note 2. As a General Partner of Eos Partners, L.P., Mr. Young has voting and investment control over and may be considered the beneficial owner of stock owned by the Eos Funds. As a Managing Director of Eos Management, L.P., Mr. Levine has voting and investment control over and may be considered the beneficial owner of stock owned by the Eos Funds. Mr. Levine disclaims any beneficial ownership of the shares of stock owned by the Eos Funds. We expect that Messrs. Young and Levine will resign from our board of directors prior to effectiveness of the registration statement of which this prospectus forms a part. The address of Messrs. Young and Levine is c/o Eos, 320 Park Avenue, New York, NY 10022. |
| (6) | Represents shares held by the American Capital Entitles, as described in note 3. As an officer of each of the American Capital Entities, Mr. Carey may be deemed to beneficially own the shares owned by the American Capital Entities. Mr. Carey disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. |
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Table of Contents
Description
of Capital Stock
Upon the filing of our amended and restated certificate of
incorporation, we will be authorized to
issue shares
of common stock, $.01 par value,
and shares
of undesignated preferred stock, $.01 par value. The
following description of our capital stock reflects the
amendment to our certificate of incorporation and bylaws. The
description is intended to be a summary and does not describe
all provisions of our amended and restated certificate of
incorporation or our amended and restated bylaws or Delaware law
applicable to us. For a more thorough understanding of the terms
of our capital stock, you should refer to our amended and
restated certificate of incorporation and amended and restated
bylaws, which will be included as exhibits to the registration
statement of which this prospectus forms a part.
Common
Stock
The holders of our common stock are entitled to one vote per
share on all matters to be voted upon by stockholders. There is
no cumulative voting. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of our
common stock are entitled to receive ratably such dividends as
may be declared by the board of directors out of funds legally
available for that purpose. In the event of the liquidation,
dissolution, or winding up of our company, the holders of our
common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation
preferences of any outstanding preferred stock. The common stock
has no preemptive or conversion rights, other subscription
rights, or redemption or sinking fund provisions.
Our certificate of incorporation previously authorized the
issuance of Class A and Class B common stock. Each
holder of record of Class A common stock was entitled to
one vote for each share of Class A common stock. The
holders of Class B common stock did not have voting rights.
Our certificate of incorporation previously provided that each
share of Class B common stock would automatically convert
into one share of Class A common stock immediately prior to
the closing of our initial public offering. The holders of
Class A and Class B common stock were entitled to
dividends if and when such dividends were declared by our board
of directors. In connection with this offering, we are amending
and restating our certificate of incorporation to provide for
only one class of common stock, and each share of Class A
common stock and Class B common stock will be converted
into shares of new common stock on
a -for-one basis. We do not intend
to declare dividends on our Class A or Class B common
stock in connection with the conversion or in connection with
this offering.
Warrants
We currently have outstanding warrants to
purchase shares
of common stock at an exercise price of
$ per share. The warrants
expire in March 2017. Unless otherwise indicated, all
information in this prospectus relating to the warrants reflects
an amendment to our certificate of incorporation and the
conversion of our Class A common stock and Class B
common stock into a single class of common stock as discussed in
the preceding paragraph.
Preferred
Stock
Our certificate of incorporation authorizes our board of
directors, without any vote or action by the holders of our
common stock, to issue preferred stock from time to time in one
or more series. Our board of directors is authorized to
determine the number of shares and to fix the designations,
powers, preferences, and the relative participating, optional,
or other rights of any series of preferred stock. Issuances of
preferred stock would be subject to the applicable rules of the
Nasdaq Stock Market or other organizations on which our
securities are then quoted or listed. Depending upon the terms
of preferred stock established by our board of directors, any or
all series of preferred stock could have preference over the
common stock with respect to dividends and other distributions
and upon our liquidation. If any shares of preferred stock are
issued with voting powers, the voting power of the outstanding
common stock would be diluted. No shares of preferred stock are
presently outstanding, and we have no present intention to issue
any shares of preferred stock.
Our certificate of incorporation previously authorized the
issuance of Series A preferred stock. Except with respect
to approval of amendments to our certificate of incorporation
previously in effect, the holders of our Series A preferred
stock did not have voting rights. We, at our option and at any
time, were entitled to redeem the Series A preferred stock
for an amount equal to $1,000 per share, subject to adjustment
to reflect stock splits, reorganizations, and other similar
changes. We were obligated to redeem the Series A preferred
stock for such amount on November 30, 2012 if such shares
were not earlier redeemed. The holders of Series A
preferred stock were entitled to annual dividends equal to
$40.00 per share, subject to adjustment to reflect stock splits,
reorganizations, and other similar changes. In addition, the
holders of Series A preferred stock were entitled to
receive an amount equal to $1,000 per share in the event of our
liquidation or dissolution, subject to adjustment to reflect
stock splits, reorganizations, and other similar changes.
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Registration
Rights
Form S-3
Registration Rights
Upon receipt of a written request from certain of our
stockholders party to our amended and restated
stockholders’ agreement, we must use our best efforts to
file and effect a registration statement with respect to any of
the shares of our common stock held by those stockholders. We
are not, however, required to effect any such registration if
(1) we are not eligible to file a registration statement on
Form S-3,
(2) the aggregate offering price of the common stock to be
registered is less than $1.0 million, or (3) the
amount of shares to be registered does not equal or exceed 1% of
our then-outstanding common stock. Additionally, we are not
required to effect more than two
Form S-3
registrations on behalf of each such stockholder. A
Form S-3
registration will not be deemed to have been effected for
purposes of our stockholders’ agreement unless the
registration statement or preliminary or final prospectus, as
the case may be, relating thereto (i) has become effective
under the Securities Act and remained effective for a period of
at least 90 days, and (ii) at least 75% of the common stock
requested to be included in such registration is so included.
Incidental
Registration Rights
All of our common stockholders are, pursuant to
stockholders’ agreements, entitled to include all or part
of their shares of our common stock in any of our registration
statements under the Securities Act relating to an underwritten
offering, excluding registration statements relating to our
employee benefit plans or a corporate reorganization. The
underwriters of any underwritten offering will have the right to
limit the number of securities included in such offering due to
marketing reasons. However, if the underwriter reduces the
number of securities included in the offering, the reduction in
the number of securities held by those stockholders cannot
represent a greater percentage of the shares requested to be
registered by such stockholders than the lowest percentage
reduction imposed upon any other stockholder.
Registration
Expenses
We will pay all expenses incurred in connection with the
registrations described above, except for underwriting discounts
and commissions and the expenses of counsel representing the
holders of registration rights.
Indemnification
In connection with all of the registrations described above, we
have agreed to indemnify the selling stockholders against
certain liabilities, including liabilities arising under the
Securities Act.
Anti-Takeover
Effects
General
Our certificate of incorporation, our bylaws, and the Delaware
General Corporation Law contain certain provisions that could
delay or make more difficult an acquisition of control of our
company not approved by our board of directors, whether by means
of a tender offer, open market purchases, a proxy context, or
otherwise. These provisions have been implemented to enable us,
particularly but not exclusively in the initial years of our
existence as a publicly owned company, to develop our business
in a manner that will foster our long-term growth without
disruption caused by the threat of a takeover not deemed by our
board of directors to be in the best interests of our company
and our stockholders. These provisions could have the effect of
discouraging third parties from making proposals involving an
acquisition or change of control of our company even if such a
proposal, if made, might be considered desirable by a majority
of our stockholders. These provisions may also have the effect
of making it more difficult for third parties to cause the
replacement of our current management without the concurrence of
our board of directors.
There is set forth below a description of the provisions
contained in our certificate of incorporation and bylaws and the
Delaware General Corporation Law that could impede or delay an
acquisition of control of our company that our board of
directors has not approved. This description is intended as a
summary only and is qualified in its entirety by reference to
our certificate of incorporation and bylaws, which are included
as exhibits to the registration statement of which this
prospectus forms a part, as well as the Delaware General
Corporation Law.
Authorized but
Unissued Preferred Stock
Our certificate of incorporation authorizes our board of
directors to issue one or more series of preferred stock and to
determine, with respect to any series of preferred stock, the
terms and rights of such series without any further vote or
action by our stockholders. The existence of authorized but
unissued shares of preferred stock may enable our board of
directors to render more difficult or discourage an attempt to
obtain control of our company by means of a proxy contest,
tender offer, or
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other extraordinary transaction. Any issuance of preferred stock
with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss
of voting control to others. The existence of authorized but
unissued shares of preferred stock will also enable our board of
directors, without stockholder approval, to adopt a “poison
pill” takeover defense mechanism. We have no present plans
to issue any shares of preferred stock.
Number of
Directors; Removal; Filling Vacancies
Our certificate of incorporation and bylaws provide that the
number of directors shall be fixed only by resolution of our
board of directors from time to time. Our certificate of
incorporation provides that directors may be removed by
stockholders only both for cause and by the affirmative vote of
at least
662/3%
of the shares entitled to vote. Our certificate of incorporation
and bylaws provide that vacancies on the board of directors may
be filled only by a majority vote of the remaining directors or
by the sole remaining director.
Classified
Board
Our certificate of incorporation provides for our board to be
divided into three classes, as nearly equal in number as
possible, serving staggered terms. Approximately one-third of
our board will be elected each year. See
“Management — Board of Directors and
Committees.” The provision for a classified board could
prevent a party who acquires control of a majority of our
outstanding common stock from obtaining control of the board
until our second annual stockholders meeting following the date
the acquirer obtains the controlling share interest. The
classified board provision could have the effect of discouraging
a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us and could increase the
likelihood that incumbent directors will retain their positions.
Stockholder
Action
Our certificate of incorporation provides that stockholder
action may be taken only at an annual or special meeting of
stockholders. This provision prohibits stockholder action by
written consent in lieu of a meeting. Our certificate of
incorporation and bylaws further provide that special meetings
of stockholders may be called only by the chairman of the board
of directors or a majority of the board of directors.
Stockholders are not permitted to call a special meeting or to
require our board of directors to call a special meeting of
stockholders.
The provisions of our certificate of incorporation and bylaws
prohibiting stockholder action by written consent may have the
effect of delaying consideration of a stockholder proposal until
the next annual meeting unless a special meeting is called as
provided above. These provisions would also prevent the holders
of a majority of the voting power of our stock from unilaterally
using the written consent procedure to take stockholder action.
Moreover, a stockholder could not force stockholder
consideration of a proposal over the opposition of the board of
directors by calling a special meeting of stockholders prior to
the time our chairman or a majority of the whole board believes
such consideration to be appropriate.
Advance Notice
for Stockholder Proposals and Director Nominations
Our bylaws establish an advance notice procedure for stockholder
proposals to be brought before any annual or special meeting of
stockholders and for nominations by stockholders of candidates
for election as directors at an annual meeting or a special
meeting at which directors are to be elected. Subject to any
other applicable requirements, including, without limitation,
Rule 14a-8
under the Exchange Act of 1934, as amended, or the Exchange Act,
only such business may be conducted at a meeting of stockholders
as has been brought before the meeting by, or at the direction
of, our board of directors, or by a stockholder who has given
our Secretary timely written notice, in proper form, of the
stockholder’s intention to bring that business before the
meeting. The presiding officer at such meeting has the authority
to make such determinations. Only persons who are nominated by,
or at the direction of, our board of directors, or who are
nominated by a stockholder that has given timely written notice,
in proper form, to our Secretary prior to a meeting at which
directors are to be elected, will be eligible for election as
directors.
Amendments to
Bylaws
Our certificate of incorporation provides that only our board of
directors or the holders of at least
662/3%
of the shares entitled to vote at an annual or special meeting
of stockholders have the power to amend or repeal our bylaws.
Amendments to
Certificate of Incorporation
Any proposal to amend, alter, change, or repeal any provision of
our certificate of incorporation requires approval by the
affirmative vote of a majority of the voting power of all of the
shares of our capital stock entitled to vote on such matters,
with the exception of certain provisions of our certificate of
incorporation that require a vote of at least
662/3%
of such voting power.
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The requirement of a super-majority vote to approve amendments
to the certificate of incorporation or bylaws could enable a
minority of our stockholders to exercise veto power over an
amendment.
Limitation of
Liability and Indemnification of Officers and
Directors
Our certificate of incorporation and bylaws limit the liability
of directors to the fullest extent permitted by the Delaware
General Corporation Law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our
directors and officers to the fullest extent permitted by law.
In connection with this offering, we are entering into
indemnification agreements with our current directors and
executive officers and expect to enter into a similar agreement
with any new directors or executive officers.
Indemnification
for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted for directors, officers, or
controlling persons pursuant to the provisions described in the
preceding paragraph, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Transfer Agent
and Registrar
The transfer agent and registrar for our common stock is
American Stock Transfer & Trust Company. The
transfer agent’s address is 59 Maiden Lane, New York, New
York 10038 and its telephone number is
(877) 777-0800.
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Description
of Indebtedness
RRTS has outstanding debt under its senior secured credit
facility and senior subordinated notes, and GTS has outstanding
debt under its credit facility.
RRTS Credit
Facility
In March 2005, in connection with our acquisition of Dawes
Transport, RRTS entered into a senior secured credit agreement
with various lenders. LaSalle Bank National Association (now
Bank of America) acted as administrative agent for the lenders.
In April 2005, in connection with the acquisition of Roadrunner
Freight, RRTS entered into an amendment to a credit agreement
with various lenders. LaSalle Bank National Association again
acted as administrative agent for the lenders. In June 2005,
RRTS and the lenders amended and restated the terms and
provisions of both credit agreements and entered into a single
senior secured credit agreement. In March 2007, in connection
with the merger of Sargent with and into us, we amended and
restated the RRTS credit agreement to increase the amount
available for borrowings and provide for certain term loans and
revolving credit facilities.
We refer to the credit agreement and related documents, as
amended through the date of this prospectus, as the RRTS credit
facility. As of June 30, 2008, RRTS had approximately
$63.2 million outstanding, inclusive of accrued and unpaid
interest, under the RRTS credit facility. The RRTS credit
facility now consists of the following:
| n | term loan facility of $40.0 million, of which approximately $33.5 million was outstanding as of June 30, 2008; and | |
| n | a 5-year revolving credit facility of up to $50.0 million in revolving credit loans, letters of credit, and swingline loans, of which approximately $29.7 million was outstanding as of June 30, 2008. |
We are obligated with respect to all amounts owing under the
RRTS credit facility. In addition, the RRTS credit facility is:
| n | jointly and severally guaranteed by each of RRTS’ subsidiaries; | |
| n | secured by a first priority lien on substantially all of our and each of RRTS’ subsidiaries’ tangible and intangible personal property; and | |
| n | secured by a pledge of all of the capital stock of RRTS and RRTS’ subsidiaries |
RRTS’ future domestic subsidiaries will guarantee the RRTS
credit facility and secure that guarantee with substantially all
of their tangible and intangible personal property.
The RRTS credit facility requires RRTS to meet financial tests,
including a maximum consolidated total leverage ratio, a maximum
senior leverage ratio, and a minimum fixed charge coverage
ratio. In addition, the RRTS credit facility contains negative
covenants limiting, among other things, additional liens and
indebtedness, transactions with certain stockholders and any
affiliates, mergers and consolidations, sales of assets,
investments, loans, restricted payments, business activities,
issuance of equity, modifications of debt instruments, and other
matters customarily restricted in such agreements. The RRTS
credit facility contains customary events of default, including
payment defaults, breaches of representations and warranties,
covenant defaults, events of bankruptcy and insolvency, failure
of any guaranty or security document supporting the RRTS credit
facility to be in full force and effect, and a change of control
of RRTS, which for purposes of the RRTS credit facility includes
this initial public offering.
The RRTS credit facility includes covenants that require RRTS
to, among other things, maintain a specified leverage and fixed
charge coverage ratio. RRTS was in compliance with all debt
covenants as of June 30, 2008.
Borrowings under the RRTS credit facility bear interest at a
floating rate and may be maintained as alternate base rate loans
or as LIBOR rate loans. Alternate base rate loans bear interest
at (1) the Federal Funds Rate plus 0.5%, and (2) the
prime rate, plus the applicable base rate margin, which margin
is 1% to 2.5%. LIBOR rate loans bear interest at the LIBOR rate,
as described in the RRTS credit facility, plus the applicable
LIBOR rate margin, which margin is 2.5% to 4%.
The applicable margins with respect to the term loan facility
and the revolving credit facility will vary from time to time in
accordance with the terms thereof and agreed upon pricing grids
based on RRTS’ consolidated total leverage ratio.
At June 30, 2008, the weighted average interest rate on the
RRTS credit facility was 6.7%.
With respect to letters of credit, which may be issued as a part
of the revolving loan commitment, the revolver lenders will be
entitled to receive a fee equal to the applicable letter of
credit rate margin, which margin is 2.5% to 4%. Such letter of
credit fees are payable quarterly in arrears.
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The RRTS credit facility prescribes that specified amounts must
be used to prepay the term loan facility and reduce commitments
under the revolving credit facility, including:
| n | 100% of the net proceeds of any sale or other disposition of any assets by RRTS or any of RRTS’ subsidiaries, subject to exceptions for (i) assets replaced within 180 days after such disposition with another asset that is usual in the business of RRTS and (ii) other dispositions in any fiscal year where the net proceeds of which do not in the aggregate exceed $200,000; | |
| n | 100% of the net proceeds of any issuance of indebtedness after the closing date by RRTS or any of RRTS’ subsidiaries, subject to exceptions for permitted debt; | |
| n | 100% of the net proceeds from the issuance of equity securities by RRTS or RRTS’ subsidiaries, subject to exceptions; and | |
| n | if RRTS’ consolidated total leverage ratio is over 2.50, 50% of consolidated excess cash flows, for any fiscal year. |
In general, any mandatory prepayments as described above will be
applied first to prepay the term loan facility, second to prepay
the revolving loans, and third to reduce commitments under the
revolving credit facility. Prepayments of the term loan
facility, voluntary or mandatory, will be applied pro rata to
the scheduled installments of the term loan facility. Voluntary
prepayments of the RRTS credit facility are permitted.
Prepayments of the revolving loans may be reborrowed, subject to
the terms and conditions of the RRTS credit facility.
Prepayments of the term loan may not be reborrowed.
In connection with this offering, we expect to obtain an
amendment and a consent under the RRTS credit facility to, among
other things, waive the requirement to use 100% of the net
proceeds of this offering to repay indebtedness under the RRTS
credit facility and to permit the use of proceeds described
under “Use of Proceeds.” We intend to prepay all
$ of the term loan outstanding as
of the consummation of this offering and
$ of the revolving credit facility
with a portion of the net proceeds of this offering. See
“Use of Proceeds.”
This summary of the RRTS credit facility may not contain all of
the information that is important to you and is subject to, and
qualified in its entirety by reference to, all of the provisions
of the RRTS credit agreement and related documents, copies of
which are filed as exhibits to the registration statement of
which this prospectus forms a part. See “Where You Can Find
Additional Information.”
RRTS Senior
Subordinated Notes
The RRTS senior subordinated notes were issued in an aggregate
principal amount at maturity of approximately $36.4 million
and will mature on September 15, 2012. The senior
subordinated notes were issued pursuant to an amended and
restated notes purchase agreement dated as of March 14,
2007 between RRTS’ subsidiaries, as issuers, RRTS and
Sargent, as guarantors, and the purchasers listed therein, and
are subordinated unsecured obligations of RRTS and its
subsidiaries. The RRTS senior subordinated notes accrue cash
interest of 12% plus a deferred margin that is treated as
payment deferred interest and is added to the principal balance
of the notes each quarter. The deferred interest ranges from
2.0% to 5.5% depending on RRTS’ total leverage calculation,
described in the amended and restated notes purchase agreement.
Interest on the senior subordinated notes is payable on the
1st day of January, April, July, and October each year. As
of June 30, 2008, there were $38.1 million in
aggregate principal amount of senior subordinated notes
outstanding.
The senior subordinated notes are prepayable, at RRTS’
option, in whole at any time or in part from time to time, upon
not less than five days prior notice; provided, that any such
voluntary prepayment shall include the applicable premium, as
described in the amended and restated notes purchase agreement,
on the amount so prepaid.
We intend to prepay all of the outstanding subordinated notes
with a portion of the net proceeds of this offering. See
“Use of Proceeds.”
GTS Credit
Facility
In February 2008, in connection with the acquisition of Group
Transportation Services, GTS entered into a secured credit
agreement with various lenders. U.S. Bank National
Association acted as administrative agent for the lenders. We
refer to the GTS credit agreement and related documents, as
amended through the date of this prospectus, as the GTS credit
facility. As of June 30, 2008, there was approximately
$7.8 million, inclusive of accrued and unpaid interest,
outstanding under the GTS credit facility. The GTS credit
facility consists of the following:
| n | a term loan facility of $8.0 million, of which approximately $7.8 million was outstanding as of June 30, 2008; and | |
| n | a five-year revolving credit facility of up to $3.0 million, none of which was outstanding as of June 30, 2008. | |
| GTS is obligated with respect to all amounts owing under the GTS credit facility. In addition, the GTS credit facility is: | ||
| n | jointly and severally guaranteed by each of GTS’ subsidiaries; |
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| n | secured by a first priority lien on substantially all of GTS’ subsidiaries’ tangible and intangible personal property; and | |
| n | secured by a pledge of all of the capital stock and membership interests of GTS its subsidiaries. |
The GTS credit facility requires GTS to meet financial tests,
cash flows ratios, and fixed charge coverage ratios. GTS was in
compliance with all debt covenants as of June 30, 2008. In
addition, the GTS credit facility contains negative covenants
limiting, among other things, mergers and consolidations, sales
of assets, business activities, subsidiary activities,
restricted payments, transactions with affiliates, additional
liens and indebtedness, and other matters customarily restricted
in such agreements. The GTS credit facility contains customary
events of default, including payment defaults, breaches of
representations and warranties, covenant defaults, events of
bankruptcy and insolvency, failure of any guaranty or security
document supporting the secured credit facility to be in full
force and effect, and a change of control of GTS, which for
purposes of the credit facility includes the GTS merger.
GTS’ borrowings under the GTS credit facility bear interest
at a floating rate and may be maintained as prime rate loans or
as LIBOR rate loans. Prime rate loans bear interest at the prime
rate, as described in the GTS credit facility, plus the
applicable prime rate margin, which margin is 0.5% to 2.0%.
LIBOR rate loans bear interest at the LIBOR rate, as described
in the GTS credit facility, plus the applicable LIBOR rate
margin, which margin is 2.0% to 3.5%.
The applicable margins with respect to the term loan facility
and the revolving credit facility will vary from time to time in
accordance with the terms thereof and agreed upon pricing grids
based on our consolidated cash flow leverage ratio.
At June 30, 2008, the weighted average interest rate on the
term loan facility was 6.1%.
With respect to letters of credit, which may be issued as a part
of the revolving loan commitment, the revolver lenders will be
entitled to receive a fee equal to the applicable letter of
credit rate margin, which margin is 2.0% to 3.5%. Such letter of
credit fees are payable quarterly in arrears.
The GTS credit facility prescribes that specified amounts must
be used to prepay the term loan facility and reduce outstanding
revolving loans, including:
| n | 100% of the net proceeds of any sale or other disposition of assets, subject to certain exceptions, by GTS or any of its subsidiaries, subject to exceptions if the asset is replaced within 180 days after such disposition with another asset that is useful in the business of GTS or any of its subsidiaries and such net proceeds do not exceed $250,000 in the aggregate; | |
| n | 100% of the net proceeds of casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of GTS or its subsidiaries, subject to exceptions if the net proceeds therefrom have not been applied to (i) repair, restore, or replace such property or asset, or (ii) purchase assets useful in the business of GTS or its subsidiaries, within 180 days after such event and such net proceeds exceed $250,000 in the aggregate; and | |
| n | 100% of the net proceeds from the issuance of equity securities, or the receipt by GTS or its subsidiaries of any capital contribution, subject to exceptions described in the GTS credit facility. |
In general, any mandatory prepayments as described above will be
applied first to prepay the term loan facility, and second to
prepay any outstanding revolving loans (without any reduction to
the revolving commitments). Prepayments of the term loan
facility, voluntary or mandatory, will be applied pro rata to
the scheduled installments of principal payments under the term
loan facility. Voluntary prepayments of the GTS credit facility
are permitted. Prepayments of the revolving loans may be
reborrowed, subject to the terms and conditions of the GTS
credit facility. Prepayments of the term loan may not be
reborrowed.
In connection with this offering, we expect to obtain an
amendment and a consent under the GTS credit facility to, among
other things, waive the requirement to use 100% of the net
proceeds of this offering to repay indebtedness under the GTS
credit facility and to permit the use of proceeds described
under “Use of Proceeds.” We intend to prepay all
$ of the GTS credit facility
outstanding as of the consummation of this offering with a
portion of the net proceeds of this offering. See “Use of
Proceeds.”
This summary of the GTS credit facility may not contain all of
the information that is important to you and is subject to, and
qualified in its entirety by reference to, all of the provisions
of the credit agreement and related documents, copies of which
are filed as exhibits to the registration statement of which
this prospectus forms a part. See “Where You Can Find
Additional Information.”
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Shares
Eligible for Future Sale
Prior to this offering, there has been no public market for our
common stock. We cannot predict the effect, if any, that market
sales of shares, or the availability of shares for sale, will
have on the market price of our common stock prevailing from
time to time. Sales of our common stock in the public market
after the restrictions lapse as described below, or the
perception that those sales may occur, could cause the
prevailing market price to decline or to be lower than it might
be in the absence of those sales or perceptions.
Sale of
Restricted Shares
Upon completion of this offering, we will
have shares
of common stock outstanding, based
on shares
of common stock outstanding as of September 30, 2008. Of
these shares, the shares sold in this offering, plus any shares
sold upon exercise of the underwriters’ overallotment
option, will be freely tradable without restriction under the
Securities Act, except for any shares purchased by our
“affiliates” as that term is defined in Rule 144
under the Securities Act. In general, affiliates include
executive officers, directors, and 10% stockholders. Shares
purchased by affiliates will remain subject to the resale
limitations of Rule 144.
The remaining shares outstanding prior to this offering are
restricted securities within the meaning of Rule 144.
Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration
under Rules 144 or 701 promulgated under the Securities
Act, which are summarized below.
Taking into account the
lock-up
agreements, and assuming Robert W. Baird & Co.
Incorporated does not release shares from these agreements, the
following shares will be eligible for sale in the public market
beginning 180 days after the effective date of the
registration statement of which this prospectus forms a part
(unless the
lock-up
period is extended as described below and in
“Underwriting”):
| n | approximately million additional shares held by affiliates will be eligible for sale subject to volume, manner of sale, and other limitations under Rule 144; and | |
| n | approximately additional shares held by non-affiliates will be eligible for sale subject to volume, manner of sale, and other limitations under Rule 144. |
Lock-Up
Agreements
Our directors, executive officers, and certain stockholders have
entered into
lock-up
agreements in connection with this offering, generally providing
that they will not offer, pledge, sell, contract to sell, or
grant any option to purchase or otherwise dispose of our common
stock or any securities exercisable for or convertible into our
common stock owned by them for a period of 180 days after
the date of this prospectus without the prior written consent of
Robert W. Baird & Co. Incorporated. The
180-day
restricted period described in the preceding sentence will be
extended if:
| n | during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event; or | |
| n | prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, |
in which case the restrictions described in the preceding
sentence will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event. Despite
possible earlier eligibility for sale under the provisions of
Rules 144 and 701, shares subject to
lock-up
agreements will not be salable until these agreements expire or
are waived by Robert W. Baird & Co. Incorporated.
These agreements are more fully described in
“Underwriting.”
We have been advised by the underwriters that they may at their
discretion waive the
lock-up
agreements; however, they have no current intention of releasing
any shares subject to a
lock-up
agreement. The release of any
lock-up
would be considered on a
case-by-case
basis. In considering any request to release shares covered by a
lock-up
agreement, Robert W. Baird & Co. Incorporated may
consider, among other factors, the particular circumstances
surrounding the request, including but not limited to the number
of shares requested to be released, market conditions, the
possible impact on the market for our common stock, the trading
price of our common stock, historical trading volumes of our
common stock, the reasons for the request and whether the person
seeking the release is one of our officers or directors. No
agreement has been made between the representatives and us or
any of our stockholders pursuant to which Robert W.
Baird & Co. Incorporated will waive the
lock-up
restrictions.
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Rule 144
In general, under Rule 144 as currently in effect, a person
who has beneficially owned restricted securities of an issuer
that has been subject to the reporting requirements of the
Exchange Act for at least six months, and who is not affiliated
with such issuer, would be entitled to sell an unlimited number
of shares of common stock so long as the issuer has met its
public information disclosure requirements. In addition, an
affiliated person who has beneficially owned restricted
securities for at least six months would be entitled to sell,
within any three-month period, a number of shares that does not
exceed the greater of the following:
| n | 1% of the number of shares of common stock then outstanding; or | |
| n | the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Sales under Rule 144 are also subject to requirements with
respect to manner of sale, notice, and the availability of
current public information about us.
Rule 701
Under Rule 701 as currently in effect, each of our
employees, officers, directors, and consultants who purchased
shares pursuant to a written compensatory plan or contract is
eligible to resell these shares 90 days after the effective
date of this offering in reliance upon Rule 144, but
without compliance with specific restrictions. Rule 701
provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying
with the holding period requirement and that non-affiliates may
sell their shares in reliance on Rule 144 without complying
with the holding period, public information, volume limitation,
or notice provisions of Rule 144.
Stock
Options
We intend to file registration statements under the Securities
Act as soon as practicable after the completion of this offering
for shares issued upon the exercise of options and shares
to be issued under our employee benefit plans. As a result, any
options or shares issued exercised under any benefit plan after
the effectiveness of the registration statements will also be
freely tradable in the public market. However, such shares held
by affiliates will still be subject to the volume limitation,
manner of sale, notice, and public information requirements of
Rule 144 unless otherwise resalable under Rule 701.
Registration
Rights
After the completion of this offering, holders
of
restricted shares will be entitled to registration rights on
these shares for sale in the public market. See
“Description of Capital Stock — Registration
Rights.” Registration of these shares under the Securities
Act would result in their becoming freely tradable without
restriction under the Securities Act immediately upon
effectiveness of the registration.
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Material
U.S. Federal Income Tax Considerations For
Non-U.S.
Holders of Our Common Stock
The following discussion describes the material
U.S. federal income tax consequences to
non-U.S. holders
(as defined below) of the acquisition, ownership, and
disposition of our common stock issued pursuant to this
offering. This discussion is not a complete analysis of all the
potential U.S. federal income tax consequences relating
thereto, nor does it address any tax consequences arising under
any state, local, or foreign tax laws or any other
U.S. federal tax laws. This discussion is based on the
Internal Revenue Code of 1986, as amended, or the Code, Treasury
Regulations promulgated thereunder, judicial decisions, and
published rulings and administrative pronouncements of the
Internal Revenue Service, or the IRS, all as in effect as of the
date of this offering. These authorities may change, possibly
retroactively, resulting in U.S. federal income tax
consequences different from those discussed below. No ruling
from the IRS has been or will be sought with respect to the
matters discussed below, and there can be no assurance that the
IRS will not take a contrary position regarding the tax
consequences of the acquisition, ownership, or disposition of
our common stock, or that any such contrary position would not
be sustained by a court.
This discussion is limited to
non-U.S. holders
who purchase our common stock issued pursuant to this offering
and who hold our common stock as a capital asset within the
meaning of Section 1221 of the Code (generally, property
held for investment). This discussion does not address all
U.S. federal income tax considerations that may be relevant
to a particular holder in light of that holder’s particular
circumstances. This discussion also does not consider any
specific facts or circumstances that may be relevant to holders
subject to special rules under the U.S. federal income tax
laws, including, without limitation, U.S. expatriates;
partnerships and other pass-through entities; “controlled
foreign corporations;” “passive foreign investment
companies;” corporations that accumulate earnings to avoid
U.S. federal income tax; financial institutions; insurance
companies; brokers, dealers or traders in securities,
commodities or currencies; tax-exempt organizations;
tax-qualified retirement plans; persons subject to the
alternative minimum tax; persons holding our common stock as
part of a hedge, straddle, or other risk reduction strategy or
as part of a conversion transaction or other integrated
investment; real estate investment companies; regulated
investment companies; grantor trusts; persons that received our
common stock as compensation for performance of services;
persons that have a functional currency other than the U.S.
dollar; and certain former citizens or residents of the U.S.
For the purposes of this discussion, a
non-U.S. holder
is any beneficial owner of our common stock that is not a
“U.S. person” for U.S. federal income tax
purposes. A U.S. person is any of the following:
| n | an individual who is a citizen or resident of the United States; | |
| n | a corporation or partnership (or other entity treated as a corporation or a partnership for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia; | |
| n | an estate the income of which is subject to U.S. federal income tax regardless of its source; or | |
| n | a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons or (2) has validly elected to be treated as a U.S. person for U.S. federal income tax purposes. |
If a partnership (or other entity taxed as a partnership for
U.S. federal income tax purposes) holds our common stock,
the tax treatment of a partner in the partnership generally will
depend on the status of the partner and upon the activities of
the partnership. Accordingly, partnerships that hold our common
stock and partners in such partnerships are urged to consult
their tax advisors regarding the specific U.S. federal
income tax consequences to them.
Distributions on
our Common Stock
We have not declared or paid distributions on our common stock
since inception and do not intend to pay any distribution on our
common stock in the foreseeable future. In the event we do pay
distributions on our common stock, however, these payments will
constitute dividends for U.S. federal income tax purposes
to the extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax
principles. Amounts not treated as dividends for
U.S. federal income tax purposes will constitute a tax-free
return of capital and will first be applied against and reduce a
holder’s adjusted tax basis in the common stock, but not
below zero. Any excess will be treated as capital gain.
Dividends paid to a
non-U.S. holder
of our common stock that are not effectively connected with a
U.S. trade or business conducted by such holder generally
will be subject to U.S. federal withholding tax at a rate
of 30% of the gross amount of the dividends, or such lower rate
specified by an applicable tax treaty. To receive the benefit of
a reduced treaty rate, a
non-U.S. holder
must furnish to us or our paying agent a valid IRS
Form W-8BEN
(or applicable successor form) certifying such holder’s
qualification for the reduced rate. This certification must be
provided to us or our paying agent prior to the payment of
dividends and must be updated periodically.
Non-U.S. holders
that do not timely provide us or our paying agent
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with the required certification, but which qualify for a reduced
treaty rate, may obtain a refund of any excess amounts withheld
by timely filing an appropriate claim for refund with the IRS.
If a
non-U.S. holder
holds our common stock in connection with the conduct of a trade
or business in the United States, and dividends paid on the
common stock are effectively connected with such holder’s
U.S. trade or business, the
non-U.S. holder
will be exempt from U.S. federal withholding tax. To claim
the exemption, the
non-U.S. holder
must furnish to us or our paying agent a properly executed IRS
Form W-8ECI
(or applicable successor form).
Any dividends paid on our common stock that are effectively
connected with a
non-U.S. holder’s
U.S. trade or business (or if required by an applicable tax
treaty, attributable to a permanent establishment maintained by
the
non-U.S. holder
in the United States) generally will be subject to
U.S. federal income tax on a net income basis in the same
manner as if such holder were a resident of the United States,
unless an applicable tax treaty provides otherwise. A
non-U.S. holder
that is a foreign corporation also may be subject to a branch
profits tax equal to 30% (or such lower rate specified by an
applicable tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
Non-U.S. holders
are urged to consult any applicable tax treaties that may
provide for different rules.
Gain on
Disposition of our Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax on
any gain realized upon the sale or other disposition of our
common stock unless:
| n | the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States, or if required by an applicable tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States; | |
| n | the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or | |
| n | our common stock constitutes a U.S. real property interest by reason of our status as a “United States real property holding corporation” for U.S. federal income tax purposes (referred to as a “USRPHC”) at any time within the shorter of the five-year period preceding the disposition or your holding period for our common stock. |
Unless an applicable tax treaty provides otherwise, gain
described in the first bullet point above will be subject to
U.S. federal income tax on a net income basis in the same
manner as if such holder were a resident of the United States.
Non-U.S. holders
that are foreign corporations also may be subject to a branch
profits tax equal to 30% (or such lower rate specified by an
applicable tax treaty) of a portion of its effectively connected
earnings and profits for the taxable year.
Non-U.S. holders
are urged to consult any applicable tax treaties that may
provide for different rules.
Gain described in the second bullet point above will be subject
to U.S. federal income tax at a flat 30% rate, but may be
offset by U.S. source capital losses.
We believe that we are not currently and will not become a
USRPHC. However, because the determination of whether we are a
USRPHC depends on the fair market value of our United States
real property relative to the fair market value of our other
business assets, there can be no assurance that we will not
become a USRPHC in the future. Even if we become a USRPHC,
however, as long as our common stock is regularly traded on an
established securities market, such common stock will be treated
as U.S. real property interests with respect to a
non-U.S. holder
only if the
non-U.S. holder
actually or constructively holds more than five percent of such
regularly traded common stock at any time during the five-year
period ending on the date of the disposition. Furthermore, no
assurances can be provided that our stock will be regularly
traded on an established securities market.
Information
Reporting and Backup Withholding
We must report annually to the IRS and to each
non-U.S. holder
the amount of dividends on our common stock paid to such holder
and the amount of any tax withheld with respect to those
dividends, together with other information. These information
reporting requirements apply even if no withholding was required
because the dividends were effectively connected with the
holder’s conduct of a U.S. trade or business, or
withholding was reduced or eliminated by an applicable tax
treaty. This information also may be made available under a
specific treaty or agreement with the tax authorities in the
country in which the
non-U.S. holder
resides or is established. Backup withholding, however,
generally will not apply to payments of dividends to a
non-U.S. holder
of our common stock provided the
non-U.S. holder
furnishes to us or our paying agent the required certification
as to its
non-U.S. status,
such as by providing a valid IRS
Form W-8BEN
or W-8ECI.
Payment of the proceeds from a disposition by a
non-U.S. holder
of our common stock generally will be subject to information
reporting and backup withholding unless the
non-U.S. holder
certifies as to its
non-U.S. holder
status under penalties of perjury, such as by providing a valid
IRS
Form W-8BEN
or W-8ECI,
or otherwise establishes an exemption from
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Table of Contents
information reporting and backup withholding. Notwithstanding
the foregoing, information reporting and backup withholding may
apply if either we or our paying agent has actual knowledge, or
reason to know, that you are a U.S. person.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules may be allowed as a
refund or a credit against a
non-U.S. holder’s
U.S. federal income tax liability, provided the required
information is timely furnished to the IRS.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE PARTICULAR U.S. FEDERAL INCOME TAX
CONSEQUENCES TO THEM OF ACQUIRING, OWNING, AND DISPOSING OF OUR
COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY
STATE, LOCAL OR FOREIGN TAX LAWS AND ANY OTHER U.S. FEDERAL
TAX LAWS.
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Underwriting
We, the underwriters and the selling stockholders, which selling
stockholders may be deemed to be underwriters, named below have
entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each
underwriter has severally agreed to purchase the number of
shares indicated in the following table. Robert W.
Baird & Co. Incorporated and BB&T Capital
Markets, a division of Scott & Stringfellow, Inc., are
representatives of the underwriters.
|
Number of |
||||
|
Underwriters
|
Shares | |||
|
Robert W. Baird & Co. Incorporated
|
||||
|
BB&T Capital Markets, a division of Scott &
Stringfellow, Inc. .
|
||||
|
Total
|
||||
The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an
additional
shares from us to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to
this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table
above.
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by us
and the selling stockholders. Such amounts are shown assuming
both no exercise and full exercise of the underwriters’
option to purchase additional shares from us.
| Per Share | Total | |||||||||||||||
|
Without Over- |
With Over- |
Without Over- |
With Over- |
|||||||||||||
| Allotment | Allotment | Allotment | Allotment | |||||||||||||
|
Underwriting discounts and commissions paid by us
|
$ | $ | $ | $ | ||||||||||||
|
Underwriting discounts and commissions paid selling stockholders
|
$ | $ | $ | $ | ||||||||||||
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$
per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount
of up to $ per share from the
initial public offering price. If all the shares are not sold at
the initial public offering price, the representatives may
change the offering price and the other selling terms.
We and our executive officers and directors and holders of
substantially all of our common stock have agreed with the
underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares
of common stock during the period from the date of this
prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent
of Robert W. Baird & Co. Incorporated or in other
limited circumstances. Our agreement does not apply to any
shares of common stock or securities convertible into or
exchangeable for shares of common stock issued pursuant to any
existing employee benefit plans. See “Shares Eligible for
Future Sale” for a discussion of certain transfer
restrictions.
The 180-day
restricted period described in the preceding paragraph will be
extended if:
| n | during the last days of the 180-day restricted period, we issue an earnings release or announce material news or a material event; or | |
| n | prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the -day period beginning on the last day of the 180-day period, |
in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of
the -day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
The underwriters have reserved for sale at the initial public
offering price up
to
shares of the common stock for employees and directors who have
expressed an interest in purchasing common stock in the
offering. The maximum number of shares that a participant may
purchase in the reserved share program is limited to the
participant’s pro rata allocation of
the
shares based on the number of shares for which the participant
subscribed. The number of shares available for sale to the
general public in the offering will be reduced to the extent
these persons purchase the
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reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same
terms as the other shares.
Any persons that choose to participate in the reserved share
program will agree with us that,
until ,
2008, they will not, unless permitted by us to do so, offer,
sell, contract to sell, pledge, grant any option to purchase,
make any short sale or otherwise dispose of any shares they
purchase through the program.
Prior to the offering, there has been no public market for the
shares. The initial public offering price will be negotiated
among us, the selling stockholders and the representatives of
the underwriters. Among the factors to be considered in
determining the initial public offering price of the shares, in
addition to prevailing market conditions, will be our historical
performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration
of the above factors in relation to market valuation of
companies in related businesses.
Application has been made to list the common stock on the Nasdaq
Global Market under the symbol “RRTS.” In order to
meet one of the requirements for listing the common stock on the
Nasdaq Global Market, the underwriters have undertaken to sell
lots of 100 or more shares to a minimum of 2,000 beneficial
holders.
The underwriters may in the future perform investment banking
and advisory services for us from time to time for which they
may in the future receive customary fees and expenses.
We and the selling stockholders have agreed or will agree to
indemnify the underwriters against certain liabilities under the
Securities Act or contribute to payments that the underwriters
may be required to make in that respect.
In connection with this offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions, and penalty bids in accordance with
Regulation M under the Exchange Act.
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number
of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is
greater than the number of shares in the over-allotment option.
The underwriters may close out any covered short position by
either exercising their over-allotment option
and/or
purchasing shares in the open market.
Syndicate-covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering.
Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions. Stabilization and syndicate covering
transactions may cause the price of the shares to be higher than
it would be in the absence of these transactions. The imposition
of a penalty bid might also have an effect on the price of the
shares if it discourages presale of the shares.
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result
the price of our common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on the Nasdaq Global Market or otherwise and, if
commenced, may be discontinued at any time.
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of securities
described in this prospectus may not be made to the public in
that relevant member state prior to the publication of a
prospectus in relation to the securities that has been approved
by the competent authority in that relevant member state or,
where appropriate, approved in another relevant member state and
notified to the competent authority in that relevant member
state, all in accordance with the Prospectus
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Directive, except that, with effect from and including the
relevant implementation date, an offer of securities may be
offered to the public in that relevant member state at any time:
| n | to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; | |
| n | to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or | |
| n | in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive. |
Each purchaser of securities described in this prospectus
located within a relevant member state will be deemed to have
represented, acknowledged and agreed that it is a
“qualified investor” within the meaning of
Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an “offer of
securities to the public” in any relevant member state
means the communication in any form and by any means of
sufficient information on the terms of the offer and the
securities to be offered so as to enable an investor to decide
to purchase or subscribe the securities, as the expression may
be varied in that member state by any measure implementing the
Prospectus Directive in that member state, and the expression
“Prospectus Directive” means Directive 2003/71/EC and
includes any relevant implementing measure in each relevant
member state.
The sellers of the securities have not authorized and do not
authorize the making of any offer of securities through any
financial intermediary on their behalf, other than offers made
by the underwriters with a view to the final placement of the
securities as contemplated in this prospectus. Accordingly, no
purchaser of the securities, other than the underwriters, is
authorized to make any further offer of the securities on behalf
of the sellers or the underwriters.
This prospectus is only being distributed to, and is only
directed at, persons in the United Kingdom that are
(i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the “Order”) or
(ii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as “relevant persons”).
This prospectus and its contents are confidential and should not
be distributed, published or reproduced (in whole or in part) or
disclosed by recipients to any other persons in the United
Kingdom. Any person in the United Kingdom that is not a relevant
person should not act or rely on this document or any of its
contents.
Legal
Matters
The validity of the common stock in this offering will be passed
upon for us by Greenberg Traurig, LLP, Phoenix, Arizona. Certain
legal matters in connection with this offering will be passed
upon for the underwriters by Foley & Lardner LLP,
Milwaukee, Wisconsin.
Experts
The consolidated balance sheets of Roadrunner Transportation
Services Holdings, Inc. and its subsidiaries, (formerly known as
Roadrunner Dawes, Inc.) (the “Successor”), as of
December 31, 2007 and 2006 and the related consolidated
statements of operations, stockholders’ investment and cash
flows for the years ended December 31, 2007 and 2006, and
for the period from February 22, 2005 (date of inception)
through December 31, 2005, and the statement of operations,
stockholders’ deficit and cash flows of Dawes Transport,
Inc., (the “Predecessor”), for the period from
January 1, 2005 through March 31, 2005, included in
this prospectus have been audited by Deloitte & Touche
LLP, an independent registered public accounting firm, as stated
in their report appearing herein and elsewhere in the
registration statement (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to the
Successor Company’s adoption of Financial Accounting
Standards Board Statement No. 123(R), Share-Based
Payments effective January 1, 2006) and have been
included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The combined financial statements of Group Transportation
Services, Inc. (a subchapter S corporation) and GTS Direct,
LLC (a limited liability company) (collectively,
“GTS”), both of which are under common ownership and
common management, as of December 31, 2007 and 2006, and
for each of the three years in the period ended
December 31, 2007, included in this prospectus have been
audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report
appearing herein and elsewhere in the registration statement
(which report expresses an unqualified opinion and
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Table of Contents
includes explanatory paragraphs referring to GTS’ adoption
of Financial Accounting Standards Board Statement
No. 123(R), Share-Based Payments effective
January 1, 2006 and the subsequent sale of GTS on
February 29, 2008) and is included reliance upon the
report of such firm given upon their authority as experts in
accounting and auditing.
The combined financial statements of Sargent Trucking, Inc. and
affiliates (collectively, “Sargent”), all of which are
under common ownership and common management, as of
October 3, 2006 and December 31, 2005 and for the
period January 1, 2006 through October 3, 2006 and the
year ended December 31, 2005, included in this prospectus
have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their report appearing herein and elsewhere in the registration
statement (which report expresses an unqualified opinion and
includes an explanatory paragraph referring to the subsequent
sale of Sargent on October 4, 2006) and are included
in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Roadrunner Freight Systems, Inc.
(“Roadrunner”) as of April 29, 2005 and for the
period January 1, 2005 through April 29, 2005,
included in this prospectus have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report appearing
herein and elsewhere in the registration statement (which report
expresses an unqualified opinion on the financial statements and
includes an explanatory paragraph referring to the subsequent
sale of Roadrunner on April 29, 2005) and are included
in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
Where
You Can Find Additional Information
We have filed a registration statement on
Form S-1
with the Securities and Exchange Commission relating to the
common stock offered by this prospectus. This prospectus does
not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration
statement. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not
necessarily complete and in each instance we refer you to the
copy of the contract or other document filed as an exhibit to
the registration statement, each such statement being qualified
in all respects by such reference. For further information with
respect to our company and the common stock offered by this
prospectus, we refer you to the registration statement,
exhibits, and schedules.
Anyone may inspect a copy of the registration statement without
charge at the public reference facility maintained by the SEC at
100 F Street, N.E., Washington, D.C. 20549. Copies of all or any
part of the registration statement may be obtained from that
facility upon payment of the prescribed fees. The public may
obtain information on the operation of the public reference room
by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website at
http://www.sec.gov
that contains reports, proxy and information statements, and
other information regarding registrants that file electronically
with the SEC.
We intend to make available free of charge on our website at
www.rrts.com our annual reports on Form
10-K,
quarterly reports on
Form 10-Q,
current reports on Form
8-K,
amendments to such reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, proxy statements,
and other information as soon as reasonably practicable after
such material is electronically filed with, or furnished to, the
SEC. The information contained on, or connected to, or that can
be accessed via our website is not part of this prospectus.
85
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| Page | ||
|
Roadrunner Transportation Services Holdings, Inc.
|
||
|
Consolidated Financial Statements
|
||
|
As of December 31, 2007 and 2006 and for the Years Ended
December 31, 2007 and 2006 and for the period from
February 22, 2005 (date of inception) through
December 31, 2005
|
||
|
Report of Independent Registered Public Accounting Firm
|
F-2 | |
| F-3 | ||
| F-4 | ||
| F-5 | ||
| F-6 | ||
| F-7 | ||
|
Unaudited Condensed Consolidated Financial Statements
|
||
|
Six Months Ended June 30, 2008 and 2007
|
||
| F-23 | ||
| F-24 | ||
| F-25 | ||
| F-26 | ||
|
Group Transportation Services, Inc. and GTS Direct,
LLC
|
||
|
Combined Financial Statements
|
||
|
As of December 31, 2007 and 2006 and for the Years Ended
December 31, 2007, 2006, and 2005
|
||
|
Report of Independent Registered Public Accounting Firm
|
F-31 | |
| F-32 | ||
| F-33 | ||
| F-34 | ||
| F-35 | ||
| F-36 | ||
|
Group Transportation Services Holdings, Inc.
|
||
|
Unaudited Condensed Financial Statements
|
||
|
Six Months Ended June 30, 2008 and 2007
|
||
| F-41 | ||
| F-42 | ||
| F-43 | ||
| F-44 | ||
|
Sargent Trucking, Inc.; Big Rock Transportation, Inc.;
Midwest Carriers, Inc.; B&J Transportation, Inc.; and Smith
Truck Brokers, Inc.
|
||
|
Combined Financial Statements
|
||
|
As of October 3, 2006 and December 31, 2005 and for
the period from January 1, 2006 through October 3,
2006 and for the Year Ended December 31, 2005
|
||
|
Report of Independent Registered Public Accounting Firm
|
F-48 | |
| F-49 | ||
| F-50 | ||
| F-51 | ||
| F-52 | ||
| F-53 | ||
|
Roadrunner Freight Systems, Inc.
|
||
|
Financial Statements
|
||
|
As of April 29, 2005 and for the period from
January 1, 2005 through April 29, 2005
|
||
|
Report of Independent Registered Public Accounting Firm
|
F-57 | |
| F-58 | ||
| F-59 | ||
| F-60 | ||
| F-61 | ||
| F-62 |
F-1
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Roadrunner Transportation Services Holdings, Inc. and
subsidiaries:
We have audited the accompanying consolidated balance sheets of
Roadrunner Transportation Services Holdings, Inc. and
subsidiaries (formerly Roadrunner Dawes, Inc.) (the
“Successor”) as of December 31, 2007 and 2006 and
the related consolidated statements of operations,
stockholders’ investment, and cash flows for the years then
ended and for the period from February 22, 2005 (date of
inception) through December 31, 2005. These financial
statements are the responsibility of the Successor’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits. We have also audited
the statements of operations, stockholders’ investment, and
cash flows of Dawes Transport, Inc. (a subchapter S-Corporation)
(the “Predecessor”) for the period from
January 1, 2005 through March 31, 2005. These
financial statements are the responsibility of the
Predecessor’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Successor and the Predecessor are not required to have, nor were
we engaged to perform, an audit of their internal control over
financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for expressing an opinion on the
effectiveness of the Successor’s and Predecessor’s
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the Successor’s consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position as of
December 31, 2007 and 2006, and the consolidated results of
its operations and its cash flows for the years then ended and
for the period from February 22, 2005 (date of inception)
through December 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.
Further, in our opinion, the Predecessor’s financial
statements referred to above present fairly, in all material
respects, the results of its operations and its cash flows for
the period from January 1, 2005 through March 31,
2005, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 1, on January 1, 2006, the
Successor adopted Financial Accounting Standards Board Statement
No. 123(R), Share-Based Payment.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
July 22, 2008 (September 10, 2008 as to Note 14)
F-2
Table of Contents
ROADRUNNER
TRANSPORTATION SERVICES HOLDINGS, INC.
(Dollars in thousands, except share amounts)
| December 31, | ||||||||
| 2007 | 2006 | |||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 800 | $ | 3,052 | ||||
|
Accounts receivable, net
|
52,516 | 53,955 | ||||||
|
Deferred income taxes
|
2,285 | 2,616 | ||||||
|
Prepaid expenses and other current assets
|
6,150 | 4,805 | ||||||
|
Total current assets
|
61,751 | 64,428 | ||||||
|
PROPERTY AND EQUIPMENT, NET
|
5,558 | 5,275 | ||||||
|
OTHER ASSETS:
|
||||||||
|
Goodwill
|
184,846 | 184,414 | ||||||
|
Other noncurrent assets
|
3,725 | 5,594 | ||||||
|
Total other assets
|
188,571 | 190,008 | ||||||
|
TOTAL ASSETS
|
$ | 255,880 | $ | 259,711 | ||||
| LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’ INVESTMENT | ||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Current maturities of long-term debt
|
$ | 5,000 | $ | 6,826 | ||||
|
Accounts payable
|
30,332 | 28,522 | ||||||
|
Accrued expenses and other liabilities
|
8,171 | 8,735 | ||||||
|
Accrued interest
|
2,709 | 399 | ||||||
|
Total current liabilities
|
46,212 | 44,482 | ||||||
|
LONG-TERM DEBT, net of current maturities
|
97,420 | 109,480 | ||||||
|
OTHER LONG-TERM LIABILITIES
|
1,613 | 1,567 | ||||||
|
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
|
5,000 | — | ||||||
|
Total liabilities
|
150,245 | 155,529 | ||||||
|
COMMITMENTS AND CONTINGENCIES (NOTE 10)
|
||||||||
|
REDEEMABLE COMMON STOCK
|
||||||||
|
Class A common stock $.01 par value; 1,765 and 1,865 shares
issued and outstanding
|
1,765 | 1,865 | ||||||
|
STOCKHOLDERS’ INVESTMENT:
|
||||||||
|
Class A common stock $.01 par value;
97,563 shares issued and outstanding
|
1 | 1 | ||||||
|
Class B common stock $.01 par value; 2,000 shares
authorized; 1,892 shares issued and outstanding
|
— | — | ||||||
|
Additional paid-in capital
|
100,798 | 100,168 | ||||||
|
Retained earnings
|
3,070 | 2,135 | ||||||
|
Accumulated other comprehensive income
|
1 | 13 | ||||||
|
Total stockholders’ investment
|
103,870 | 102,317 | ||||||
|
TOTAL LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’
INVESTMENT
|
$ | 255,880 | $ | 259,711 | ||||
F-3
Table of Contents
ROADRUNNER
TRANSPORTATION SERVICES HOLDINGS, INC.
(Dollars in thousands, except per share amounts)
| Successor | Predecessor | ||||||||||||||||
|
Period from |
|||||||||||||||||
|
February 22, |
Period from |
||||||||||||||||
|
(date of inception) |
January 1 |
||||||||||||||||
|
through |
through |
||||||||||||||||
| Year Ended December 31, |
December 31, |
March 31, |
|||||||||||||||
| 2007 | 2006 | 2005 | 2005 | ||||||||||||||
|
Revenues, net
|
$ | 538,007 | $ | 399,441 | $ | 250,950 | $ | 43,428 | |||||||||
|
Operating expenses:
|
|||||||||||||||||
|
Purchased transportation costs
|
425,568 | 302,296 | 180,920 | 30,225 | |||||||||||||
|
Personnel and related benefits
|
55,354 | 49,716 | 33,138 | 12,197 | |||||||||||||
|
Other operating expenses
|
37,311 | 33,033 | 22,280 | 4,957 | |||||||||||||
|
Depreciation and amortization
|
1,840 | 1,072 | 556 | 145 | |||||||||||||
|
Restructuring expense
|
— | — | 646 | — | |||||||||||||
|
Total operating expenses
|
520,073 | 386,117 | 237,540 | 47,524 | |||||||||||||
|
Operating income (loss)
|
17,934 | 13,324 | 13,410 | (4,096 | ) | ||||||||||||
|
Interest expense
|
13,937 | 11,457 | 7,529 | 288 | |||||||||||||
|
Loss on early extinguishment of debt
|
1,608 | — | 3,239 | — | |||||||||||||
|
Income (loss) before provision for income taxes
|
2,389 | 1,867 | 2,642 | (4,384 | ) | ||||||||||||
|
Provision for income taxes
|
1,294 | 1,184 | 1,190 | — | |||||||||||||
|
Net income (loss) before preferred dividends
|
1,095 | 683 | 1,452 | (4,384 | ) | ||||||||||||
|
Preferred dividends
|
160 | — | — | — | |||||||||||||
|
Net income (loss) available to common stockholders
|
$ | 935 | $ | 683 | $ | 1,452 | $ | (4,384 | ) | ||||||||
|
Earnings per share available to common stockholders:
|
|||||||||||||||||
|
Basic
|
$ | 9.24 | $ | 7.73 | $ | 17.22 | $ | (822.05 | ) | ||||||||
|
Diluted
|
$ | 9.23 | $ | 7.73 | $ | 17.22 | $ | (822.05 | ) | ||||||||
|
Weighted average common stock outstanding:
|
|||||||||||||||||
|
Basic
|
101,220 | 88,437 | 84,315 | 5,333 | |||||||||||||
|
Diluted
|
101,354 | 88,437 | 84,315 | 5,333 | |||||||||||||
F-4
Table of Contents
ROADRUNNER
TRANSPORTATION SERVICES HOLDINGS, INC.
(Dollars in thousands, except share amounts)
|
Retained |
Total |
|||||||||||||||||||||||||||
|
Class A |
Class B |
Additional |
Earnings/ |
Stockholders’ |
||||||||||||||||||||||||
| Common Stock | Common Stock |
Paid-In |
(Accumulated |
Investment |
||||||||||||||||||||||||
| PREDECESSOR | Shares | Amount | Shares | Amount | Capital | Deficit) | (Deficit) | |||||||||||||||||||||
|
BALANCE, January 1, 2005
|
100 | $ | 14 | 5,233 | $ | — | $ | 788 | $ | 263 | $ | 1,065 | ||||||||||||||||
|
Net loss
|
(4,384 | ) | (4,384 | ) | ||||||||||||||||||||||||
|
BALANCE, March 31, 2005
|
100 | $ | 14 | 5,233 | $ | — | $ | 788 | $ | (4,121 | ) | $ | (3,319 | ) | ||||||||||||||
|
Accumulated |
||||||||||||||||||||||||||||||||
|
Class A |
Class B |
Additional |
Other |
Total |
||||||||||||||||||||||||||||
| Common Stock | Common Stock |
Paid-In |
Retained |
Comprehensive |
Stockholders’ |
|||||||||||||||||||||||||||
| SUCCESSOR | Shares | Amount | Shares | Amount | Capital | Earnings | Income | Investment | ||||||||||||||||||||||||
|
BALANCE, February 22, 2005 (date of inception)
|
— | $ | — | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
|
Issuance of common stock and merger of THC
|
80,658 | 1 | 1,892 | — | 82,549 | 82,550 | ||||||||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Net change in unrealized gains on cash flow hedges (net of
tax of $21)
|
34 | 34 | ||||||||||||||||||||||||||||||
|
Net income
|
1,452 | 1,452 | ||||||||||||||||||||||||||||||
|
Total comprehensive income
|
1,486 | |||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2005
|
80,658 | $ | 1 | 1,892 | $ | — | $ | 82,549 | $ | 1,452 | $ | 34 | $ | 84,036 | ||||||||||||||||||
|
Share-based compensation
|
714 | 714 | ||||||||||||||||||||||||||||||
|
Issuance of common stock and merger of STG
|
16,905 | 16,905 | 16,905 | |||||||||||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Net change in unrealized gains and losses on cash flow hedges
(net of tax of $13)
|
(21 | ) | (21 | ) | ||||||||||||||||||||||||||||
|
Net income
|
683 | 683 | ||||||||||||||||||||||||||||||
|
Total comprehensive income
|
662 | |||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2006
|
97,563 | $ | 1 | 1,892 | $ | — | $ | 100,168 | $ | 2,135 | $ | 13 | $ | 102,317 | ||||||||||||||||||
|
Share-based compensation
|
655 | 655 | ||||||||||||||||||||||||||||||
|
Purchase and cancellation of common stock
|
(25 | ) | (25 | ) | ||||||||||||||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Net change in unrealized gains and losses (net of tax of $1)
|
(12 | ) | (12 | ) | ||||||||||||||||||||||||||||
|
Net income before preferred dividends
|
1,095 | 1,095 | ||||||||||||||||||||||||||||||
|
Total comprehensive income
|
1,083 | |||||||||||||||||||||||||||||||
|
Preferred dividends ($32 per share)
|
(160 | ) | (160 | ) | ||||||||||||||||||||||||||||
|
BALANCE, December 31, 2007
|
97,563 | $ | 1 | 1,892 | $ | — | $ | 100,798 | $ | 3,070 | $ | 1 | $ | 103,870 | ||||||||||||||||||
F-5
Table of Contents
ROADRUNNER
TRANSPORTATION SERVICES HOLDINGS, INC.
(Dollars in thousands)
| Successor | Predecessor | ||||||||||||||||
|
Period from |
|||||||||||||||||
|
February 22, |
Period from |
||||||||||||||||
|
(date of inception) |
January 1 |
||||||||||||||||
|
Year Ended |
through |
through |
|||||||||||||||
| December 31, |
December 31, |
March 31, |
|||||||||||||||
| 2007 | 2006 | 2005 | 2005 | ||||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|||||||||||||||||
|
Net income (loss) before preferred dividends
|
$ | 1,095 | $ | 683 | $ | 1,452 | $ | (4,384 | ) | ||||||||
|
Adjustments to reconcile net income (loss) before preferred
dividends to net cash
provided by (used in) operating activities: |
|||||||||||||||||
|
Depreciation and amortization
|
2,290 | 1,565 | 995 | 145 | |||||||||||||
|
Loss on early extinguishment of debt
|
1,608 | — | 3,239 | — | |||||||||||||
|
Deferred interest
|
1,261 | 717 | 402 | 246 | |||||||||||||
|
Loss on disposal of buildings and equipment
|
165 | 23 | — | — | |||||||||||||
|
Share-based compensation
|
655 | 714 | — | — | |||||||||||||
|
Provision for bad debts and freight bill adjustments
|
349 | 807 | 1,216 | 81 | |||||||||||||
|
Provision for deferred taxes
|
1,054 | 1,184 | 1,190 | — | |||||||||||||
|
Changes in:
|
|||||||||||||||||
|
Accounts receivable
|
1,090 | (2,591 | ) | (1,287 | ) | 1,422 | |||||||||||
|
Prepaid expenses and other assets
|
530 | 2,079 | 1,766 | 437 | |||||||||||||
|
Accounts payable
|
1,810 | 5,051 | (533 | ) | (2,896 | ) | |||||||||||
|
Accrued expenses
|
1,747 | (374 | ) | 562 | 345 | ||||||||||||
|
Other liabilities
|
(1,184 | ) | (342 | ) | 117 | (2,216 | ) | ||||||||||
|
Net cash provided by (used in) operating activities
|
12,470 | 9,516 | 9,119 | (6,820 | ) | ||||||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|||||||||||||||||
|
Acquisition of businesses, net of cash acquired
|
— | (41,190 | ) | (178,107 | ) | — | |||||||||||
|
Additional purchase price for acquisition earnouts
|
(1,349 | ) | — | — | (15 | ) | |||||||||||
|
Capital expenditures
|
(1,867 | ) | (1,052 | ) | (1,531 | ) | (144 | ) | |||||||||
|
Proceeds from sale of buildings and equipment
|
29 | 385 | — | — | |||||||||||||
|
Net cash used in investing activities
|
(3,187 | ) | (41,857 | ) | (179,638 | ) | (159 | ) | |||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|||||||||||||||||
|
Proceeds from issuance of stock
|
— | 17,120 | 84,700 | — | |||||||||||||
|
Repurchase and retirement of stock
|
(125 | ) | (500 | ) | — | — | |||||||||||
|
Net borrowings under revolving credit facilities
|
16,325 | 1,175 | — | 8,510 | |||||||||||||
|
Long-term debt borrowings
|
40,000 | 27,904 | 184,374 | — | |||||||||||||
|
Long-term debt payments
|
(66,490 | ) | (10,522 | ) | (91,654 | ) | (145 | ) | |||||||||
|
Payment of debt financing fees
|
(1,245 | ) | (892 | ) | (5,793 | ) | — | ||||||||||
|
Distributions to stockholders
|
— | — | — | (1,335 | ) | ||||||||||||
|
Net cash provided by (used in) financing activities
|
(11,535 | ) | 34,285 | 171,627 | 7,030 | ||||||||||||
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(2,252 | ) | 1,944 | 1,108 | 51 | ||||||||||||
|
CASH AND CASH EQUIVALENTS:
|
|||||||||||||||||
|
Beginning of period
|
3,052 | 1,108 | — | 130 | |||||||||||||
|
End of period
|
$ | 800 | $ | 3,052 | $ | 1,108 | $ | 181 | |||||||||
|
SUPPLEMENTAL CASH FLOWS INFORMATION:
|
|||||||||||||||||
|
Cash paid for interest
|
$ | 9,964 | $ | 9,947 | $ | 6,616 | $ | 86 | |||||||||
|
Cash paid for income taxes (net of refunds)
|
$ | 118 | $ | (1,841 | ) | $ | — | $ | — | ||||||||
|
Noncash conversion of notes payable to preferred stock
|
$ | 5,000 | $ | — | $ | — | $ | — | |||||||||
|
Noncash notes payable issued for acquisition of business
|
$ | — | $ | 5,000 | $ | — | $ | — | |||||||||
F-6
Table of Contents
Roadrunner
Transportation Services Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| 1. | Significant Accounting Policies |
Organization and Nature of Business
At the close of business on March 31, 2005, Dawes
Transport, Inc. (“Dawes”) was acquired by and became a
wholly-owned subsidiary of Dawes Holding Corporation
(“DHC”), an entity controlled by Thayer Equity
Investors V, L.P. (“Thayer V”) (the
“Transaction”). The accompanying consolidated
statements of operations, stockholders’ investment and cash
flows are presented for two periods, Predecessor and Successor,
which relate to the period of operations preceding the
Transaction and the period of operations succeeding the
Transaction, respectively. DHC was formed on February 22,
2005 and there were no substantive operations from date of
inception until the Transaction on March 31, 2005. DHC, or
its successors as later renamed, is herein referred to as the
“Successor.” Dawes is herein referred to as
“Predecessor.” As a result of the application of
purchase accounting, the Successor balances and amounts
presented in the consolidated financial statements and footnotes
are not comparable with those of the Predecessor.
At the close of business on April 29, 2005, the controlling
stockholder of DHC through Thayer LTL Holding Corp.
(“THC”), acquired all of the outstanding capital stock
of Roadrunner Freight Systems, Inc. (“Roadrunner”). On
June 3, 2005, THC merged into DHC and DHC changed its name
to Roadrunner Dawes, Inc. (“RDS”).
On October 4, 2006, the controlling stockholder of RDS
through Sargent Transportation Group, Inc. (“STG”)
acquired all of the outstanding capital stock of Big Rock
Transportation, Inc., Midwest Carriers, Inc., Sargent Trucking,
Inc., B&J Transportation, Inc., and Smith Truck Brokers,
Inc. (collectively, “Sargent”). On March 14,
2007, STG merged with RDS and are collectively referred to
herein as the “Company.” At the time of the merger,
each STG share was converted into two-tenths of a share of the
Company’s Class A common stock. In addition,
10-year
warrants to purchase 15,198 shares of the Company’s
Class A common stock at a purchase price of $2,000 per
share were issued to the existing stockholders of STG.
Additionally, the Company converted $5.0 million of
subordinated notes payable to the former owners of Sargent into
$5.0 million of Company preferred stock.
The Company is headquartered in Cudahy, Wisconsin. RDS operates
as a common and contract motor carrier pursuant to
U.S. Department of Transportation authority and is engaged
primarily in transportation of less-than-truckload shipments.
RDS has 18 terminals and operates throughout the United States.
Sargent operates as a transportation and brokerage business from
twelve offices throughout the continental United States and
Canada.
On June 13, 2008, the Company changed its name to
Roadrunner Transportation Services Holdings, Inc.
(“RRTS”) to reflect the Company’s comprehensive
service offerings.
Principles of Consolidation
Consistent with the provisions of Statement of Financial
Accounting Standards No. 141, Business Combinations
(“SFAS 141”), transfers of net assets or
exchanges of equity interests between entities under common
control do not constitute business combinations. Because
Roadrunner and DHC had the same controlling stockholder
immediately before and after the merger on June 3, 2005
(the “Roadrunner Merger”), the Roadrunner Merger has
been accounted for as a combination of entities under common
control on a historical cost basis in a manner similar to a
pooling of interests. Likewise, because RDS and STG had the same
controlling stockholder immediately before and after the
March 14, 2007 merger (the “STG Merger”), the STG
Merger has also been accounted for as a combination of entities
under common control on a historical cost basis in a manner
similar to a pooling of interests. In accordance with
SFAS 141, the accompanying financial statements of the
Company have been prepared as if the Roadrunner Merger and the
STG Merger had occurred on April 29, 2005, and
October 4, 2006, the dates of common control, respectively.
Accordingly, the accompanying consolidated financial statements
include the results of operations of Roadrunner from
April 29, 2005 and of STG from October 4, 2006. All
intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
Segment Reporting
The Company adopted the provisions of SFAS No. 131,
Disclosure About Segments of an Enterprise and Related
Information (“SFAS 131”), which establishes
accounting standards for segment reporting.
F-7
Table of Contents
The Company’s chief operating decision maker, the chief
executive officer, assesses performance and makes resource
allocation decisions of the business as two SFAS 131
segments: a less-than truckload segment (“LTL”) and a
truckload brokerage segment (“TL”).
Cash and Cash Equivalents
Cash equivalents are defined as short-term investments that have
an original maturity of three months or less at the date of
purchase and are readily convertible into cash. The Company
maintains cash in several banks and, at times, the balances may
exceed federally insured limits. The Company does not believe it
is exposed to any material credit risk on cash. As of
December 31, 2007 and 2006, approximately
$11.9 million and $10.5 million, respectively, of
checks drawn in excess of book balances were classified as
accounts payable in the accompanying consolidated balance
sheets. Cash equivalents consist of overnight investments in an
interest bearing sweep account.
Accounts Receivable
Accounts receivable represent trade receivables from customers
and are stated net of an allowance for doubtful accounts and
pricing allowances of approximately $1.4 million and
$1.7 million as of December 31, 2007 and 2006,
respectively. Management estimates the portion of accounts
receivable that will not be collected and accounts are written
off when they are determined to be uncollectible. Accounts
receivable are uncollateralized and are generally due
30 days from the invoice date.
Valuation and Qualifying Accounts
The Company provides reserves for accounts receivable. The
rollforward of the allowance for doubtful accounts is as follows
(in thousands):
| Successor | Predecessor | |||||||||||||||
|
Period from |
||||||||||||||||
|
February 22, (date |
Period from |
|||||||||||||||
|
of inception) |
January 1 |
|||||||||||||||
|
Year Ended |
through |
through |
||||||||||||||
| December 31, |
December 31, |
March 31, |
||||||||||||||
| 2007 | 2006 | 2005 | 2005 | |||||||||||||
|
Beginning balance
|
$ | 1,703 | $ | 1,714 | $ | — | $ | 413 | ||||||||
|
Provision, charged to expense
|
349 | 807 | 1,216 | 81 | ||||||||||||
|
Write-offs, less recoveries
|
(615 | ) | (957 | ) | (522 | ) | (31 | ) | ||||||||
|
Acquired allowance
|
— | 139 | 1,020 | — | ||||||||||||
|
Ending balance
|
$ | 1,437 | $ | 1,703 | $ | 1,714 | $ | 463 | ||||||||
Property and Equipment
Property and equipment are stated at cost. Maintenance and
repair costs are charged to expense as incurred. For financial
reporting purposes, depreciation is calculated using the
straight-line method over the following estimated useful lives:
|
Buildings and leasehold improvements
|
5 - 15 years | |||
|
Furniture and fixtures
|
5 years | |||
|
Equipment
|
5 years |
Accelerated depreciation methods are used for tax reporting
purposes.
Life Insurance
The Company maintains a life insurance policy which names the
Company as beneficiary. The total face value of the life
insurance policy was $9.5 million at December 31, 2007
and 2006. The cash surrender value, net of policy loan, was
$59,000 and $29,000 at December 31, 2007 and 2006,
respectively, and has been classified in the consolidated
balance sheets as a component of other noncurrent assets.
Goodwill and Other Intangibles
Goodwill and other intangible assets result from business
acquisitions and have been accounted for in accordance with the
provisions of SFAS No. 142, Goodwill and Other
Intangibles (“SFAS 142”) and SFAS 141.
The Company accounts for business acquisitions by assigning the
purchase price to tangible and intangible assets and
liabilities. Assets acquired and liabilities assumed are
recorded at their fair values and the excess of the purchase
price over amounts assigned is recorded as goodwill.
SFAS 142 provides specific guidance for testing goodwill
and indefinite lived intangible assets for impairment. Goodwill
is tested for impairment at least annually using a two-step
process that begins with an estimation of the fair value at the
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“reporting unit” level. The Company’s reporting
units are its operating segments as this is the lowest level for
which discrete financial information is prepared and regularly
reviewed by management. The first step is a screen for potential
impairment and the second measures the amount of the impairment,
if any. No goodwill impairments were identified in 2007, 2006 or
2005.
Debt Issue Costs
Debt issue costs represent costs incurred in connection with the
financing agreements described in Note 5. The debt issue
costs aggregate to $1.7 million and $2.5 million at
December 31, 2007 and 2006, respectively, and have been
classified in the consolidated balance sheets as other
noncurrent assets. Such costs are being amortized over the
expected life of the financing using the effective interest rate
method.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted
SFAS No. 123 (revised 2004), Share-Based
Payment, (“SFAS 123(R)”) using the modified
prospective method of accounting (see Note 7). Accordingly,
share based payment awards granted on or after January 1,
2006 have been accounted for at fair value in accordance with
the recognition and measurement provisions of SFAS 123(R);
share based payment awards granted prior to January 1, 2006
were accounted for using the intrinsic value method in
accordance with the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, (“APB 25”), as
permitted by SFAS No. 123, Accounting for Stock-Based
Compensation, (“SFAS 123”).
The Company’s share based payment awards are comprised of
stock options. Under the intrinsic value method, compensation
cost for the Company’s stock options was measured and
recognized as the excess, if any, of the estimated market price
of the stock at grant date over the amount paid to acquire
stock. Under SFAS 123(R), compensation cost for the
Company’s stock options is measured and recognized at fair
value using the Black Scholes option-pricing model.
Income Taxes
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes
(“SFAS 109”), which requires an asset and
liability approach to financial accounting and reporting for
income taxes. In accordance with SFAS 109, deferred income
tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Income tax expense (benefit) is the tax payable or
refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Effective January 1, 2007, the Company adopted the
provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes — an interpretation of
FASB Statement No. 109 (“FIN 48”).
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in financial statements in accordance with
SFAS 109. FIN 48 prescribes a recognition threshold
and measurement process for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. Under FIN 48, the Company’s policy is
to record any interest and penalties as a component of the
income tax provision.
Fair Value of Financial Instruments
Fair values of cash, accounts receivable and accounts payable
approximate cost. The estimated fair value of long-term debt has
been determined using market information and valuation
methodologies, primarily discounted cash flows analysis. These
estimates require considerable judgment in interpreting market
data, and changes in assumptions or estimation methods could
significantly affect the fair value estimates. Based on the
borrowing rates currently available to the Company for loans
with similar terms and average maturities, the estimated fair
value of the subordinated debt was $39.4 million and
$34.7 million and the estimated fair value of the senior
debt approximates carrying value at December 31, 2007 and
2006, respectively.
Revenue Recognition
The Company records revenue when all of the following have
occurred: an agreement of sale exists; pricing is fixed or
determinable; delivery has occurred; and the Company’s
obligation to fulfill a transaction is complete and collection
of revenue is reasonably assured.
In accordance with Emerging Issues Task Force Issue
99-19,
Reporting Revenue Gross as a Principal Versus Net as an
Agent, the Company recognizes revenue on a gross basis, as
opposed to a net basis, because it bears the risks and benefits
associated with revenue-generated activities by, among other
things, (1) acting as a principal in the transaction,
(2) establishing prices, (3) managing all aspects of
the shipping process and (4) taking the risk of loss for
collection, delivery and returns.
F-9
Table of Contents
Insurance
The Company uses a combination of purchased insurance and
self-insurance programs to provide for the cost of vehicle cargo
and workers’ compensation claims. The portion of
self-insurance accruals relates primarily to vehicle claims that
are expected to be payable over several years. The Company
periodically evaluates the level of insurance coverage and
adjusts insurance levels based on risk tolerance and premium
expense.
The measurement and classification of self-insured costs
requires the consideration of historical cost experience,
demographic and severity factors, and judgments about the
current and expected levels of cost per claim and retention
levels. These methods provide estimates of the liability
associated with claims incurred as of the balance sheet date,
including claims not reported. The Company believes these
methods are appropriate for measuring these highly judgmental
self-insurance accruals. However, the use of any estimation
method is sensitive to the assumptions and factors described
above, based on the magnitude of claims and the length of time
from incurrence of the claims to ultimate settlement.
Accordingly, changes in these assumptions and factors can
materially affect actual costs paid to settle the claims and
those amounts may be different than estimates.
Restructuring Expenses
In connection with the merger of THC and DHC, RDS incurred
certain restructuring costs in 2005 related to the closure of
two of its Dawes terminals, the relocation of its corporate
headquarters and the termination of certain Dawes employees.
Derivative Financial Instruments
The Company accounts for derivative instruments in accordance
with SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (“SFAS 133”), as amended.
In accordance with SFAS 133, the Company reports all
derivative financial instruments on its balance sheet at fair
value and has established criteria for designation and
evaluation of effectiveness of transactions entered into for
hedging purposes. The Company employs from time to time
derivative financial instruments to manage its exposure to
interest rate changes and to limit the volatility and impact of
interest rate changes on earnings and cash flows. The Company
does not enter into other derivative financial instruments for
trading or speculative purposes. The Company faces credit risk
if the counterparties to these transactions are unable to
perform their obligations. However, the Company seeks to
minimize this risk by entering into transactions with
counterparties that are major financial institutions with high
credit ratings.
The Company records unrealized gains and losses on two interest
rate cap agreements that were designated as cash flow hedges in
accumulated other comprehensive income (loss) on the
consolidated balance sheets, to the extent that hedges are
effective. For derivative financial instruments which do not
qualify as cash flow hedges, any changes in fair value would be
recorded in the consolidated statements of operations.
The Company may at its discretion terminate or de-designate any
such hedging instrument agreements prior to maturity. At that
time, any gains or losses previously reported in accumulated
other comprehensive income (loss) on termination would be
amortized into interest expense or interest income to correspond
to the recognition of interest expense or interest income on the
hedge debt. If such debt instrument was also terminated, the
gain or loss associated with the terminated derivative included
in accumulated other comprehensive income (loss) at the time of
termination of the debt would be recognized in the consolidated
statement of operations at that time. On January 1, 2008,
the Company de-designated these interest rate cap agreements and
future gains and losses related to the change in fair value will
be recognized in the statement of operations.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (“SFAS 157”). This
standard establishes a single authoritative definition of fair
value, sets out a framework for measuring fair value and
requires additional disclosures about fair value measurements.
The new standard focuses on the inputs used to measure fair
value and the effect, if any, on the changes in net assets for
the period. SFAS 157 is effective for the Company for the
year ending December 31, 2008. Effective January 1,
2008, the Company adopted this standard; this adoption did not
have a material effect on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(“SFAS 159”). This standard expands
opportunities to use fair value measurement in financial
reporting and permits entities to choose to measure many
financial instruments and certain other items at fair value.
SFAS 159 is effective for the Company for the year ended
December 31, 2008. The Company has not elected to use fair
value for measuring financial assets and financial liabilities.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51, Consolidated
Financial Statements (SFAS 160). SFAS 160
establishes accounting and
F-10
Table of Contents
reporting guidance for a noncontrolling ownership interest in a
subsidiary and deconsolidation of a subsidiary. The standard
requires that a noncontrolling ownership interest in a
subsidiary be reported as equity in the consolidated statement
of financial position and any related net income attributable to
the parent be presented on the face of the consolidated
statement of income. SFAS 160 is effective as of the
beginning of an entity’s first fiscal year that begins
after December 15, 2008. The Company will be required to
adopt SFAS 160 on January 1, 2009, and does not expect
the standard to have a material effect on its financial position
or results of operations.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(“SFAS 141R”). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest
in the acquiree and the goodwill acquired. SFAS 141R also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
SFAS 141R is effective for financial statements issued for
fiscal years beginning after December 15, 2008.
SFAS 141R is applicable to prospective business
combinations and therefore has no effect on the Company’s
current consolidated financial statements.
| 2. | Acquisitions |
DHC acquired all of the outstanding capital stock of Dawes at
the close of business on March 31, 2005. Total
consideration, net of cash acquired of approximately
$0.4 million, was $85.6 million. The acquisition
price, and financing fees of approximately $2.4 million,
was financed with proceeds from the sale of common stock by DHC
of $42.4 million and borrowings under credit facilities of
$46.0 million.
On April 29, 2005, the controlling stockholder of DHC
formed THC and acquired all of the capital stock of Roadrunner
for total consideration, net of cash acquired of approximately
$0.8 million, of $92.6 million. The acquisition price,
and financing fees of approximately $1.4 million, was
financed with proceeds from the sale of common stock by THC of
$42.2 million and borrowings under credit facilities of
$52.6 million.
On June 3, 2005 (the “Merger Date”), THC was
merged into DHC and DHC changed its name to Roadrunner Dawes,
Inc. The stockholders of THC received one share of RDS’
common stock for each share of THC they owned. As a result,
Dawes and Roadrunner became wholly-owned subsidiaries of RDS as
of the Merger Date. Concurrently with the Merger, RDS and its
subsidiaries entered into financing agreements, the proceeds of
which were used to retire amounts outstanding under the former
credit facilities of Dawes and Roadrunner existing or entered
into at the time of their respective acquisitions (see
Note 5).
When the controlling stockholder acquired Dawes on
March 31, 2005 and Roadrunner on April 29, 2005, push
down accounting was used to record the new basis of Dawes and
Roadrunner. The assets and liabilities were recorded at their
estimated fair values as of the respective dates of acquisition
with the excess purchase price over the estimated fair value of
net assets being recorded as goodwill. The following is a
summary of the final allocation of the purchase price paid to
the fair value of the net assets of Dawes and Roadrunner as of
their acquisition dates (in thousands):
| Dawes | Roadrunner | |||||||
|
Accounts receivable
|
$ | 16,101 | $ | 12,596 | ||||
|
Prepaid expenses and other current assets
|
3,150 | 5,976 | ||||||
|
Property and equipment
|
1,666 | 2,162 | ||||||
|
Goodwill
|
75,439 | 83,900 | ||||||
|
Other noncurrent assets
|
1,291 | 2,671 | ||||||
|
Accounts payable and other liabilities
|
(12,091 | ) | (14,754 | ) | ||||
|
Total
|
$ | 85,556 | $ | 92,551 | ||||
The goodwill recorded in connection with the Dawes acquisition
is deductible for tax purposes. The goodwill recorded in
connection with the Roadrunner acquisition is not deductible for
tax purposes.
On October 4, 2006, STG acquired the capital stock of
Sargent. Total consideration, net of cash acquired of
approximately $2.2 million, and before impact of any
contingent earnout consideration was $46.2 million. The
acquisition price and related financing fees of approximately
$0.9 million were financed with proceeds from the sale of
common stock by STG of $16.9 million, borrowings under
credit facilities of $26.5 million and a note payable to
the former owners of Sargent of $5.0 million. The note
payable was subsequently converted to preferred stock.
In addition to the cash paid at closing, the agreement calls for
contingent consideration in the form of an earnout. The former
owners of Sargent will receive a payment equal to the amount by
which Sargent’s earnings before income taxes, depreciation
and amortization (“EBITDA”), as defined in the earnout
agreement, exceeds $8.0 million in a given year for four
years beginning with the calendar year ending December 31,
2006. The payments will be allocated to goodwill if and when
they are earned. The earnouts earned for 2007 of
$0.4 million and for 2006 of $3.0 million are included
in the
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accompanying consolidated balance sheets in liabilities and
goodwill. In accordance with the agreement, 50% of the earnout
is currently due with the balance due in April 2012. In 2007,
$1.3 million was paid out which represented 50% of the 2006
earnout earned. Cumulatively, gross earnout earned was
$3.4 million of which $1.1 million has been offset by
a loan guarantee settlement, $1.3 million has been paid to
date and $1.0 million is accrued in the accompanying
consolidated balance sheets.
When Sargent was acquired on October 4, 2006, push down
accounting was used to record the new basis of Sargent. The
assets and liabilities were recorded at their estimated fair
values as of the acquisition date with the excess purchase price
over the estimated fair value of net assets being recorded as
goodwill. The following is a summary of the final allocation of
the purchase price paid, exclusive of any earnout amounts, to
the fair value of the net assets of Sargent as of the
acquisition date (in thousands):
|
Accounts receivable
|
$ | 23,779 | ||
|
Prepaid expenses and other current assets
|
1,442 | |||
|
Property and equipment
|
900 | |||
|
Goodwill
|
22,080 | |||
|
Customer relationship intangible asset
|
1,800 | |||
|
Other noncurrent assets
|
988 | |||
|
Accounts payable and other liabilities
|
(4,799 | ) | ||
|
Total
|
$ | 46,190 | ||
The goodwill and other intangibles recorded in connection with
the Sargent acquisition are deductible for tax purposes.
The customer relationship intangible asset is being amortized
straight line over its
5-year
useful life and has a net book value of $1.4 million as of
December 31, 2007. Amortization expense of
$0.5 million is included in depreciation and amortization
in the consolidated statements of operations for the year ended
December 31, 2007. Estimated amortization expense is
$0.4 million per year for the period from 2008 through 2010
and $0.3 million in 2011, the final year of amortization.
| 3. | Property and Equipment |
Property and equipment consisted of the following at December 31
(in thousands):
| 2007 | 2006 | |||||||
|
Land and improvements
|
$ | 47 | $ | 47 | ||||
|
Buildings and leasehold improvements
|
1,099 | 1,018 | ||||||
|
Furniture and fixtures
|
3,897 | 2,882 | ||||||
|
Equipment
|
3,357 | 2,922 | ||||||
|
Gross property and equipment
|
8,400 | 6,869 | ||||||
|
Less: Accumulated depreciation
|
(2,842 | ) | (1,594 | ) | ||||
|
Property and equipment, net
|
$ | 5,558 | $ | 5,275 | ||||
Depreciation expense for the years ended December 31, 2007
and 2006 and for the period February 22, 2005 (date of
inception) through December 31, 2005 was $1.4 million,
$1.1 million, and $0.6 million, respectively.
| 4. | Goodwill |
Goodwill represents the excess of the purchase price of Dawes,
Roadrunner, and Sargent over the estimated fair value of the net
assets acquired. The Company performs an annual assessment to
determine if there is an impairment in the amount of the
recorded goodwill.
The Company changed the date of its annual goodwill impairment
test under SFAS 142 in 2007 from December 31 to
July 1. The change in the annual impairment test date was
made as July 1 better approximates the Company’s internal
budgeting and forecasting process. The Company believes that the
resulting change in accounting principle related to the annual
testing date will not delay, accelerate or avoid an impairment
charge. The Company determined that the change in accounting
principle related to the annual testing date is preferable under
the circumstances and does not result in adjustments to the
Company’s financial statements when applied retrospectively.
The Company concluded there was no impairment as of July 1,
2007 and December 31, 2006.
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Table of Contents
The following is a rollforward of the goodwill balance from
December 31, 2005 to December 31, 2007 by reportable
segment (in thousands):
| LTL | TL | |||||||
|
Goodwill balance as of December 31, 2005
|
$ | 159,256 | $ | — | ||||
|
Goodwill acquired for Sargent during the period
|
— | 22,080 | ||||||
|
Purchase accounting adjustments
|
83 | 2,995 | ||||||
|
Goodwill balance as of December 31, 2006
|
159,339 | 25,075 | ||||||
|
Purchase accounting adjustments
|
— | 432 | ||||||
|
Goodwill balance as of December 31, 2007
|
$ | 159,339 | $ | 25,507 | ||||
Purchase accounting adjustments include the finalization of
estimates related to pre-acquisition contingencies and the
earnout earned related to the Sargent acquisition (see
Note 2).
| 5. | Long-Term Debt and Interest Rate Caps |
Long-Term Debt
Long-term debt consisted of the following at December 31 (in
thousands):
| 2007 | 2006 | |||||||
|
Senior debt:
|
||||||||
|
Revolving credit facility
|
$ | 29,000 | $ | 12,675 | ||||
|
Term loan
|
36,000 | 62,490 | ||||||
|
Subordinated debt:
|
||||||||
|
Subordinated notes
|
37,420 | 36,141 | ||||||
|
Subordinated notes payable to former Sargent owners
|
— | 5,000 | ||||||
|
Total debt
|
102,420 | 116,306 | ||||||
|
Less: Current maturities
|
(5,000 | ) | (6,826 | ) | ||||
|
Total long-term debt, net of current maturities
|
$ | 97,420 | $ | 109,480 | ||||
On June 3, 2005 in connection with the Roadrunner Merger,
RDS entered into a senior revolving credit facility at LIBOR
plus an applicable margin or, at the Company’s option,
prime plus an applicable margin, that consisted of a term loan A
and a term loan B. Borrowings under the senior credit agreement
were secured by all assets of RDS. The revolving credit facility
had a term of five years and provided for total borrowings of up
to $15.0 million subject to a borrowing base of eligible
accounts receivable, as defined. Interest was payable quarterly
at LIBOR plus an applicable margin or, at RDS’ option,
prime plus an applicable margin. At December 31, 2006, the
interest rate on the revolving credit facility and term loan was
LIBOR (5.4% at December 31, 2006) plus 3.75%. At
December 31, 2006, the availability under the revolving
credit agreement was approximately $7.8 million. The
revolving credit facility also provided for the issuance of up
to $6.0 million in letters of credit. As of
December 31, 2006, RDS had outstanding letters of credit
totaling $3.0 million.
Proceeds from borrowings under the credit facilities described
above were used to retire amounts outstanding under former
financing facilities that were established in connection with
the acquisitions of Dawes and Roadrunner. The unamortized
portion of fees related to the former financing facilities of
$3.2 million was written off as of June 3, 2005 in
connection with the extinguishment of these financing facilities
and is reflected as a loss on early extinguishment of debt in
the accompanying consolidated statements of operations.
On October 4, 2006, in connection with the acquisition of
Sargent, STG entered into a credit agreement (the “STG
Agreement”). The STG Agreement, which was secured by all
assets of Sargent, included a $25.0 million revolving
credit facility and a $15.0 million term loan. The
revolving credit facility and term loan had a term of five years
and interest was payable quarterly at LIBOR plus an applicable
margin or, at STG’s option, prime plus an applicable
margin. At December 31, 2006, the interest rate on the
revolving credit facility and term loan was LIBOR (5.4% at
December 31, 2006) plus 3%. Availability under the
revolving credit facility was subject to a borrowing base of
eligible accounts receivable, as defined. At December 31,
2006, the availability under the revolving credit facility was
approximately $8.1 million. The revolving credit facility
also provided for the issuance of up to $10.0 million in
letters of credit. As of December 31, 2006, STG had
outstanding letters of credit totaling $0.2 million. In
addition, STG entered into an 8% note payable in the amount
of $5.0 million to the former owners of Sargent. Interest
was payable annually with the principal balance due in 2012.
On March 14, 2007, in connection with the STG Merger, the
Company entered into an amended and restated credit agreement
(the “Agreement”). The Agreement, which is secured by
all assets of the Company, includes a $50.0 million
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Table of Contents
revolving credit facility and a $40.0 million term loan.
The revolving credit facility and the term loan mature in 2012.
Availability under the revolving credit facility is subject to a
borrowing base of eligible accounts receivable, as defined in
the Agreement. Interest is payable quarterly at LIBOR plus an
applicable margin or, at the Company’s option, prime plus
an applicable margin. Principal is payable in quarterly
installments ranging from $1.3 million per quarter in 2008
increasing to $1.8 million per quarter through
December 31, 2011 and a final payment of $12.5 million
due in 2012. The revolving credit facility also provides for the
issuance of up to $6.0 million in letters of credit. As of
December 31, 2007, the Company had outstanding letters of
credit totaling $2.6 million. Total availability under the
revolving loan was $15.7 million as of December 31,
2007. At December 31, 2007, the interest rate on the
revolving credit facility and term note was LIBOR (5.2% at
December 31, 2007) plus 4%.
The Agreement contains certain restrictive covenants that
require the Company to maintain certain leverage and fixed
charge coverage ratios. The Agreement also restricts dividend
payments, management fee payments to related parties (see
Note 11) and incurrence of additional debt. The
Company entered into a first amendment to the Agreement
subsequent to December 31, 2007 which made certain changes
to the Agreement including modification of one of the
restrictive covenants. The first amendment to the Agreement was
effective as of December 30, 2007. The Company was in
compliance with all covenants, as defined in the first amendment
to the Agreement, as of December 31, 2007.
On March 14, 2007, the Company also amended its existing
subordinated notes agreement. Changes included, among other
items, approval of the STG Merger and an amendment to certain
covenants. The subordinated notes include cash interest of 12%
plus a deferred margin, accrued quarterly, that is treated as
deferred interest and is added to the principal balance of the
note each quarter. The deferred interest ranges from 2.0% to
5.5% depending on the Company’s total leverage calculation,
as defined, payable at maturity on September 15, 2012. Upon
redemption of the subordinated notes, the portion of the
principal balance that represents interest incurred but not paid
will be reflected in the Company’s statement of cash flows
as an operating outflow. The subordinated notes are held by
American Capital, Ltd. (“American Capital”), Sankaty
Credit Opportunities, L.P., Sankaty Credit Opportunities II,
L.P. (collectively “Sankaty”), and RGIP, LLC.
(“RGIP”), who are also stockholders of the Company
(see Note 11).
At December 31, 2007, aggregate maturities of long-term
debt for each of the next five years, in accordance with the
terms of the Agreement and subordinated notes were as follows
(in thousands):
|
2008
|
$ | 5,000 | ||
|
2009
|
5,500 | |||
|
2010
|
6,000 | |||
|
2011
|
7,000 | |||
|
2012
|
78,920 | |||
|
Total
|
$ | 102,420 | ||
The proceeds received in March 2007 under the Agreement of
$80.6 million were used to repay the existing term loan A,
term loan B, existing revolver, accrued interest, outstanding
debt under the STG Agreement and related transaction costs. The
unamortized portion of the fees related to the STG debt
facilities of $0.9 million and $0.8 million related to
the RDS term debt were written off as of March 14, 2007 in
connection with the extinguishment of these financing facilities
and are reflected in the accompanying consolidated statements of
operations as a component of loss on early extinguishment of
debt. In addition, the subordinated notes payable to former
Sargent owners were converted to preferred stock (see Note
10) on March 14, 2007 in connection with the STG
Merger.
Interest Rate Caps
The Company entered into two interest cap agreements and
designated them as cash flow hedges on July 26, 2005 and
March 15, 2007 (the “Rate Cap Agreements”),
respectively, with a commercial bank as a means of managing
exposure to variable cash flows on certain floating rate debt.
The Rate Cap Agreements are indexed to LIBOR and cap rates at
either 5.5% or 6.25%, respectively. The Company effectively pays
the lower of the three month LIBOR or 5.5% or 6.25%, reset
quarterly, on the notional value of the Rate Cap Agreements. The
notional value of the Rate Cap Agreements decline in conjunction
with the scheduled repayment of the Company’s floating rate
debt through March 31, 2010. The notional value of the Rate
Cap Agreements was approximately $30.0 million and
$26.3 million at December 31, 2007 and 2006,
respectively. The fair value of the Rate Cap Agreements was not
material at December 31, 2007 and 2006. Effective
January 1, 2008 the Company de-designated these Rate Cap
Agreements as cash flow hedges.
| 6. | Stockholders’ Investment |
The stockholder’s investment and earnings per share
sections (see Note 8) reflect the assumed conversion of
each share of STG common stock into two-tenths of a share of
RRTS Class A common stock as of October 4, 2006 (date
of
F-14
Table of Contents
acquisition). Actual conversion took place on March 14,
2007 at the time of the STG Merger. The assumed conversion
presentation is the required presentation as STG has been
combined with the results of RRTS from October 4, 2006
(date of acquisition) through March 14, 2007 (date of
merger) in accordance with SFAS 141 common control
provisions as further discussed in Note 1.
Common Stock
Class A common stock has voting rights and Class B
common stock does not have voting rights. Class A and
Class B common stock participate equally in earnings and
dividends. All common stock is subject to a Shareholders’
Agreement which includes restrictions on transferability and
“piggyback” registration rights. Such agreement
provides that if, at any time after an initial public offering,
the Company files a registration statement under the Securities
Act for any underwritten sale of shares of any of the
Company’s equity securities, the stockholders may request
that the Company include in such registration the shares of
common stock held by them on the same terms and conditions as
the securities otherwise being sold in such registration.
In addition to piggyback registration rights discussed above,
certain of the Company’s stockholders have demand
registration rights. In March 2007, in connection with the STG
Merger, the Company entered into a second amended and restated
stockholders’ agreement, pursuant to which certain of the
Company’s stockholders were granted
Form S-3
registration rights. The amended and restated stockholders’
agreement provides that, any time after the Company is eligible
to register its common stock on a
Form S-3
registration statement under the Securities Act, certain of the
Company’s stockholders may request registration under the
Securities Act of all or any portion of their shares of common
stock. These stockholders are limited to a total of two of such
registrations. In addition, if the Company proposes to file a
registration statement under the Securities Act for any
underwritten sale of shares of any of its securities,
stockholders party to the amended and restated
stockholders’ agreement may request that the Company
include in such registration the shares of common stock held by
them on the same terms and conditions as the securities
otherwise being sold in such registration.
All stockholders are obligated to sell their common stock on the
same terms as Thayer V under certain circumstances,
including a change in control, as defined in the
Shareholders’ Agreement. See Note 14 regarding
Class A common stock that may be subject to redemption.
On March 14, 2007, the Company increased the total number
of authorized shares of capital stock from 200,000 to 305,000,
of which 298,000 are designated Class A common stock
(voting), 2,000 shares are designated Class B common stock
(non-voting), and 5,000 shares are designated as mandatory
redeemable preferred stock. In addition,
10-year
warrants to purchase 15,198 shares of the Company’s
Class A common stock at a purchase price of $2,000 per share
were issued to the existing stockholders of STG.
As of December 31, 2007 and 2006, the Company had 298,000
and 198,000 shares of Class A common stock authorized,
respectively.
| 7. | Stock-Based Compensation |
The Company’s Key Employee Equity Plan (“Equity
Plan”), a stock-based compensation plan, permits the grant
of stock options to Company employees, consultants and directors
for up to 12,690 shares of Class A common stock. The
Company believes such awards align the interests of its key
employees to those of its stockholders. Stock options are
generally granted with an exercise price equal to or in excess
of the estimated fair value of the Company’s stock on the
date of grant. Options are exercisable ten years from the date
of grant, but only to the extent vested as specified in each
option agreement.
As of December 31, 2007, 1,886 shares of Class A
common stock remained available for future issuance under the
Equity Plan. Any shares issued in connection with the exercise
of options are expected to be newly issued shares.
Effective January 1, 2006, the Company adopted
SFAS 123(R) using the modified prospective method of
accounting. The straight-line attribution model for recognizing
stock-based compensation expense under SFAS 123(R) is
utilized.
During the year ended December 31, 2007, the weighted
average grant date fair value of each option was approximately
$245. Stock-based compensation expense was $0.7 million for
both the year ended December 31, 2007 and 2006,
respectively, and the related estimated income tax benefit
recognized in the accompanying consolidated statements of
operations, net of estimated forfeitures, was $0.2 million
and $0.3 million, respectively. Prior to January 1,
2006, the Company accounted for stock-based compensation under
APB 25.
F-15
Table of Contents
The table below is presented for comparative purposes and
illustrates the pro forma effect on net income and earnings per
share as if the Company had applied the fair-value recognition
provisions of SFAS 123 to share-based compensation prior to
January 1, 2006 (in thousands, except share amounts):
|
Period from |
||||
|
February 22 (date of |
||||
|
inception) through |
||||
|
December 31, |
||||
| 2005 | ||||
|
Net income available to common stockholders, as reported
|
$ | 1,452 | ||
|
Share-based compensation expense included in reported income,
net of tax
|
— | |||
|
Compensation expense, net of tax, that would have been included
in net income if the fair value method had been applied
|
(281 | ) | ||
|
Pro forma net income as if the fair-value method had been applied
|
$ | 1,171 | ||
|
Basic and diluted earnings per share:
|
||||
|
As reported
|
$ | 17.22 | ||
|
Pro forma
|
$ | 13.89 | ||
The fair value of each option award is estimated on the date of
grant using the Black-Scholes valuation model. The fair values
of the Company’s common stock for options granted from
March 31, 2005 to December 31, 2007 were determined
through the contemporaneous application of a discounted cash
flows method. Because the Company’s stock is privately
held, it is not practical to determine the Company’s share
price volatility. Accordingly, the Company uses the historical
share price volatility of publicly traded companies within the
transportation and logistics sector as a surrogate for the
expected volatility of the Company’s stock. The
Company’s credit facility prevents payment of dividends to
Class A common stockholders; as a result, a zero dividend
yield has been assumed in the Company’s Black-Scholes
valuation model. The expected life of the options represents the
expected time that the options granted will remain outstanding.
The risk-free rate used to calculate each option valuation is
based on the U.S. Treasury rate at the time of option
grants for a note with a similar lifespan. The specific
assumptions used to determine the weighted average fair value of
stock options granted were as follows:
|
Period from |
||||||||||||
|
February 22 (date |
||||||||||||
|
of inception) |
||||||||||||
|
through |
||||||||||||
| Year Ended December 31, |
December 31, |
|||||||||||
| 2007 | 2006 | 2005 | ||||||||||
|
Risk free interest rate
|
4.5% - 4.9% | 4.3% - 5.0% | 3.8% - 4.5% | |||||||||
|
Dividend yield
|
— | — | — | |||||||||
|
Expected volatility
|
32.5% - 33.4% | 34.5% - 35.1% | 35.4% - 36.9% | |||||||||
|
Expected life (years)
|
6 | 6 | 6 | |||||||||
|
Pro forma weighted average fair value of stock options granted
|
$245 | $268 | $314 | |||||||||
A summary of the option activity under the Equity Plan for the
years ended December 31, 2007 and 2006 is as follows:
|
Weighted- |
||||||||||||||||
|
Weighted- |
Average |
|||||||||||||||
|
Average |
Remaining |
Aggregate |
||||||||||||||
|
Exercise |
Contractual |
Intrinsic |
||||||||||||||
| Shares | Price | Term (Years) | Value | |||||||||||||
|
Outstanding at December 31, 2005
|
11,524 | $ | 1,600 | 9.5 | $ | 0 | ||||||||||
|
Granted
|
2,350 | 1,800 | ||||||||||||||
|
Exercised
|
– | – | ||||||||||||||
|
Forfeited
|
(4,490 | ) | 1,800 | |||||||||||||
|
Outstanding at December 31, 2006
|
9,384 | $ | 1,600 | 8.6 | $ | 0 | ||||||||||
|
Granted
|
3,341 | 1,900 | ||||||||||||||
|
Exercised
|
– | – | ||||||||||||||
|
Forfeited
|
(1,921 | ) | 1,800 | |||||||||||||
|
Outstanding at December 31, 2007
|
10,804 | $ | 1,700 | 8.1 | $ | 0 | ||||||||||
There were 4,044 and 2,433 options exercisable at
December 31, 2007 and 2006, respectively. At
December 31, 2007, for exercisable options, the
weighted-average exercise price was $1,600, the weighted average
remaining contractual term was 7.6 years and the estimated
aggregate intrinsic value was $0. All granted options are
non-qualified options.
F-16
Table of Contents
The amount of options vested or expected to vest as of
December 31, 2007 does not differ significantly from the
amount outstanding.
As of December 31, 2007, there was $1.7 million of
total unrecognized compensation cost related to non-vested
options granted under the Equity Plan. This cost is expected to
be recognized over a period extending four years from the last
grant date in 2007.
| 8. | Earnings Per Share |
Basic earnings per common share is calculated by dividing net
income available to common stockholders by the weighted average
number of common stock outstanding. Diluted earnings per share
is calculated by dividing net income by the weighted average
common stock outstanding plus stock equivalents that would arise
from the exercise of stock options and the conversion of
warrants.
The following table reconciles basic weighted average stock
outstanding to diluted weighted average stock outstanding:
| Successor | Predecessor | ||||||||||||||||
|
Period from |
|||||||||||||||||
|
February 22, (date |
Period from |
||||||||||||||||
|
of inception) |
January 1 |
||||||||||||||||
|
through |
through |
||||||||||||||||
| Year Ended December 31, | December 31, | March 31, | |||||||||||||||
| 2007 | 2006 | 2005 | 2005 | ||||||||||||||
|
Basic weighted average stock outstanding
|
101,220 | 88,437 | 84,315 | 5,333 | |||||||||||||
|
Effect of dilutive securities —
|
|||||||||||||||||
|
Employee stock options
|
134 | – | – | – | |||||||||||||
|
Dilutive weighted average stock outstanding
|
101,354 | 88,437 | 84,315 | 5,333 | |||||||||||||
The Company had additional stock options and warrants
outstanding of 20,344, 9,384 and 11,524 as of December 31,
2007, 2006 and 2005, respectively. These shares were not
included in the computation of diluted earnings per share
because they were anti-dilutive.
| 9. | Income Taxes |
The Predecessor and its stockholders elected subchapter S
Corporation status under the Internal Revenue Code (and similar
state law provisions in most states) and therefore, the
Predecessor generally was not subject to federal or state income
taxes. Accordingly, the accompanying consolidated financial
statements do not include a provision for income taxes for the
Predecessor.
The components of the Successor’s provision for income
taxes were as follows (in thousands):
|
Period from |
||||||||||||
|
February 22 (date |
||||||||||||
|
of inception) |
||||||||||||
|
Year Ended |
through |
|||||||||||
| December 31, |
December 31, |
|||||||||||
| 2007 | 2006 | 2005 | ||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | – | $ | – | $ | – | ||||||
|
Foreign, state, and local
|
240 | – | – | |||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
780 | 653 | 966 | |||||||||
|
Foreign, state, and local
|
16 | 314 | 83 | |||||||||
|
Other
|
258 | 217 | 141 | |||||||||
|
Provision for income taxes
|
$ | 1,294 | $ | 1,184 | $ | 1,190 | ||||||
F-17
Table of Contents
The Company’s income tax provision varied from the amounts
calculated by applying the U.S. statutory income tax rate
to the pretax income after dividends as shown in the following
reconciliations (in thousands):
|
Period from |
||||||||||||
|
February 22 (date |
||||||||||||
|
of inception) |
||||||||||||
|
Year Ended |
through |
|||||||||||
| December 31, |
December 31, |
|||||||||||
| 2007 | 2006 | 2005 | ||||||||||
|
Statutory Federal rate
|
$ | 780 | $ | 653 | $ | 924 | ||||||
|
Meals and entertainment
|
173 | 181 | 130 | |||||||||
|
State income taxes — net of federal benefit
|
127 | 283 | 90 | |||||||||
|
Canadian income taxes
|
76 | 53 | – | |||||||||
|
Preferred dividend
|
56 | – | – | |||||||||
|
Other
|
82 | 14 | 46 | |||||||||
| $ | 1,294 | $ | 1,184 | $ | 1,190 | |||||||
The tax rate effects of temporary differences that give rise to
significant elements of deferred tax assets and deferred tax
liabilities at December 31, 2007 and 2006, are as follows
(in thousands):
| 2007 | 2006 | |||||||
|
Current deferred income tax assets
|
||||||||
|
Accounts receivable
|
$ | 567 | $ | 577 | ||||
|
Accounts payable and accrued expenses
|
1,514 | 1,579 | ||||||
|
Other, net
|
204 | 460 | ||||||
|
Total
|
$ | 2,285 | $ | 2,616 | ||||
|
Noncurrent deferred income tax assets (liabilities)
|
||||||||
|
Net operating losses/credits
|
$ | 6,515 | $ | 4,941 | ||||
|
Amortization of intangible assets
|
(7,020 | ) | (4,049 | ) | ||||
|
Other, net
|
496 | (178 | ) | |||||
|
Total
|
$ | (9 | ) | $ | 714 | |||
The net current deferred income tax asset of $2.3 million
and $2.6 million is classified in the consolidated balance
sheets as deferred income taxes at December 31, 2007 and
2006, respectively. The net noncurrent deferred income tax
liability of $9,000 is classified in the consolidated balance
sheet as a component of other long-term liabilities at
December 31, 2007. The net noncurrent deferred income tax
asset of $0.7 million is classified in the consolidated
balance sheet as component of other noncurrent assets at
December 31, 2006.
The Company does not anticipate that within 12 months of
December 31, 2007, the total amount of unrecognized tax
benefits will significantly increase or decrease due to any
separate tax position.
At December 31, 2007, the Company had $17.2 million of
gross federal net operating losses which are available to reduce
federal income taxes in future years and expire in the years
2025 through 2028.
The adoption of FIN 48 on January 1, 2007 and any
related activity during 2007 was immaterial. The Company is
subject to federal and state tax examinations for all tax years
subsequent to December 31, 2004.
10. Commitments and Contingencies
Employee benefit plans
RDS sponsored a defined contribution profit sharing plan for
substantially all full-time employees of Dawes (the “Dawes
Plan”). Participants could elect to contribute to the plan
based on their compensation levels subject to limitations under
Section 401(k) of the Internal Revenue Code. RDS matched
100% of the Dawes employee contribution up to 3% of compensation
and 50% of contributions between 3% and 5% of compensation.
Total expense recognized by Successor under this plan for the
period from February 22, 2005 (date of inception) through
December 31, 2005 was $0.3 million. Total expense
recognized by the Predecessor for the period from
January 1, 2005 through March 31, 2005 was
$0.2 million.
RDS sponsored a defined contribution profit sharing plan in
which substantially all employees of Roadrunner were eligible to
participate (the “Roadrunner Plan”). Participants
could elect to contribute to the plan based on their
compensation levels subject to limitations under
Section 401(k) of the Internal Revenue Code. RDS matched
employee
F-18
Table of Contents
contributions on a discretionary basis as determined annually by
the Company’s board of directors. Total expense under this
plan from April 29, 2005, the date Roadrunner was
purchased, through December 31, 2005 was $0.1 million.
Effective January 1, 2006, the Dawes Plan was merged into
the Roadrunner Plan. The plan calls for the Company to match
100% of employee contributions up to 4% of an employee’s
compensation and allows the Company to make a discretionary
match as determined by the board of directors up to an
additional 50% of contribution up to 4% of an employee’s
compensation. Total expense under this plan was
$0.9 million and $1.0 million for the years ended
December 31, 2007 and 2006, respectively.
The Company sponsors a defined contribution profit sharing plan
for substantially all full-time employees of Sargent. The plan
calls for the Company to match 100% of employee contributions up
to 3% of an employee’s compensation and 50% of
contributions on the next 2% of an employee’s compensation.
Total expense under this plan was $88,000 and $20,000 for the
year ended December 31, 2007 and for the period
October 4, 2006 (date of acquisition) to December 31,
2006, respectively.
Cash Incentive Plan
The Company sponsors a cash incentive plan that covers certain
employees for the years 2006 through 2008. Contributions accrue
if annual RDS EBITDA, as defined by the related compensation
agreements, exceeds $25.0 million in each year 2006 through
2008. Payments, if any, to the participants will be made in 2008
and 2009. There was no required contribution accrual for the
years ended December 31, 2007 and 2006.
Operating Leases
The Company leases terminals and office space under
noncancelable operating leases expiring on various dates through
2020. Successor incurred rent expense from operating leases of
$9.3 million and $8.5 million for the years ended
December 31, 2007 and 2006, respectively, and
$5.2 million for the period from February 22, 2005
(date of inception) through December 31, 2005. Predecessor
incurred rent expense from operating leases of $1.2 million
for the period from January 1, 2005 through March 31,
2005.
Aggregate future minimum lease payments under noncancelable
operating leases with an initial term in excess of one year were
as follows as of December 31, 2007 (in thousands):
|
Year Ending
|
Amount | |||
|
2008
|
$ | 6,168 | ||
|
2009
|
5,439 | |||
|
2010
|
3,965 | |||
|
2011
|
3,750 | |||
|
2012
|
3,010 | |||
|
Thereafter
|
10,528 | |||
Captive Insurance Company
The Company has an ownership interest in a captive insurer that
provides physical and backhaul cargo insurance coverage for the
Company and the Company’s independent contractors who elect
to purchase coverage. The Company acts as agent and remits the
premiums of independent contractors to the captive insurer. For
the years ended December 31, 2007 and 2006, and for the
period from February 22, 2005 (date of inception) through
December 31, 2005, the Company’s share of income from
the captive insurer was approximately $0.5 million,
$0.4 million and $0.3 million, respectively, and is
included as a reduction of other operating expenses in the
accompanying consolidated statements of operations.
Series A Redeemable Preferred Stock
In March 2007, the Company issued and had outstanding
5,000 shares of non-voting Series A Preferred Stock
(“Preferred Stock”), which are mandatorily redeemable
by the Company at $1,000 per share, in cash, on
November 30, 2012. The Preferred Stock receives cash
dividends annually on April 30 at an annual rate equal to $40
per share and if such dividends are not paid when due such
annual dividend rate shall increase to $60 per share and
continue to accrue without interest until such delinquent
payments are made. At December 31, 2007, $160,000 is
recorded as a current liability related to the 2007 dividend
calculation for the period from March 14, 2007 (STG Merger)
through December 31, 2007. The holders of the Preferred Stock
are restricted from transferring such shares and the Company has
a first refusal right and may elect to repurchase the shares
prior to the mandatory November 30, 2012 redemption. Upon
liquidation and certain transactions treated as liquidations, as
defined in the Company’s Certificate of Incorporation, the
Preferred Stock has liquidation preferences over the
Company’s common stock. The number of issued and
outstanding shares of Preferred Stock, the $1,000 per share
repurchase price and the annual cash dividends are all subject
to equitable adjustment whenever there is a stock split, stock
dividend, combination, recapitalization, reclassification or
F-19
Table of Contents
other similar event. As long as there is Preferred Stock
outstanding, no dividends may be declared or paid on common
stock of the Company.
Contingencies
In the ordinary course of business, the Company is a defendant
in several property and other claims. The Company maintains
liability insurance coverage for claims in excess of $250,000
per occurrence. Management believes it has adequate insurance to
cover losses in excess of the deductible amount. As of
December 31, 2007 and 2006, the Company had reserves for
estimated uninsured losses of $1.6 million and
$1.2 million, respectively.
Predecessor Company Compensation Arrangements
On March 31, 2005, in connection with the consummation of
the transaction described in Note 2, the Predecessor’s
deferred compensation plan, incentive plans and employee
agreements were terminated and all unpaid benefits immediately
vested. Accordingly, the Predecessor paid an aggregate of
$6.6 million to plan participants and certain Company
employees to settle all obligations of these arrangements.
Approximately $4.5 million of this amount was recognized as
compensation expense during the period from January 1, 2005
through March 31, 2005 upon vesting of all unpaid benefits.
This amount has been classified as a component of personnel and
related benefits in the Predecessor’s statement of
operations for the period from January 1, 2005 through
March 31, 2005.
11. Related Party Transactions
As part of the acquisitions discussed in Note 1, the
Company entered into an advisory agreement with Thayer Capital
Management, L.P. (“Thayer”) and Eos Management, Inc.
(“Eos”), affiliates of stockholders of the Company.
The agreement terminates upon mutual agreement of all parties or
upon occurrence of other events, as defined. Under such
agreement, the Company will pay Thayer and Eos a combined
$0.4 million annually for various management advisory
services. Per the Agreement (see Note 5), payment on the
2007 management advisory service for $0.4 million and
future management advisory services has been deferred until
certain financial ratios are met. RDS incurred and expensed
approximately $0.4 million under this agreement both for
the year ended December 31, 2006 and for the period from
February 22, 2005 (date of inception) through
December 31, 2005. Additionally, RDS paid $2.5 million
to Thayer and $0.3 million to Eos related to the 2005
acquisitions of Dawes and Roadrunner and the June 2005 financing
(see Note 5). Per a former advisory agreement between Thayer and
Sargent, Sargent expensed and paid a $63,000 management fee to
Thayer in 2007 and $63,000 for the period October 4, 2006
(date of acquisition) to December 31, 2006.
As part of the Sargent acquisition discussed in Note 2, the
Company is required to pay an earnout to the former Sargent
owners and now current Company Preferred Stock holders. At
December 31, 2007, $0.4 million of the earnout is
classified as a current liability and $0.6 million is
classified as a long-term liability. The former Sargent owners
have also guaranteed a $1.1 million demand note receivable
bearing interest at 5.1% due from a former agent. At
December 31, 2007, the note had an outstanding balance of
$1.1 million and has been determined to be uncollectible
and has offset the long-term earnout payable.
As part of the Sargent acquisition discussed in Note 2, the
Company issued $5.0 million of notes payable to the former
Sargent owners and now current Preferred Stock holders. At
December, 31, 2006, these notes were classified as long-term
debt; interest expense for the year ended December 31, 2006
was de minimis. The notes were converted to Preferred Stock on
March 14, 2007; interest expense on the notes for the year
ended December 31, 2007 was de minimis.
Also as part of the Sargent acquisition discussed in
Note 2, a $3.5 million guarantee was issued by Thayer
V. Thayer V has guaranteed the Sargent earnout payment in the
event that a payment is sought to be made and the Company is
unable to make the payment because certain coverage ratios
required by the senior lenders have not been met. Thayer V will
loan the Company an amount equal to the lesser of the full
amount of any such earnout payment or the amount sufficient to
ensure that certain coverage ratios are met. The guarantee
terminates when all note obligations have been paid in full or
upon payment of Sargent earnout payments.
F-20
Table of Contents
The Company entered into a consulting and non-compete agreement
in 2006 with a former employee and current stockholder. The
consulting fee is $0.1 million per year through 2016.
Certain holders of the Company’s subordinated notes are
also stockholders of the Company. The following is a summary of
the transactions with these stockholders (in thousands):
|
Principal owed as |
Interest expense for the |
Fees paid for the |
||||||||||
|
of December 31, |
year ended |
year ended |
||||||||||
| 2007 | December 31, 2007 | December 31, 2007 | ||||||||||
|
American Capital
|
$ | 18,684 | $ | 2,830 | $ | 0 | ||||||
|
Sankaty
|
18,547 | 2,843 | 0 | |||||||||
|
RGIP
|
189 | 29 | 0 | |||||||||
|
Principal owed as |
Interest expense for the |
Fees paid for the |
||||||||||
|
of December 31, |
year ended |
year ended |
||||||||||
| 2006 | December 31, 2006 | December 31, 2006 | ||||||||||
|
American Capital
|
$ | 18,057 | $ | 2,497 | $ | 0 | ||||||
|
Sankaty
|
17,902 | 2,511 | 0 | |||||||||
|
RGIP
|
182 | 25 | 0 | |||||||||
|
Interest expense for the |
Fees paid for the |
|||||||||||
|
Principal owed as |
period February 22, 2005 |
period February 22, 2005 |
||||||||||
|
of December 31, |
(date of inception) to |
(date of inception) to |
||||||||||
| 2005 | December 31, 2005 | December 31, 2005 | ||||||||||
|
American Capital
|
$ | 17,700 | $ | 1,401 | $ | 800 | ||||||
|
Sankaty
|
17,530 | 1,743 | 3 | |||||||||
|
RGIP
|
179 | 12 | 192 | |||||||||
12. Segment Reporting
The Company determines its operating segments based on the
information utilized by the chief operating decision maker, the
Company’s Chief Executive Officer, to allocate resources
and assess performance. Based on this information, the Company
has determined that it operates in two operating segments:
less-than-truckload (“LTL”) and truckload brokerage
(“TL”).
Within the LTL business, the Company operates 18 service centers
throughout the United States complemented by relationships with
over 215 delivery agents. The LTL model allows for more direct
transportation of freight from shipper to end user than does the
traditional hub and spoke model. The TL business, across all
transportation modes from pickup to delivery, leverages
relationships with a diverse group of third-party carriers to
provide scalable capacity and reliable, customized service to
customers in North America. The majority of both businesses
operate in the United States.
These reportable segments are strategic business units through
which we offer different services. The Company evaluates the
performance of the segments primarily based on their respective
revenues and operating income. Accordingly, interest expense and
other non-operating items are not reported in segment results.
F-21
Table of Contents
The following table reflects the revenues and operating results
of the Company’s reportable segments (in thousands):
| Successor | |||||||||||||||||
| Predecessor | |||||||||||||||||
|
Period from |
|||||||||||||||||
|
February 22, 2005 |
|||||||||||||||||
|
(date of |
Period from |
||||||||||||||||
|
inception) |
January 1 |
||||||||||||||||
|
Years Ended |
through |
through |
|||||||||||||||
| December 31, |
December 31, |
March 31, |
|||||||||||||||
| 2007 | 2006 | 2005 | 2005 | ||||||||||||||
|
Revenues:
|
|||||||||||||||||
|
LTL
|
$ | 361,821 | $ | 352,008 | $ | 250,950 | $ | 43,428 | |||||||||
|
TL
|
176,315 | 47,433 | – | – | |||||||||||||
|
Eliminations
|
(129 | ) | – | – | – | ||||||||||||
|
Total
|
$ | 538,007 | $ | 399,441 | $ | 250,950 | $ | 43,428 | |||||||||
|
Operating Income (Loss):
|
|||||||||||||||||
|
LTL
|
$ | 10,184 | $ | 10,472 | $ | 13,410 | $ | (4,096 | ) | ||||||||
|
TL
|
7,750 | 2,852 | – | – | |||||||||||||
|
Total
|
$ | 17,934 | $ | 13,324 | $ | 13,410 | $ | (4,096 | ) | ||||||||
|
Depreciation and Amortization:
|
|||||||||||||||||
|
LTL
|
$ | 1,201 | $ | 1,032 | $ | 556 | $ | 145 | |||||||||
|
TL
|
639 | 40 | – | – | |||||||||||||
|
Total
|
$ | 1,840 | $ | 1,072 | $ | 556 | $ | 145 | |||||||||
|
Capital Expenditures:
|
|||||||||||||||||
|
LTL
|
$ | 1,592 | $ | 908 | $ | 1,531 | $ | 144 | |||||||||
|
TL
|
275 | 144 | – | – | |||||||||||||
|
Total
|
$ | 1,867 | $ | 1,052 | $ | 1,531 | $ | 144 | |||||||||
|
Assets:
|
|||||||||||||||||
|
LTL
|
$ | 219,720 | $ | 206,589 | |||||||||||||
|
TL
|
49,823 | 53,122 | |||||||||||||||
|
Eliminations
|
(13,663 | ) | – | ||||||||||||||
|
Total
|
$ | 255,880 | $ | 259,711 | |||||||||||||
| 13. | Subsequent Event |
On February 29, 2008, Thayer Hidden Creek Partners II, L.P.
(“THCP II”), through an indirect majority-owned
subsidiary, GTS Acquisition Sub, Inc. (“GTS”),
acquired all of the outstanding capital stock of Group
Transportation Services, Inc. and all of the outstanding member
units of GTS Direct, LLC. THCP II is an affiliate of
Thayer V, the controlling stockholder of the Company. The
Company intends to file a
Form S-1
to affect an initial public offering. Simultaneous with the
consummation of the offering, the parent company of GTS will
merge with a wholly owned subsidiary of the Company (“GTS
Merger”). Consistent with the provisions of SFAS 141,
transfers of net assets or exchanges of equity interests between
entities under common control do not constitute business
combinations. Because the Company and GTS will have the same
control group immediately before and after the GTS Merger, the
GTS Merger, if consummated, will be accounted for as a
combination of entities under common control on a historical
cost basis in a manner similar to a pooling of interests. Push
down accounting will be used to record the acquisition.
| 14. | Redeemable Common Stock |
Subsequent to the issuance of the Company’s 2007
consolidated financial statements, management determined that
certain shares of the Company’s outstanding Class A
common stock should have been classified as mezzanine equity
rather than permanent equity, as previously reported in the
Company’s consolidated balance sheet. These shares, held by
current and former employees of the Company, are subject to
redemption at fair value by the Company in the event of death or
disability of the holder, as defined, during a seven-year period
from the date of original issuance. The Company has corrected
the presentation of these shares in the accompanying
consolidated balance sheets as of December 31, 2007 and
2006 to reclassify 1,765 and 1,865 shares of Class A
common stock, respectively, from permanent equity to mezzanine
equity. This correction resulted in a decrease in
stockholders’ investment and an increase in mezzanine
equity of approximately $1.8 million and $1.9 million
as of December 31, 2007 and 2006, respectively. The Company
has determined that redemption of these shares of Class A
common stock is not probable and, as such, has not adjusted the
carrying value of such shares to fair value as of
December 31, 2007 and 2006.
F-22
Table of Contents
ROADRUNNER
TRANSPORTATION SERVICES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share amounts)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share amounts)
|
June 30, |
December 31, |
|||||||
| 2008 | 2007 | |||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 580 | $ | 800 | ||||
|
Accounts receivable, net
|
56,158 | 52,516 | ||||||
|
Deferred income taxes
|
2,285 | 2,285 | ||||||
|
Prepaid expenses and other current assets
|
6,534 | 6,150 | ||||||
|
Total current assets
|
65,557 | 61,751 | ||||||
|
PROPERTY AND EQUIPMENT, NET
|
5,040 | 5,558 | ||||||
|
OTHER ASSETS:
|
||||||||
|
Goodwill
|
185,096 | 184,846 | ||||||
|
Other noncurrent assets
|
3,261 | 3,725 | ||||||
|
Total other assets
|
188,357 | 188,571 | ||||||
|
TOTAL ASSETS
|
$ | 258,954 | $ | 255,880 | ||||
| LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’ INVESTMENT | ||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Current maturities of long-term debt
|
$ | 5,250 | $ | 5,000 | ||||
|
Accounts payable
|
34,295 | 30,332 | ||||||
|
Accrued expenses and other liabilities
|
8,733 | 10,880 | ||||||
|
Total current liabilities
|
48,278 | 46,212 | ||||||
|
LONG-TERM DEBT, net of current maturities
|
95,975 | 97,420 | ||||||
|
OTHER LONG-TERM LIABILITIES
|
2,380 | 1,613 | ||||||
|
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
|
5,000 | 5,000 | ||||||
|
Total liabilities
|
151,633 | 150,245 | ||||||
|
COMMITMENTS AND CONTINGENCIES (NOTE 6)
|
||||||||
|
REDEEMABLE COMMON STOCK
|
||||||||
|
Class A common stock $.01 par value; 1,765 shares
issued and outstanding
|
1,765 | 1,765 | ||||||
|
STOCKHOLDERS’ INVESTMENT:
|
||||||||
|
Class A common stock $.01 par value;
298,000 shares authorized; 97,563 shares issued and
outstanding
|
1 | 1 | ||||||
|
Class B common stock $.01 par value; 2,000 shares
authorized; 1,892 shares issued and outstanding
|
— | — | ||||||
|
Additional paid-in capital
|
101,151 | 100,798 | ||||||
|
Retained earnings
|
4,404 | 3,070 | ||||||
|
Accumulated other comprehensive income
|
— | 1 | ||||||
|
Total stockholders’ investment
|
105,556 | 103,870 | ||||||
|
TOTAL LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’
INVESTMENT
|
$ | 258,954 | $ | 255,880 | ||||
F-23
Table of Contents
ROADRUNNER
TRANSPORTATION SERVICES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
|
Six Months Ended |
||||||||||||||||
| June 30, | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
|
Revenues, net
|
$ | 276,802 | $ | 261,168 | ||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Purchased transportation costs
|
222,011 | 206,592 | ||||||||||||||
|
Personnel and related benefits
|
27,588 | 26,871 | ||||||||||||||
|
Other operating expenses
|
17,469 | 18,915 | ||||||||||||||
|
Depreciation and amortization
|
984 | 872 | ||||||||||||||
|
Total operating expenses
|
268,052 | 253,250 | ||||||||||||||
|
Operating income
|
8,750 | 7,918 | ||||||||||||||
|
Interest expense
|
6,298 | 6,835 | ||||||||||||||
|
Loss on early extinguishment of debt
|
— | 1,608 | ||||||||||||||
|
Income (loss) before provision for income taxes
|
2,452 | (525 | ) | |||||||||||||
|
Provision (benefit) for income taxes
|
1,018 | (283 | ) | |||||||||||||
|
Net income (loss) before preferred dividends
|
1,434 | (242 | ) | |||||||||||||
|
Preferred dividends
|
100 | 60 | ||||||||||||||
|
Net income (loss) available to common stockholders
|
$ | 1,334 | $ | (302 | ) | |||||||||||
|
Earnings (loss) per share available to common
stockholders:
|
||||||||||||||||
|
Basic
|
$ | 13.18 | $ | (2.98 | ) | |||||||||||
|
Diluted
|
$ | 13.08 | $ | (2.98 | ) | |||||||||||
|
Weighted average common stock outstanding:
|
||||||||||||||||
|
Basic
|
101,220 | 101,220 | ||||||||||||||
|
Diluted
|
101,993 | 101,220 | ||||||||||||||
F-24
Table of Contents
ROADRUNNER
TRANSPORTATION SERVICES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
|
Six Months Ended |
||||||||
| June 30, | ||||||||
| 2008 | 2007 | |||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net income (loss) before preferred dividends
|
$ | 1,434 | $ | (242 | ) | |||
|
Adjustments to reconcile net income (loss) before preferred
dividends to net cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
1,210 | 1,105 | ||||||
|
Loss on early extinguishment of debt
|
— | 1,608 | ||||||
|
Loss on disposal of property and equipment
|
3 | 8 | ||||||
|
Deferred interest
|
645 | 516 | ||||||
|
Share-based compensation
|
353 | 290 | ||||||
|
Provision for bad debts and freight bill adjustments
|
254 | 260 | ||||||
|
Provision for deferred taxes
|
1,018 | (283 | ) | |||||
|
Changes in:
|
||||||||
|
Accounts receivable
|
(3,896 | ) | (3,082 | ) | ||||
|
Prepaid expenses and other assets
|
665 | (79 | ) | |||||
|
Accounts payable
|
2,981 | (3,316 | ) | |||||
|
Accrued expenses
|
(1,948 | ) | 4,696 | |||||
|
Other noncurrent liabilities
|
(351 | ) | 729 | |||||
|
Net cash used in operating activities
|
2,368 | 2,210 | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Additional purchase price for acquisition earnouts
|
(449 | ) | (1,349 | ) | ||||
|
Capital expenditures
|
(289 | ) | (429 | ) | ||||
|
Net cash used in investing activities
|
(738 | ) | (1,778 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Repurchase and retirement of stock
|
— | (125 | ) | |||||
|
Net borrowings under revolving credit facility
|
650 | 21,955 | ||||||
|
Long-term debt borrowings
|
— | 40,000 | ||||||
|
Long-term debt payments
|
(2,500 | ) | (62,740 | ) | ||||
|
Payment of debt financing fees
|
— | (1,245 | ) | |||||
|
Net cash provided by (used in) financing activities
|
(1,850 | ) | (2,155 | ) | ||||
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
(220 | ) | (1,723 | ) | ||||
|
CASH AND CASH EQUIVALENTS:
|
||||||||
|
Beginning of period
|
800 | 3,052 | ||||||
|
End of period
|
$ | 580 | $ | 1,329 | ||||
|
SUPPLEMENTAL CASH FLOWS INFORMATION:
|
||||||||
|
Cash paid for interest
|
$ | 6,981 | $ | 3,319 | ||||
|
Cash paid for income taxes (net of refunds)
|
$ | 99 | $ | 84 | ||||
F-25
Table of Contents
Roadrunner
Transportation Services Holdings, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements
| 1. | Significant Accounting Policies |
Organization and Nature of Business
The accompanying unaudited interim condensed consolidated
financial statements have been prepared in accordance with
U.S. generally accepted accounting principles
(“GAAP”) for interim financial information. We believe
such statements include all adjustments (consisting only of
normal recurring adjustments) necessary for the fair
presentation of our financial position, results of operations
and cash flows at the dates and for the periods indicated.
Pursuant to the requirements of the Securities and Exchange
Commission (“SEC”) applicable to interim financial
statements, the accompanying financial statements do not include
all disclosures required by GAAP for annual financial
statements. While we believe the disclosures presented are
adequate, these unaudited interim condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and related notes included in
this
Form S-1
registration statement for the year ended December 31,
2007. Operating results for the periods presented in this report
are not necessarily indicative of the results that may be
expected for the calendar year ending December 31, 2008, or
any other interim period.
Roadrunner Dawes, Inc. (“RDS”) includes the results of
Dawes Transport, Inc. and Roadrunner Freight Systems, Inc. On
June 13, 2008, RDS changed its name to Roadrunner
Transportation Services Holdings, Inc. (herein referred to as
“RRTS” or the “Company”) to reflect the
Company’s comprehensive service offerings.
On October 4, 2006, the controlling stockholder of the
Company through Sargent Transportation Group, Inc.
(“STG”) acquired all of the outstanding capital stock
of Big Rock Transportation, Inc., Midwest Carriers, Inc.,
Sargent Trucking, Inc., B&J Transportation, Inc., and Smith
Truck Brokers, Inc. (collectively, “Sargent”). On
March 14, 2007, STG merged with the Company
(“Merger”). At the time of the Merger, each STG share
was converted into two-tenths of a share of the Company’s
Class A common stock. In addition,
10-year
warrants to purchase 15,198 shares of the Company’s
Class A common stock at a purchase price of $2,000 per share
were issued to the existing stockholders of STG. Additionally,
the Company converted $5.0 million of subordinated notes
payable to the former owners of Sargent into $5.0 million
of Company preferred stock. Sargent operates as a transportation
and truckload brokerage business from twelve offices throughout
the continental United States and Canada.
Principles of Consolidation
The accompanying condensed consolidated financial statements
include the accounts of RDS and STG. All intercompany balances
and transactions have been eliminated in consolidation.
Derivative Financial Instruments
On January 1, 2008, the Company de-designated its interest
rate cap agreements that were designated as cash flow hedges in
accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. All future
gains and losses related to the change in fair value of the
interest cap agreements are recognized in the statement of
operations. The fair value of these interest rate cap agreements
as of December 31, 2007 and
June 30,
2008, and the change in their fair value for the six month
periods ended June 30, 2008 and 2007 was immaterial.
New Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51, Consolidated
Financial Statements (“SFAS 160”).
SFAS 160 establishes accounting and reporting guidance for
a noncontrolling ownership interest in a subsidiary and
deconsolidation of a subsidiary. The standard requires that a
noncontrolling ownership interest in a subsidiary be reported as
equity in the consolidated statement of financial position and
any related net income attributable to the parent be presented
on the face of the consolidated statement of income.
SFAS 160 is effective as of the beginning of an
entity’s first fiscal year that begins after
December 15, 2008. The Company will be required to adopt
SFAS 160 on January 1, 2009, and does not expect the
standard to have a material effect on its consolidated financial
position or results of operations.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(“SFAS 141R”). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest
in the acquiree and the goodwill acquired. SFAS 141R also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
SFAS 141R is effective for financial statements issued for
fiscal years beginning after December 15, 2008.
SFAS 141R is applicable to prospective business
combinations and therefore has no effect on the Company’s
current consolidated financial statements.
F-26
Table of Contents
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (“SFAS 157”). This
standard establishes a single authoritative definition of fair
value, sets out a framework for measuring fair value and
requires additional disclosures about fair value measurements.
The new standard focuses on the inputs used to measure fair
value and the effect, if any, on the changes in net assets for
the period. SFAS 157 is effective for the Company for the
year ending December 31, 2008. Effective January 1,
2008, the Company adopted this standard; this adoption did not
have a material effect on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(“SFAS 159”). This standard expands
opportunities to use fair value measurement in financial
reporting and permits entities to choose to measure many
financial instruments and certain other items at fair value.
SFAS 159 is effective for the Company for the year ended
December 31, 2008. The Company has not elected to use fair
value for measuring financial assets and financial liabilities.
| 2. | Goodwill |
The following is a rollforward of goodwill (in thousands):
|
Less than |
Truck |
|||||||
| Truckload | Brokerage | |||||||
|
Goodwill balance as of December 31, 2007
|
$ | 159,339 | $ | 25,507 | ||||
|
Earnout adjustments
|
— | 250 | ||||||
|
Goodwill balance as of June 30, 2008
|
$ | 159,339 | $ | 25,757 | ||||
The earnout adjustment represents additional contingent purchase
price related to the October 4, 2006 Sargent acquisition
that became issuable during the quarter ended March 31,
2008.
| 3. | Long-Term Debt |
Long-term debt consisted of the following (in thousands):
|
June 30, |
December 31, |
|||||||
| 2008 | 2007 | |||||||
|
Senior debt:
|
||||||||
|
Revolving credit facility
|
$ | 29,650 | $ | 29,000 | ||||
|
Term loan
|
33,500 | 36,000 | ||||||
|
Subordinated notes
|
38,075 | 37,420 | ||||||
|
Total debt
|
101,225 | 102,420 | ||||||
|
Less: Current maturities
|
(5,250 | ) | (5,000 | ) | ||||
|
Total long-term debt, net of current maturities
|
$ | 95,975 | $ | 97,420 | ||||
On March 14, 2007, in connection with the Merger, the
Company entered into an amended and restated credit agreement
(the “Agreement”). The Agreement, which is secured by
all assets of the Company, includes a $50.0 million
revolving credit facility and a $40.0 million term note.
The revolving credit facility and the term note mature in 2012.
Availability under the revolving credit facility is subject to a
borrowing base of eligible accounts receivable, as defined in
the Agreement. Interest is payable quarterly at LIBOR plus an
applicable margin or, at the Company’s option, prime plus
an applicable margin. Principal is payable in quarterly
installments ranging from $1.3 million per quarter in 2008
increasing to $1.8 million per quarter through
December 31, 2011 and a final payment of $12.5 million
due in 2012. The revolving credit facility also provides for the
issuance of up to $6.0 million in letters of credit. As of
June 30, 2008, the Company had outstanding letters of
credit totaling $3.3 million. Total availability under the
revolving credit facility was $17.0 million as of
June 30, 2008. At June 30, 2008, the interest rate on
the revolving credit facility and term note was LIBOR (2.7% at
June 30, 2008) plus 4%.
The Agreement contains certain restrictive covenants that
require the Company to maintain certain leverage and fixed
charge coverage ratios. The Agreement also restricts dividend
payments on common stock, management fee payments to related
parties and incurrence of additional debt. The Company entered
into a first amendment to the Agreement during the first quarter
of 2008 which made certain changes to the Agreement including
modification of one of the restrictive covenants. The first
amendment to the Agreement was effective as of December 30,
2007. The Company was in compliance with all covenants, as
defined in the first amendment to the Agreement, as of
June 30, 2008.
On March 14, 2007, the Company also amended its existing
subordinated notes agreement. Changes included, among other
items, approval for the merger with STG and an amendment to
certain covenants. The subordinated notes include cash interest
of 12% plus a deferred margin, accrued quarterly, that is
treated as deferred interest and is added to the
F-27
Table of Contents
principal balance of the notes each quarter. The deferred
interest ranges from 2.0% to 5.5% depending on the
Company’s total leverage calculation, as defined, payable
at maturity on September 15, 2012 (3% at June 30,
2008). The subordinated notes are held by American Capital, Ltd.
(“American Capital”), Sankaty Credit Opportunities,
L.P., Sankaty Credit Opportunities II, L.P. (collectively
“Sankaty”), and RGIP, LLC. (“RGIP”), who are
also stockholders of the Company.
| 4. | Earnings Per Share |
Earnings (loss) per share available to common stockholders and
the weighted average number of shares outstanding reflects the
assumed conversion of each outstanding share of STG common stock
into two-tenths of a share of RRTS Class A common stock as
of October 4, 2006. Actual conversion took place on
March 14, 2007 at the time of the Merger. The assumed
conversion presentation is the required presentation as STG has
been combined with the results of RRTS from October 4, 2006
(date of acquisition) through March 14, 2007 (date of
merger) in accordance with SFAS 141 common control
provisions.
Basic earnings per common share is calculated by dividing net
income available to common stockholders by the weighted average
number of common stock outstanding. Diluted earnings per share
is calculated by dividing net income by the weighted average
stock outstanding plus stock equivalents that would arise from
the exercise of stock options and the conversion of warrants.
The following table includes basic weighted average stock
outstanding to diluted weighted average stock outstanding for
the six months ended June 30:
|
Six Months Ended |
||||||||||||||||
| June 30, | ||||||||||||||||
| 2008 | 2007 | |||||||||||||||
|
Basic weighted average stock outstanding
|
101,220 | 101,220 | ||||||||||||||
|
Effect of dilutive securities - Employee stock options
|
773 | – | ||||||||||||||
|
Dilutive weighted average stock outstanding
|
101,993 | 101,220 | ||||||||||||||
The Company had additional stock options and warrants
outstanding of 20,345 and 25,382 as of June 30, 2008 and
2007, respectively, which were not included in the computation
of dilutive earnings per share because they were anti-dilutive.
| 5. | Income Taxes |
The effective income tax rate was 41.5% for the six months ended
June 30, 2008, compared with 53.9% for the six months ended
June 30, 2007. In determining the quarterly provision for
income taxes, the Company used an estimated annual effective tax
rate, which was based on expected annual income, statutory tax
rates, and the best estimate of non-deductible and non-taxable
items of income and expense. Income tax expense varies from the
amount computed by applying the federal corporate income tax
rate of 35.0% to income before income taxes primarily due to
state income taxes, net of federal income tax effect, Canadian
income taxes and adjustments for permanent differences, the most
significant of which is the effect of meals and entertainment.
| 6. | Commitments and Contingencies |
Series A Redeemable Preferred Stock
In March 2007, the Company issued and has outstanding
5,000 shares of non-voting Series A Preferred Stock
(“Preferred Stock”), which are mandatorily redeemable
by the Company at $1,000 per share, in cash, on
November 30, 2012. The Preferred Stock shall receive cash
dividends annually on April 30 at an annual rate equal to $40
per share and if such dividends are not paid when due, such
annual dividend rate shall increase to $60 per share and
continue to accrue without interest until such delinquent
payments are made. The holders of the Preferred Stock are
restricted from transferring such shares and the Company has a
first refusal right and may elect to repurchase the shares prior
to the mandatory November 30, 2012 redemption. Upon
liquidation and certain transactions treated as liquidations, as
defined in the Company’s Certificate of Incorporation, the
Preferred Stock has liquidation preferences over the
Company’s common stock. The number of issued and
outstanding shares of Preferred Stock, the $1,000 per share
repurchase price and the annual cash dividends are all subject
to equitable adjustment whenever there is a stock split, stock
dividend, combination, recapitalization, reclassification or
other similar event. As long as there is Preferred Stock
outstanding, no dividends may be declared or paid on common
stock of the Company.
F-28
Table of Contents
Redeemable Common Stock
The Company has 1,765 shares of redeemable Class A
common stock issued and outstanding as of June 30, 2008 and
December 31, 2007. These shares, held by current and former
employees of the Company, are subject to redemption by the
Company in the event of death or disability of the holder, as
defined, during a seven-year period from the date of original
issuance and have accordingly been classified as mezzanine
equity. The Company has determined that redemption of these
shares of Class A common stock is not probable and, as
such, has not adjusted the carrying value of such shares to fair
value as of June 30, 2008 and December 31, 2007.
Class A Common Stock
The Company has 298,000 Class A common stock
authorized as of June 30, 2008 and December 31, 2007.
Contingencies
In the ordinary course of business, the Company is a defendant
in several property and other claims. The Company maintains
liability insurance coverage for claims in excess of $250,000
per occurrence. Management believes it has adequate insurance to
cover losses in excess of the deductible amount. As of
June 30, 2008, the Company had reserves for estimated
uninsured losses of $1.3 million.
| 7. | Related Party Transactions |
As part of the Sargent acquisition, the Company is required to
pay an earnout to the former Sargent owners and now current
Preferred Stock holders. At June 30, 2008,
$0.7 million of the earnout is classified as a long-term
liability.
Also as part of the Sargent acquisition, a $3.5 million
guarantee was issued by Thayer Equity Investors V, L.P.
(“Thayer”). Thayer has guaranteed the Sargent earnout
payment in the event that a payment is sought to be made and the
Company is unable to make the payment because certain coverage
ratios required by the senior lenders have not been met. Thayer
will loan the Company an amount equal to the lesser of the full
amount of any such earnout payment or the amount sufficient to
ensure that certain coverage ratios are met. The guarantee
terminates when all note obligations have been paid in full or
upon payment of Sargent earnout payments.
The Company entered a consulting and non-compete agreement in
2006 with a former employee and current stockholder. The
consulting fee is $0.1 million per year through 2016.
Certain holders of the Company’s subordinated notes are
also stockholders of the Company. The following is a summary of
the transactions with these stockholders (in thousands):
|
Principal Owed as |
Interest Expense for the |
|||||||
|
of June 30, |
Six Months Ended |
|||||||
| 2008 | June 30, 2008 | |||||||
|
American Capital
|
$ | 19,021 | $ | 1,458 | ||||
|
Sankaty
|
18,862 | 1,434 | ||||||
|
RGIP
|
192 | 14 | ||||||
| 8. | Segment Reporting |
The Company determines its operating segments based on the
information utilized by the chief operating decision maker, the
Company’s Chief Executive Officer, to allocate resources
and assess performance. Based on this information, the Company
has determined that it operates in two operating segments:
less-than-truckload (“LTL”) and truckload brokerage
(“TL”).
Within the LTL business, the Company operates 18 service centers
throughout the United States and leverages relationships with
over 215 delivery agents. The LTL model allows for more direct
transportation of freight from shipper to end user than does the
traditional hub and spoke model. The TL business, across all
transportation modes from pickup to delivery, leverages
relationships with a diverse group of third-party carriers to
provide scalable capacity and reliable, customized service to
customers in North America. The majority of both businesses
operate in the United States.
These reportable segments are strategic business units through
which we offer different services. The Company evaluates the
performance of the segments primarily based on their respective
revenues and operating income. Accordingly, interest expense and
other non-operating items are not reported in segment results.
F-29
Table of Contents
The following tables reflect the revenues and operating results
of the Company’s reportable segments (in thousands):
|
Six Months Ended |
||||||||
| June 30, | ||||||||
| 2008 | 2007 | |||||||
|
Revenues:
|
||||||||
|
LTL
|
$ | 188,470 | $ | 174,996 | ||||
|
TL
|
88,663 | 86,172 | ||||||
|
Eliminations
|
(331 | ) | — | |||||
|
Total
|
$ | 276,802 | $ | 261,168 | ||||
|
Operating Income:
|
||||||||
|
LTL
|
$ | 5,356 | $ | 4,514 | ||||
|
TL
|
3,394 | 3,404 | ||||||
|
Total
|
$ | 8,750 | $ | 7,918 | ||||
|
Depreciation and Amortization:
|
||||||||
|
LTL
|
$ | 699 | $ | 552 | ||||
|
TL
|
285 | 320 | ||||||
|
Total
|
$ | 984 | $ | 872 | ||||
|
Capital Expenditures:
|
||||||||
|
LTL
|
$ | 266 | $ | 283 | ||||
|
TL
|
23 | 146 | ||||||
|
Total
|
$ | 289 | $ | 429 | ||||
|
June 30, |
December 31, |
|||||||
| 2008 | 2007 | |||||||
|
Assets:
|
||||||||
|
LTL
|
$ | 219,269 | $ | 219,720 | ||||
|
TL
|
49,340 | 49,823 | ||||||
|
Eliminations
|
(9,655 | ) | (13,663 | ) | ||||
|
Total
|
$ | 258,954 | $ | 255,880 | ||||
| 9. | GTS Transaction |
On February 29, 2008, Thayer Hidden Creek Partners II, L.P.
(“THCP II”), through an indirect majority-owned
subsidiary, GTS Acquisition Sub, Inc. (“GTS”),
acquired all of the outstanding capital stock of Group
Transportation Services, Inc. and all of the outstanding member
units of GTS Direct, LLC. THCP II is an affiliate of
Thayer V, the controlling stockholder of the Company. Push
down accounting will be used to record the acquisition.
The Company intends to file a
Form S-1
to affect an initial public offering. Simultaneous with the
consummation of the offering, the parent company of GTS will
merge with a wholly owned subsidiary of the Company (“GTS
Merger”). Consistent with the provisions of SFAS 141,
transfers of net assets or exchanges of equity interests between
entities under common control do not constitute business
combinations. Because the Company and GTS will have the same
control group immediately before and after the GTS Merger, the
GTS Merger, if consummated, will be accounted for as a
combination of entities under common control on a historical
cost basis in a manner similar to a pooling of interests.
Accordingly, the Company’s historical financial statements
would be recast to include GTS as of February 29, 2008.
F-30
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder of Group Transportation Services, Inc. and
To the Member of GTS Direct, LLC:
To the Member of GTS Direct, LLC:
We have audited the accompanying combined balance sheets of
Group Transportation Services, Inc. (a subchapter
S corporation) and GTS Direct, LLC (a limited liability
company) (collectively “GTS”), both of which are under
common ownership and common management, as of December 31,
2007 and 2006, and the related combined statements of
operations, invested equity, and cash flows for each of the
three years in the period ended December 31, 2007. These
combined financial statements are the responsibility of
GTS’ management. Our responsibility is to express an
opinion on these combined financial statements based on our
audits.
We conducted our audits in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. GTS
is not required to have, nor were we engaged to perform, an
audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of GTS’ internal
control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present
fairly, in all material respects, the combined financial
position of GTS as of December 31, 2007 and 2006 and the
combined results of their operations and their cash flows for
each of the three years in the period ended December 31,
2007, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 1 to the combined financial
statements, on January 1, 2006, GTS adopted Financial
Accounting Standards Board Statement No. 123(R),
Shared-Based Payment.
As discussed in Note 7 to the combined financial
statements, GTS was acquired by GTS Acquisition Sub, Inc., an
indirect majority-owned subsidiary of Thayer
ï
Hidden Creek Partners II, L.P., on February 29, 2008.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
July 22, 2008
F-31
Table of Contents
GTS
COMBINED BALANCE SHEETS
COMBINED BALANCE SHEETS
(Dollars in thousands, except share amounts)
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| ASSETS | ||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 1,072 | $ | 731 | ||||
|
Accounts receivable
|
2,453 | 1,808 | ||||||
|
Prepaid expenses and other current assets
|
48 | 33 | ||||||
|
Total current assets
|
3,573 | 2,572 | ||||||
|
PROPERTY AND EQUIPMENT, net
|
1,384 | 1,779 | ||||||
|
OTHER ASSETS
|
81 | 56 | ||||||
|
TOTAL ASSETS
|
$ | 5,038 | $ | 4,407 | ||||
| LIABILITIES AND INVESTED EQUITY | ||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Accounts payable
|
$ | 2,724 | $ | 2,208 | ||||
|
Accrued wages, bonus and commissions
|
363 | 289 | ||||||
|
Other liabilities
|
188 | 148 | ||||||
|
Total current liabilities
|
3,275 | 2,645 | ||||||
|
CAPITAL LEASE OBLIGATION, net of current maturities
|
1,159 | 1,144 | ||||||
|
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
|
||||||||
|
Total liabilities
|
4,434 | 3,789 | ||||||
|
INVESTED EQUITY:
|
||||||||
|
Group Transportation Services, Inc.
|
||||||||
|
Common stock $0.001 par value; 100,000,000 shares
authorized; 46,241,953 shares issued and outstanding
|
46 | 46 | ||||||
|
Additional paid-in capital
|
255 | 195 | ||||||
|
Retained earnings
|
415 | 400 | ||||||
|
Treasury stock, 17,347 shares held at cost
|
(220 | ) | (220 | ) | ||||
|
Total Group Transportation Services, Inc.
|
496 | 421 | ||||||
|
GTS Direct, LLC
|
||||||||
|
Member’s equity
|
108 | 197 | ||||||
|
Total invested equity
|
604 | 618 | ||||||
|
TOTAL LIABILITIES AND INVESTED EQUITY
|
$ | 5,038 | $ | 4,407 | ||||
The accompanying notes are an
integral part of these combined financial statements.
F-32
Table of Contents
GTS
COMBINED STATEMENTS OF OPERATIONS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in thousands)
| December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
|
Revenues, net
|
$ | 27,473 | $ | 24,672 | $ | 17,626 | ||||||
|
Operating expenses:
|
||||||||||||
|
Transportation costs
|
20,959 | 19,073 | 13,299 | |||||||||
|
Personnel and related benefits
|
3,031 | 2,819 | 2,263 | |||||||||
|
Other operating expenses
|
1,157 | 1,214 | 1,137 | |||||||||
|
Depreciation and amortization
|
304 | 284 | 216 | |||||||||
|
Total operating expenses
|
25,451 | 23,390 | 16,915 | |||||||||
|
Operating income
|
2,022 | 1,282 | 711 | |||||||||
|
Interest expense
|
181 | 202 | 94 | |||||||||
|
Net income
|
$ | 1,841 | $ | 1,080 | $ | 617 | ||||||
The accompanying notes are an
integral part of these combined financial statements.
F-33
Table of Contents
GTS
COMBINED STATEMENTS OF INVESTED EQUITY
For the years ended December 31, 2007, 2006 and 2005
COMBINED STATEMENTS OF INVESTED EQUITY
For the years ended December 31, 2007, 2006 and 2005
(Dollars in thousands, except share amounts)
| Group Transportation Services, Inc. | ||||||||||||||||||||||||||||
|
Additional |
GTS Direct, LLC |
Total |
||||||||||||||||||||||||||
| Common Stock |
Paid-In |
Retained |
Treasury |
Member’s |
Invested |
|||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Stock | Equity | Equity | ||||||||||||||||||||||
|
BALANCE, January 1, 2005
|
46,241,953 | $ | 46 | $ | 150 | $ | 244 | $ | (220 | ) | $ | 15 | $ | 235 | ||||||||||||||
|
Dividends
|
(50 | ) | (158 | ) | (208 | ) | ||||||||||||||||||||||
|
Capital contribution
|
33 | 33 | ||||||||||||||||||||||||||
|
Net income
|
463 | 154 | 617 | |||||||||||||||||||||||||
|
BALANCE, December 31, 2005
|
46,241,953 | 46 | 150 | 690 | (220 | ) | 11 | 677 | ||||||||||||||||||||
|
Dividends
|
(1,141 | ) | (43 | ) | (1,184 | ) | ||||||||||||||||||||||
|
Share-based compensation
|
45 | 45 | ||||||||||||||||||||||||||
|
Net income
|
851 | 229 | 1,080 | |||||||||||||||||||||||||
|
BALANCE, December 31, 2006
|
46,241,953 | 46 | 195 | 400 | (220 | ) | 197 | 618 | ||||||||||||||||||||
|
Dividends
|
(1,575 | ) | (340 | ) | (1,915 | ) | ||||||||||||||||||||||
|
Share-based compensation
|
60 | 60 | ||||||||||||||||||||||||||
|
Net income
|
1,590 | 251 | 1,841 | |||||||||||||||||||||||||
|
BALANCE, December 31, 2007
|
46,241,953 | $ | 46 | $ | 255 | $ | 415 | $ | (220 | ) | $ | 108 | $ | 604 | ||||||||||||||
The accompanying notes are an
integral part of these combined financial statements.
F-34
Table of Contents
GTS
COMBINED STATEMENTS OF CASH FLOWS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
$ | 1,841 | $ | 1,080 | $ | 617 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Depreciation and amortization
|
304 | 284 | 216 | |||||||||
|
Share-based compensation
|
60 | 45 | — | |||||||||
|
Loss on disposal of property and equipment
|
1 | 13 | 36 | |||||||||
|
Changes in:
|
||||||||||||
|
Accounts receivable
|
(645 | ) | (256 | ) | (418 | ) | ||||||
|
Prepaid expenses and other assets
|
(40 | ) | 30 | (89 | ) | |||||||
|
Accounts payable
|
516 | 681 | 217 | |||||||||
|
Accrued wages, bonus and commissions
|
74 | 41 | 55 | |||||||||
|
Other liabilities
|
44 | (186 | ) | 242 | ||||||||
|
Net cash provided by operating activities
|
2,155 | 1,732 | 876 | |||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Capital expenditures
|
(76 | ) | (448 | ) | (312 | ) | ||||||
|
Proceeds from sale of property and equipment
|
167 | 20 | — | |||||||||
|
Net cash provided by (used in) investing activities
|
91 | (428 | ) | (312 | ) | |||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Payment of long-term borrowings
|
— | (26 | ) | (52 | ) | |||||||
|
Dividends paid
|
(1,915 | ) | (1,184 | ) | (208 | ) | ||||||
|
Reduction (addition) of capital lease obligation
|
10 | 14 | (12 | ) | ||||||||
|
Net cash used in financing activities
|
(1,905 | ) | (1,196 | ) | (272 | ) | ||||||
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
341 | 108 | 292 | |||||||||
|
CASH AND CASH EQUIVALENTS:
|
||||||||||||
|
Beginning of period
|
731 | 623 | 331 | |||||||||
|
End of period
|
$ | 1,072 | $ | 731 | $ | 623 | ||||||
|
SUPPLEMENTAL CASH FLOWS INFORMATION:
|
||||||||||||
|
Cash paid for interest
|
$ | 235 | $ | 232 | $ | 96 | ||||||
|
Non-cash items —
|
||||||||||||
|
Capital lease obligation
|
$ | — | $ | — | $ | 1,152 | ||||||
|
Capital contribution
|
$ | — | $ | — | $ | 33 | ||||||
The accompanying notes are an
integral part of these combined financial statements.
F-35
Table of Contents
GTS
Notes to Combined Financial Statements
Notes to Combined Financial Statements
| 1. | Significant Accounting Policies |
Organization and Nature of Business
Group Transportation Services, Inc. is incorporated as a
subchapter S corporation under the laws of the state of
Delaware and GTS Direct, LLC is organized as a limited liability
company under the laws of the state of Ohio. The sole
stockholder of Group Transportation Services, Inc. is also the
sole member of GTS Direct, LLC. Accordingly, the accompanying
financial statements have been prepared on a combined basis as
both entities were under common ownership and operated under
common management during all periods presented herein. In
addition, Group Transportation Services, Inc. and GTS Direct,
LLC are collectively referred to herein as “GTS” or
the “Company.” The Company specializes in
transportation services, specifically shipment planning, carrier
management, shipment execution, optimization, track and trace,
consolidated invoicing, and small parcel savings programs.
Principles of Combination
The Company’s combined financial statements include the
accounts of Group Transportation Services, Inc. and GTS Direct,
LLC. All intercompany balances and transactions have been
eliminated in combination.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three
months or less are considered to be cash equivalents. In
addition, from time to time the cash balance in certain of the
Company’s bank accounts may exceed federally insured
limits. The cash balance in these accounts exceeded federally
insured limits by approximately $1.0 million as of
December 31, 2007 and 2006.
Accounts Receivable
Accounts receivable represent trade receivables from customers.
As of December 31, 2007 and 2006, there was no allowance
for doubtful accounts reserve because the Company did not expect
any of such receivables to become uncollectible. In the event
collectability of any of the Company’s accounts receivable
balances becomes uncertain, management would estimate the
portion of accounts receivable that will not be collected and
such accounts may ultimately be written off if they are
determined to be uncollectible. The Company’s accounts
receivable are uncollateralized and are generally due
30 days from the invoice date. Actual write-offs of
accounts receivable during the years ended December 31,
2007, 2006 and 2005 were insignificant.
Property and Equipment
Property and equipment are stated at cost. Maintenance and
repair costs are charged to expense as incurred. For financial
reporting purposes, depreciation is calculated using the
straight-line method over the following estimated useful lives:
|
Furniture, fixtures and other equipment
|
3 - 10 years | |||
|
Equipment and software
|
3 - 5 years | |||
|
Building
|
15 years |
Leases
Lease agreements are evaluated to determine whether they are
capital leases or operating leases in accordance with Statement
of Financial Accounting Standards No. 13, Accounting for
Leases, as amended (“SFAS 13”). When
substantially all of the risks and benefits of property
ownership have been transferred to the Company, as determined by
the test criteria in SFAS 13, the lease then qualifies as a
capital lease. Capital lease assets are depreciated on a
straight-line basis over the capital lease assets’
estimated useful lives consistent with the Company’s normal
depreciation policy for tangible fixed assets, but not exceeding
the lease term. Interest charges are expensed over the period of
the lease in relation to the carrying value of the capital lease
obligation. Rent expense for operating leases, which includes
fixed escalation amounts in addition to minimum lease payments,
is recognized on a straight-line basis over the duration of the
lease term.
F-36
Table of Contents
Stock Based Compensation
The Company adopted SFAS No. 123 (revised 2004),
Share-Based Payment, (“SFAS 123(R)”) on
January 1, 2006 using the prospective application method
(see Note 4). Accordingly, share based payment awards
granted or modified on or after January 1, 2006 have been
accounted for at fair value in accordance with the recognition
and measurement provisions of SFAS 123(R); share based
payment awards granted prior to January 1, 2006 continue to
be accounted for using the intrinsic value method in accordance
with the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, (“APB 25”), as permitted by
SFAS No. 123, Accounting for Stock-Based
Compensation, (“SFAS 123”).
The Company’s share based payment awards are comprised of
stock options. Under the intrinsic value method, compensation
cost for the Company’s stock options was measured and
recognized as the excess, if any, of the estimated market price
of the stock at grant date over the amount paid to acquire
stock. Under SFAS 123(R), compensation cost for the
Company’s stock options is measured and recognized at fair
value using the Black Scholes option-pricing model. Also, as
permitted under SFAS 123 for nonpublic entities, the
Company excluded volatility in estimating the value of stock
options for pro forma purposes accounted for under APB 25.
Income Taxes
The Company and its stockholder elected subchapter S Corporation
status under the Internal Revenue Code (and similar state tax
law provisions in most states) and therefore, the Company
generally is not subject to federal or state income taxes.
Accordingly, the accompanying financial statements do not
include a provision for income taxes or liability for current or
deferred income taxes. Rather, the Company’s income or loss
is allocated to stockholders for inclusion in their personal
income tax returns. Stockholder distributions are declared each
year in order to fund the stockholder’s personal income tax
liabilities associated with his allocated income or loss.
Revenue Recognition
In accordance with EITF Issue
91-9,
Revenue and Expense Recognition for Freight Services in
Process, transportation revenue and related transportation
costs are recognized when the shipment has been delivered by a
third-party carrier. Fee for services revenue is recognized when
the services have been rendered. At the time of delivery or
rendering of services, as applicable, the Company’s
obligation to fulfill a transaction is complete and collection
of revenue is reasonably assured. The Company offers volume
discounts to certain customers. Revenue is reduced as discounts
are earned.
In accordance with EITF Issue
99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent, the Company typically recognizes revenue on a gross
basis, as opposed to a net basis, similar to a commission
arrangement, because it bears the risks and benefits associated
with revenue-generated activities by, among other things:
(1) acting as a principal in the transaction;
(2) establishing prices; (3) managing all aspects of
the shipping process; and (4) taking the risk of loss for
collection, delivery and returns. Certain transactions to
provide specific services are recorded at the net amount charged
to the client due to the following factors: (A) the Company
does not have latitude in establishing pricing and (B) the
Company does not bear the risk of loss for delivery and returns;
these items are the risk of the carrier. Revenues recognized on
a net basis for the years ended December 31, 2007, 2006,
and 2005 were not significant.
Fair Value of Financial Instruments
The fair values of cash, accounts receivable, and accounts
payable approximate their carrying values due to their short
term nature. The fair value of capital lease obligation is
estimated based on incremental borrowing rates for similar
arrangements and approximates its carrying value.
New Accounting Pronouncements
In September 2006, the FASB issued Statement of Accounting
Standards No. 157, Fair Value Measurements
(“SFAS 157”). This standard establishes a
single authoritative definition of fair value, sets out a
framework for measuring fair value and requires additional
disclosures about fair value measurements. The new standard
focuses on the inputs used to measure fair value and the effect,
if any, on the changes in net assets for the period.
SFAS 157 is effective for the Company for the year ended
December 31, 2008. Effective January 1, 2008, the
Company adopted this standard; this adoption did not have a
material effect on the Company’s combined financial
statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(“SFAS 159”). This standard expands
opportunities to use fair value measurement in financial
reporting and permits entities to choose to measure many
financial instruments and certain other items at fair value.
SFAS 159 is effective for the Company for the year ended
December 31, 2008. Effective January 1, 2008, the
Company adopted this standard; this adoption did not have a
material effect on the Company’s combined financial
statements.
F-37
Table of Contents
In December 2007, the FASB issued No. 141 (revised 2007),
Business Combinations (“SFAS 141R”).
SFAS 141R establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141R also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the
business combination. SFAS 141R is effective for the
Company on January 1, 2009 and is to be applied
prospectively. The Company continues to assess the impact, if
any, SFAS 141R will have on its combined financial statements.
| 2. | Property and Equipment |
Property and equipment consisted of the following at
December 31, 2007 and 2006 (in thousands):
| 2007 | 2006 | |||||||
|
Equipment and software
|
$ | 867 | $ | 820 | ||||
|
Furniture, fixtures and other equipment
|
341 | 555 | ||||||
|
Building
|
1,185 | 1,185 | ||||||
|
Gross property and equipment
|
2,393 | 2,560 | ||||||
|
Less: Accumulated depreciation
|
(1,009 | ) | (781 | ) | ||||
|
Property and equipment, net
|
$ | 1,384 | $ | 1,779 | ||||
Depreciation expense for the years ending December 31,
2007, 2006 and 2005 was $0.3 million, $0.3 million and
$0.2 million, respectively.
| 3. | Line of Credit Arrangement |
The Company entered into a new line of credit arrangement with a
bank on April 25, 2007 that provides for borrowings of up
to $2.0 million. The line of credit replaced the
Company’s old line of credit arrangement dated
September 11, 2006, which provided for borrowings of up to
$1.5 million. The new line of credit is secured by all
assets of the Company and is renewable on an annual basis.
Interest is payable monthly at a rate of Prime less 0.5% (6.75%
at December 31, 2007). The new line of credit expired on
April 25, 2008. There were no borrowings outstanding under
the old or new line of credit at December 31, 2007 or 2006,
respectively.
| 4. | Invested Equity |
Preferred Stock
The Company has 20,000,000 shares of preferred stock, par
value $0.001, authorized. There were no shares issued and
outstanding at December 31, 2007 or 2006.
Stock-Based Compensation
The Company’s 2000 Stock Option Plan (the “Plan”)
permitted the grant of stock options to Company employees for up
to 12,000,000 shares of common stock. The Company viewed
such awards as aligning the interests of its key employees to
those of its stockholders. Stock options under the Plan were
granted with an exercise price equal to or in excess of the
estimated fair value of the Company’s stock on the date of
grant. Options were exercisable ten years from the date of
grant, but only to the extent vested as specified in each option
agreement. All granted options were non-qualified options.
As permitted by SFAS 123, the Company previously measured
compensation costs for its stock options using the accounting
method prescribed by APB 25. The Company’s pro forma net
income for the years ended December 31, 2006 and 2005 would
not be significantly different than reported net income had
compensation cost for the Plan been determined consistent with
SFAS 123 for options issued before January 1, 2006.
Effective February 2, 2007, the sole director of the
Company, in accordance with Section 141(f) of the Delaware
General Corporate Law and Sections 2.10 and 3.9 of the
Company’s bylaws, took actions to (i) freeze the Plan
in its entirety, (ii) freeze all further grants of options
under the Plan, and (iii) 100% vest all outstanding options
granted under the Plan.
As of December 31, 2007, 8,224,606 shares of common
stock remained available for future issuance under the Plan. Any
shares issued in connection with the exercise of options are
expected to be newly issued shares.
During both the year ended December 31, 2007 and 2006, the
weighted average grant date fair value of each option was 9
cents. For the years ended December 31, 2007 and 2006,
stock option compensation expense, net of estimated forfeitures,
was $60,000 and $45,000, respectively. Since all options granted
under the Plan were 100% vested as of February 2, 2007, all
unrecognized compensation cost related to non-vested options was
recognized in the year ended December 31, 2007.
For options being accounted for under SFAS 123(R), the fair
value of each option award is estimated on the date of grant
using the Black-Scholes valuation model. Because the
Company’s stock is privately held, it is not practical to
F-38
Table of Contents
determine the Company’s share price volatility. Accordingly
the Company uses the historical share price volatility of
publicly traded companies within the transportation and
logistics sector as a surrogate for the expected volatility of
the Company’s stock. The expected life of the options
represents the expected time that the options granted will
remain outstanding. The risk-free rate used to calculate each
option valuation is based on the U.S. Treasury rate at the
time of option grants for a note with a similar lifespan. The
specific assumptions used to determine the weighted average fair
value of stock options granted during the years ended
December 31, 2007 and 2006 were as follows:
| 2007 | 2006 | |||||||
|
Risk free interest rate
|
4.8 | % | 4.3 | % | ||||
|
Dividend yield
|
0.0 | % | 0.0 | % | ||||
|
Expected volatility
|
38.6 | % | 41.8 | % | ||||
|
Expected life (years)
|
7 | 7 | ||||||
|
Pro forma weighted average fair value of stock options granted
|
$ | 0.09 | $ | 0.09 | ||||
A summary of the option activity under the Plan for the years
ended December 31, 2007 and 2006 is as follows:
|
Weighted- |
||||||||||||||||
|
Weighted- |
Average |
Aggregate |
||||||||||||||
|
Average |
Remaining |
Intrinsic |
||||||||||||||
|
Exercise Price |
Contractual |
Value |
||||||||||||||
| Shares | (in dollars) | Term (Years) | (000’s) | |||||||||||||
|
Outstanding at December 31, 2005
|
2,608,617 | $ | 0.15 | 5.3 | $ | 113 | ||||||||||
|
Granted
|
750,000 | 0.18 | ||||||||||||||
|
Exercised
|
— | — | ||||||||||||||
|
Forfeited
|
— | — | ||||||||||||||
|
Outstanding at December 31, 2006
|
3,358,617 | $ | 0.16 | 5.3 | $ | 182 | ||||||||||
|
Granted
|
416,777 | 0.18 | ||||||||||||||
|
Exercised
|
— | — | ||||||||||||||
|
Forfeited
|
— | — | ||||||||||||||
|
Outstanding at December 31, 2007
|
3,775,394 | $ | 0.16 | 4.9 | $ | 219 | ||||||||||
There were 3,775,394 and 2,539,734 options exercisable at
December 31, 2007 and 2006, respectively. At
December 31, 2007, for exercisable options, the
weighted-average exercise price was 16 cents, the weighted
average remaining contractual term was 4.9 years and the
estimated aggregate intrinsic value was $0.2 million. At
December 31, 2006, for exercisable options, the
weighted-average exercise price was 15 cents, the weighted
average remaining contractual term was 4.2 years and the
estimated aggregate intrinsic value was $0.1 million.
| 5. | Commitments and Contingencies |
Employee Benefit Plans
The Company sponsors the Group Transportation Services, Inc.
401(k) Plan (“401(k) Plan”) to provide retirement
benefits for its employees. As allowed under Section 401(k)
of the Internal Revenue Code, the 401(k) Plan provides for tax
deferred salary contributions for eligible employees. The 401(k)
Plan allows employees to contribute from 1% to 80% of their
annual compensation to the 401(k) Plan on a pretax basis.
Employee contributions are limited to a maximum annual amount as
set periodically by the Internal Revenue Code. The Company
matches pretax employee contributions up to 100% of the first 3%
and 50% for 4% and 5% of eligible earnings. Matching
contributions to the 401(k) Plan totaled $83,000, $71,000 and
$61,000 in 2007, 2006, and 2005, respectively.
Capital Lease
The Company has a building that is classified as a capital
lease. The recorded value of the building is included in
property and equipment, net as of December 31 as follows (in
thousands):
| 2007 | 2006 | |||||||
|
Building
|
$ | 1,185 | $ | 1,185 | ||||
|
Accumulated amortization
|
(197 | ) | (118 | ) | ||||
|
Total
|
$ | 988 | $ | 1,067 | ||||
This capital lease obligation has remaining principal payments
due monthly through 2020.
F-39
Table of Contents
The following is a schedule of future minimum lease payments
under the capital lease with the present value of the net
minimum lease payments as of December 31, 2007 (in
thousands):
|
Year Ending
|
Amount | |||
|
2008
|
$ | 231 | ||
|
2009
|
238 | |||
|
2010
|
246 | |||
|
2011
|
253 | |||
|
2012
|
261 | |||
|
Thereafter
|
2,218 | |||
|
Total minimum lease payments
|
3,447 | |||
|
Less: Amount representing interest
|
(2,283 | ) | ||
|
Present value of net minimum lease
payments(1)
|
$ | 1,164 | ||
| (1) | Reflected in the combined balance sheets as current other liabilities and noncurrent capital lease obligations of $5,000 and $1.2 million, respectively. |
Operating Lease
The Company has a non-cancelable operating lease for land
expiring in 2020. Total rent expense from the operating lease
was $0.2 million, $0.2 million and $0.1 million
for the years ended December 31, 2007, 2006 and 2005,
respectively.
The following is a schedule of future minimum lease payments
under the non-cancelable operating lease as of December 31,
2007 (in thousands):
|
Year Ending
|
Amount | |||
|
2008
|
$ | 130 | ||
|
2009
|
134 | |||
|
2010
|
138 | |||
|
2011
|
142 | |||
|
2012
|
147 | |||
|
Thereafter
|
1,249 | |||
| 6. | Related Party Transactions |
Group Transportation Services, Inc.’s sole stockholder and
sole member is also the sole member of an LLC, from which the
Company leases the building and land described in Note 5.
In addition, during the year ended December 31, 2007, the
Company sold assets, with a net book value of $0.2 million,
to the same related party. There was no gain or loss recorded on
the sale.
| 7. | Subsequent Event |
GTS Acquisition Sub, Inc., an indirect majority-owned subsidiary
of Thayer
ï
Hidden Creek Partners II, L.P., acquired all of the outstanding
capital stock of Group Transportation Services, Inc. and all of
the outstanding units of GTS Direct, LLC on February 29,
2008. The purchase price was $23.8 million. The preliminary
purchase price, including financing fees of approximately
$0.8 million, was financed with proceeds from the sale of
common stock by GTS Acquisition Sub, Inc. of $12.8 million,
a $3.2 million non-cash issuance of stock, and borrowings
under a credit facility of $8.0 million. At the time of the
acquisition, the Company’s line of credit arrangement was
terminated and all vested and outstanding employee stock options
were settled in cash.
F-40
Table of Contents
| Successor | Predecessor | ||||||||
|
June 30, |
December 31, |
||||||||
| 2008 | 2007 | ||||||||
| ASSETS | |||||||||
|
CURRENT ASSETS:
|
|||||||||
|
Cash and cash equivalents
|
$ | 542 | $ | 1,072 | |||||
|
Accounts receivable
|
3,324 | 2,453 | |||||||
|
Prepaid expenses and other current assets
|
34 | 48 | |||||||
|
Total current assets
|
3,900 | 3,573 | |||||||
|
PROPERTY AND EQUIPMENT, net
|
2,758 | 1,384 | |||||||
|
OTHER ASSETS:
|
|||||||||
|
Goodwill
|
23,248 | – | |||||||
|
Other noncurrent assets
|
883 | 81 | |||||||
|
TOTAL ASSETS
|
$ | 30,789 | $ | 5,038 | |||||
| LIABILITIES AND STOCKHOLDERS’ INVESTMENT | |||||||||
|
CURRENT LIABILITIES:
|
|||||||||
|
Current maturities of long-term debt
|
$ | 820 | $ | – | |||||
|
Accounts payable
|
3,198 | 2,724 | |||||||
|
Accrued wages, bonus and commissions
|
363 | 363 | |||||||
|
Accrued taxes and other liabilities
|
1,442 | 188 | |||||||
|
Total current liabilities
|
5,823 | 3,275 | |||||||
|
LONG-TERM DEBT, net of current maturities
|
6,980 | – | |||||||
|
CAPITAL LEASE OBLIGATION, net of current maturities
|
1,166 | 1,159 | |||||||
|
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
|
|||||||||
|
Total liabilities
|
13,969 | 4,434 | |||||||
|
STOCKHOLDERS’ INVESTMENT:
|
|||||||||
|
GTS
|
|||||||||
|
Common stock, $0.01 par value; 100,000 shares
authorized;
|
|||||||||
|
16,630 shares issued and outstanding
|
1 | – | |||||||
|
Additional paid-in capital
|
16,675 | – | |||||||
|
Retained earnings
|
144 | – | |||||||
|
Total GTS
|
16,820 | – | |||||||
|
Group Transportation Services, Inc.
|
|||||||||
|
Common stock, $0.001 par value; 100,000,000 shares
authorized;
|
|||||||||
|
46,241,953 shares issued and outstanding
|
– | 46 | |||||||
|
Additional paid-in capital
|
– | 255 | |||||||
|
Retained earnings
|
– | 415 | |||||||
|
Treasury stock, 17,347 shares held at cost
|
– | (220 | ) | ||||||
|
Total Group Transportation Services, Inc.
|
– | 496 | |||||||
|
GTS Direct, LLC
|
|||||||||
|
Member’s equity
|
– | 108 | |||||||
|
Total stockholders’ investment
|
16,820 | 604 | |||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
$ | 30,789 | $ | 5,038 | |||||
See notes to unaudited financial
statements.
F-41
Table of Contents
| Successor | Predecessor | ||||||||||||
|
Period from |
|||||||||||||
|
February 12 |
Period from |
Period from |
|||||||||||
|
(date of inception) |
January 1 |
January 1 |
|||||||||||
|
through |
through |
through |
|||||||||||
|
June 30, |
February 29, |
June 30, |
|||||||||||
| 2008 | 2008 | 2007 | |||||||||||
|
Revenues, net
|
$ | 10,442 | $ | 4,302 | $ | 13,006 | |||||||
|
Operating expenses:
|
|||||||||||||
|
Transportation costs
|
8,049 | 3,249 | 10,045 | ||||||||||
|
Personnel and related benefits
|
1,220 | 4,093 | 1,499 | ||||||||||
|
Other operating expenses
|
501 | 295 | 573 | ||||||||||
|
Depreciation and amortization
|
208 | 45 | 156 | ||||||||||
|
Total operating expenses
|
9,978 | 7,682 | 12,273 | ||||||||||
|
Operating income
|
464 | (3,380 | ) | 733 | |||||||||
|
Interest expense
|
241 | 29 | 92 | ||||||||||
|
Income before provision for income taxes
|
223 | (3,409 | ) | 641 | |||||||||
|
Provision for income taxes
|
79 | – | – | ||||||||||
|
Net income
|
$ | 144 | $ | (3,409 | ) | $ | 641 | ||||||
See notes to unaudited financial
statements.
F-42
Table of Contents
| Successor | Predecessor | ||||||||||||
|
Period from |
|||||||||||||
|
February 12 |
Period from |
Period from |
|||||||||||
|
(date of inception) |
January 1 |
January 1 |
|||||||||||
|
through |
through |
through |
|||||||||||
|
June 30, |
February 29, |
June 30, |
|||||||||||
| 2008 | 2008 | 2007 | |||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|||||||||||||
|
Net income
|
$ | 144 | $ | (3,409 | ) | $ | 641 | ||||||
|
Adjustments to reconcile net income to net cash provided by
(used in)
|
|||||||||||||
|
operating activities:
|
|||||||||||||
|
Depreciation and amortization
|
208 | 45 | 156 | ||||||||||
|
Share-based compensation
|
46 | – | 31 | ||||||||||
|
Changes in:
|
|||||||||||||
|
Accounts receivable
|
2,235 | (3,115 | ) | (668 | ) | ||||||||
|
Prepaid and other assets
|
13 | 25 | (23 | ) | |||||||||
|
Accounts payable and accrued expenses
|
(2,206 | ) | 6,246 | 333 | |||||||||
|
Net cash provided by (used in) operating activities
|
440 | (208 | ) | 470 | |||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|||||||||||||
|
Capital expenditures
|
(44 | ) | (36 | ) | (39 | ) | |||||||
|
Acquisition of Predecessor
|
(20,911 | ) | – | – | |||||||||
|
Net cash used in investing activities
|
(20,955 | ) | (36 | ) | (39 | ) | |||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|||||||||||||
|
Dividends paid
|
– | (830 | ) | (516 | ) | ||||||||
|
Reduction of capital lease obligation
|
– | 2 | 9 | ||||||||||
|
Issuance of debt
|
8,000 | – | – | ||||||||||
|
Debt issuance costs paid
|
(173 | ) | – | – | |||||||||
|
Repayment of debt
|
(200 | ) | – | – | |||||||||
|
Issuance of common stock
|
13,430 | – | – | ||||||||||
|
Net cash provided by financing activities
|
21,057 | (828 | ) | (507 | ) | ||||||||
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
542 | (1,072 | ) | (76 | ) | ||||||||
|
CASH AND CASH EQUIVALENTS:
|
|||||||||||||
|
Beginning of period
|
– | 1,072 | 731 | ||||||||||
|
End of period
|
$ | 542 | $ | – | $ | 655 | |||||||
|
SUPPLEMENTAL CASH FLOWS INFORMATION:
|
|||||||||||||
|
Cash paid for interest
|
$ | 250 | $ | 39 | $ | 117 | |||||||
|
Non-cash issuance of common stock for acquisition
|
$ | 3,200 | $ | – | $ | – | |||||||
See notes to unaudited financial
statements.
F-43
Table of Contents
| 1. | Basis of Presentation |
The accompanying unaudited interim condensed financial
statements have been prepared in accordance with
U.S. generally accepted accounting principles
(“GAAP”) for interim financial information. We believe
such statements include all adjustments (consisting only of
normal recurring adjustments) necessary for the fair
presentation of our financial position, results of operations
and cash flows at the dates and for the periods indicated.
Pursuant to the requirements of the Securities and Exchange
Commission (“SEC”) applicable to interim financial
statements, the accompanying financial statements do not include
all disclosures required by GAAP for annual financial
statements. While we believe the disclosures presented are
adequate to make the information not misleading, these unaudited
interim condensed financial statements should be read in
conjunction with the financial statements and related notes
included in this
Form S-1
registration statement for the year ended December 31,
2007. Operating results for the periods presented in this report
are not necessarily indicative of the results that may be
expected for the calendar year ending December 31, 2008, or
any other interim period.
On February 29, 2008, Group Transportation Services
Holdings, Inc. (“GTS” or the “Company”), an
indirect wholly-owned subsidiary of Thayer Hidden
Creek Partners II, L.P. (“THCP II”), through its
direct wholly-owned subsidiary, GTS Acquisition Sub, Inc.
acquired all of the outstanding capital stock of Group
Transportation Services, Inc. and all of the outstanding member
units of GTS Direct, LLC (the “Transaction”). The
accompanying balance sheets and statements of operations and
cash flows are presented for two periods, Predecessor and
Successor, which relate to the period of operations preceding
the Transaction and the period of operations succeeding the
Transaction, respectively. GTS was formed on February 12,
2008 and there were no substantive operations from date of
inception until the Transaction on February 29, 2008. The
combined statements for Group Transportation Services, Inc. and
GTS Direct, LLC are referred to as “Predecessor.” The
consolidated statements of GTS are referred to as
“Successor.” As a result of the application of
purchase accounting, the Successor balances and amounts
presented in the consolidated financial statements and footnotes
are not comparable with those of the Predecessor.
Principles of Consolidation
The accompanying consolidated financial statements for the
Successor include the accounts of Group Transportation Services,
Inc. and GTS Direct, LLC, post Transaction. All intercompany
balances and transactions have been eliminated in consolidation.
The accompanying combined financial statements for the
Predecessor include the accounts of Group Transportation
Services, Inc. and GTS Direct, LLC, pre Transaction. All
intercompany balances and transactions have been eliminated in
combination.
Income Taxes
Group Transportation Services, Inc. and its previous stockholder
elected subchapter S Corporation status under the Internal
Revenue Code (and similar state tax law provisions in most
states) and therefore, Group Transportation Services, Inc.
generally was not subject to federal or state income taxes.
Accordingly, the Predecessor financial statements do not include
a provision for income taxes or liability for current or
deferred income taxes.
Upon completion of the Transaction, Group Transportation
Services, Inc.’s S Corporation status was terminated
and is now considered a C Corporation and is subject to federal
and state taxes. The Successor accounts for income taxes in
accordance with SFAS No. 109, Accounting for Income
Taxes (“SFAS 109”), which requires an asset
and liability approach to financial accounting and reporting for
income taxes. In accordance with SFAS 109, deferred income
tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Income tax expense (benefit) is the tax payable or
refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
New Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51, Consolidated
Financial Statements (“SFAS 160”).
SFAS 160 establishes accounting and reporting guidance for
a noncontrolling ownership interest in a subsidiary and
deconsolidation of a subsidiary. The standard requires that a
noncontrolling ownership interest in a subsidiary be reported as
equity in the consolidated statement of financial position and
any related net income attributable to the parent be presented
on the face of the consolidated statement of income.
SFAS 160 is effective as of the beginning of an
entity’s first fiscal year that begins after
December 15, 2008. The Company will be required to adopt
SFAS 160 on January 1, 2009, and does not expect the
standard to have a material effect on its consolidated financial
position or results of operations.
F-44
Table of Contents
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(“SFAS 141(R)”), which replaces
SFAS No. 141, Business Combinations, and
establishes principles and requirements for how an acquirer:
(1) recognizes and measures in its financial statements the
identifiable assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree; (2) recognizes and
measures the goodwill acquired in a business combination or gain
from a bargain purchase; and (3) determines what
information to disclose. SFAS 141(R) is effective for
business combinations in which the acquisition date is in the
first fiscal year after December 15, 2008. The Company will
be required to adopt SFAS 141(R) on January 1, 2009. The
Company is currently evaluating the impact, if any,
SFAS 141(R) will have on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (“SFAS 157”).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value
measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements,
the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement
attribute. Accordingly, this Statement does not require any new
fair value measurements. SFAS 157 is effective for
financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. This Statement was adopted by the Company on
January 1, 2008. The adoption of SFAS 157 did not have
a material effect on the Company’s consolidated financial
position or results of operations.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities — Including an amendment of FASB Statement
No. 115 (“SFAS 159”). SFAS 159
expands the use of fair value accounting but does not affect
existing standards which require assets or liabilities to be
carried at fair value. Under SFAS 159, a company may elect
to use fair value to measure accounts and loans receivable,
available-for-sale and held-to-maturity securities, equity
method investments, accounts payable, guarantees and issued
debt. If the use of the fair value is elected, any upfront costs
and fees related to the item must be recognized in earnings and
cannot be deferred. The fair value election is irrevocable and
generally made on an
instrument-by-instrument
basis, even if a company has similar instruments that it elects
not to measure based on fair value. At the adoption date,
unrealized gains and losses on existing items for which fair
value has been elected are reported as a cumulative adjustment
to beginning retained earnings. Subsequent to the adoption of
SFAS 159, changes in fair value are recognized in earnings.
SFAS 159 is effective for fiscal years beginning after
November 15, 2007 and therefore was adopted by the Company
on January 1, 2008. The Company has not elected to use fair
value for measuring financial assets and financial liabilities.
| 2. | Acquisition |
On February 29, 2008, GTS acquired all of the outstanding
stock of Group Transportation Services, Inc. and all of the
outstanding member units of GTS Direct, LLC. The purchase price
was $24.1 million, which was comprised of
$20.9 million of cash and 3,200 shares of GTS common
stock with an estimated fair value of $3.2 million. The
purchase price, including financing fees of approximately
$0.9 million, was financed with proceeds from the sale of
common stock by GTS of $13.4 million, the $3.2 million
non-cash issuance of common stock, and borrowings under the GTS
credit facility of $8.0 million.
In addition to the cash paid at closing, the agreement calls for
contingent consideration in the form of an earnout. The former
owner of Group Transportation Services, Inc. and GTS Direct, LLC
will receive a payment equal to the amount by which GTS’
earnings before income taxes, depreciation and amortization and
management fee (“EBITDAM”), as defined in the purchase
agreement, exceeds $3.0 million in a given year for five
years beginning with the calendar year ending December 31,
2008, up to a maximum payout of $3.5 million. The payments
will be allocated to goodwill if and when they are earned.
The acquisition of GTS on February 29, 2008 was accounted
for using the purchase method of accounting. Accordingly, the
assets acquired and liabilities assumed were recorded at their
estimated fair market values as of the date of acquisition with
the excess preliminary purchase price over the estimated fair
value of net assets being recorded as goodwill. The purchase
price allocation is preliminary and subject to change due to the
finalization of preliminary asset
F-45
Table of Contents
valuations and income tax related matters. The preliminary
estimated fair values of the assets acquired and liabilities
assumed are as follows (in thousands):
|
Accounts receivable
|
$ | 1,988 | ||
|
Prepaid expenses and other current assets
|
3,617 | |||
|
Property and equipment
|
2,875 | |||
|
Goodwill
|
23,248 | |||
|
Customer relationship intangible asset
|
700 | |||
|
Other assets
|
58 | |||
|
Accounts payable
|
(2,047 | ) | ||
|
Accrued expenses
|
(5,166 | ) | ||
|
Other liabilities
|
(1,166 | ) | ||
|
Total
|
$ | 24,107 | ||
The goodwill and other intangible assets recorded in connection
with the GTS acquisition is deductible for tax purposes.
The customer relationship intangible asset is being amortized
straight line over its estimated
5-year life
and has a net book value of $0.7 million as of
June 30, 2008. Amortization expense of $44,000 is included
in depreciation and amortization in the statement of operations
for the period from February 12, 2008 (date of inception)
through June 30, 2008.
| 3. | Long-Term Debt |
Long-term debt consisted of the following at June 30, 2008
(in thousands):
|
Revolving credit facility
|
$ | – | ||
|
Term loan
|
7,800 | |||
|
Total senior debt
|
7,800 | |||
|
Less: current maturities
|
(820 | ) | ||
|
Total long-term debt
|
$ | 6,980 | ||
On February 29, 2008, the Company entered into a new bank
credit agreement (the “Agreement”). The Agreement,
which is secured by all assets of the Company, includes a
$3.0 million revolving credit facility and an
$8.0 million term loan. The revolving credit facility and
term loan mature in 2014. Interest is payable quarterly at LIBOR
plus an applicable margin based upon the Company’s leverage
ratio or, at the Company’s option, prime plus an applicable
margin.
Principal is payable in quarterly installments ranging from
$0.2 million per quarter in 2008 increasing to
$0.8 million per quarter through 2013 and a final payment
due on February 28, 2014. The revolving credit facility
also provides for the issuance of up to $1.0 million in
letters of credit. As of June 30, 2008, the Company had no
outstanding letters of credit. Total availability under the
revolving credit facility was $3.0 million as of
June 30, 2008. At June 30, 2008, the interest rate on
the revolving credit facility and term loan was LIBOR (2.80% at
June 30, 2008) plus 3.25%.
The Agreement contains certain restrictive covenants that
require the Company to maintain certain leverage and fixed
charge coverage ratios. The Agreement also restricts dividend
payments, capital expenditures and the incurrence of additional
debt. The Company was in compliance with all covenants, as
defined in the Agreement, as of June 30, 2008.
| 4. | Stock-Based Compensation |
Stock Based Compensation — Successor
The Company’s Key Employee Equity Plan (the
“Plan”) permits the grant of stock options to Company
employees for up to 2,824 shares of common stock. The
Company views such awards as aligning the interests of its key
employees to those of its stockholders. Stock options under the
Plan are granted with an exercise price equal to or in excess of
the estimated fair value of the Company’s stock on the date
of grant. Options are exercisable ten years from the date of
grant, but only to the extent vested as specified in each option
agreement. All granted options are non-qualified options.
The Company’s share based payment awards are comprised of
stock options. Under SFAS No. 123 (revised 2004),
Share-Based Payment
(“SFAS 123(R)”), compensation cost for
the Company’s stock options is measured and recognized at
fair value using the Black-Scholes option-pricing model.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes valuation model. Because the
Company’s stock is privately held, it is not practical to
determine the Company’s share price volatility. Accordingly
the Company uses the historical share price volatility of
publicly traded companies within the transportation and
logistics sector as a surrogate for the expected volatility of
the Company’s stock. The expected life of the options
represents the expected time that the options granted will
remain outstanding. The risk-free rate used to calculate each
option valuation is based on the U.S. Treasury rate at the
time of option grants for a note with a similar lifespan. The
specific
F-46
Table of Contents
assumptions used to determine the weighted average fair value of
stock options granted during the period from February 12,
2008 (date of inception) through June 30, 2008 were as
follows:
|
Risk free interest rate
|
2.7%-3.2% | |
|
Dividend yield
|
– | |
|
Expected volatility
|
33.7%-33.8% | |
|
Expected life (years)
|
6 | |
|
Pro forma weighted average fair value of our stock options
granted
|
$321 |
A summary of the option activity under the Plan for the period
from February 12, 2008 (date of inception) through
June 30, 2008 is as follows:
|
Weighted- |
||||||||||||||||
|
Weighted- |
Average |
Aggregate |
||||||||||||||
|
Average |
Remaining |
Intrinsic |
||||||||||||||
|
Exercise Price |
Contractual |
Value |
||||||||||||||
| Shares | (in dollars) | Term Years | (000’s) | |||||||||||||
|
Outstanding at February 12, 2008 (date of inception)
|
– | – | – | – | ||||||||||||
|
Granted
|
2,541 | $ | 1,222 | |||||||||||||
|
Exercised
|
– | – | ||||||||||||||
|
Forfeited
|
– | – | ||||||||||||||
|
Outstanding at June 30, 2008
|
2,541 | $ | 1,222 | 9.8 | $ | 0 | ||||||||||
There were no options exercisable at June 30, 2008. Options
expected to vest are not significantly different from options
outstanding as of June 30, 2008.
Stock-Based Compensation — Predecessor
The Predecessor’s 2000 Stock Option Plan (the “2000
Plan”) permitted the grant of stock options to employees
for up to 12,000,000 shares of common stock.
Effective February 2, 2007, the sole director of the
Predecessor, in accordance with Section 141(f) of the
Delaware General Corporate Law and Sections 2.10 and 3.9 of
the Predecessor’s bylaws, took actions to (i) freeze
the 2000 Plan in its entirety, (ii) freeze all further
grants of options under the 2000 Plan, and (iii) 100% vest
all outstanding options granted under the 2000 Plan. At the time
of the Transaction, all outstanding options were terminated and
settled in cash for $3.5 million, recorded as a component
of personnel and related benefits in the statements of
operations for the period from January 1 through
February 29, 2008.
| 5. | Related Party Transaction |
The Company leases a building from a party who is also a
stockholder of GTS. The building is classified as a capital
lease on the accompanying balance sheets and has remaining
principal payments due monthly through 2020.
| 6. | Subsequent Event |
THCP II is an affiliate of Thayer Equity Investors V, L.P.,
the controlling stockholder of Roadrunner Transportation
Services Holdings, Inc. (“RRTS”). RRTS intends to file
a
Form S-1
to affect an initial public offering. Simultaneous with the
consummation of the offering, THCP II intends to merge the
Company with RRTS (“GTS Merger”). Consistent with the
provisions of SFAS 141, transfers of net assets or
exchanges of equity interests between entities under common
control do not constitute business combinations. Because the
Company and RRTS will have the same control group immediately
before and after the GTS Merger, the GTS Merger, if consummated,
will be accounted for as a combination of entities under common
control on a historical cost basis in a manner similar to a
pooling of interests. Accordingly, RRTS’ historical
financial statements would be recast to include GTS as of
February 29, 2008.
F-47
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Sargent:
We have audited the accompanying combined balance sheets of
Sargent Trucking, Inc.; Big Rock Transportation, Inc.; Midwest
Carriers, Inc.; B&J Transportation, Inc.; and Smith Truck
Brokers, Inc., (collectively, “Sargent”), all of which
are under common ownership and common management, as of
October 3, 2006 and December 31, 2005, and the related
combined statements of operations, stockholders’
investment, and cash flows for the period from January 1,
2006 through October 3, 2006 and for the year ended
December 31, 2005. These financial statements are the
responsibility of Sargent’s management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
Sargent is not required to have, nor were we engaged to perform,
an audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of Sargent’s
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all
material respects, the combined financial position of Sargent as
of October 3, 2006 and December 31, 2005, and the
combined results of their operations and their cash flows for
the period from January 1, 2006 through October 3,
2006 and for the year ended December 31, 2005, in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 8 to the combined financial
statements, Sargent was acquired by Sargent Transportation
Group, Inc., a majority owned subsidiary of Thayer Equity
Investors V, L.P. on October 4, 2006.
/s/ Deloitte
& Touche LLP
Milwaukee, Wisconsin
July 22, 2008
July 22, 2008
F-48
Table of Contents
SARGENT
COMBINED BALANCE SHEETS
COMBINED BALANCE SHEETS
(Dollars in
thousands)
|
October 3, |
December 31, |
|||||||
| 2006 | 2005 | |||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 8,834 | $ | 3,503 | ||||
|
Accounts receivable, net
|
23,780 | 24,587 | ||||||
|
Prepaid expenses and other current assets
|
1,289 | 2,008 | ||||||
|
Total current assets
|
33,903 | 30,098 | ||||||
|
PROPERTY AND EQUIPMENT, NET
|
811 | 701 | ||||||
|
GOODWILL
|
481 | 481 | ||||||
|
TOTAL ASSETS
|
$ | 35,195 | $ | 31,280 | ||||
| LIABILITIES AND STOCKHOLDERS’ INVESTMENT | ||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Bank line of credit
|
$ | – | $ | 1,500 | ||||
|
Accounts payable
|
3,793 | 2,270 | ||||||
|
Accrued expenses
|
1,011 | 881 | ||||||
|
Total current liabilities
|
4,804 | 4,651 | ||||||
|
LOANS TO STOCKHOLDERS
|
– | 1,000 | ||||||
|
Total liabilities
|
4,804 | 5,651 | ||||||
|
COMMITMENTS AND CONTINGENCIES (NOTE 6)
|
||||||||
|
STOCKHOLDERS’ INVESTMENT:
|
||||||||
|
Common stock (Note 5)
|
40 | 40 | ||||||
|
Additional paid-in capital
|
26 | 26 | ||||||
|
Retained earnings
|
30,325 | 25,563 | ||||||
|
Total stockholders’ investment
|
30,391 | 25,629 | ||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
$ | 35,195 | $ | 31,280 | ||||
The accompanying notes are an
integral part of these combined financial statements.
F-49
Table of Contents
(Dollars in
thousands)
|
Period from |
||||||||
|
January 1, |
||||||||
|
2006 |
Year |
|||||||
|
through |
Ended |
|||||||
|
October 3, |
December 31, |
|||||||
| 2006 | 2005 | |||||||
|
Revenues, net
|
$ | 148,821 | $ | 184,293 | ||||
|
Operating expenses:
|
||||||||
|
Purchased transportation costs
|
133,046 | 163,474 | ||||||
|
Other operating expenses
|
8,757 | 11,574 | ||||||
|
Depreciation
|
184 | 473 | ||||||
|
Total operating expenses
|
141,987 | 175,521 | ||||||
|
Operating income
|
6,834 | 8,772 | ||||||
|
Interest income
|
196 | 128 | ||||||
|
Interest expense
|
2 | 140 | ||||||
|
Income before provision for income taxes
|
7,028 | 8,760 | ||||||
|
Provision for income taxes
|
102 | 120 | ||||||
|
Net income
|
$ | 6,926 | $ | 8,640 | ||||
The accompanying notes are an
integral part of these combined financial statements.
F-50
Table of Contents
(Dollars in
thousands, except share amounts)
|
Additional |
Total |
|||||||||||||||||||
| Common Stock |
Paid-In |
Retained |
Stockholders’ |
|||||||||||||||||
| Shares | Amount | Capital | Earnings | Investment | ||||||||||||||||
|
BALANCE, January 1, 2005
|
1,000 | $ | 40 | $ | 26 | $ | 21,221 | $ | 21,287 | |||||||||||
|
Distribution to stockholders
|
(4,298 | ) | (4,298 | ) | ||||||||||||||||
|
Net income
|
8,640 | 8,640 | ||||||||||||||||||
|
BALANCE, December 31, 2005
|
1,000 | 40 | 26 | 25,563 | 25,629 | |||||||||||||||
|
Distribution to stockholders
|
(2,164 | ) | (2,164 | ) | ||||||||||||||||
|
Net income
|
6,926 | 6,926 | ||||||||||||||||||
|
BALANCE, October 3, 2006
|
1,000 | $ | 40 | $ | 26 | $ | 30,325 | $ | 30,391 | |||||||||||
The accompanying notes are an
integral part of these combined financial statements.
F-51
Table of Contents
(Dollars in
thousands)
|
Period from |
||||||||
|
January 1, |
||||||||
|
2006 |
Year |
|||||||
|
through |
Ended |
|||||||
|
October 3, |
December 31, |
|||||||
| 2006 | 2005 | |||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net income
|
$ | 6,926 | $ | 8,640 | ||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||
|
Depreciation
|
184 | 473 | ||||||
|
Changes in:
|
||||||||
|
Accounts receivable
|
807 | (4,076 | ) | |||||
|
Prepaid expenses and other assets
|
719 | (1,164 | ) | |||||
|
Accounts payable
|
1,523 | (216 | ) | |||||
|
Accrued expenses
|
130 | 404 | ||||||
|
Net cash provided by operating activities
|
10,289 | 4,061 | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Capital expenditures
|
(294 | ) | (349 | ) | ||||
|
Net cash used in investing activities
|
(294 | ) | (349 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Net borrowings (payments) under revolving line of credit
|
(1,500 | ) | 200 | |||||
|
Payment of stockholder notes
|
(1,000 | ) | (253 | ) | ||||
|
Distributions to stockholders
|
(2,164 | ) | (4,298 | ) | ||||
|
Net cash used in financing activities
|
(4,664 | ) | (4,351 | ) | ||||
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
5,331 | (639 | ) | |||||
|
CASH AND CASH EQUIVALENTS:
|
||||||||
|
Beginning of period
|
3,503 | 4,142 | ||||||
|
End of period
|
$ | 8,834 | $ | 3,503 | ||||
|
SUPPLEMENTAL CASH FLOWS INFORMATION:
|
||||||||
|
Cash paid for interest
|
$ | 2 | $ | — | ||||
|
Cash paid for foreign income taxes (net of refunds)
|
$ | 30 | $ | 259 | ||||
The accompanying notes are an
integral part of these combined financial statements.
F-52
Table of Contents
Sargent
Notes to Combined Financial Statements
Notes to Combined Financial Statements
| 1. | Significant Accounting Policies |
Organization and Nature of Business
Sargent Trucking, Inc. (a Maine corporation) and its affiliated
entities Big Rock Transportation, Inc. and Midwest Carriers,
Inc. (both Indiana corporations), B & J
Transportation, Inc. and Smith Truck Brokers, Inc. (both Maine
corporations) (collectively, “Sargent” or the
“Company”) were all under common ownership and
operated under common management during all periods presented
herein. Accordingly, the accompanying financial statements have
been prepared on combined basis.
Sargent is headquartered in Mars Hill, Maine. Sargent operates
as a transportation and truckload brokerage business pursuant to
U.S. Department of Transportation authority from 14 offices
throughout the continental United States and Canada.
As discussed in Note 8, Sargent Transportation Group, Inc.
(“STG”), a majority owned subsidiary of Thayer Equity
Investors V, L.P., acquired all of the outstanding common
stock of the Company on October 4, 2006. The accompanying
combined financial statements reflect all accounting prior to
the transferring of funds by the purchaser related to the sale
of the Company.
Principles of Combination
The Company’s combined financial statements include the
accounts of Sargent Trucking, Inc., Big Rock Transportation,
Inc., Midwest Carriers, Inc., B&J Transportation, Inc., and
Smith Truck Brokers, Inc. All intercompany balances and
transactions have been eliminated in combination.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash equivalents are defined as short-term investments that have
an original maturity of three months or less at the date of
purchase and are readily convertible into cash. The Company
maintains cash in several banks and, at times, the balances may
exceed federally insured limits. The Company does not believe it
is exposed to any material credit risk on cash.
In connection with the Company’s Canadian business
activities, the Company maintains certain bank accounts with a
Canadian Bank. These balances are recorded in the accompanying
financial statements in U.S. dollars using the exchange
rate in effect at the applicable reporting date. As of
October 3, 2006 and December 31, 2005 these balances
amounted to $0.4 million and $0.7 million,
respectively.
Accounts Receivable
Accounts receivable represent trade receivables from customers
and are stated net of an allowance for doubtful accounts of
$0.2 million as of October 3, 2006 and
December 31, 2005. Management estimates the portion of
accounts receivable that will not be collected and accounts are
written off when they are determined to be uncollectible.
Accounts receivable are uncollateralized and are generally due
30 days from the invoice date.
Property and Equipment
Property and equipment are stated at cost. Maintenance and
repair costs are charged to expense as incurred. For financial
reporting purposes, depreciation is calculated using the
straight line method over the following estimated useful lives:
|
Buildings and leasehold improvements
|
5 - 15 years | |||
|
Equipment, furniture and fixtures
|
3 - 7 years |
Accelerated depreciation methods are used for tax reporting
purposes.
Goodwill
Goodwill represents the excess of the purchase price over the
estimated fair value of the net assets acquired from business
acquisitions and has an indefinite life. The Company performs an
annual goodwill impairment analysis on
F-53
Table of Contents
December 31 (or more frequently if events or circumstances
indicate an impairment may be present). This analysis is
performed using a two-step process that begins with an
estimation of the fair value at the “reporting unit”
level. Fair value of such reporting units is determined using a
discounted cash flows methodology. The Company’s reporting
units are businesses one level below the operating segment level
for which discrete financial information is prepared and
regularly reviewed by management. The first step is a screen for
potential impairment and the second measures the amount of the
impairment, if any. No goodwill impairment was identified during
the period ended October 3, 2006 or the year ended
December 31, 2005.
Income Taxes
The Company and its stockholders elected subchapter
S Corporation status under the Internal Revenue Code (and
similar state tax law provisions in most states) and therefore,
the Company generally is not subject to United States federal or
state income taxes. Accordingly, the accompanying combined
financial statements do not include a provision for United
States income taxes or liability for current or deferred income
taxes. Rather, the Company’s income or loss is allocated to
stockholders for inclusion in their personal income tax returns.
Stockholder distributions are declared each year in order to
fund stockholders’ personal income tax liabilities
associated with their allocated income or loss.
The Company is subject to certain income taxes in Canada and
accordingly records a provision for such income taxes in the
Company’s combined statements of operations.
On October 4, 2006, the Company was purchased by STG in a
transaction that qualified as a deemed asset sale under Internal
Revenue Code 338(h)(10) (see Note 8). As such, the
Company’s stockholders included in their personal income
tax return the gain on such sale.
Fair Value of Financial Instruments
Fair values of cash and cash equivalents, accounts receivable
and accounts payable approximate their carrying values due to
their short-term nature.
Revenue Recognition
The Company records revenue when all of the following have
occurred: an agreement of sale exists; pricing is fixed or
determinable; delivery has occurred; and the Company’s
obligation to fulfill a transaction is complete and collection
of revenue is reasonably assured.
In accordance with Emerging Issues Task Force Issue
99-19,
Reporting Revenue Gross as a Principal Versus Net as an
Agent, the Company recognizes revenue on a gross basis, as
opposed to a net basis, because it bears the risks and benefits
associated with revenue-generated activities by, among other
things, (1) acting as a principal in the transaction,
(2) managing all aspects of the shipping process and
(3) taking the risk of loss for collection, delivery and
returns.
New Accounting Pronouncements
In July, 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes — an
Interpretation of FASB Statement 109 (“FIN 48”)
which clarifies the accounting for uncertainty in income taxes
recognized in an entity’s financial statements in
accordance with SFAS 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and
measurement principles for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. The
provisions of FIN 48 are effective for non-public entities
for years beginning after December 15, 2007 with the
cumulative effect of the change in accounting principle, if any,
recorded as an adjustment to opening retained earnings.
| 2. | Property and Equipment |
Property and equipment consisted of the following at
October 3, 2006 and December 31, 2005 (in thousands):
| 2006 | 2005 | |||||||
|
Buildings and leasehold improvements
|
$ | 233 | $ | 209 | ||||
|
Equipment, furniture and fixtures
|
2,144 | 1,906 | ||||||
|
Gross property and equipment
|
2,377 | 2,115 | ||||||
|
Less: Accumulated depreciation
|
(1,566 | ) | (1,414 | ) | ||||
|
Property and equipment, net
|
$ | 811 | $ | 701 | ||||
Depreciation expense for the period from January 1, 2006
through October 3, 2006 and the year ended
December 31, 2005 was $0.2 million and
$0.5 million, respectively.
F-54
Table of Contents
| 3. | Long-Term Debt |
As of December 31, 2005, the Company had a variable rate
line of credit that provided for borrowings of up to
$1.5 million secured by certain trade accounts receivable.
Interest on the line was payable on a quarterly basis at a rate
of prime plus 1% (8.25% at December 31, 2005). The
outstanding balance on this line of credit was repaid during
2006 and was not renewed.
As of December 31, 2005, the stockholders had various
short-term loans outstanding to the Company. Interest was
accrued on these loans at rates ranging from 3% to 5%. All
outstanding loans were repaid during 2006.
| 4. | Income Taxes |
The Company’s effective tax rate was 1.5% and 1.4% for the
period from January 1, 2006 through October 3, 2006
and the year ended December 31, 2005, respectively. The
Company’s tax provision is attributable to Canadian and
Provincial statutory income taxes on Canadian sourced income.
The Company had no significant deferred taxes at October 3,
2006 or December 31, 2005.
| 5. | Stockholders’ Investment |
The Company had the following authorized and issued shares of
common stock as of October 3, 2006 and December 31,
2005:
|
Shares |
Shares |
|||||||||||
| Par Value | Authorized | Issued | ||||||||||
|
Sargent Trucking, Inc.
|
$ | 100 per share | 1,000 | 400 | ||||||||
|
Big Rock Transportation, Inc.
|
No par value | 1,000 | 100 | |||||||||
|
Midwest Carriers, Inc.
|
No par value | 1,000 | 100 | |||||||||
|
Smith Truck Brokers, Inc.
|
No par value | 3,000 | 200 | |||||||||
|
B&J Transportation, Inc.
|
No par value | 3,000 | 200 | |||||||||
| 6. | Commitments and Contingencies |
Employee Benefit Plans
The Company sponsors the Sargent Trucking, Inc. 401(k) plan (the
“401(k) Plan”) to provide retirement benefits for
substantially all full-time employees. As allowed under
Section 401(k) of the Internal Revenue Code, the 401(k)
Plan provides for tax deferred salary contributions for eligible
employees. The 401(k) Plan allows annual additions to a
participant’s account of up to the lesser of $30,000 or 25%
of a participant’s compensation on a pre tax basis.
Participant contributions are limited to a maximum annual amount
as set periodically by the Internal Revenue Code. The 401(k)
Plan calls for the Company to match 100% of contributions up to
3% of an employee’s compensation and 50% of contributions
on the next 2% of an employee’s compensation. Matching
contributions to the 401(k) Plan totaled $0.1 million for
both the period from January 1, 2006 through
October 3, 2006 and for the year ended December 31,
2005, respectively, and has been classified as a component of
other operating expenses in the accompanying combined statement
of operations.
Leases
The Company leases office space under noncancelable operating
leases expiring on various dates through 2009. Total rent
expense from operating leases was $1.3 million for the
period from January 1, 2006 through October 3, 2006
and $1.4 million for the year ended December 31, 2005,
and has been classified as a component of other operating
expenses in the accompanying combined statement of operations.
Aggregate future minimum lease payments under noncancelable
operating leases extend through 2009 and are de minimis.
Contingencies
In the ordinary course of business, the Company is a defendant
in several property and other claims. The Company maintains
liability insurance coverage for claims. Management believes it
has adequate insurance to cover losses in excess of the
deductible amount.
| 7. | Related Party Transactions |
As of December 31, 2005, certain stockholders had various
short-term loans outstanding to the Company totaling
$1.0 million. All such loans were repaid during 2006.
Interest expense for the period from January 1, 2006
through October 3, 2006 and for the year ended
December 31, 2005 was de minimis.
F-55
Table of Contents
| 8. | Subsequent Event |
On October 4, 2006, STG, a majority owned subsidiary of
Thayer Equity Investors V, L.P., acquired all of the
outstanding common stock of the Company. The total
consideration, net of cash acquired of approximately
$2.2 million and before consideration of the earnout
provisions prescribed by the acquisition agreement, was
approximately $46.2 million. The acquisition price,
including financing fees of approximately $0.9 million was
financed with proceeds from the sale of common stock by STG of
$16.9 million and borrowings under credit facilities of
$26.5 million and a note payable to the former owners of
Sargent of $5.0 million. At the time of the acquisition,
the Company’s former line of credit arrangement was
terminated.
On March 14, 2007, STG merged with Roadrunner Dawes, Inc.
(“RDS”), majority-owned subsidiary of Thayer Equity
Investors V, L.P. At the time of the merger, each
outstanding STG share was converted into two-tenths of a share
of the RDS’ Class A common stock. In addition, 10-year
warrants to purchase 15,198 shares of RDS’ Class A
common stock at a purchase price of $2,000 per share were
issued to the existing stockholders of STG.
F-56
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Roadrunner Freight Systems, Inc.
Roadrunner Freight Systems, Inc.
We have audited the accompanying balance sheet of Roadrunner
Freight Systems, Inc. (the “Company”) as of
April 29, 2005 and the related statements of operations,
stockholders’ investment, and cash flows for the period
from January 1, 2005 through April 29, 2005. These
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the auditing standards
of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits
included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for expressing an
opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Roadrunner Freight
Systems, Inc. as of April 29, 2005, and the results of its
operations and its cash flows for the period from
January 1, 2005 through April 29, 2005 in conformity
with accounting principles generally accepted in the United
States of America.
As discussed in Note 8, all of the Company’s
outstanding common stock was acquired by Thayer LTL Holding
Corp., a majority owned subsidiary of Thayer Equity
Investors V, L.P., subsequent to the close of business on
April 29, 2005.
/s/ Deloitte
& Touche LLP
Milwaukee, Wisconsin
July 22, 2008
July 22, 2008
F-57
Table of Contents
ROADRUNNER
FREIGHT SYSTEMS, INC.
BALANCE SHEET
April 29, 2005
(Dollars in thousands, except share amounts)
BALANCE SHEET
April 29, 2005
(Dollars in thousands, except share amounts)
|
ASSETS
|
||||
|
CURRENT ASSETS:
|
||||
|
Cash
|
$ | 1,503 | ||
|
Accounts receivable, net
|
12,731 | |||
|
Deferred income taxes
|
1,273 | |||
|
Prepaid expenses and other current assets
|
1,610 | |||
|
Total current assets
|
17,117 | |||
|
PROPERTY AND EQUIPMENT, NET
|
2,180 | |||
|
OTHER ASSETS:
|
||||
|
Goodwill
|
48,642 | |||
|
Other noncurrent assets
|
2,233 | |||
|
Total other assets
|
50,875 | |||
|
TOTAL ASSETS
|
$ | 70,172 | ||
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
||||
|
CURRENT LIABILITIES:
|
||||
|
Current maturities of long-term debt
|
$ | 2,000 | ||
|
Accounts payable
|
9,121 | |||
|
Accrued expenses and other liabilities
|
4,419 | |||
|
Total current liabilities
|
15,540 | |||
|
LONG-TERM DEBT, net of current maturities
|
31,677 | |||
|
PUT WARRANTS AND OTHER LONG-TERM LIABILITIES
|
7,243 | |||
|
Total liabilities
|
54,460 | |||
|
COMMITMENTS AND CONTINGENCIES (NOTE 6)
|
||||
|
STOCKHOLDERS’ INVESTMENT:
|
||||
|
Common stock $.001 par value; 1,000,000 shares
authorized,
344,366 shares issued and outstanding |
— | |||
|
Additional paid-in capital
|
19,631 | |||
|
Accumulated deficit
|
(3,919 | ) | ||
|
Total stockholders’ investment
|
15,712 | |||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
$ | 70,172 | ||
The accompanying notes are an
integral part of this financial statement.
F-58
Table of Contents
ROADRUNNER
FREIGHT SYSTEMS, INC.
STATEMENT OF OPERATIONS
Period from January 1, 2005 through April 29, 2005
(Dollars in thousands)
STATEMENT OF OPERATIONS
Period from January 1, 2005 through April 29, 2005
(Dollars in thousands)
|
Revenues, net
|
$ | 48,755 | ||
|
Operating expenses:
|
||||
|
Purchased transportation costs
|
34,858 | |||
|
Personnel and related benefits
|
7,365 | |||
|
Other operating expenses
|
6,880 | |||
|
Depreciation
|
357 | |||
|
Total operating expenses
|
49,460 | |||
|
Operating loss
|
(705 | ) | ||
|
Loss on put warrants
|
2,316 | |||
|
Interest expense
|
1,094 | |||
|
Loss before income tax benefit
|
(4,115 | ) | ||
|
Income tax benefit
|
(675 | ) | ||
|
Net loss
|
$ | (3,440 | ) | |
The accompanying notes are an
integral part of this financial statement.
F-59
Table of Contents
ROADRUNNER
FREIGHT SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS’ INVESTMENT
Period from January 1, 2005 through April 29, 2005
(Dollars in thousands, except share amounts)
STATEMENT OF STOCKHOLDERS’ INVESTMENT
Period from January 1, 2005 through April 29, 2005
(Dollars in thousands, except share amounts)
|
Class A |
Additional |
Total |
||||||||||||||||||
| Common Stock |
Paid-In |
Accumulated |
Stockholders’ |
|||||||||||||||||
| Shares | Amount | Capital | Deficit | Investment | ||||||||||||||||
|
BALANCE, January 1, 2005
|
344,366 | $ | — | $ | 17,011 | $ | (479 | ) | $ | 16,532 | ||||||||||
|
Stock-based compensation expense
|
2,620 | 2,620 | ||||||||||||||||||
|
Net loss
|
(3,440 | ) | (3,440 | ) | ||||||||||||||||
|
BALANCE, April 29, 2005
|
344,366 | $ | — | $ | 19,631 | $ | (3,919 | ) | $ | 15,712 | ||||||||||
The accompanying notes are an
integral part of this financial statement.
F-60
Table of Contents
ROADRUNNER
FREIGHT SYSTEMS, INC.
STATEMENT OF CASH FLOWS
Period from January 1, 2005 through April 29, 2005
(Dollars in thousands)
STATEMENT OF CASH FLOWS
Period from January 1, 2005 through April 29, 2005
(Dollars in thousands)
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||
|
Net loss
|
$ | (3,440 | ) | |
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
||||
|
Loss on put warrants
|
2,316 | |||
|
Option grant compensation expense
|
2,620 | |||
|
Depreciation
|
357 | |||
|
Amortization of debt discount
|
24 | |||
|
Deferred interest
|
51 | |||
|
Provision for bad debts and freight bill adjustments
|
17 | |||
|
Income tax benefit
|
(675 | ) | ||
|
Changes in:
|
||||
|
Accounts receivable, net
|
(64 | ) | ||
|
Prepaid expenses and other assets
|
(487 | ) | ||
|
Accounts payable
|
775 | |||
|
Accrued expenses and other liabilities
|
(419 | ) | ||
|
Net cash provided by operating activities
|
1,075 | |||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||
|
Capital expenditures
|
(54 | ) | ||
|
Net cash used in investing activities
|
(54 | ) | ||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||
|
Payment of long-term debt
|
(1,000 | ) | ||
|
Net cash used in financing activities
|
(1,000 | ) | ||
|
NET INCREASE IN CASH
|
21 | |||
|
CASH:
|
||||
|
Beginning of period
|
1,482 | |||
|
End of period
|
$ | 1,503 | ||
|
SUPPLEMENTAL CASH FLOWS INFORMATION:
|
||||
|
Cash paid for interest
|
$ | 791 |
The accompanying notes are an
integral part of this financial statement.
F-61
Table of Contents
Roadrunner
Freight Systems, Inc.
Notes to Financial
Statements
| 1. | Significant Accounting Policies |
Organization and Nature of Business
Roadrunner Freight Systems, Inc. (“Roadrunner” or the
“Company”) is headquartered in Cudahy, Wisconsin.
Roadrunner operates as a common and contract motor carrier
pursuant to U.S. Department of Transportation authority and
is engaged primarily in transportation of less-than-truckload
shipments. Roadrunner has 8 terminals and operates throughout
the United States.
As discussed in Note 8, subsequent to the close of business
on April 29, 2005, the controlling stockholder of Dawes
Holding Corporation (“DHC”) through Thayer LTL Holding
Corp. (“THC”) (a majority-owned subsidiary of Thayer
Equity Investors V, L.P.), acquired all of the outstanding
capital stock of Roadrunner. The accompanying financial
statements reflect all accounting prior to the consummation of
the sale of the Company.
Cash
The Company maintains cash in several banks and, at times, the
balances may exceed federally insured limits. The Company does
not believe it is exposed to any material credit risk on cash.
As of April 29, 2005, approximately $0.5 million of
checks drawn in excess of bank balances was classified as
accounts payable in the accompanying balance sheet.
Accounts Receivable
Accounts receivable represent trade receivables from customers
and are stated net of an allowance for doubtful accounts and
pricing allowances of $0.6 million as of April 29,
2005. Management estimates the portion of accounts receivable
that will not be collected and accounts are written off when
they are determined to be uncollectible. Accounts receivable are
uncollateralized and are generally due 30 days from the
invoice date.
Property and Equipment
Property and equipment are stated at cost. Maintenance and
repair costs are charged to expense as incurred. For financial
reporting purposes, depreciation is calculated using the
straight-line method over the following estimated useful lives:
|
Leasehold improvements
|
5 - 15 years | |||
|
Equipment, furniture and fixtures
|
5 years |
Accelerated depreciation methods are used for tax reporting
purposes.
Goodwill
Goodwill assets result from business acquisitions and have been
accounted for in accordance with the provisions of
SFAS No. 142, Goodwill and Other Intangibles
(“SFAS 142”) and SFAS No. 141,
Business Combinations (“SFAS 141”). The Company
accounts for business acquisitions by assigning the purchase
price to tangible and intangible assets and liabilities. Assets
acquired and liabilities assumed are recorded at their fair
values and the excess of the purchase price over amounts
assigned is recorded as goodwill.
SFAS 142 provides specific guidance for testing goodwill
and indefinite lived intangible assets for impairment. Goodwill
is tested for impairment at least annually using a two-step
process that begins with an estimation of the fair value at the
“reporting unit” level. The Company’s reporting
units are businesses one level below the operating segment level
for which discrete financial information is prepared and
regularly reviewed by management. The first step is a screen for
potential impairment and the second measures the amount of the
impairment, if any. No goodwill impairment was identified during
the period from January 1, 2005 through April 29, 2005.
Income Taxes
The Company recognizes deferred income tax assets and
liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax
returns. Deferred income taxes are determined using the
liability method, which considers future tax consequences
associated with the difference between financial accounting and
tax bases of assets and liabilities using currently enacted tax
rates (see Note 4).
Fair Value of Financial Instruments
Fair values of cash, accounts receivable and accounts payable
approximate cost. The estimated fair values of long-term debt
have been determined using market information and valuation
methodologies, primarily discounted cash flows
F-62
Table of Contents
analysis. These estimates require considerable judgment in
interpreting market data, and changes in assumptions or
estimation methods could significantly affect the fair value
estimates. Based on the borrowing rates currently available to
the Company for loans with similar terms and average maturities,
the estimated fair value of the bank debt approximates carrying
value at April 29, 2005.
Stock-Based Compensation
The Company accounts for its stock option plan in accordance
with the provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees,
(“APB 25”) as permitted by SFAS No. 123,
Accounting for Stock-Based Compensation,
(“SFAS 123”). Under APB 25, compensation expense
is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price of the
stock option (see Note 5).
Revenue Recognition
The Company recognizes revenue when all of the following have
occurred: an agreement of sale exists; pricing is fixed or
determinable; delivery has occurred; and the Company’s
obligation to fulfill a transaction is complete and collection
of revenue is reasonably assured.
In accordance with Emerging Issues Task Force Issue
99-19,
Reporting Revenue Gross as a Principal Versus Net as an
Agent, the Company recognizes revenue on a gross basis, as
opposed to a net basis, because it bears the risk and benefits
associated with revenue-generated activities by, among other
things, (1) acting as a principal in the transaction,
(2) establishing prices, (3) managing all aspects of
the shipping process and (4) taking the risk of loss for
collection, delivery and returns.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
| 2. | Property and Equipment |
Property and equipment consisted of the following at
April 29, 2005 (in thousands):
|
Leasehold improvements
|
$ | 600 | ||
|
Equipment, furniture and fixtures
|
10,504 | |||
|
Gross property and equipment
|
11,104 | |||
|
Less: Accumulated depreciation
|
(8,924 | ) | ||
|
Property and equipment, net
|
$ | 2,180 | ||
Depreciation expense for the period from January 1, 2005
through April 29, 2005 was $0.4 million.
F-63
Table of Contents
| 3. | Long-Term Debt |
Long-term debt consisted of the following at April 29, 2005
(in thousands):
| Line of credit | $ | 9,000 | ||
| Bank term note, payable in monthly installments of $250 through December 31, 2005 increasing to $500 through December 31, 2009 maturity date. Interest is payable monthly at LIBOR plus an applicable margin or, at the Company’s option, prime plus an applicable margin. At April 29, 2005, the interest rate was LIBOR (3.1% at April 29, 2005) plus 3%. | 20,000 | |||
| Senior subordinated note, payable to American Capital, Ltd. (“ACAS”), principal at issuance date of $15,200. As of April 29, 2005, balance includes deferred interest of $61 and is net of $101 of unamortized debt discount. Interest accrues at 15.5% of which 12.5% is payable monthly and 3% is deferred until maturity of debt. The effective interest rate on the note is 19.1%. Principal and deferred interest is due with a final payment due on July 25, 2009 | 760 | |||
| Junior subordinated note A, payable to ACAS, principal at issuance date of $875. As of April 29, 2005, balance includes deferred interest of $8 and is net of $104 of unamortized debt discount. Interest accrues at 16% of which 13% is payable monthly and 3% is deferred until maturity of debt. The effective interest rate on the note is 21.5%. Principal and deferred interest is due with a final payment due on July 25, 2010. | 788 | |||
| Junior subordinated note B, payable to ACAS, principal at issuance date of $3,475. As of April 29, 2005, balance includes deferred interest of $35 and is net of $416 of unamortized debt discount. Interest accrues at 15.4% of which 12.4% is payable monthly and 3% is deferred until maturity of debt. The effective interest rate on the note is 20.8%. Principal and deferred interest is due with a final payment due on July 25, 2010. | 3,129 | |||
|
Total
|
$ | 33,677 | ||
|
Less: Current maturities
|
(2,000 | ) | ||
|
Long-term debt, net of current maturities
|
$ | 31,677 | ||
The Company has a bank line of credit which matures
December 31, 2009. The maximum borrowing on the line of
credit is limited to the lesser of the commitment or the
borrowing base. The commitment at April 29, 2005 was
$12.0 million. The borrowing base includes eligible account
receivables and is reduced for any outstanding letters of
credit. Based on the borrowing base formula at April 29,
2005, there was approximately $3.0 million of unused
available borrowing capacity.
The interest rate on the line is at LIBOR plus an applicable
margin or, at the Company’s option, prime plus an
applicable margin. At April 29, 2005, the interest rate was
LIBOR (3.1% at April 29, 2005) plus 2.5%.
The bank line of credit, term note and junior subordinated notes
are secured by substantially all assets of the Company.
The credit agreements with the bank and ACAS require the Company
to maintain and meet certain minimum net worth, working capital
and other operating ratios. The agreements also limit dividends
and distributions to stockholders, investments, expenditures for
property and equipment, other indebtedness, commitments,
guarantees and contingent liabilities, among other items. As of
April 29, 2005, the Company was in compliance with the
covenants contained in the bank and ACAS credit agreements.
Aggregate maturities of long-term debt for each of the next five
years ending after April 29, 2005 were as follows (in
thousands):
|
2005
|
$ | 2,000 | ||
|
2006
|
3,500 | |||
|
2007
|
4,000 | |||
|
2008
|
5,033 | |||
|
2009
|
15,475 | |||
|
Thereafter
|
4,290 | |||
|
Total
|
34,298 | |||
|
Less: Unamortized debt discount
|
(621 | ) | ||
|
Total carrying value
|
$ | 33,677 | ||
F-64
Table of Contents
| 4. | Income Taxes |
The income tax benefit for the period from January 1, 2005
through April 29, 2005 consisted of the following (in
thousands):
|
Current
|
$ | — | ||
|
Deferred
|
(675 | ) | ||
|
Total
|
$ | (675 | ) | |
A reconciliation of income taxes computed at the statutory rates
to the reported income tax benefit for the period from
January 1, 2005 through April 29, 2005 is as follows
(in thousands):
|
Federal tax benefit at statutory rates
|
$ | (1,440 | ) | |
|
State tax benefit, net of federal benefit
|
(53 | ) | ||
|
Loss on put warrants
|
810 | |||
|
Other
|
8 | |||
|
Total income tax benefit
|
$ | (675 | ) | |
A summary of deferred income tax assets and liabilities as of
April 29, 2005 is as follows (in thousands):
|
Current deferred income tax assets:
|
||||
|
Accounts receivable
|
$ | 212 | ||
|
Accounts payable and accrued expenses
|
1,061 | |||
|
Total
|
$ | 1,273 | ||
|
Non-current deferred income tax assets (liabilities):
|
||||
|
Property and equipment
|
$ | (361 | ) | |
|
Options
|
996 | |||
|
Other
|
32 | |||
|
Total
|
$ | 667 | ||
The net current deferred income tax asset of $1.3 million
is classified in the balance sheet at April 29, 2005 as
deferred income taxes. The net non-current deferred income tax
asset of $0.7 million is classified in the balance sheet at
April 29, 2005 as a component of other noncurrent assets.
| 5. | Stockholders’ Investment |
Common Stock
All shares of common stock have voting rights. All common stock
is subject to a Shareholders’ Agreement which includes
restrictions on transferability.
Under certain circumstances, including a change in control of
the Company, as defined in the Shareholders’ Agreement, the
Company is obligated to purchase common stock offered for sale
by certain stockholders, as defined in the Shareholders’
Agreement, at fair market value.
Stock Options
The Company’s Key Incentive Plan authorizes grants of
options to purchase up to 55,556 shares of authorized, but
unissued, common stock with an exercise price of $43.38, the
fair value of a share of common stock at the date the plan was
adopted in 2003, except that qualified stock options granted to
individuals possessing more than 10% of the common stock shall
have an exercise price of at least 110% of the stock’s fair
market value at the date of grant. In addition,
90,634 shares were granted in 2003 related to the
conversion and rollover of a previous plan. The difference
between the exercise price and the estimated fair value of these
options was recorded as a component of additional
paid-in-capital.
In 2005, the Company granted 39,261 options with an exercise
price of $43.38. A $2.6 million expense has been recorded
as compensation expense in the accompanying statement of
operations to reflect the excess fair market value per option
above the exercise price.
F-65
Table of Contents
A summary of stock options at April 29, 2005 is as follows:
|
Number |
Range |
Weighted |
||||||||||
|
of |
of |
Average |
||||||||||
| Shares | Exercise Price | Exercise Price | ||||||||||
|
Outstanding at January 1, 2005
|
106,928 | $ | 12.28 – 43.38 | $ | 23.99 | |||||||
|
Options granted
|
39,261 | 43.38 | 43.38 | |||||||||
|
Options forfeited
|
— | — | — | |||||||||
|
Outstanding at April 29, 2005
|
146,189 | $ | 12.28 – 43.38 | $ | 29.19 | |||||||
|
Exercisable, April 29, 2005
|
146,189 | $ | 12.28 – 43.38 | $ | 29.19 | |||||||
Put Warrants to Purchase Common Stock
In connection with the issuance of senior and junior
subordinated notes payable to ACAS, the Company issued
detachable stock purchase warrants (“Put Warrants”) to
purchase up to a total 65,000 shares of the Company’s
common stock at any time with an exercise price of $.001 per
share. The Put Warrants expire on July 25, 2013 and contain
a put feature which provides the warrant holder with the option
to require the Company to purchase, at fair market value, as
defined, all or a portion of such warrants or the shares of
common stock issued upon exercise of such warrants, at the
earlier of (i) July 25, 2008, (ii) the date the
senior and junior subordinated notes are paid in full,
(iii) the date the principal and interest are paid in full
on the senior debt, or (iv) upon a change in control.
The Put Warrants were valued by management at their estimated
fair value at the time of issuance in the amount of
$2.8 million and have been accounted for in accordance with
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity, whereby the initial fair value of such warrants was
recorded as a component of other long-term liabilities in the
accompanying balance sheet and the offset recognized as a debt
discount net against junior subordinated notes payable to ACAS.
The debt discount is being amortized under the effective
interest rate method over the life of the debt. Subsequent
changes in the fair value of Put Warrants are being recognized
as a gain or loss on put warrants in the accompanying statement
of operations. During the period from January 1, 2005
through April 29, 2005, the Company recognized a loss on
put warrants of approximately $2.3 million. The total
estimated fair value at April 29, 2005 was approximately
$7.2 million and is recorded as a component of put warrants
and other long-term liabilities in the accompanying balance
sheet.
| 6. | Commitments and Contingencies |
Employee Benefit Plan
The Company sponsors a defined contribution profit sharing plan
for substantially all full-time employees of the Company. The
plan calls for the Company to match 25% of up to 6% of an
employee’s compensation and allows the Company to make a
discretionary match as determined by the board of directors up
to an additional 75% of contributions up to 6% of an
employee’s compensation. Total Company contributions
charged to operations for the period from January 1, 2005
through April 29, 2005 were de minimis.
Operating Leases
The Company leases terminals and office space under
noncancelable operating leases expiring on various dates through
2020 with both a related party and third parties. Total rent
expense from operating leases was $0.8 million for the
period from January 1, 2005 through April 29, 2005,
and has been classified as a component of other operating
expenses in the accompanying statement of operations.
Aggregate future minimum lease payments under noncancelable
operating leases with an initial term in excess of one year were
as follows as of April 29, 2005 (in thousands):
|
Operating |
Operating |
|||||||||||
|
Lease with |
Leases with |
|||||||||||
| Related Party | Third Parties | Total | ||||||||||
|
2005
|
$ | 144 | $ | 1,367 | $ | 1,511 | ||||||
|
2006
|
216 | 1,287 | 1,503 | |||||||||
|
2007
|
216 | 1,016 | 1,232 | |||||||||
|
2008
|
216 | 803 | 1,019 | |||||||||
|
2009
|
216 | 584 | 800 | |||||||||
|
Thereafter
|
2,196 | 581 | 2,777 | |||||||||
F-66
Table of Contents
Contingencies
In the ordinary course of business, the Company is a defendant
in certain claims. Management believes it has adequate insurance
to cover losses in excess of the deductible amount. As of
April 29, 2005, the Company had reserves for estimated
uninsured losses of $0.4 million.
| 7. | Related Party Transactions |
During the first quarter of 2005, the building leased by the
Company for its corporate offices was purchased by Iceburg
Development, LLC (“Iceburg”). Iceburg is owned by a
minority stockholder of the Company and two officers of the
Company. Total lease payments made to Iceburg for the period
from January 1, 2005 through April 29, 2005 was
$36,000. The aggregate future minimum lease commitment to
Iceburg as of April 29, 2005 was $3.2 million.
ACAS, the holder of the Company’s subordinated notes, is
also a stockholder of the Company. Following is a summary of the
transactions with ACAS (in thousands):
|
Interest expense |
||||||
|
Principal owed |
for the period from |
|||||
|
as of |
January 1, 2005 |
|||||
|
April 29, 2005
|
through April 29, 2005
|
|||||
| $4,677 | $375 |
In addition, American Capital Financial Services, Inc.
(“ACFS”), an affiliate of ACAS, receives an annual
management fee. Total management fees paid to ACFS for the
period from January 1, 2005 through April 29, 2005 was
$0.1 million, and has been classified as a component of
other operating expenses in the accompanying statement of
operations.
| 8. | Subsequent Event |
The controlling stockholder of DHC formed THC and acquired all
of the outstanding common stock of the Company on April 29,
2005. Total consideration, net of cash acquired of
$0.8 million was approximately $92.6 million. The
acquisition price and financing fees of approximately
$1.4 million were financed with proceeds from the sale of
common stock by THC of $42.2 million and borrowings under
credit facilities of approximately $52.6 million. At the
time of the acquisition, all of the Company’s outstanding
debt and Put Warrants were settled in cash, the Company’s
line of credit was terminated, and vesting of all outstanding
employee stock options were accelerated and settled in cash.
F-67
Table of Contents
Roadrunner Transportation
Services Holdings, Inc.
Shares
of Common Stock
BB&T Capital
Markets
Table of Contents
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
| Item 13. | Other Expenses of Issuance and Distribution. |
The following table sets forth the expenses in connection with
the offering described in the registration statement (other than
underwriting discounts and commissions). All such expenses are
estimates except for the SEC registration fee, the FINRA filing
fee, and the Nasdaq Stock Market listing fee. These expenses
will be borne by our company.
|
SEC registration fee
|
$ | 5,895 | ||
|
FINRA filing fee
|
15,500 | |||
|
Blue Sky fees and expenses
|
* | |||
|
Nasdaq Stock Market listing fee
|
* | |||
|
Transfer agent and registrar fees
|
* | |||
|
Accountants’ fees and expenses
|
* | |||
|
Legal fees and expenses
|
* | |||
|
Printing and engraving expenses
|
* | |||
|
Miscellaneous fees
|
* | |||
|
Total
|
$ | * | ||
| * | To be filed by amendment. |
| Item 14. | Indemnification of Directors and Officers. |
Section 145 of the Delaware General Corporation Law, or
DGCL, permits, in general, a Delaware corporation to indemnify
any person who was or is a party to any proceeding (other than
an action by, or in the right of, the corporation) by reason of
the fact that he or she is or was a director or officer of the
corporation, or served another entity in any capacity at the
request of the corporation, against liability incurred in
connection with such proceeding, including the estimated
expenses of litigating the proceeding to conclusion and the
expenses actually and reasonably incurred in connection with the
defense or settlement of such proceeding, including any appeal
thereof, if such person acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, in criminal actions or
proceedings, additionally had no reasonable cause to believe
that his or her conduct was unlawful. Section 145(e) of the
DGCL permits the corporation to pay such costs or expenses in
advance of a final disposition of such action or proceeding upon
receipt of an undertaking by or on behalf of the director or
officer to repay such amount if he or she is ultimately found
not to be entitled to indemnification under the DGCL.
Section 145(f) of the DGCL provides that the
indemnification and advancement of expense provisions contained
in the DGCL shall not be deemed exclusive of any rights to which
a director or officer seeking indemnification or advancement of
expenses may be entitled.
Our certificate of incorporation and bylaws provide, in general,
that we shall indemnify, to the fullest extent permitted by law,
any and all persons whom we shall have the power to indemnify
under those provisions from and against any and all of the
expenses, liabilities, or other matters referred to in or
covered by those provisions. Our certificate of incorporation
and bylaws also provide that the indemnification provided for
therein shall not be deemed exclusive of any other rights to
which those indemnified may be entitled as a matter of law or
which they may be lawfully granted.
The above discussion of our certificate of incorporation,
bylaws, and Section 145 of the DGCL is only a summary and
is qualified in its entirety by the full text of each of the
foregoing.
In connection with this offering, we are entering into
indemnification agreements with each of our current directors
and officers to give these directors and officers additional
contractual assurances regarding the scope of the
indemnification set forth in our certificate of incorporation
and bylaws and to provide additional procedural protections. We
expect to enter into a similar agreement with any new directors
or executive officers.
We are in the process of obtaining directors’ and
officers’ liability insurance with
$ million
of coverage.
Pursuant to the Underwriting Agreement to be filed as
Exhibit 1 to this registration statement, the underwriters
have agreed to indemnify our directors, officers, and
controlling persons against certain civil liabilities that may
be incurred in connection with this offering, including certain
liabilities under the Securities Act of 1933, as amended. The
underwriters severally and not jointly will indemnify and hold
harmless our company and each of our directors, officers, and
controlling persons from and against any liability caused by any
statement or omission in the registration statement, prospectus,
any preliminary prospectus, or any amendment or supplement
thereto, in each case to the extent that the statement or
omission
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Table of Contents
was made in reliance upon and in conformity with written
information furnished to us by the underwriters expressly for
use therein.
| Item 15. | Recent Sales of Unregistered Securities. |
During the three years preceding the filing of the registration
statement, we sold the following securities, which were not
registered under the Securities Act of 1933. The information
below does not reflect the conversion of our Class A common
stock or Class B common stock into shares of a single class
of common stock on
a -for-one
basis.
In July 2006, we issued an aggregate of 215 shares of our
common stock to an aggregate of seven of our employees in
exchange for aggregate consideration of $215,000, or $1,000 per
share. We issued these shares of common stock to our employees
in reliance upon Section 4(2) of the Securities Act of 1933
and Rule 506 promulgated thereunder as a transaction by an
issuer not involving a public offering. Each employee had
adequate access to information about our company through his
relationship with our company or through information provided to
him.
In March 2007, we issued 16,572 shares of our common stock
to our largest existing stockholder, 157.5 shares to an
affiliate of our largest existing stockholder, and
175 shares to an accredited investment fund in exchange for
Sargent common stock in connection with the merger of Sargent
into us. In addition, we issued an aggregate of 15,197.9
warrants, with exercise prices of $2,000 per share, to these
entities in connection with the Sargent merger. No additional
consideration was paid for the warrants. We issued these
securities to these accredited investors in reliance upon
Section 4(2) of the Securities Act of 1933 and
Rule 506 promulgated thereunder as a transaction by an
issuer not involving a public offering. Each entity had adequate
access to information about our company through its relationship
with our company or through information provided to them.
In March 2007, we issued an aggregate of 5,000 shares of
our Series A preferred stock to the former stockholders of
Sargent upon conversion of $5,000,000 in aggregate principal
amount of Sargent subordinated promissory notes held by those
stockholders in connection with the merger of Sargent into us.
We issued these shares of Series A preferred stock to these
stockholders in reliance upon Section 4(2) of the
Securities Act of 1933 as a transaction by an issuer not
involving a public offering. Each holder had adequate access to
information about our company through his relationship with our
company or through information provided to him.
In connection with the GTS merger, which will occur
simultaneously with this offering, we will issue an aggregate
of shares
of our common stock to two entities affiliated with our largest
stockholder, five GTS employees, and one additional accredited
investor, in exchange for all of the issued and outstanding
common stock of GTS. In addition, upon consummation of the GTS
merger, we will issue an aggregate
of
options to 15 GTS employees in connection with our assumption of
all outstanding options to purchase GTS common stock issued by
GTS to its employees. These shares and options will be issued in
reliance upon Section 4(2) of the Securities Act of 1933
and Rule 701 promulgated thereunder as a transaction by an
issuer not involving a public offering. Each holder has or will
have adequate access to information about our company through
its or his relationship with our company or through information
provided to it or him.
We did not, nor do we plan to, pay or give, directly or
indirectly, any commission or other remuneration, including
underwriting discounts or commissions, in connection with any of
the issuances of securities listed above. In addition, each of
the certificates issued or to be issued representing the
securities in the transactions listed above bears or will bear a
restrictive legend permitting the transfer thereof only in
compliance with applicable securities laws. The recipients of
securities in each of the transactions listed above represented
to us or will be required to represent to us their intention to
acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof. All
recipients had or have adequate access, through their employment
or other relationship with our company or through other access
to information provided by our company, to information about our
company.
| Item 16. | Exhibits and Financial Statement Schedules. |
(a) Exhibits
|
Exhibit |
||||
| Number |
Exhibit
|
|||
| *1 | Form of Underwriting Agreement | |||
| **3 | .1 | Form of Amended and Restated Certificate of Incorporation | ||
| **3 | .2 | Form of Second Amended and Restated Bylaws | ||
| *4 | .1 | Form of Common Stock Certificate | ||
| **4 | .2 | Second Amended and Restated Stockholders’ Agreement, dated as of March 14, 2007, by and among the Registrant and the stockholders named therein | ||
| 5 | Form of Opinion of Greenberg Traurig, LLP | |||
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Table of Contents
|
Exhibit |
||||
| Number |
Exhibit
|
|||
| **10 | .1 | Second Amended and Restated Credit Agreement, dated as of March 14, 2007, by and among the Registrant; the Lenders (as defined therein); LaSalle Bank National Association, as Administrative Agent; and U.S. Bank National Association, as Syndication Agent | ||
| **10 | .2 | Amended and Restated Notes Purchase Agreement, dated as of March 14, 2007, by and among the Registrant; the Guarantors (as defined therein); and the Purchasers (as defined therein) | ||
| **10 | .3 | Stock Purchase Agreement, dated as of October 4, 2006, by and among Sargent Transportation Group, Inc.; the Acquired Entities (as defined therein); and the Sellers (as defined therein) | ||
| **10 | .4 | Purchase Agreement, dated as of February 29, 2008, by and among Michael P. Valentine, Group Transportation Services, Inc., GTS Direct, LLC, and GTS Acquisition Sub, Inc. | ||
| **10 | .5 | Lease Agreement, dated as of July 1, 2005, by and between GTS Services LLC and Group Transportation Services, Inc. | ||
| **10 | .6 | First Amendment to Lease Agreement, dated as of February 29, 2008, by and between GTS Services LLC and Group Transportation Services, Inc. | ||
| *10 | .7 | Form of Stock Option Agreement | ||
| *10 | .8 | 2008 Incentive Compensation Plan | ||
| *10 | .9 | Form of Indemnification Agreement | ||
| *10 | .10 | Agreement and Plan of Merger, dated as of , 2008, by and among the Registrant; GTS Transportation Logistics, Inc.; and Group Transportation Services Holdings, Inc. | ||
| **10 | .11 | Amended and Restated Management and Consulting Agreement, dated as of March 14, 2007, by and among the Registrant, ThayerHidden Creek Management, L.P.; Eos Management, Inc.; and the Companies (as defined therein) | ||
| **21 | List of Subsidiaries | |||
| 23 | .1 | Consent of Deloitte & Touche LLP relating to the consolidated financial statements of Roadrunner Transportation Services Holdings, Inc. and subsidiaries (the Successor) and the financial statements of Dawes Transport, Inc. (the Predecessor) | ||
| 23 | .2 | Consent of Deloitte & Touche LLP relating to the combined financial statements of Group Transportation Services, Inc. and GTS Direct, LLC | ||
| 23 | .3 | Consent of Deloitte & Touche LLP relating to the combined financial statements of Sargent Trucking, Inc.; Big Rock Transportation, Inc.; B&J Transportation, Inc.; Midwest Carriers, Inc.; and Smith Truck Brokers, Inc. | ||
| 23 | .4 | Consent of Deloitte & Touche LLP relating to the financial statements of Roadrunner Freight Systems, Inc. | ||
| 23 | .5 | Consent of Greenberg Traurig, LLP (included in Exhibit 5) | ||
| **24 | Power of Attorney of Directors and Executive Officers (included on the signature page of this registration statement) | |||
| * | To be filed by amendment. | |
| ** | Previously filed. |
(b) Financial Statement Schedules
The registrant has not provided any financial statement
schedules because the information called for is not required or
is shown either in the financial statements or the notes thereto.
| Item 17. | Undertakings. |
The undersigned registrant hereby undertakes to provide to the
underwriter, at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by
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Table of Contents
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment no. 2 to the
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cudahy,
State of Wisconsin, on October 7, 2008.
ROADRUNNER TRANSPORTATION SERVICES
HOLDINGS, INC.
HOLDINGS, INC.
| By: |
/s/ Mark
A. DiBlasi
|
Mark A. DiBlasi
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment no. 2 to the registration statement has been
signed by the following persons in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ Mark
A. DiBlasi |
President, Chief Executive Officer, and Director (Principal Executive Officer) | October 7, 2008 | ||
|
/s/ Peter
R. Armbruster |
Vice President, Chief Financial Officer, Secretary, and Treasurer (Principal Accounting and Financial Officer) | October 7, 2008 | ||
|
/s/ Ivor
J. Evans* |
Chairman of the Board | October 7, 2008 | ||
|
/s/ Scott
D. Rued* |
Director | October 7, 2008 | ||
|
/s/ Judith
A. Vijums* |
Director | October 7, 2008 | ||
|
/s/ James
J. Forese* |
Director | October 7, 2008 | ||
|
/s/ Samuel
B. Levine* |
Director | October 7, 2008 | ||
|
/s/ Brian
D. Young* |
Director | October 7, 2008 | ||
|
/s/ Chris
H. Carey* |
Director | October 7, 2008 | ||
|
*By:
/s/ Peter
R. Armbruster Attorney-in-Fact |
II-5