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EX-23.1 - CONSENT OF ERNST & YOUNG LLP - Panther Expedited Services, Inc.dex231.htm
EX-10.32 - EXECUTIVE NONQUALIFIED EXCESS PLAN - Panther Expedited Services, Inc.dex1032.htm
EX-10.33 - SECOND SERVICES AGREEMENT WITH FUSION SOFTWARE INC. DATED AS OF AUGUST 25, 2010 - Panther Expedited Services, Inc.dex1033.htm
Table of Contents

As filed with the Securities and Exchange Commission on September 21, 2010

Registration No. 333-168609

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT No. 1

to

FORM S-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

Panther Expedited Services, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   4731   20-2825225

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

4940 Panther Parkway

Seville, Ohio 44273

(330) 769-5830

(Address, including zip code and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Andrew C. Clarke

President and Chief Executive Officer

Panther Expedited Services, Inc.

4940 Panther Parkway

Seville, Ohio 44273

(330) 769-5869

(Name, address, including zip code and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Mark A. Scudder, Esq.

Scudder Law Firm, P.C., L.L.O

411 South 13th Street, Suite 200

Lincoln, Nebraska 68508

(402) 435-3223

 

Andrew Keller, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017-3954

(212) 455-2000

 

 

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 (the “Securities Act”) check the following box.  ¨

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.  ¨

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.  ¨

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.  ¨

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

 

Large accelerated filer  ¨

  Accelerated filer  ¨   Non-accelerated filer  x   Smaller reporting company   ¨

(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of securities

to be registered

  

Proposed

maximum

aggregate

offering price(2)

  

Amount of

registration fee(3)

Common Stock, par value $0.01 per share offered by the Company

   $ 100,000,000.00    $7,130.00

Common Stock, par value $0.01 per share offered by the selling stockholders(1)

   $ 15,000,000    $1,069.50

Total

   $ 115,000,000    $8,199.50
 
 

 

1.   See “Underwriting.”

 

2.   Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

 

3.   Pursuant to Rule 457(p) under the Securities Act, the registration fee of $8,199.50 that would otherwise be payable under Rule 457 is hereby offset against the Registrant’s registration fee of $26,750.00 paid to the SEC in advance of a previously filed Registration Statement on Form S-1 (Registration No. 333-134704) on June 2, 2006 in relation to shares of common stock that were then supposed to be registered thereunder. Subsequently, it was determined not to register the offer and sale of these shares and these shares were never sold. Accordingly, no registration fee is being paid herewith.

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, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to completion, dated September 21, 2010

Preliminary Prospectus

             shares

LOGO

Panther Expedited Services, Inc.

Common stock

This is an initial public offering of shares of our common stock. The estimated initial public offering price is between $             and $             per share.

We intend to apply to list our common stock for trading on the              under the symbol “PTHR.”

 

      Per share    Total
 

Initial public offering price

   $                 $             

Underwriting discounts and commissions

   $      $  

Proceeds to us, before expenses

   $      $  
 

The selling stockholders have granted the underwriters an option for a period of              days to purchase from us up to              additional shares of common stock at the initial public offering price, less the underwriting discounts and commissions. The selling stockholders are not offering any shares other than those contemplated by the overallotment option, and we will not receive any of the proceeds from any sale of the shares of common stock by the selling stockholders pursuant to that option.

Investing in our common stock involves a high degree of risk. See “Risk factors” beginning on page 15.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on             .

 

J.P. Morgan      Goldman, Sachs & Co.

 

UBS Investment Bank

    

BB&T Capital Markets

 

  WR Securities   

                    , 2010


Table of Contents

LOGO


Table of Contents

Table of contents

 

Market data

   ii

Glossary of key terms

   iii

Prospectus summary

   1

Risk factors

   15

Forward-looking statements

   35

Use of proceeds

   37

Dividend policy

   38

Capitalization

   39

Dilution

   41

Unaudited pro forma consolidated financial data

   43

Selected consolidated financial data

   48

Management’s discussion and analysis of financial condition and results of operations

   51

Industry

   73

Business

   76

Management

   94

Executive compensation

   104

Certain relationships and related party transactions

   117

Principal and selling stockholders

   121

Description of capital stock

   123

Shares eligible for future sale

   130

Material United States federal income tax consequences to non-U.S. holders

   132

Underwriting

   135

Legal matters

   142

Experts

   142

Where you can find more information

   142

Index to financial statements

   F-1

You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize to be delivered to you. Neither we nor the underwriters have authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. We and the underwriters are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information in this prospectus is accurate only as of the date on the front cover, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, prospects, financial condition and results of operations may have changed since that date.

 

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Table of Contents

Until                     , (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

Market data

This prospectus contains market data related to our business and industry and forecasts that we obtained from industry publications and surveys and our internal sources. SJ Consulting Group, Inc., or SJ Consulting, was our primary independent source of industry and market data, whom we hired to provide analysis of our industry. Some data and other information also are based on our good faith estimates, which are derived from our review of internal surveys and independent sources. The market and industry data contained in this prospectus have been included herein with the permission of the authors, as necessary.

Although we believe that all industry publications and reports cited herein are reliable, neither we nor the underwriters have independently verified the data. Our internal data and estimates are based upon information obtained from our customers, suppliers, trade and business organizations, contacts in the industry in which we operate, and management’s understanding of industry conditions. We believe that such information is reliable and take such publications and reports into account when operating our business. However, we have not had such information verified by independent sources.

 

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Glossary of key terms

Average shipments per business day” means the total number of shipments during the relevant period divided by the total number of business days in the period.

“Average number of employees” means our total number of employees at the end of each month during the relevant period divided by the number of months in such period.

Average revenue per shipment” means our total revenues in the referenced period divided by the total number of shipments for which revenues were recognized over the same period.

“CSA 2010” means the Federal Motor Carrier Safety Administration’s new Comprehensive Safety Analysis 2010 program that ranks both fleets and individual drivers on seven categories of safety-related data. CSA 2010 will eventually replace the current Safety Status Measurement System used by the Federal Motor Carrier Safety Administration.

“C-TPAT” means the Customs-Trade Partnership Against Terrorism, a program designed to improve cross-border security between the United States and Canada and the United States and Mexico. Carrier members of the C-TPAT are entitled to shorter border delays and other priorities over non-member carriers.

“Cartage company” is a local carrier that provides pick-up and delivery services as well as relatively short-haul freight transportation services at the origin and destination of shipments.

“DOT” means Department of Transportation or the U.S. government department responsible for establishing the nation’s overall transportation policy.

“EDI” or “Electronic Data Interchange” is a structured transmission of data between organizations by electronic means.

“Elite Services” is our term for highly specialized services and customized handling for customers with special needs such as temperature-control and temperature-control protocol validation, government certifications, special security, emergency recoveries or distributions and heavy-weight and oversized shipments.

“Expedited carrier” means a carrier specializing in the safe delivery of time-sensitive freight, involving pick-up and delivery of freight within narrow time windows.

“Federal Aviation Administration” is an agency of the United States Department of Transportation with the authority to regulate and oversee all aspects of civil aviation in the U.S.

“Federal Motor Carrier Safety Administration” or “FMCSA” was established within the Department of Transportation on January 1, 2000 with the mission to ensure safety in motor carrier operations and to prevent commercial motor vehicle-related fatalities and injuries.

“FMC” means the U.S. Federal Maritime Commission, which is responsible for the regulation of ocean-borne transportation in the foreign commerce of the United States.

“Freight forwarder” is a person or company that organizes air and ocean and shipments for shippers. An air freight forwarder provides pick-up and delivery service, consolidates shipments into larger units, prepares bills of lading in its own capacity and tenders shipments to the airlines on behalf of its customers. Air freight forwarders do not generally operate their own aircraft. Because the air freight forwarder tenders the shipment, the airlines consider the forwarder to be the actual

 

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shipper. An ocean freight forwarder dispatches shipments from the United States via carriers and books or otherwise arranges space for those shipments on behalf of shippers. Ocean freight forwarders also prepare and process the documentation and perform related activities pertaining to those shipments. A specialized subset of ocean freight forwarders are companies registered as a non-vessel operating common carriers or “NVOCCs.” An NVOCC is a common carrier that holds itself out to the public to provide ocean transportation, issues its own bills of lading or equivalent documents, but does not operate the vessels by which ocean transportation is provided. An NVOCC is the shipper party in relation to the involved ocean common carrier.

“Geofencing” means routing a shipment across a mandatory, defined route with satellite monitoring and automated alerts concerning any deviation from the route.

“Gross profit percentage” means our revenues, minus purchased transportation costs, divided by revenues over the referenced period and is used as an indicator of our success in managing transportation costs and our margin available to cover all of our other costs.

Ground expedite” is the segment of the freight transportation market that provides time-sensitive transportation of freight.

“Hazardous material” means a substance or combination thereof which, because of its quantity, concentration, physical or chemical characteristics, may cause or pose a substantial hazard to human health or the environment when improperly packaged, stored, transported or otherwise managed.

“Indirect air carrier” means any person or entity within the United States not in possession of a Federal Aviation Administration air carrier operating certificate, that undertakes to engage indirectly in air transportation of property and uses for all or any part of such transportation the services of a passenger air carrier.

“Lean supply chain” means an operational strategy oriented toward delivering the shortest possible cycle time by eliminating waste and reducing incidental work, characterized by just-in-time materials and inventory, short cycle times and sequential workflows.

“Loaded mile” means a mile that is driven for a customer, for which we are compensated.

“Logistics” involves the integration of information, transportation, inventory, warehousing, material handling and packaging and, as needed, security. Logistics is a channel of the customer’s supply chain that adds value of time and place utility.

“Owner operator” means an independent contractor who has been contracted by us to supply one or more tractors and drivers for our use. Owner operators are generally compensated on a per-mile basis and must pay their own operating expenses, such as fuel, maintenance and driver costs and must meet our specified safety standards.

Premium freight logistics” means arranging the door-to-door transportation of freight requiring specialized services, whether because of time critical requirements, special handling requirements, high value freight, the need for special permits, the complexity of the movement of the shipment, the need to access multiple modes of transportation, or otherwise.

“Qualcomm units” are satellite-based tracking and communication systems that allow us to track the movement of, and communicate with, our owner operators.

 

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“Third-party carrier network” means the carriers we use to handle loads not transported by our owner operators and includes cartage agents, smaller expedited carriers, air freight carriers, and ocean shipping lines.

“Third-party logistics provider” or “3PL” means a third party provider that specializes in integrated operations, warehousing and transportation services that can be scaled and customized to a customer’s needs based on market conditions and the demands and delivery service requirements for the customers.

“Truckload brokerage” means the customer shipments for which we contract with third-party truckload carriers to haul traditional non-premium freight at the request of the customer.

“Truckload carrier” means a carrier that generally dedicates an entire trailer to one customer from origin to destination.

“TSA” means the U.S. Transportation Security Administration, which was created in the wake of September 11, 2001, to strengthen the security of the U.S. transportation system.

“XML” or “Extensible Markup Language” is a set of rules for encoding documents in machine-readible form. It is defined in the XML 1.0 Specification produced by the W3C, and several other related specifications, all gratis open standards.

 

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Prospectus summary

This summary highlights information contained elsewhere in this prospectus. It is not complete and may not contain all the information that may be important to you. You should read the entire prospectus carefully before making an investment decision, especially the information presented under the heading “Risk factors” and our consolidated financial statements and the related notes included elsewhere in this prospectus. Unless otherwise stated, all references to “us,” “our,” “we,” “Panther,” the “Company” and similar designations refer to Panther Expedited Services, Inc., and its subsidiaries.

Our company

We are one of North America’s largest expedited transportation providers with an expanding platform in premium freight logistics and freight forwarding. We offer single-source ground, air and ocean shipping solutions for time-sensitive, high-value and service-critical freight, with on-demand pick up and delivery to and from anywhere in the world. Our diversified, non-asset based transportation network consists of approximately 1,075 exclusive-use owner-operator vehicles, over 1,600 third-party ground carriers that provide additional North American capacity and over 500 air and ocean cargo carriers that provide global reach. During the twelve months ended June 30, 2010, we handled shipments for over 10,000 customers. We operate throughout nearly all segments of the supply chain for customers in diverse industries. In addition, many of the largest transportation and third-party logistics companies in the world turn to us for transportation solutions they cannot provide for customers on their own. Our proprietary, integrated and scalable information technology platform enables our customers to better manage their supply chain performance and expenses by optimizing cost and service decisions. We believe it also allows us to deliver superior customer service, operate more efficiently, and offer our owner operators enhanced productivity. Our non-asset based business model allows us to expand organically without the capital investments required by our asset-based competitors. This creates the opportunity to generate significant cash flows and to react quickly based on business opportunities and challenges.

 

 

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Our objective is to grow our revenues and profitability substantially. Since 2006, we have undertaken a number of initiatives to utilize our historical core strength in expedited ground freight as a platform to grow an expanded array of premium freight logistics offerings. Our initiatives include hiring Andrew C. Clarke as President to guide our growth, expanding our industry vertical markets to broaden our customer base and geographic footprint, acquiring our customer-facing shipping quote optimization engine, acquiring West Coast sales and operations in freight forwarding and intensifying the marketing of our air freight, ocean and other services. We believe these initiatives have been highly successful, contributing to the following progress between 2006 and the first six months of 2010:

 

Strategic initiative   2006(1)   2010(1)
 
Build comprehensive suite of service categories offered  

92% U.S. ground expedited

8% Elite Services

 

66% North American ground expedited

16% Elite Services

14% air and ocean freight

4% all other

Diversify customer base  

53% automotive

21% 3PL

21% manufacturing

5% government, life science, high value

 

35% 3PL, excluding automotive

26% automotive, including auto 3PL

21% manufacturing

18% government, life science, high value

Enhance technology platform  

Real-time track and trace

Web-based transactions

 

Real-time track and trace

Web-based transactions

One CallSM Solution

Network optimization

Geofencing

EDI and XML integration

Embed in customers’ supply chains   Top ten customers average 1.9 services   Top ten customers average 3.0 services
Expand addressable market   Primarily U.S. expedited transportation  

Expedited transportation

Premium freight logistics

Freight forwarding

 

Total addressable market

 

$3.0 billion

$22.7 billion

$4.6 billion (domestic)

$176.0 billion (global)

$206.3 billion

 

 

(1)   Percentage amounts based on revenue. Information reflects 2005 as the base year. 2010 numbers are results realized through the first six months of 2010 with the exception of the addressable market sizes, which are based on 2009 estimates by SJ Consulting.

As a public company with a strengthened balance sheet, we expect to expand our North American owner-operator fleet, hire experienced freight forwarding sales personnel in targeted gateway cities and pursue selected acquisitions. We believe that the ongoing execution of our strategic plan will help us embed our services as an essential component of our customers’ supply chains, cross-sell solutions and achieve substantial growth.

We believe we have a strong and expanding transportation and logistics network. From our base in owner-operator expedited ground transportation, we have expanded our network to include third-party carriers, air and ocean freight forwarders, and cartage companies. For the six months ended June 30, 2010, we derived approximately 66% of our revenues from North American expedited ground transportation. The balance of our revenues were generated from our growing domestic and international air and ocean freight services, our Elite Services, which involve highly specialized solutions and customized handling for customers with special needs, and truckload brokerage services. We provide our North American ground services through exclusive-use owner operators of

 

 

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straight trucks, tractor-trailers and cargo vans, supplemented with capacity from approximately 1,600 third-party carriers. The owner operators are exclusively contracted to us, while the third-party carriers operate independently and are allocated shipments when our network optimization technology dictates or we require additional capacity. In the first six months of 2010, owner operators generally handled between 70% and 90% of our weekly ground freight volume, with third-party carriers handling the balance and affording us flexible capacity to serve customers.

Our competitive strengths

We believe our competitive strengths collectively afford us advantages against non-asset based competitors that lack our exclusive owner-operator capacity as well as asset-based and fixed network providers that lack our flexibility. We believe our competitive strengths include the following:

Leader in single-source premium freight logistics.

Our non-asset based network offers customers customized, global shipment alternatives without the constraints of either a fixed-asset or fixed-schedule network or limited geography. This affords us greater ability to offer to customers multiple solutions to optimize their shipping dollar with service and cost certainty. In addition, our North American ground franchise and owner-operator capacity provide a strong foundation for cross-selling our growing suite of services.

Proprietary IT platform.

Our information technology platform combines sophisticated software with local knowledge of shipping schedules and capacity providers to enable us to quickly accept customer orders, manage network density, and optimize our network. We offer customers a fully automated, web-based fulfillment process supported by a specialized staff to manage complex customer requirements. Our One Call SM Solution evaluates over 200,000 multi-modal shipping alternatives and presents the customer with the best shipment options based on time, service level, security and pricing priorities. For our owner operators, our web-based network optimization software helps position them for productivity and success by statistically predicting future demand levels. We believe that these applications strengthen our relationships with our customers and owner operators and enhance our productivity.

Non-asset based business model promotes scalable operations.

Our non-asset based business model provides us with significant flexibility to expand without making large capital investments. We obtain 100% of our network capacity from owner operators, third-party ground carriers, air freight carriers, ocean shipping lines and other transportation asset providers. These providers supply assets such as trucks, container ships and aircraft and bear virtually all transportation-related expenses in exchange for a specified payment per shipment or per mile. Our model capitalizes on the incentives that owner operators and third-party providers have as business owners to operate reliably, safely and productively. In each of the past three years, our capital expenditures (excluding acquisitions) have been approximately one percent of revenues.

 

 

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Industry vertical focus.

We employ industry experts in key vertical markets where specialized knowledge, experience and relationships can help solve our customers’ most pressing transportation challenges. Each industry expert has sales and marketing responsibility over markets such as (i) third party logistics providers or “3PLs”, (ii) automotive, (iii) manufacturing, (iv) government and defense, (v) high value products, and (vi) life science and pharmaceuticals. In the premium freight logistics market, where every shipment is critical, we believe our industry experts’ knowledge of our customers’ businesses provides a competitive advantage. For example, we are able to offer secret clearance and specialized equipment for Department of Defense shipments, customized cold-chain solutions that comply with Food and Drug Administration protocols for pharmaceuticals and hazmat and chain of custody assurance for the pharmaceuticals industry.

Comprehensive premium package that is difficult to replicate.

We believe our expedited, premium freight logistics and freight forwarding markets have time and cost hurdles confronting competitors that seek to establish a single-source solution. First, stringent service requirements, which include 24 hours a day, 7 days a week, 365 days a year availability, on-demand pick up and delivery within narrow time windows and a high level of customized service, make it difficult for carriers with asset-intensive, owned networks or a primary focus on traditional freight transportation to provide the type of flexibility and service required by our customers in the premium freight logistics market. Second, our extensive network of North American and global ground, air and ocean carriers would be difficult to replicate without considerable investments in time, relationships and technology. Third, a competitive technology platform would require significant capital investments, resources and time to develop and deploy. Fourth, obtaining a full suite of certifications as a motor carrier, broker, freight forwarder, non-vessel operating common carrier and indirect air carrier, as well as clearance for C-TPAT, Department of Defense and other security agencies, requires time and expertise.

Our growth strategy

We believe our business model has positioned us well for continued growth and for profitability, which we intend to pursue through the following initiatives:

Broader penetration of existing accounts.

Our comprehensive suite of services positions us to expand our share of transportation expenditures of existing accounts through cross-selling opportunities. Since 2006, our account penetration has expanded to 3.0 services per top ten customer (by revenue) from 1.9 services. In the first six months of 2010, over 1,000 customers used more than one service. In the first six months of 2010, nine of our top ten customers utilized our air and ocean freight forwarding offerings, which we introduced in 2007. Customers that use multiple services are more profitable and more frequent users. We will continue to mine our database of 10,000 current and 30,000 historical customers to supply leads to our sales force and commit our North American capacity to large customers based on a total relationship approach.

 

 

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Expand customer base within targeted industries.

We are leveraging our expertise and anchor relationships in target industries to gain additional customers in those industries. Since 2006, we have expanded our operations to cover six targeted industries and hired experts to oversee our operations in these industries. Our industry experts have developed detailed operating protocols that can be adapted readily to specific customer requirements and have specific sales goals for their markets. In addition, our industry experts have deep knowledge of each facet of the customer experience from shipment booking through planning, tracking and delivery. We believe our industry experts provide a significant competitive advantage in many of the targeted industries that demand highly specialized transportation solutions.

Expand our North American network.

We are expanding our North American network by actively recruiting owner operators and third-party carriers.

 

 

Owner operators.    Our exclusive owner-operator capacity is a competitive advantage, and we are actively seeking to expand our owner-operator fleet. We seek to offer our owner operators a more attractive package than our competitors. We also offer technology that provides our owner operators visibility of all shipments in our system as well as “hot spots” where they can reposition their vehicles to quickly pick up the next load. In addition, we are highly focused on our owner operators’ quality of life concerns and maintain good relations with our owner operators. We also have identified attributes of successful fleet operators and are actively recruiting small business owners to invest in additional fleets.

 

 

Third party carrier network.    Our third-party carrier network allows us to grow revenue independent of the size of our owner-operator fleet. Since 2006, we have expanded our third-party network to over 1,600 third-party ground carriers. Our flexible network of third party carriers allows us to capture significant revenue beyond what our exclusive owner operators can handle.

Grow international air and ocean freight forwarding.

Since 2008, we have developed an international capability by offering air and ocean freight forwarding services. We see tremendous opportunity in this $176 billion (as of 2009) global market. In the first six months of 2010 we handled shipments to or from 38 countries, and international shipments contributed 6.5% of our revenue. We are pursuing this market aggressively by soliciting North American customers for their international business as part of our single-source solution. We have targeted 10 international gateway cities in the United States (New York, Atlanta, Miami, Chicago, Dallas, Houston, San Diego, Los Angeles, San Francisco, and Seattle) where we are hiring experienced international sales people and investing in building our brand in these markets. Because our international business is non-asset based, the expansion cost is relatively small compared with asset-based network operators.

Pursue selected acquisitions.

Over the past five years we completed three acquisitions and successfully integrated their operations. These acquisitions expanded our owner-operator network, enhanced our air freight forwarding capabilities, provided a West Coast sales and operations footprint and brought us our

 

 

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network optimization software. We intend to continue to evaluate and pursue selected acquisitions with an emphasis on businesses that we expect to expand our geographic coverage, increase our network density, accelerate our expansion into new industry verticals, or expand our service capabilities.

Industry opportunity

The global freight transportation industry includes a broad range of transportation modes and service levels. Within this industry, Panther operates in three key growing markets, expedited transportation, premium freight logistics and freight forwarding.

Expedited transportation services are used by clients for time-critical services and are characterized by very stringent pick-up and delivery windows, advanced technology and high levels of customer service. Examples of such time-critical requirements are just-in-time deliveries of spare parts and components to manufacturers, specific delivery windows for large retail chains with significant penalties for delayed deliveries, and special shipments of new electronic product releases for holiday shopping seasons. Expeditors typically provide 24 hours a day, 7 days a week and 365 days a year availability, on demand pick-up within 90 minutes of request and delivery within 15 minutes of customer-specified times, and real-time tracking and tracing. Service providers in the expedited market include pure expeditors that maintain a dedicated network for expedited shipments and larger carriers that offer expedited services as a part of a broader transportation offering. Due to the critical nature of the service provided and the added level of reliability, speed, visibility and personalized service, expedited freight services command significant price premiums over traditional, non-expedited modes of transportation. The expedited transportation market is estimated by SJ Consulting to be $3.0 billion in 2009 with a growth rate of 14.0% in 2010 and then returning to a more normalized annual growth rate of 7.1% for the years 2011 to 2014.

As supply chain requirements of shippers have evolved in recent years, we have seen increased focus on the premium freight logistics market, which is characterized by stringent customer-specific delivery requirements in addition to time-definite pick-up and delivery windows. Premium freight logistics include door-to-door transportation of freight requiring specialized services, whether because of time critical requirements, special handling requirements, high value freight, special permit needs or any additional complexities that need customized solutions. While requirements vary from sector to sector, we believe there is an increasing demand for specialized services such as temperature controlled freight with Food and Drug Administration protocol compliant cold-chain solutions, advanced security solutions as well as shipment tracking and visibility, backed by highly personalized service and sophisticated technology. These specialized services result in the potential to command premium pricing. The premium freight logistics market as defined by us corresponds to the premium freight transportation market as defined and estimated by SJ Consulting. SJ Consulting estimates that market to be $22.7 billion for 2009 with a growth rate of 10.0% for 2010 and then returning to a more normalized annual growth rate of 7.5% for the years 2011 to 2014.

The freight forwarding market is comprised of non-asset based transportation providers that arrange for multimodal transportation of heavyweight, non-local freight. The domestic freight forwarding market is estimated by SJ Consulting to be $4.6 billion with projected revenue for 2010 at $5.1 billion, with a growth rate of 10.0% for 2010 and returning to a more normalized

 

 

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growth rate of 4.8% for the years 2011 to 2014. The global freight forwarding market is estimated by SJ Consulting to be $176 billion in 2009 with a growth rate of 19.5% in 2010 and then returning to a more normalized annual growth rate of 10.3% for the years 2011 to 2014.

Key trends

The expedited, premium freight logistics and freight forwarding segments are expected to benefit from a variety of trends including the following:

Increased outsourcing.    Companies are increasingly focused on core competencies and improved customer service that result in the need for third party expert solutions backed by advanced technology capabilities.

LEAN supply chains and low inventory levels.    Companies are continuing to advance their supply chains and to focus on just-in-time delivery. These companies also have a heightened desire to keep inventories and working capital low. As a result, they increasingly need and value efficient expedited solutions.

Complex supply chains.    The growing need for integrated supply chain solutions is driving the need for premium logistics experts that have the ability to offer enhanced real-time visibility, reduced supply chain disruptions and comprehensive customer service.

Shortened product cycles.    As product cycles change and the life cycle of products continue to contract, we believe that companies will continue to seek out premium providers with the ability to react quickly and efficiently to meet their needs as their supply chains change with their business models.

Continued globalization.    Companies with expanding global operations are confronted with increased regulatory and security requirements as well as production and distribution challenges, creating demand for sophisticated providers with the ability to manage these complexities.

Competition

Panther’s competitive landscape is highly fragmented. In the expedited services and premium freight logistics segments, quality of service, technological capabilities and industry expertise are critical differentiators. In particular, companies with advanced technological systems that offer optimized shipping solutions, real-time visibility of shipments, verification of chain of custody procedures and advanced security carry significant operational advantages and create enhanced customer value. In addition, we believe that as supply chains become more geographically complex and diverse, carriers that are able to offer broader geographic coverage stand to gain over other providers.

Risks related to our business

Investing in our common stock involves a high degree of risk, and our ability to successfully operate our business is subject to numerous risks, including those that generally are associated with our industry. You should carefully consider the risk and uncertainties summarized below, the risks described under “Risk factors,” the other information contained in this prospectus, and our consolidated financial statements and the related notes before you decide whether to purchase our common stock.

 

 

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Our business is subject to general economic and business factors that are largely out of our control, such as recessionary economic cycles, changes in inventory levels, excess transportation capacity and downturns in customer business cycles, any of which could have a materially adverse effect on our operating results.

 

 

We operate in highly competitive and fragmented segments of our industry and the effects of that competition could adversely affect our profitability.

 

 

We have a history of net losses. We can make no assurances that we will achieve profitability, or if we do, we may not be able to sustain or increase profitability in the future.

 

 

Our owner operators are critical to the execution of our ground services. If we are unable to attract and retain the number of owner operators necessary to support our customers’ freight volumes, we may not be able to grow or maintain our revenues.

 

 

If we fail to develop, implement, maintain, upgrade, enhance and integrate our information technology systems, demand for our services could decrease and our business may be seriously harmed.

 

 

If we are unable to maintain the high level of service we provide to our customers, we may experience damage to our reputation and a resulting loss of business.

 

 

If we are unable to expand the number of our sales and customer service employees, or if a significant number of our sales and customer service employees leave us, our ability to increase our revenues could be negatively impacted.

 

 

We operate in a highly regulated industry and increased costs of compliance with, liability for violation of or changes in existing or future regulations could have a materially adverse effect on our business and profitability.

Our equity sponsor

Funds managed by Fenway Partners beneficially own, through a special purpose LLC, approximately 75.8% of our common stock and will be our largest stockholder upon consummation of this offering. In addition, Fenway Partners is expected to receive $1.9 million in accrued but unpaid management fees and $5.1 million as a management agreement termination fee, of which $5.0 million will be payable contemporaneously with this offering and $2.0 million of which will be payable in 2011. Fenway Panther Holdings, LLC, an entity affiliated with Fenway Partners, will participate as a selling stockholder to the extent the underwriters’ over-allotment is exercised and will receive              shares of common stock as a result of the conversion of the unpaid accumulated preferred stock dividends to common stock and the conversion of all of our outstanding preferred stock to common stock. For more information related to Fenway Partners’ ownership of us, its ability to elect our directors, and its transactions with us, see “Risk factors — Certain relationships and related party transactions” and “Principal and selling stockholders.”

Fenway Partners is a leading private equity investment firm based in New York, with funds under management of more than $1.6 billion. Founded in 1994, Fenway Partners provides active oversight and strategic guidance to improve the operating and financial performance of its

 

 

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portfolio companies. Fenway Partners’ focus is on building long-term value in partnership with management through direct investments in leading middle-market companies in two core industry segments, transportation/logistics and branded consumer products.

Panther

Panther Transportation, our predecessor and current subsidiary, began its operations in 1992. We were incorporated in Delaware on May 6, 2005 and became the parent company of Panther Transportation on June 10, 2005. We conduct all of our business through our subsidiaries. Our principal executive offices are located at 4940 Panther Parkway, Seville, Ohio 44273 and our telephone number is (330) 769-5830. We maintain an Internet website at www.pantherexpedite.com. We have not incorporated by reference into this prospectus the information on our website and you should not consider it to be a part of this prospectus.

 

 

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The offering

 

Issuer

Panther Expedited Services, Inc.

 

Common stock offered by us

             shares

 

Over-allotment option

The selling stockholders have granted the underwriters an option to purchase up to an additional              shares of common stock within 30 days of the date of this prospectus in order to cover over-allotments, if any.

 

Common stock to be outstanding after this offering

             shares

 

Offering price

We expect the offering price to be between $             and $             per share.

 

Risk factors

Investing in our common stock involves a high degree of risk. See “Risk factors” for a discussion of factors you should carefully consider before investing in our common stock.

 

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, the midpoint of the filing range set forth on the cover of this prospectus and after deduction of underwriting discounts and estimated expenses payable by us). We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders pursuant to the underwriters’ over-allotment option.

We intend to use our net proceeds from this offering to repay a portion of the amounts outstanding under our existing senior secured credit facility (the “Credit Facility”), redeem our 17% senior subordinated notes, repay a note payable to the sellers of Elite Logistics, LLC, pay Fenway Partners accrued but unpaid management fees and a termination fee payable under our management agreement with Fenway Partners, and pay all or a portion of the dividends accumulated on our cumulative preferred stock. See “Use of proceeds.”

 

Dividend policy

We have no current plans to pay any cash dividends in the foreseeable future.

 

Proposed listing symbol

“PTHR”

 

Directed share program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to              shares offered by this prospectus to our directors, officers, employees, business associates and related persons.

 

 

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Contemporaneously with this offering, we intend to amend our certificate of incorporation to (1) increase the number of authorized shares of common stock to              shares, (2) effect a             -for-one stock split of our outstanding common stock, (3) to convert all outstanding shares of preferred stock that are not purchased with the proceeds of this offering to common stock on a             -for-one basis and (4) to convert any accumulated dividends on our cumulative preferred stock to common stock to the extent not paid with the proceeds of this offering. Following this offering and the amendment of the certificate of incorporation, we will only have shares of our common stock outstanding.

Unless otherwise indicated, all information contained in this prospectus assumes:

 

 

the underwriters’ option to purchase              additional shares of common stock from the selling stockholders is not exercised; and

 

 

that the common stock to be sold in this offering is sold at $            , which is the midpoint of the range set forth on the cover of this prospectus.

Unless otherwise indicated, the number of shares of common stock to be outstanding after this offering:

 

 

gives effect to the proposed             -for-one stock split of our common stock;

 

 

gives effect to the proposed conversion of all our outstanding shares of preferred stock into shares of common stock at a             -to-one conversion ratio;

 

 

assumes that $             of dividends accumulated on the cumulative preferred stock are paid in cash and the remaining $             of dividends accumulated on the cumulative preferred stock are converted into common shares on the basis of an initial public offering price of $             per share, the midpoint of the filing range set forth on the cover of this prospectus;

 

 

gives effect to the assumed exercise of all our outstanding warrants to purchase              shares of our common stock;

 

 

includes              shares of issued unvested common stock issued under our incentive compensation plans other than our Cash Incentive Plan;

 

 

includes              shares of common stock to be issued under our Cash Incentive Plan in connection with the offering;

 

 

excludes             shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $             per share; and

 

 

excludes              shares of common stock available for additional grants under our incentive compensation plans.

The share amounts and per share dollar amounts included in the consolidated financial statements and the accompanying notes have also been adjusted to reflect for the above actions retroactively unless otherwise indicated.

 

 

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Summary consolidated financial and other data

The following table sets forth our summary consolidated financial and other data for the periods and as of the dates indicated. The summary consolidated statement of operations data for the fiscal years ended December 31, 2006, 2007, 2008 and 2009 are derived from our audited consolidated financial statements with 2007 through 2009 being included elsewhere in this prospectus. The summary statement of operations data for the six months ended June 30, 2009 and 2010 and the summary consolidated balance sheet data for the six-month period ended June 2010 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. These unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements, and in the opinion of management, include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the results of operations for these periods. The historical results presented below are not necessarily indicative of the results expected for any future period. This information should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus and the information contained in “Use of proceeds,” “Capitalization,” “Selected consolidated financial data,” and “Management’s discussion and analysis of financial condition and results of operations.”

 

(in thousands, except per share data or as otherwise noted)   Year ended
December 31,
              Six months  ended
June 30,
 
  2006     2007     2008     2009              2009     2010  
   
                   (unaudited)  

Consolidated statement of operations data:

                 

Revenues

  $ 170,363      $ 190,293      $ 189,961      $ 157,832            $ 66,397      $ 95,009   

Operating expenses:

                 

Purchased transportation

    118,260        134,707        135,612        115,279              49,163        69,927   

Personnel and related benefits

    15,544        18,466        19,394        19,159              9,603        11,760   

Insurance and claims

    2,951        3,935        3,211        6,213              2,475        2,016   

Depreciation

    923        865        1,179        1,579              812        703   

Amortization of intangibles(1)

    7,674        7,840        7,827        8,077              4,038        4,038   

Goodwill and intangibles impairment(2)

                         33,498              33,498          

Other operating expenses

    10,221        12,382        12,637        12,150              5,773        6,281   
       

Total operating expenses

    155,573        178,195        179,860        195,955              105,362        94,725   
       

Operating income (loss)

    14,790        12,098        10,101        (38,123           (38,965     284   

Interest expense

    12,449        11,344        12,730        14,003              6,461        7,984   

Other expenses (income)

    1,862        (141     (319     (71           (31     (32
       

Income (loss) before taxes

    479        895        (2,310     (52,055           (45,395     (7,668

Income tax provision (benefit)

    101        815        (213     (8,761           (7,639     (2,776
       

Net income (loss)

  $ 378      $ 80      $ (2,097   $ (43,294         $ (37,756   $ (4,892

Less undeclared cumulative preferred dividends(3)

  $ (3,300   $ (3,809   $ (4,370   $ (5,015         $ (2,421   $ (2,779

Net income (loss) available to common stockholders

  $ (2,922   $ (3,729   $ (6,467   $ (48,309         $ (40,177   $ (7,671

Average number of shares outstanding

                 

Basic and diluted

    3,026,550        3,046,343        3,061,136        3,107,210              3,105,570        3,108,822   

Earnings (loss) per share available to common stockholders:

                 

Basic and diluted income (loss) per share

  $ (0.97   $ (1.22   $ (2.11   $ (15.55         $ (12.94   $ (2.47

Pro Forma Earnings (loss) per share available to common stockholders(4)

                 

Basic and diluted income (loss) per share

                 

Cash flow data:

                 

Cash flow provided by operating activities

    8,294        10,372        4,407        1,172              3,666        968   

Cash flow used in investing activities

    (9,580     (7,743     (6,638     (778           (406     (787

Cash flow (used in) provided by financing activities

    1,323        (3,001     2,760        (2,153           (3,356     (500

Capital expenditures

    438        1,634        2,301        953              479        932   

Key performance indicators:

                 

Average shipments per business day

    743        868        757        687              600        737   

Average revenue per shipment

  $ 917      $ 871      $ 995      $ 911            $ 894      $ 1,031   

Average number of employees

    256        319        368        341              345        364   

Gross profit percentage

    30.6%        29.2%        28.6%        27.0%              26.0%        26.4%   
 

Adjusted EBITDA(5)

    23,783        25,139        23,052        8,812              1,163        6,270   

 

 

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      As of June 30, 2010
(in thousands)    Actual    As adjusted(6)
 
     (unaudited)

Consolidated balance sheet data:

     

Cash and cash equivalents

   $ 120    $             

Total assets

   $ 162,146    $             

Total debt

   $ 113,894    $  

Cumulative preferred stock

   $ 21,385    $  

Total stockholders’ equity

   $ 11,920    $  
 

 

(1)   We incur non-cash amortization related to the amortization of our finite-lived intangible assets. As a result of the acquisition of Panther, a portion of the purchase price was allocated to our intangible assets based upon their fair market values. The finite-lived intangible assets, which include our proprietary information systems platform and our customer relationships, are being amortized using the straight-line method over estimated useful lives of seven years and eighteen years, respectively.

 

(2)   As a result of our testing of our goodwill and other indefinite lived intangibles in 2009, non-cash impairment charges were recorded reducing the carrying value of our goodwill and trade name by $28.1 million and $5.4 million, respectively. See “Management’s discussion and analysis of financial condition and results of operations.”

 

(3)   Our cumulative preferred stock ranks senior in right of payment to all other classes or series of our capital stock as to dividends, and upon liquidation, dissolution, or winding up of Panther. The holders of our cumulative preferred stock are entitled to receive, when, as and if declared by our Board of Directors, cumulative preferential dividends on each share of cumulative preferred stock at a rate of 14% per year of the liquidation preference of $1,000 on each share of stock. Dividends on our cumulative preferred stock accrue whether or not we have earnings or the dividends are declared. Upon any voluntary or involuntary liquidation, dissolution, or winding up of Panther, each holder is entitled to payment of an amount equal to the liquidation preference of $1,000 per share of our cumulative preferred stock plus accrued and unpaid dividends before any distribution is made to the holders of other securities, including the common stock.

 

       In January 2006, we issued 2,239 additional shares of cumulative preferred stock for $2.4 million in a private placement to third-party investors and repurchased 44,015 shares of the outstanding cumulative preferred stock for $47.2 million, including $3.2 million of cumulative preferred stock dividends. In connection with our January 2006 refinancing, the dividend rate on our outstanding cumulative preferred stock increased from 12% to 14%.

 

       In connection with this offering, all of the dividends accumulated on the outstanding cumulative preferred stock will be paid in cash or converted to common stock and all the outstanding cumulative preferred stock will be redeemed or converted to common stock. See “Use of proceeds.”

 

(4)   For a description of the adjustments used to arrive at Pro Forma Earnings (loss) per share and a reconciliation to Earnings (loss) per share, see “Unaudited pro forma consolidated financial data.”

 

(5)   We use the term “Adjusted EBITDA” throughout this prospectus. Adjusted EBITDA, as we define this term, is not presented in accordance with GAAP. We use Adjusted EBITDA as a supplement to our GAAP results in evaluating certain aspects of our business, as described below.

We define Adjusted EBITDA as net income (loss) plus (1) interest expense (less interest income), (2) income tax provision (benefit), (3) depreciation of property and equipment, (4) amortization of intangibles, (5) goodwill and intangibles impairment, (6) management fees and Board of Director fees and expenses, (7) stock option expense and (8) other adjustments expense.

Our Board of Directors and executive management team focus on Adjusted EBITDA as a key measure of our performance, for business planning and for incentive compensation purposes. Adjusted EBITDA assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that, in our opinion, do not reflect our core operating performance. Our method of computing Adjusted EBITDA is the same as that used in our debt covenants under our Credit Facility and also is routinely reviewed by management for that purpose. For a reconciliation of our Adjusted EBITDA to our net income (loss), the most directly related GAAP measure, please see the table below.

Our President and Chief Executive Officer, who is our chief operating decision-maker, and our compensation committee traditionally have used Adjusted EBITDA thresholds in setting performance goals for our senior management. We believe such performance goals provide an incentive to improve profitability and thereby increase long-term stockholder value.

The annual bonuses for executive management are based on Adjusted EBITDA. At the same time, some or all of these executives have responsibility for monitoring our financial results generally, including the items included as adjustments in calculating Adjusted EBITDA (subject ultimately to review by our Board of Directors in the context of the Board of Directors’ review of our quarterly financial statements). While many of the adjustments involve mathematical application of items reflected in our financial statements, others involve a degree of judgment and discretion. While we believe that all of these adjustments are appropriate and while the quarterly calculations are subject to review by our Board of Directors in the context of the Board of Directors’ review of our quarterly financial statements and certification by our Chief Financial Officer in a compliance certificate provided to the lenders under our Credit Facility, this discretion may be viewed as an additional limitation on the use of Adjusted EBITDA as an analytical tool.

 

 

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We believe our presentation of Adjusted EBITDA is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance.

Adjusted EBITDA is not a substitute for net income (loss) cash flows from operating activities, operating margin, or any other measure prescribed by GAAP. There are limitations to using non-GAAP measures such as Adjusted EBITDA. Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that, in our opinion, do not reflect our core operations, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to our performance.

Because of these limitations, Adjusted EBITDA should not be considered a measure of the income generated by our business or discretionary cash available to us to invest in the growth of our business. Our management compensates for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA supplementally.

A reconciliation of GAAP net income (loss) to Adjusted EBITDA for each of the fiscal periods indicated is as follows:

 

(in thousands)   Year ended
December 31,
              Six months
ended

June 30,
 
  2006   2007   2008     2009              2009     2010  
   
                   (unaudited)  

Net income (loss)

  $ 378   $ 80   $ (2,097   $ (43,294         $ (37,756   $ (4,892

Plus interest expense

    12,449     11,344     12,730        14,003              6,461        7,984   

Plus taxes

    101     815     (213     (8,761           (7,639     (2,776

Plus depreciation

    923     865     1,179        1,579              812        703   

Plus amortization of intangibles

    7,674     7,840     7,827        8,077              4,038        4,038   

Plus goodwill and intangibles impairment

                   33,498              33,498          

Plus management fees and Board of Director fees and expenses

    1,783     3,459     2,798        2,771              1,404        964   

Plus stock option expense

    474     736     828        429              345        249   

Plus other adjustments(7)

                   510                       
       

Adjusted EBITDA

  $ 23,783   $ 25,139   $ 23,052      $ 8,812            $ 1,163      $ 6,270   
   

 

(6)   The balance sheet data as of June 30, 2010 is presented on an actual basis and on an as adjusted basis to give effect to the sale of shares of common stock by us in this offering at an assumed initial offering price of $             per share, after deducting underwriting discounts and commissions and estimated offering expenses to be paid by us, and the application of proceeds as described in “Use of proceeds.”

 

(7)   Sales adjustment reserve relating to a one-time reversal of revenues due to customer settlements.

 

 

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Risk factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks, as well as the other information included in this prospectus, before deciding to invest in our common stock. If any of the following risks actually occur, they may materially harm our business, financial condition and results of operations. As a result, the trading price of our common stock could decline and you might lose part or all of your investment.

Risks related to our business and industry

Our business is subject to general economic and business factors that are largely out of our control, any of which could have a materially adverse effect on our operating results.

Our business is dependent on a number of factors that may have a negative impact on our results of operations, many of which are beyond our control. We believe that some of the most significant of these factors are economic changes that affect supply and demand in transportation markets, such as:

 

 

recessionary economic cycles;

 

 

changes in our customers’ inventory levels and in the availability of funding for their working capital;

 

 

excess transportation capacity in comparison with shipping demand; and

 

 

downturns in our customers’ business cycles.

Further, the demand for expedited shipping correlates with the overall level of domestic spending in the United States, which in turn is influenced by factors such as inflation, consumers’ spending habits, employment rates and other macroeconomic factors over which we have no control. The risks associated with these factors are heightened when the U.S. and global economy are weakened. Some of the principal risks during such times are as follows:

 

 

we may experience low overall freight levels, which may impair our ability to grow, or which may reduce, our revenue;

 

 

certain of our customers may face credit issues and cash flow problems;

 

 

in an effort to cut costs, customers may change their outsourcing and shipping strategies and other providers may be selected;

 

 

reductions in inventories may reduce freight volumes and the need for our services; and

 

 

customers may bid out freight or select competitors that offer lower rates from among existing choices in an attempt to lower their costs and we might be forced to lower our rates or lose freight.

We also are subject to increases in costs that are outside of our control that could materially impact our revenues and profitability. Such cost increases include, but are not limited to, interest rates, taxes, tolls, fuel, license and registration fees and healthcare and benefits costs for our employees.

 

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In addition, events outside our control, such as strikes or other work stoppages at customer, port, border or other shipping locations or actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state or heightened security requirements could lead to reduced economic demand, reduced availability of credit or temporary closing of shipping locations or U.S. borders. Such events or enhanced security measures in connection with such events could impair our operating efficiency and productivity and result in higher operating costs.

We operate in highly competitive and fragmented segments of our industry and our business may suffer if we are unable to adequately address factors adversely affecting our revenues and expenses relative to our competitors.

Competition within the freight industry is intense and the segments of the freight transportation industry in which we participate are highly competitive and very fragmented. Certain segments of the freight transportation industry historically have had few barriers to entry. Through our array of premium freight logistics services, we compete against other non-asset based logistics companies as well as asset-based carriers; freight forwarders that dispatch shipments via asset-based carriers; smaller expedited carriers; integrated transportation companies that operate their own aircraft; cargo sales agents and brokers; internal shipping departments at companies that have substantial transportation requirements; associations of shippers organized to consolidate their members’ shipments to obtain lower freight rates; and smaller niche service providers that provide services in a specific geographic market, industry segment or service area.

Numerous competitive factors could impair our ability to maintain or improve our current profitability. These factors include the following:

 

 

we may compete with other expedited, freight forwarding and logistics transportation providers of varying sizes and, to a lesser extent, standard transportation providers, some of which have access to larger fleets, broader coverage networks, a wider ranges of services and greater capital resources than we do;

 

 

the continuing trend toward consolidation in the freight transportation industry may create more large competitors with greater financial resources and other competitive advantages related to size with whom we may have difficulty competing;

 

 

many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth in the economy, which may limit our ability to maintain or increase freight rates or to maintain or expand our business or may require us to reduce our freight rates;

 

 

in recent years a number of shippers have reduced the number of carriers they use by selecting core carriers as approved service providers, and some of our customers may not select us as a core carrier;

 

 

many customers periodically solicit bids from multiple providers for their shipping needs and this process may depress freight rates or result in a loss of business to competitors;

 

 

advances in technology may require us to increase investments in order to remain competitive and our customers may not be willing to accept higher freight rates to cover the cost of these investments;

 

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establishment by our competitors of cooperative relationships to increase their ability to address shippers’ needs; and

 

 

we face intense competition in attracting and retaining qualified owner operators from the available pool of drivers and fleets, which may require us to increase owner-operator compensation or take other measures to remain an attractive option for owner operators.

We have a recent history of net losses.

For the years ended December 31, 2009 and 2008 and for the six months ended June 30, 2010 we incurred net losses of $43.3, $2.1 million and $4.9 million, respectively. Achieving profitability depends upon numerous factors, including the level of domestic spending and our ability to expand our overall volume and control expenses while maintaining or increasing our rates. We might not achieve profitability or, if we do, we may not be able to sustain or increase profitability in the future.

Increases in owner operator compensation or other difficulties attracting and retaining qualified owner operators could adversely affect our profitability and ability to maintain or grow our fleet.

A significant portion of our ground transportation services is provided to our customers through our owner operators, who are responsible for maintaining their own equipment and paying their own fuel, insurance, licenses and other operating costs. Our owner operators provide all of the vans, straight trucks and tractors they use in our ground expedited business. Owner operators make up a relatively small portion of the pool of all professional drivers in the United States. Turnover and bankruptcy among owner operators often limit the pool of qualified owner operators and increases competition for their services. Thus, our continued reliance on owner operators could limit our ability to grow our ground transportation fleet.

From time to time we have experienced difficulty in attracting and retaining sufficient numbers of qualified owner operators and such shortages may recur in the future. Additionally, our agreements with owner operators are terminable by either party upon short notice and without penalty. Consequently, we regularly need to recruit qualified owner operators to replace those who have left our fleet. If we are unable to retain our existing owner operators or recruit new owner operators, our business and results of operations could be adversely affected.

The compensation we offer our owner operators is subject to market conditions and we may find it necessary to continue to increase owner-operator compensation in future periods, which may be more likely to the extent economic conditions continue to improve. If we are unable to continue to attract and retain a sufficient number of owner operators, we could be required to adjust our compensation packages or operate with fewer trucks and face difficulty meeting shipper demands, all of which would adversely affect our profitability and ability to maintain our size or grow.

CSA 2010 could adversely affect our profitability and operations, our ability to maintain and grow our fleet of owner operators and our customer relationships.

Under CSA 2010, drivers and fleets will be evaluated and ranked based on certain safety-related standards. The methodology for determining a carrier’s DOT safety rating will be expanded to include the on-road safety performance of the carrier’s drivers. As a result, certain current and potential owner operators may no longer be eligible to drive for us, our fleet could be ranked poorly as compared to our peer firms, and our safety rating could be adversely impacted.

 

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A reduction in eligible owner operators or a poor fleet ranking may result in difficulty attracting and retaining qualified owner operators, and could cause our customers to direct their business away from us and to carriers with higher fleet rankings, which would adversely affect our results of operations.

The new safety-related standards are scheduled to be implemented in the beginning of December 2010, and enforcement is scheduled to begin in 2011. These implementation and enforcement dates have already been delayed and may be subject to further change. The FMCSA recently made it possible for motor carriers to preview their initial safety ratings under CSA 2010 before implementation begins. One reason that carriers are able to see their initial ratings early is to enable them to review and update data in FMCSA records. We are in the process of reviewing and correcting portions of the data; however, two of our seven initial scores indicate potential deficiencies that we may not be able to fully rectify prior to implementation of CSA 2010.

We believe that based upon the results of our CSA 2010 ratings preview we will continue to have a satisfactory DOT rating which currently is the highest safety rating a motor carrier can have. However, the CSA 2010 scores are preliminary and are subject to change by the FMCSA. There is a possibility that a drop in our CSA 2010 ratings could adversely impact our DOT safety rating. We are preparing for CSA 2010 in a number of ways including reviewing all existing safety programs and using technology to educate and monitor our owner operators.

The FMCSA also is considering revisions to the existing rating system and the safety labels assigned to motor carriers evaluated by the DOT. If we were to receive a conditional or unsatisfactory DOT safety rating, it could adversely affect our business because some of our customer contracts require a satisfactory DOT safety rating, and a conditional or unsatisfactory rating could negatively impact or restrict our operations. In addition, there is a possibility that a drop to conditional status would significantly increase our insurance costs. Under the revised rating system being considered by the FMCSA, all motor carrier safety ratings, including ours, would be evaluated more regularly and our safety rating would reflect a more in-depth assessment of safety-based violations.

Finally, proposed FMCSA rules and practices followed by regulators may require our owner operators to install electronic, on-board recorders in their tractors if we experience unfavorable compliance with these pending rules or if we receive an adverse change in safety rating. Such installation could cause an increase in owner operator turnover, adverse information in litigation and cost increases for our owner operators.

If we are unable to maintain the high level of service we provide to our customers, we may experience damage to our reputation and a resulting loss of business.

Our reputation is based on the level of personalized customer service that we provide, tailored to our customers’ shipping needs and we compete with other premium transportation providers based on our reliability, delivery time, security, visibility and personalized service. Our customers, in turn, pay a premium for this level of service. If this level of service deteriorates; if we are prevented from delivering on our promises of timeliness, reliability and security; or if we are unable to attract and retain the professional customer service staff that our business model demands, our business may suffer.

 

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If our owner operators and third-party carriers do not meet our needs or expectations or those of our clients, our business could suffer.

The success of our business depends to a large extent on our relationships with clients and our reputation for providing high-quality, technology-enabled solutions to their shipping needs. We do not own or control the transportation assets that deliver our clients’ freight and we do not employ the people directly involved in delivering the freight. We rely on owner operators and independent third parties to provide services to our clients. If any of the third parties we rely on do not meet our or our clients’ needs, expectations or standards for quality, timeliness and customer service, our professional reputation may be damaged and our business could be harmed.

If we are unable to expand the number of our sales and customer service employees, or if a significant number of our sales and customer service employees leaves us, our ability to increase our revenues and profitability could be negatively impacted.

Our ability to expand our business will depend, in part, on our ability to attract additional sales representatives with established customer relationships. Competition for qualified sales representatives can be intense and we may be unable to hire such persons. Any difficulties we experience in expanding the number of our sales representatives could have a negative impact on our ability to expand our customer base, increase our revenues and continue our growth.

In addition, we must retain our current sales representatives and properly incentivize them to obtain new customers and maintain existing customer relationships. If a significant number of our sales representatives and agents leaves us, our revenues could be negatively impacted. We have entered into agreements with our sales representatives and agents that contain non-compete provisions to mitigate this risk, but we may need to litigate to enforce our rights under these agreements, which could be time-consuming, expensive and ineffective as these agreements do not affect our customers. A significant increase in the turnover rate among our current sales representatives could also increase our recruiting costs and decrease our operating efficiency, which could lead to a decline in the demand for our services.

Because our business utilizes commercial air carriers, air charter operators, ocean freight carriers and other transportation companies, changes in available cargo capacity or other changes affecting such carriers, including interruptions in service and increases in operating costs, may hurt our business.

We use third-party air carriers, air charter operators, ocean freight carriers and other transportation companies in transporting our customers’ goods. Consequently, our ability to transport freight for our customers may be adversely affected by shortages in available cargo capacity and other factors not within our control, including changes by carriers and other transportation companies in their scheduling, pricing, payment terms and service policies and practices. Reductions in air freight, ocean freight or ground freight capacity could hurt our revenues and results of operations. Material interruptions in service or stoppages of transportation, whether caused by bad weather, strikes, work stoppages, lock-outs, slowdowns or otherwise, could also adversely affect our business and results of operations.

Our operating results also are vulnerable to price increases from our third-party carriers, including those caused by increases in their operating costs for items such as fuel, taxes and labor. Because freight costs represent a significant portion of our costs, even relatively small increases in rates charged by third parties, if we are unable to pass them through to our customers, are likely to adversely affect us.

 

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A decrease in the number of carriers participating in our network could adversely affect our business.

In 2009, we used approximately 1,600 third party ground carriers, and over 500 air and ocean carriers. We expect to continue to rely on these carriers to fulfill our shipping orders in the future. However, these carriers are not contractually required to continue to accept order from us. If shipping capacity at a significant number of these carriers becomes unavailable, we will be required to use fewer carriers, which could significantly limit our ability to serve our clients on competitive terms. The transportation industry has also experienced consolidation among carriers in recent years and further consolidations could result in a decrease in the number of carriers and an increase in the price of their services, which may impact our ability to serve our clients on competitive terms. In addition, we rely on price bids provided by our carriers to populate our database. If the number of our carriers decreases significantly, we may not be able to obtain sufficient pricing information, which could affect our ability to obtain favorable pricing for our clients.

We may not be able to identify, make and successfully integrate acquisitions, which could have an adverse effect on our growth and results of operations.

Historically, a key component of our growth strategy has been to pursue acquisitions of complementary businesses. We cannot predict whether we will be able to identify suitable acquisition candidates or acquire them on reasonable terms or at all and a failure to do so could limit our ability to expand our business. Additionally, we may be competing with better capitalized companies for potential targets, potentially increasing the price of certain targets or making them unattainable. If we succeed in consummating future acquisitions, our business, financial condition and results of operations may be negatively affected because:

 

 

some of the acquired businesses may not achieve anticipated revenues, earnings or cash flows;

 

 

we may assume liabilities that were not disclosed to us or otherwise exceed our estimates;

 

 

we may be unable to integrate acquired businesses successfully and realize anticipated economic, operational and other benefits in a timely manner, which could result in substantial costs and delays or other operational, technical or financial problems;

 

 

acquisitions could disrupt our ongoing business, distract our management and divert our resources;

 

 

we may experience difficulties operating in markets in which we have had no or only limited direct experience; and

 

 

there is a potential for loss of customers, employees, drivers or owner operators of any acquired company.

If we make future acquisitions, we may issue shares of capital stock that dilute other stockholders’ holdings, incur debt, assume significant liabilities or create additional expenses related to intangible assets, any of which might reduce our profitability and cause our stock price to decline.

 

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A determination by regulators or courts that our owner operators are employees could expose us to various liabilities and additional costs and our business and results of operations could be adversely affected.

Legislative and other regulatory authorities have in the past sought to assert that owner operators in the trucking industry are employees rather than independent contractors. Many states have initiated enforcement programs to increase their revenues from items such as unemployment, workers’ compensation and income taxes and a reclassification of owner operators as employees would help states with these initiatives. Further, class actions and other lawsuits have arisen in our industry seeking to reclassify owner operators as employees for a variety of purposes, including workers’ compensation, wage and hour and health care coverage. Proposed federal legislation would make it easier for tax and other authorities to reclassify independent contractors, including owner operators, as employees. Proposed federal legislation introduced in April 2010 would, among other things, increase the recordkeeping requirements for employers of independent contractors and heighten the penalties of employers who misclassify their employees and are found to have violated employees’ overtime and/or wage requirements. This legislation is being considered by committees in both the House and the Senate. In addition, taxpayers meeting certain criteria may be beneficiaries of a safe harbor for treatment of individuals as independent contractors if they have received a ruling from the Internal Revenue Service or a court decision affirming their treatment or if they are following a long-standing recognized industry practice. However, additional proposed federal legislation supported by the Obama administration would abolish the current safe harbor allowing taxpayers meeting certain criteria to treat individuals as independent contractors if they are following a long-standing recognized industry practice. This legislation also is currently being considered by committees in both the House and the Senate. If our owner operators are determined to be our employees, we would incur additional exposure under federal, state and local tax, workers’ compensation, unemployment benefits, labor and employment laws, including for prior periods, as well as potential liability for penalties and interest, which could have a materially adverse effect on our results of operations and financial condition and the ongoing viability of our business model.

We operate in a highly regulated industry and increased costs of compliance with, liability for violation of or changes in existing or future regulations could have a materially adverse effect on our business and profitability.

International and domestic transportation of goods is subject to various laws, rules and regulations and we are required to obtain and maintain various licenses and permits in the operation of our business, some of which are difficult to obtain.

Our owner operators also must comply with the safety and fitness regulations of the Department of Transportation, or DOT, including those relating to drug and alcohol testing and hours of service. Such matters as weight and equipment dimensions also are subject to governmental regulations. We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers’ hours of service, ergonomics, on-board reporting of operations, collective bargaining, security at ports and other matters affecting safety or operating methods. The DOT is currently engaged in a rulemaking proceeding regarding drivers’ hours of service, and the result could negatively affect our owner operators’ utilization of their equipment. Other agencies, such as the Environmental Protection Agency, or EPA, and the Department of Homeland Security, or DHS, also regulate our operations and owner operators. Future laws and regulations may be

 

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more stringent, require changes in our operating practices, influence the demand for transportation services or require us to incur significant additional costs. Higher costs incurred by us or by our suppliers who pass the costs on to us through higher prices could adversely affect our results of operations.

The TSA has adopted regulations that require a determination by the TSA that each driver who applies for or renews his or her license for carrying hazardous materials is not a security threat. This could reduce the pool of qualified drivers, which could require us to increase owner-operator compensation, limit our growth or turn away customers. These regulations also could complicate the matching of available equipment with hazardous material shipments, thereby increasing our response time on customer orders and our owner-operators’ non-revenue miles. As a result, it is possible we may fail to meet the needs of our customers or may incur increased expenses to do so.

EPA regulations limiting exhaust emissions became more restrictive in 2010. On May 21, 2010, President Obama signed an executive memorandum directing the National Highway Traffic Safety Administration, or NHTSA, and the EPA to develop new, stricter fuel efficiency standards for heavy trucks, beginning in model year 2014. In December 2008, California adopted new performance requirements for diesel trucks, with targets to be met between 2011 and 2023 and California also has adopted aerodynamics requirements for certain trailers. Regulation or legislation related to climate change that potentially imposes restrictions, caps, taxes or other controls on emissions of greenhouse gas also could adversely affect our operations and financial results if they are passed. Federal and state lawmakers have proposed potential limits on carbon emissions under a variety of climate-change proposals. Compliance with such regulations could increase the cost of new tractors, impair equipment productivity and increase operating expenses. These effects, combined with the uncertainty as to the operating results that will be produced by the newly designed diesel engines and the residual values of these vehicles, could adversely affect our business or operations and those of our owner operators.

In order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors, such as those used in our operations, may idle. These restrictions could alter our owner operators’ behavior, force them or us to purchase on-board power units that do not require the engine to idle or face a decrease in productivity.

From time to time, various federal, state, local or foreign taxes may be increased. We cannot predict whether or in what form, any such increase applicable to us will be enacted, but such an increase could adversely affect our profitability.

Our air freight business in the United States is subject to regulation as an indirect air carrier by the TSA and the DOT. Our indirect air carrier security program is approved by and we believe we are in compliance with, the applicable TSA regulations.

The Department of Defense imposes security clearance, operational and other requirements that may limit the effective pool of owner operators and third-party carriers available to transport these shipments or increase our costs.

Our ocean transportation business in the United States is subject to regulation by the Federal Maritime Commission, or the FMC. The FMC licenses intermediaries (combined ocean freight forwarders and non-vessel operating common carriers). Indirect ocean carriers are subject to FMC

 

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regulation under the FMC’s tariff publication and surety bond requirements and under the Shipping Act of 1984 and the Ocean Reform Shipping Act of 1998, particularly those terms prescribing rebating practices.

Our international operations are impacted by a wide variety of U.S. government regulations, including those of the U.S. Department of State, U.S. Department of Commerce and the U.S. Department of Treasury, as well as regulations of other countries. Regulations cover matters such as what commodities may be shipped to what destination and to what end-user, unfair international trade practices and limitations on entities with whom we may conduct business. As we continue to expand our international operations, we will be subject to highly complex and detailed customs laws and regulations and export and import controls.

From time to time, we transport hazardous or explosive materials, the handling or release of which could subject us to large fines, penalties or lawsuits.

We are subject to a broad range of federal, state and local environmental, health and safety laws and regulations, both criminal and civil, enforced by agencies such as the Pipeline and Hazardous Materials Safety Administration, the Occupational Safety & Health Administration, the EPA and the Departments of Defense and Homeland Security, including regulations governing hazardous discharges into the air and water, the handling and disposal of solid and hazardous waste and the shipment of explosive or illegal substances. In the course of our operations, we may be asked to transport or to arrange for the transportation of substances defined as hazardous under applicable laws. Although we have instituted programs to monitor and control environmental risks and promote compliance with applicable environmental laws and regulations, if we transport or arrange for the transportation of hazardous or explosive materials in violation of applicable laws or regulations, we may be subject to cleanup costs and liabilities including substantial fines, civil penalties or civil and criminal liability, as well as bans on making future shipments in particular geographic areas, any of which could have a materially adverse effect on our business and operating results. In the event we are found to not be in compliance with applicable environmental, health and safety laws and regulations, we could be subject to large fines, penalties or lawsuits and face criminal liability. In addition, if any damage or injury occurs as a result of our transportation of hazardous, explosive or illegal materials, we may be subject to claims from third parties and bear liability for such damage or injury.

Increases in fuel prices could affect the availability and cost of owner operators.

Our owner operators bear the costs of operating their vehicles, including the cost of fuel and fuel taxes. To address fluctuations in fuel prices, we seek to impose fuel surcharges on our customers, and we generally pass through these surcharges on to our owner operators. However, there is no assurance that such fuel surcharges can be maintained indefinitely or will be sufficiently effective and market pressures may limit our ability to pass along increases in the price of fuel. In addition, in times of increasing fuel prices, the lag time between adjusting the fuel surcharges and actual fuel prices may cause under-recovery because our fuel surcharge pass throughs may not keep pace with the increases in fuel costs experienced by our owner operators. Accordingly, if costs for fuel or fuel taxes escalate significantly, it could make it more difficult to attract additional owner operators or retain our current owner operators. Our owner operators also may seek higher compensation from us in the form of higher rates to offset increases in fuel prices, which could have a materially adverse effect on our results of operations.

 

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Our information technology platform relies heavily on telecommunication service providers, electronic delivery systems and the Internet, which exposes us to a number of risks over which we have no control, including the risk of failures and disruptions of essential services.

We rely heavily on our proprietary information technology platform to quote, book and track shipments; to determine the location and capabilities of our owner-operator network and to schedule their shipments; to recommend cost-effective solutions in the appropriate transportation mode and store externally and internally generated data. Therefore, our business requires the efficient and uninterrupted operation of our computer and communications hardware systems and infrastructure. Our information technology systems also depend upon global communications providers, satellite-based communications systems, electric utilities and telecommunications providers. We have no control over the operation, quality or maintenance of these services or whether vendors will improve their services or continue to provide services that are essential to our business. We also are dependent on computer operating systems, web browsers and other aspects of the Internet infrastructure that have experienced significant system failures and outages in the past. Our systems are susceptible to outages due to fire, floods, power loss, telecommunications failures, break-ins and similar events. Despite our implementation of network security and other back-up measures, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. The occurrence of any of these events could disrupt or damage our information technology systems and prevent us from delivering promised service levels to our customers and cause material harm to our reputation, which may result in a loss of business. In addition, the failure of the hardware or software that supports our information technology systems, the loss of data contained in these systems or the inability to access or interact with our customers electronically through our website could significantly disrupt our operations, prevent customers from placing orders or cause us to lose customers.

If we fail to develop, implement, maintain, upgrade, enhance and integrate information technology systems, demand for our services could decrease and our business may be seriously harmed.

We rely heavily on our information technology system to efficiently run our business. To keep pace with changing technologies and customer demands, we must correctly interpret and address market trends and enhance the features and functionality of our proprietary technology platform in response to these trends, which may lead to significant ongoing software development costs. We may be unable to accurately determine the needs of our customers and the trends in the transportation services industry or to design and implement the appropriate features and functionality of our technology platform in a timely and cost-effective manner, which could result in decreased demand for our services and a corresponding decrease in our revenues. Despite testing, we may be unable to detect defects in existing or new versions of our proprietary software, or errors may arise in our software. Any failure to identify and address such defects or errors could result in loss of revenues or market share, liability to customers or others, diversion of resources, injury to our reputation and increased service and maintenance costs. Correction of such errors could prove to be impossible or very costly and responding to resulting claims or liability could similarly involve substantial cost.

We must maintain and enhance our information technology systems to remain competitive and effectively handle higher volumes of freight through our network. If our information technology systems are unable to manage additional volume for our operations as our business grows, our service levels and operating efficiency could decline. We expect customers to continue to demand

 

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more sophisticated, fully integrated information systems from their transportation providers. If we fail to hire and retain qualified personnel to implement, protect and maintain our information technology systems or if we fail to upgrade our systems to meet our customers’ demands, our business and results of operations could be seriously harmed. This could result in a loss of customers and a decline in the volume of freight we receive from customers.

Our inability to protect our intellectual property rights may impair our competitive position. We rely on a combination of trademarks, copyrights, trade secrets and other forms of intellectual property protection. However, these protections may not be adequate.

We rely on a combination of copyright, trademark and trade secret laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights including our source code. Our success depends upon our ability to protect and preserve our trademarks, trade names and similar intellectual property rights. We have obtained U.S. trademark registrations, and one U.S. copyright registration. To date, we have not pursued patent protection for our proprietary information systems platform and do not have issued patents or pending patent applications. We will continue to evaluate the registration of additional trademarks, copyrights, and other intellectual property rights in the United States and certain foreign countries as applicable. We cannot guarantee that our pending applications will be approved by the applicable governmental authorities. Moreover, even if our applications are approved, we cannot guarantee that third parties may not seek to oppose or otherwise challenge our registrations or applications. A failure to obtain a trademark registration or a successful challenge to our registrations may limit our ability to protect the intellectual property right that these applications and registrations intend to cover, which may have a material adverse effect on our business.

If we are unable to protect confidentiality of our unpatented proprietary information and technology, our business could be adversely affected.

We rely significantly on unpatented proprietary rights, including know-how and continuing technological innovation in providing our services. We currently attempt to protect the majority of our intellectual property, including our One CallSM Solution, through the use of trade secrets and other intellectual property laws, confidentiality and non-disclosure agreements with our employees, independent contractors, and customers as well as security measures. Such measures, however, provide only limited protection, and although we use reasonable efforts to protect our proprietary and confidential information, we cannot be certain that the steps we have taken to protect our intellectual property rights will be adequate, that our confidentiality and non-disclosure agreements will not be breached, out trade secrets will not otherwise become known by competitors or that we will have the adequate remedies in the event of an unauthorized use or disclosure of proprietary information. If our proprietary information is divulged to third parties, including competitors, our competitive position could be harmed. Moreover, others may independently develop similar or equivalent trade secret or know-how. This may allow our existing and potential competitors to develop services that are competitive with, or superior to, our services.

Further, we conduct business outside of the United States, including Mexico and Canada. We have taken limited actions to protect our IP outside the United States, protecting our trade name in Canada, but not elsewhere. Moreover, effective trademark, copyright, trade secret and other intellectual property protections may be unavailable or limited in certain countries outside the United States. As a result, we may not be able to effectively prevent third parties from outside

 

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the United States from infringing or misappropriating our rights or imitating or duplicating our technology, services or methodologies or using trademarks similar to ours. Our failure to protect our intellectual property and other proprietary rights adequately could harm our competitive position, or otherwise harm our business.

In the future we may need to take legal action to protect and enforce our intellectual property rights or to determine the validity and scope of the rights of others. Such legal action, regardless of the outcome, could be time-consuming and costly, and may divert our resources and management attention. Moreover, the result of any legal action is subject to uncertainty. We may not prevail in such proceedings given the complex technical issues and the inherent uncertainties in intellectual property litigation.

Assertions by third parties that we infringe intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses.

While we are not aware of any infringement or misappropriation of the intellectual property rights of third parties and we believe that we have all necessary rights to implement our systems, our use of acquired technologies could be challenged by claims that such use infringes, misappropriates or otherwise violates the intellectual property rights of third parties. Any intellectual property claims, with or without merit, could be time-consuming and costly to resolve, could divert management’s attention from our business and could require us to pay substantial monetary damages. Any settlement or adverse judgment resulting from such a claim could require us to enter into a licensing agreement to continue using the technology that is the subject of the claim, or could otherwise restrict or prohibit our use of such technology. There can be no assurance that we would be able to obtain a license on commercially reasonable terms, if at all, from the party asserting an infringement claim, or that we would be able to develop or license a suitable alternative technology to permit us to continue offering the affected services to our clients. Any significant delay in the replacement or interference in our use of this software could have a materially adverse effect on our business, financial condition and results of operations.

Efforts by labor unions could divert management attention and could have a materially adverse effect on our operating results.

Although none of our employees currently are represented by a union, we always face the risk that our employees could attempt to organize a union. Congress or one or more states could approve legislation significantly affecting our businesses and our relationship with our employees, such as the proposed federal legislation referred to as the Employee Free Choice Act, which would substantially liberalize the procedures for union organization. Any attempt to organize by our employees could result in increased legal and other associated costs. In addition, if we entered into a collective bargaining agreement, the terms could negatively affect our costs, efficiency and ability to generate acceptable returns on the affected operations.

As a public company, we will be required to meet periodic reporting requirements under Securities and Exchange Commission, or the SEC, rules and regulations. Complying with federal securities laws as a public company is expensive and we will incur significant time and expense enhancing, documenting, testing and certifying our internal controls over financial reporting. Any deficiencies in our financial reporting or internal controls could adversely affect our business and the trading price of our common stock.

As a publicly traded company following completion of this offering, we will be required to file periodic reports containing our financial statements with the SEC within a specified time

 

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following the completion of quarterly and annual periods. Any failure by us to file our periodic reports with the SEC in a timely manner could harm our reputation and reduce the trading price of our common stock.

As a public company, we will incur significant legal, accounting, insurance and other expenses. Compliance with Sarbanes-Oxley Act of 2002, including the requirements of Section 404, as well as other rules of the SEC, the Public Company Accounting Oversight Board and the rules of our listing exchange will increase our legal and financial compliance costs and make some activities more time-consuming and costly. We expect that we will incur approximately $1.5 million in additional annual legal, insurance and financial compliance costs related to Sarbanes-Oxley Act compliance and other public company expenses. Furthermore, once we become a public company, SEC rules require that our Chief Executive Officer and Chief Financial Officer periodically certify the existence and effectiveness of our internal controls over financial reporting. Our independent registered public accounting firm will be required, beginning with our Annual Report on Form 10-K for our fiscal year ending on December 31, 2011, to attest to our assessment of our internal controls over financial reporting. This process will require significant documentation of policies, procedures and systems; review of that documentation by our internal accounting staff and our outside auditors and testing of our internal controls over financial reporting by our internal accounting staff and our outside independent registered public accounting firm. This process will involve considerable time and expense, may strain our internal resources and have an adverse impact on our operating costs. We may experience higher than anticipated operating expenses and outside auditor fees during the implementation of these changes and thereafter.

During the course of our testing, we may identify deficiencies that would have to be remediated to satisfy the SEC rules for certification of our internal controls over financial reporting. As a consequence, we may have to disclose in periodic reports we file with the SEC material weaknesses in our system of internal controls. The existence of a material weakness would preclude management from concluding that our internal controls over financial reporting are effective and would preclude our independent auditors from issuing an unqualified opinion that our internal controls over financial reporting are effective. In addition, disclosures of this type in our SEC reports could cause investors to lose confidence in our financial reporting and may negatively affect the trading price of our common stock. Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our disclosure controls and procedures or internal controls over financial reporting, it may negatively impact our business, results of operations and reputation.

If we fail to maintain adequate internal control over financial reporting in accordance with Section 404 of Sarbanes-Oxley, it could result in inaccurate financial reporting, sanctions, or securities litigation, or could otherwise harm our business.

As a public company, 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 fully compliant with Section 404 by the end of fiscal year 2011, and at that time our management will be required to deliver a report on their

 

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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.

We self-insure a significant portion of our claims exposure, which could significantly increase the volatility of and decrease the amount of, our earnings.

We use the services of hundreds 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. We self-insure for amounts up to $750,000 per event for trucker’s liability. We accrue the costs of the uninsured portion of pending claims based on estimates derived from our evaluation of the nature and severity of individual claims and an estimate of future claims development based upon historical claims development trends. Actual settlement costs of the self-insured claim liabilities could differ from our estimates due to a number of uncertainties, including evaluation of severity, legal costs and claims that have been incurred but not reported. Due to our high self-insured amounts, a significant or unexpected increase in the frequency or severity of traffic accidents, cargo damage, or other claims could adversely affect our results of operations.

Our liability coverage has a maximum aggregate limit of $5.0 million per occurrence with an excess coverage of $25.0 million per occurrence and in the aggregate, plus an additional excess coverage of $20.0 million in the aggregate. If any claim exceeded our aggregate coverage limit, we would bear the excess, in addition to our other self-insured amounts. Although we believe our aggregate coverage limits are sufficient to cover reasonably expected claims, it is possible that one or more claims could exceed those limits. Our insurance and claims expense could increase or we could find it necessary to raise our self-insured retention or decrease our aggregate coverage limits when our policies are renewed or replaced. Our operating results and financial condition may be adversely affected if these expenses increase, if we experience a claim in excess of our coverage limits, if we experience a claim for which we do not have coverage or if we have to increase our reserves.

If we are unable to retain our senior executive officers, our business, financial condition and results of operations could be harmed.

We are highly dependent upon the services of our senior executive officers. The loss of the services of any of these individuals could have a materially adverse effect on our operations and future profitability. Our goal of expanding our operations and continuing our growth depends on our ability to retain our executive officers and other capable managers. Although we believe we could replace key personnel given adequate prior notice, the unexpected departure of key executive officers could cause substantial disruption to our business and operations. Even if we are able to continue to retain and recruit talented personnel, we may not be able to do so without incurring substantial costs. If we are unable to retain our executive officers and key employees, our operations could be adversely affected.

 

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The business cycles of our customers and the industries we serve can adversely affect our operations.

We have a large number of customers in certain industries. If these customers experience cyclical movements in their business activities due to an economic downturn, work stoppages or other factors over which we have no control, the volume of freight shipped by those customers may fluctuate significantly and possibly decrease and our operating results could be adversely affected. Any unexpected reduction in revenues for a particular quarter could cause our quarterly operating results to fall below the expectations of public market analysts or stockholders. In this event, the trading price of our common stock may fall significantly.

Seasonality and the impact of weather and other catastrophic events affect our operations and profitability.

The transportation industry experiences seasonal fluctuations. Our results of operations are typically lower for the first quarter of the calendar year relative to our other quarters. We believe this is due in part to the post-holiday reduction in demand experienced by many of our customers, which leads to more capacity in the non-expedited and service-critical markets and, in turn, less demand for expedited and premium shipping services. In addition, the productivity of our owner operators generally decreases during the winter season because inclement weather impedes operations. At the same time, our operating expenses generally increase and fuel efficiency declines because of engine idling and harsh weather, creating higher accident frequency and increased claims. We also may suffer from weather-related or other events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes and explosions. These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional economies or adversely affect the business or financial condition of our customers, any of which could harm our results or make our results more volatile.

We are subject to certain risks arising from our international business.

We are expanding our global footprint, specifically in international-air and ocean modes. As a result, we are subject to risks of our international business, including changes in the economic strength of certain foreign countries, difficulties in enforcing contractual obligations and intellectual property rights, burdens of complying with a wide variety of international and U.S. export and import laws and social, political and economic instability. In addition, if we are unable to maintain our C-TPAT status, we may have significant border delays, which could cause our international operations to be less efficient than competitors also operating internationally that obtain or continue to maintain C-TPAT status. We also face additional risks associated with our foreign operations, including restrictive trade policies and imposition of duties, taxes or government royalties imposed by foreign governments. Factors that substantially affect the operations of our international business may have a materially adverse effect on our overall operating results.

Terrorist attacks, anti-terrorism measures and war could have broad detrimental effects on our business operations.

As a result of the potential for terrorist attacks, federal, state and municipal authorities have implemented and continue to follow various security measures, including checkpoints and travel restrictions on large trucks. Such measures may reduce the productivity of our owner operators 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

 

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trucking routes may cause delays and increase the non-driving time of our owner operators, which could have an adverse effect on our results of operations. Congress has mandated 100% security screening of air cargo traveling on passenger airlines effective July 31, 2010 and for ocean freight by July of 2012, which may increase costs associated with our air and freight forwarding operations. 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.

We could be required to record a material non-cash charge to income if our recorded intangible assets or goodwill are determined to be impaired.

As of June 30, 2010, we have goodwill of $58.5 million and certain indefinite-lived intangible assets of $11.2 million. Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. In accordance with Financial Accounting Standards Board Accounting Standards Codification, Topic 350, “Intangibles—Goodwill and Other,” or Topic 350, we test goodwill and indefinite-lived intangible assets for potential impairment annually and between annual tests if any event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Any impairments in our goodwill and in definite-lived intangible assets is charged to our results of operations. Our evaluation in 2009 determined that there were indicators of an impairment. These indicators included a significant decrease in operating results, a decrease in non-financial key performance indicators and other macroeconomic factors. As a result of our testing of our goodwill and other indefinite lived intangibles in 2009, non-cash impairment charges were recorded reducing the carrying value of our goodwill and trade name by $28.1 million and $5.4 million, respectively. We may never realize the full value of our intangible assets. Any future determination requiring the write-off of a significant portion of our goodwill or intangible assets would have an adverse effect on our financial condition and results of operations.

As a U.S. government contractor, we are subject to a number of procurement and other rules and regulations.

Services for government agencies accounted for approximately 4.2% of our revenues in 2009. To do business with government agencies, either directly as a contractor or indirectly as a subcontractor, we must comply with and are affected by many laws and regulations, including those relating to the formation, administration and performance of U.S. government contracts. These laws and regulations, among other things:

 

 

require, in some cases, certification and disclosure of all cost and pricing data in connection with contract negotiations; and

 

 

impose accounting rules that define allowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. government contracts.

These laws and regulations affect how we do business with the U.S. government and, in some instances, impose added costs on our business. A violation of these laws and regulations could result in the imposition of fines and penalties or the termination of our contracts. In addition, the violation of certain other generally applicable laws and regulations could result in our suspension or debarment as a government contractor.

 

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Risks related to our capital structure

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our Credit Facility contains a number of covenants that limit our ability to engage in specified types of transactions, restricting, among other things, the incurrence of additional indebtedness and the making of certain payments, including dividends. We must also fulfill financial covenants relating to capital expenditure limits, senior indebtedness, interest coverage and overall indebtedness, all of which we were in compliance with at June 30, 2010. A breach of any of these covenants could result in a default under our debt agreements, including as a result of cross default provisions, and permit the lenders to cease making loans to us. Upon the occurrence of an event of default under our Credit Facility, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit. Such actions by those lenders could cause cross defaults under our other indebtedness. If we were unable to repay those amounts, the lenders under our Credit Facility could proceed against the collateral granted to them to secure that indebtedness. If the lenders under our Credit Facility were to accelerate the repayment of borrowings, we might not have sufficient assets to repay all amounts borrowed thereunder. In March and June of 2009, we were not in compliance with financial covenants relating to our senior leverage ratio, fixed charge coverage ratio and interest coverage ratio, which led to an amendment to our Credit Facility in August of 2009.

We expect to enter into an amendment to our Credit Facility (as amended, the “Amended Credit Facility”), prior to this offering. The amendment is expected to modify our term loan size and amortization, increase availability under our revolving credit facility, lower our interest rate margin, and reset financial and other covenants. The Amended Credit Facility is expected to contain various covenants that also limit our ability to make capital expenditures or engage in specified types of transactions and require compliance with various financial covenants. A future breach of these covenants could have similar effects to those described above.

Our ability to raise capital in the future may be limited and our failure to raise capital when needed could prevent us from growing.

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 common stockholders and debt financing, if available, may involve restrictive covenants and could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.

Our existing equity investors will retain an aggregate of approximately     % of our common stock and will therefore have significant influence over our business and significant transactions.

Upon the completion of the transactions contemplated by this offering, our existing equity investors will collectively own approximately     % of our common stock or approximately     % if the underwriters’ over-allotment option is exercised in full. We expect that affiliates of Fenway Partners, in particular, will own approximately     % of our common stock or approximately     % if the over-allotment option is exercised in full and will be our largest stockholder immediately after consummation of the offering. In addition, five of our current nine directors are affiliates of Fenway Partners. As a result, affiliates of Fenway Partners will have a strong ability to influence

 

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our business, policies and affairs. This concentration of ownership could have the effect of delaying or preventing a change in control, merger or tender offer, which would deprive you of an opportunity to receive a premium for your shares of common stock and may negatively affect the market price of our common stock. Moreover, Fenway Partners, either alone or along with other existing equity investors, could sell a substantial block of their shares and effectively receive a premium for transferring ownership to third parties that would not inure to your benefit. We cannot assure you that the interests of Fenway Partners will be consistent with the interests of other holders of our common stock. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of these stockholders might conflict with your interests as stockholders. These stockholders also may have an interest in pursuing acquisitions, divestitures, financing or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to you, as stockholders.

Our certificate of incorporation allows non-employee directors to invest in corporate opportunities that we may find attractive.

Our certificate of incorporation provides that non-employee directors, including affiliates of Fenway Partners, are not liable to us if they invest in corporate opportunities outside of our business, including opportunities you, as stockholders, may find attractive. In addition, our current stockholders have engaged from time to time in certain related party transactions with us. See “Certain relationships and related transactions.”

Risks related to this offering and ownership of our common stock

Our common stock has no prior public market and could trade at prices below the initial public offering price.

There has not been a public trading market for shares of our common stock prior to this offering. An active trading market may not develop or be sustained after this offering. The initial public offering price for our common stock sold in this offering will be determined by negotiations among us and representatives of the underwriters. This price may not be indicative of the price at which our common stock will trade after this offering and our common stock could trade below the initial public offering price.

Our stock price may be volatile and you may be unable to sell your shares at or above the initial public offering price.

The market price of our common stock could be subject to wide fluctuations in response to, among other things, the factors described in this “Risk factors” section or otherwise and other factors beyond our control, such as fluctuations in the valuations of companies perceived by investors to be comparable to us.

Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock.

 

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In the past, many companies that have experienced volatility in the market price of their stock have become subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.

We expect that the trading price for our common stock will be affected by research or reports that industry or financial analysts publish about us or our business.

Our stock price could decline due to the large number of outstanding shares of our common stock eligible for future sale.

Sales of substantial amounts of our common stock in the public market following this offering or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales also could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

Upon completion of this offering, we will have              outstanding shares of common stock, assuming no exercise of the underwriters’ over-allotment option. Of the outstanding shares, all of the shares sold in this offering, plus any additional shares sold upon exercise of the underwriters’ over-allotment option, will be freely tradable, except that any shares purchased by “affiliates” (as that term is defined in Rule 144 under the Securities Act) only may be sold in compliance with the limitations described in the section entitled “Shares Eligible for Future Sale.” Taking into consideration the effect of the lock-up agreements described below and the provisions of Rule 144 and Rule 701 under the Securities Act, the remaining shares of our common stock will be available for sale in the public market as follows:

 

 

shares will be eligible for sale on the date of this prospectus; and

 

 

shares will be eligible for sale upon the expiration of the lock-up agreements described below.

The company and all of our directors, executive officers and substantially all of our existing stockholders will sign lock-up agreements. The lock-up agreements expire 180 days after the date of this prospectus, subject to extension upon the occurrence of specified events. J.P. Morgan Securities Inc. and Goldman, Sachs & Co, acting together, may in their sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements.

In addition, upon the closing of this offering, we will have an aggregate of              shares of common stock reserved for future issuances under our equity incentive plan. Immediately following this offering, we intend to file a registration statement registering under the Securities Act with respect to the shares of common stock reserved for issuance in respect of incentive awards to our officers and certain of our employees. Issuances of common stock to our directors, executive officers and employees pursuant to the exercise of stock options under our employee benefits arrangements will dilute your interest in us.

Because our estimated initial public offering price is substantially higher than the adjusted net tangible book value per share of our outstanding common stock following this offering, new investors will incur immediate and substantial dilution.

The assumed initial public offering price of $            , which is the midpoint of the price range set forth on the cover page of this prospectus, is substantially higher than the adjusted net tangible book value per share of our common stock based on the total value of our tangible assets less our total liabilities divided by our shares of common stock outstanding immediately following

 

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this offering. Therefore, if you purchase common stock in this offering, you will experience immediate and substantial dilution of approximately $             per share, the difference between the price you pay for our common stock and its adjusted net tangible book value after completion of the offering. To the extent outstanding options and warrants to purchase our capital stock are exercised, there will be further dilution.

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

We currently do not anticipate paying cash dividends on our common stock. We anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends on our common stock in the future will be at the discretion of our Board of Directors and be subject to any covenant restrictions that may be contained in any credit facilities or other agreements on which we may rely from time to time.

Our organizational documents and Delaware law could limit another party’s ability to acquire us and deprive our investors of the opportunity to obtain a takeover premium for their securities.

A number of provisions in our amended and restated certificate of incorporation and amended and restated bylaws will make it difficult for another company to acquire us and for you to receive any related takeover premium for your securities. These provisions include the power of a majority of our Board of Directors to fix the number of directors and fill vacancies and the ability of our Board of Directors to designate and issue, without common stockholder approval, one or more series of preferred stock upon such terms as the Board of Directors may determine.

Our incorporation under Delaware law and certain provisions of our fourth amended and restated certificate of incorporation and our amended and restated bylaws could impede a merger, takeover or other business combination involving us or the replacement of our management or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances, could reduce the market value of our common stock.

 

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Forward-looking statements

This prospectus contains “forward-looking statements” within the meaning of the federal securities laws that involve risks and uncertainties. Forward-looking statements include statements we make concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information and, in particular, appear under the headings entitled “Prospectus summary,” “Risk factors,” “Management’s discussion and analysis of financial condition and results of operations,” “Business” and “Executive compensation—compensation discussion and analysis.” When used in this prospectus, the words “estimates,” “expects,” “anticipates,” “projects,” “forecasts,” “plans,” “intends,” “believes,” “foresees,” “seeks,” “likely,” “may,” “will,” “should,” “goal,” “target” and variations of these words or similar expressions (or the negative versions of any such words) are intended to identify forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time and, therefore, our actual results may differ materially from those that we expected. Accordingly, investors should not place undue reliance on our forward-looking statements. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on the date of this prospectus. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law.

This prospectus also contains estimates and other information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry surveys and forecasts, including those we commissioned by SJ Consulting. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk factors.” These and other factors could cause actual results to differ from those expressed in these publications, surveys and forecasts.

Important factors that could cause actual results to differ materially from our expectations (“cautionary statements”) are disclosed under “Risk factors” and elsewhere in this prospectus. All forward-looking statements in this prospectus and subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. The factors that we believe could affect our results include, but are not limited to:

 

 

any future recessionary economic cycles and downturns in customers’ business cycles, particularly in market segments and industries in which we have a significant amount of customers;

 

 

increased competition from other non-asset based logistics companies as well as asset-based logistic companies, freight forwarders, smaller expedited carriers, integrated transportation companies that operate their own aircraft, and other transportation providers;

 

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our ability to maintain the high level of service we provide to our customers through our owner operators and third-party carriers;

 

 

our reliance on owner operators and third-party carriers and our ability to retain our relationships with such parties and form new relationships with such parties;

 

 

our ability to attract and retain sales representatives and customer service employees;

 

 

the regulatory environment in which we operate, including existing regulations and changes in existing regulations, or violations by us of existing or future regulations;

 

 

increases in fuel prices could affect the availability and cost of owner operators.

 

 

our ability to update, implement, upgrade, enhance, and integrate information technology systems and our ability to protect our intellectual property;

 

 

potential volatility or decreases in our earnings as a result of our self-insurance of a significant amount of our claims exposure; and

 

 

our ability to retain or replace key personnel.

 

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Use of proceeds

We estimate that the net proceeds from our sale of shares of our common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $             million.

We intend to use the estimated net proceeds from the offering received by us as follows and as described and in the order set forth in the table below. To the extent our actual net proceeds are less than the designated uses, we will first reduce or eliminate the payment of dividends accumulated on our preferred stock and, second, reduce the amounts repaid under our Credit Facility. Any dividends not paid will be converted into shares of common stock on the basis of the initial public offering price.

 

(in thousands)    Amount
 

Redemption of all outstanding 17% senior subordinated notes(1)

   $ 46,484

Repayment of note payable to sellers of Elite Logistics Services, LLC(2)

     3,112

Management agreement termination fee and accrued management fees payable to Fenway Partners(3)

     5,000

Repayment of a portion of amounts outstanding under Credit Facility(4)

  

Payment of dividends accumulated on preferred stock

  

Total uses

   $  
 

 

(1)   The 17% senior subordinated notes mature on July 31, 2012 and are redeemable at a redemption price of 100% of their principal amount, plus prior period interest that was paid in kind. Amount shown for the redemption of 17% senior subordinated notes is based on current principal and prior period interest that was paid in kind as of June 30, 2010. Actual amount will differ at the time of redemption.

 

(2)   Amount shown for the repayment of the Elite note is based on principal and prior period interest that was paid in kind as of June 30, 2010. Actual amount will differ at the time of repurchase or redemption. The note is payable upon our meeting a defined threshold and has an interest rate of 9.0%

 

(3)   Amount shown consists of $1.9 million in accrued unpaid management fees and $3.1 million of a $5.1 million management agreement termination fee (with the $2.0 million remainder due in 2011).

 

(4)   Amounts borrowed under our Credit Facility have been used in the past twelve months for general working capital purposes. As of June 30, 2010, there were no amounts outstanding in respect of the revolving portion of the Credit Facility. There was $64,298 outstanding on the term portion of the Existing Credit Facility which had an interest rate of 9.25% per annum. The Credit Facility matures on December 31, 2011.

A $1.00 increase (decrease) in the assumed initial 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 remains the same as set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay. Any increase or decrease in the net proceeds to us from this offering will result in an equal increase or decrease in the amount used to pay dividends on our preferred stock. For each $1.00 increase or decrease in the per share offering price of this offering, the accumulated preferred dividends paid by us (and the amounts repaid under the Credit Facility to the extent the accumulated preferred dividends are either fully repaid or not paid at all from the proceeds of the offering) would increase or decrease by                  and                  respectively.

We will not receive any proceeds from the sale of shares by our existing stockholders pursuant to exercise of all or any part of the underwriters’ option to purchase additional shares.

 

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Dividend policy

We have not paid dividends to our common stockholders since our acquisition by Fenway, our equity sponsor. Except for the payment of accumulated dividends on our preferred stock as set forth in “Use of proceeds” we anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will be dependent on then-existing conditions, including our financial condition and results of operations, contractual restrictions, including restrictive covenants contained in current or future financing instruments, capital requirements and other factors our Board of Directors deems relevant.

 

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Capitalization

The following table sets forth our consolidated cash and cash equivalents and total capitalization as of June 30, 2010 on:

 

 

an actual basis; and

 

 

an as adjusted basis reflecting the following:

 

   

the sale of              shares of common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us;

 

   

the application of net proceeds from this offering as described under “Use of proceeds,” as if the offering and the application of net proceeds of this offering had occurred on June 30, 2010;

 

   

the conversion of              shares of outstanding of preferred stock to common stock that are not purchased with the proceeds of this offering on a             -for-one basis;

 

   

assumes that $             of dividends accumulated on the cumulative preferred stock are paid in cash;

 

   

the assumed exercise of all our outstanding warrants to purchase shares of our common stock; and

 

   

the issuance of              shares of common stock to be issued under our Cash Incentive Plan in connection with the offering.

 

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The information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with the section entitled “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

 

      As of June 30, 2010
(in thousands, except share data)    Actual     As adjusted(1)
 

Cash and cash equivalents

   $ 120      $  
      

Total debt:

    

Credit Facility(2)

   $ 64,298       

17% senior subordinated notes

   $ 46,484       

Note payable to sellers of Elite Logistics Services, LLC

   $ 3,112       
      

Total debt

   $ 113,894      $  

Stockholders’ equity:

    

Common stock, $0.01 par value per share;                      shares authorized;                      shares issued and outstanding, actual;                      shares issued and outstanding as adjusted

     31     

Preferred stock, $0.01 par value per share;                      shares authorized;                      shares issued and outstanding, actual;              shares issued and outstanding, as adjusted

     21,385     

Additional paid-in capital

   $ 39,870      $             

Accumulated other comprehensive loss

   $ (43   $             

Retained deficit

   $ (49,323   $             
      

Total stockholders’ equity

   $ 11,920      $             
      

Total capitalization

   $ 125,814      $             
 

 

(1)   Each $1.00 increase or decrease in the assumed initial public offering price of $             per share would increase or decrease, as applicable, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $             million and shares of common stock issued and outstanding by              shares, assuming the number of shares offered by us remains the same. The foregoing as set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay.

 

(2)   As of June 30, 2010, there were no amounts outstanding in respect of the revolving portion of the Credit Facility and there was $64,298 million outstanding in respect of the term portion of the Credit Facility.

 

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Dilution

As of June 30, 2010, we have negative net tangible book value of approximately $122,725, or $                 per share of our common stock. Our net tangible book value per share represents our tangible assets of $48,066 less our liabilities of $150,226 and accumulated preferred stock dividends of $20,565 at June 30, 2010, divided by our              shares of common stock outstanding, all as of June 30, 2010.

After giving effect to our sale of shares of our common stock in this offering at the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of June 30, 2010 would have been $            , or $             per share. This represents an immediate increase in net tangible book value of $             per share to existing stockholders and an immediate dilution of $             per share to new investors.

The following table illustrates this dilution:

 

Assumed initial public offering price per share

          $             

Net tangible book value per share as of June 30, 2010

   $                

Increase per share attributable to this offering

     
         

As adjusted net tangible book value per share after this offering

     
         

Net tangible book value dilution per share to new investors in this offering

      $  
 

If all our outstanding options had been exercised, the net tangible book value as of June 30, 2010 would have been $             million, or $             per share and the as adjusted net tangible book value after this offering would have been $             million, or $             per share, causing dilution to new investors of $             per share.

A $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our as adjusted net tangible book value per share by approximately $            , assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay.

If the underwriters’ over-allotment option to purchase additional shares from us is exercised in full, our as adjusted net tangible book value per share after this offering would not change because all of the shares subject to the option are offered by selling stockholders.

 

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The following table summarizes, on an as adjusted basis as of June 30, 2010, the total number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid to us by existing stockholders and by new investors purchasing common stock in this offering at the assumed initial public offering price of $            , the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

      Shares purchased    Total consideration    Average
price per
share
     Number    Percent    Amount    Percent   
 

Existing stockholders

          %    $                     %    $             

New investors

              
       

Total

      100%    $      100%    $  
 

A $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, total consideration paid to us by new investors and total consideration paid to us by all stockholders by approximately $             million, assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and without deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay.

If the underwriters’ over-allotment option to purchase additional shares from the selling stockholders is exercised in full, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding after this offering.

 

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Unaudited pro forma consolidated financial data

We have provided unaudited pro forma consolidated financial data in order to illustrate for investors the possible impact on our historical financial position and results of operations as a result of certain significant actions to be taken in connection with this offering, especially those relating to the substantial changes in our capital structure as a result of our debt and interest rate reductions and the conversion of our preferred stock into common stock. The following unaudited pro forma consolidated financial data reflect our historical results as adjusted to record the pro forma effect on our balance sheet and income statement, as appropriate of the following transactions expected to take place in connection with this offering:

 

 

the repayment of a portion of amounts outstanding under our Credit Facility;

 

 

the redemption of all outstanding 17% senior subordinated notes;

 

 

the repayment of the note payable to the sellers of Elite Logistics Services, LLC;

 

 

the payment to Fenway Partners of accrued management fees and a management agreement termination fee;

 

 

the payment of a portion of the undeclared dividends accumulated on our outstanding preferred stock;

 

 

the conversion of the remaining undeclared and unpaid accumulated preferred stock dividends into shares of common stock on the basis of an initial public offering price of $             per share, the midpoint of the filing range set forth on the cover of this prospectus;

 

 

the conversion of our              outstanding shares of preferred stock into shares of common stock on the basis of an initial public offering price of $             per share, the midpoint of the filing range set forth on the cover of this prospectus;

 

 

the issuance of              shares in this offering on the basis of an initial public offering price of $             per share, the midpoint of the filing range set forth on the cover of this prospectus;

 

 

the write-off of existing deferred financing fees;

 

 

an estimated $1.5 million per year of additional costs on an annualized basis relating to extra costs as a public company; and

 

 

a reduction in interest expense due to the repayment of our debt and a new rate under our Amended Credit Facility.

The unaudited pro forma balance sheet gives effect to the applicable adjustments as if they had occurred on June 30, 2010. The unaudited pro forma income statements give effect to the applicable adjustments as if they occurred on January 1, 2009. The footnotes to the balance sheet and income statements describe the transactions applicable to each.

The unaudited pro forma financial data has been prepared in accordance with the rules and regulations of the SEC and is provided for comparison and analysis purposes only and should not be considered indicative of actual results that would have been achieved had the foregoing actually been consummated on the dates indicated and do not purport to be indicative of results of operations during any future period. The unaudited pro forma financial data and accompanying notes should be read in conjunction with the financial statements and other financial information presented elsewhere in this prospectus, including “Selected historical financial data” and “Management’s discussion and analysis of financial condition and results of operations.”

 

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Unaudited pro forma balance sheet as of June 30, 2010

(in thousands, except share data)

 

      June 30,
2010
   

Offering

Adjustments

   

Pro

Forma

 
                          

Assets

      

Current assets:

      

Cash and cash equivalents

   $ 120      $ 91,500 (1)    $ 125   
       (77,894 )(2)   
       (5,000 )(3)   
       5 (4)   
       (8,606 )(5)   

Accounts receivable, net

     28,764          28,764   

Income taxes receivable

     5,078          5,078   

Deferred tax assets

     1,504        5,424 (6)      6,928   

Advances to owner operators

     3,017          3,017   

Other current assets

     1,021          1,021   
                        

Total current assets

     39,504        5,429        44,933   

Property and equipment, net

     5,586          5,586   

Goodwill

     58,471          58,471   

Intangibles, net

     55,609          55,609   

Deferred financing costs and other

     2,976        (1,755 )(7)      1,221   
                        
     122,642        (1,755     120,887   
                        

Total assets

   $ 162,146      $ 3,674      $ 165,820   
                        

Liabilities and stockholders’ equity

      

Current liabilities:

      

Line of credit

   $        $   

Current maturities of long-term debt

     35,912        (35,912 )(2)    $   

Accounts payable

     12,746          12,746   

Accrued expenses

     6,289        5,125 (8)   
       (5,000 )(3)      6,414   

Dividends payable

       20,564 (9)      0   
       (8,606 )(5)   
       (11,958 )(10)   

Owner operator escrow

     1,056          1,056   
                        

Total current liabilities

     56,003        (35,787     20,216   

Other long-term liability

     318          318   

Deferred tax liabilities

     15,923          15,923   

Long-term debt

     77,982        (38,870 )(2)      36,000   
       (3,112 )(2)   

Stockholders’ equity:

      

Common stock

     39,901        91,500 (1)      172,937   
       33,343 (11)   
       5 (4)   
       8,187 (12)   

Preferred stock

     21,385        (21,385 )(13)      0   

Accumulated other comprehensive loss

     (43       (43

Retained deficit

     (49,323     (3,280 )(8)   
                        
       (5,240 )(12)   
       (20,564 )(9)   
       (1,123 )(7)      (79,530
                        

Total stockholders’ equity

     11,920        81,443        93,363   
                        

Total liabilities & equity

   $ 162,146      $ 3,674      $ 165,820   
                          

 

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(1)   We estimate that the net proceeds from our sale of shares of our common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $91,500.

 

(2)   To apply assumed net proceeds from this offering to (i) pay $46,484 to redeem all of our outstanding 17% senior subordinated notes, which are redeemable at 100% of their principal amount, plus prior period interest that was paid in kind, (ii) pay $3,112 under the note payable to the sellers of Elite Logistics Services, LLC and (iii) repay $28,298 under the term portion of the Credit Facility. To the extent the items payable under items (i) and (ii) differ from assumed amounts we will first adjust the amounts used to pay a portion of the preferred dividends (see note 5) and, second, adjust the amount repaid under the Credit Facility.

 

(3)   To apply the payment to Fenway Partners of $1,875 in accrued management fees and $3,125 of the $5,125 management agreement termination fee (with the $2,000 remainder due in 2011).

 

(4)   To record the proceeds associated with the exercise of our outstanding warrants to purchase common stock.

 

(5)   To pay a portion of the preferred dividends; amount is based on assumed net proceeds of this offering less the application of such proceeds in accordance with footnotes 1, 2 and 3; actual amount will differ at the time of repayment to the extent net proceeds or the application of such proceeds is adjusted. Any increase or decrease in the net proceeds to us from this offering will result in an equal increase or decrease in the amount used to pay accumulated dividends on our preferred stock. For each $1.00 increase or decrease in the per share offering price of this offering, the accumulated preferred dividends paid by us would increase or decrease by              and              respectively.

 

(6)   To record a deferred tax asset to reflect the tax impact of the management fee expense, expenses related to the conversion of Cash Incentive Plan units to common stock and the write-off of deferred financing fees in connection with our Amended Credit Facility.

 

(7)   To record the write-off of deferred financing fees, which amount is $1,755 on a pre-tax basis. Such amount is $1,123 on a tax-adjusted basis.

 

(8)   To accrue the management agreement termination fee due to Fenway Partners of $5,125 on a pre-tax basis. Such amount is $3,280 on a tax-adjusted basis.

 

(9)   To declare accumulated preferred stock dividends, of which $8,606 are expected to be repaid (see note 5) and the remainder of which will be converted into shares of common stock (see note 11).

 

(10)   To eliminate unpaid remaining accumulated preferred dividends of $11,958 as a result of their conversion into shares of common stock (see note 11).

 

(11)   To record the conversion of our              shares of outstanding preferred stock with a preference of $21,385 and the remaining unpaid accumulated preferred dividends of $11,958 into shares of common stock.

 

(12)   To record the value of the units of the Cash Incentive Plan upon conversion into shares of common stock at $8,187 on a pre-tax basis. Such amount is $5,240 on a tax-adjusted basis.

 

(13)   To eliminate our              shares of outstanding preferred stock with a preference of $21,385 as a result of their conversion into shares of common stock.

 

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Unaudited pro forma statement of operations for

six-month period ended June 30, 2010

(in thousands, except share data)

 

      June 30,
2010
   

Offering

Adjustments

   

Pro Forma

June 30,
2010

 
                          

Revenues

   $ 95,009        $ 95,009   

Operating expenses:

      

Purchased transportation

     69,927          69,927   

Personnel and related benefits

     11,760          (1)      11,760   

Insurance and claims

     2,016          2,016   

Depreciation

     703          703   

Amortization of intangibles

     4,038          4,038   

Other operating expenses

     6,281        (750 )(2)   
         (3)   
       750 (4)      6,281   
                        

Total operating expenses

     94,725          94,725   

Operating income (loss)

     284          284   

Interest expense

     7,984        (7,984 )(5)   
       810 (6)   
         (7)      810   

Other expense (income):

     (32       (32
                        

Total other expense (income)

     7,952        (7,174     778   

Income (loss) before taxes

     (7,668     7,174        (494

Income tax provision (benefit)

     (2,776     2,598 (8)      (178

Net income (loss)

   $ (4,892   $ 4,576      $ (316

Undeclared cumulative preferred dividends

   $ (2,779   $ 2,779 (9)    $   

Net income (loss) available to common stockholders

   $ (7,671   $ 7,335      $ (316

Average number of shares outstanding

      

Basic and diluted

     3,108,822          (10)   

Earnings per share available to common stockholders

      
                          
(1)   Excludes a one-time non-cash expense of $8,187 associated with the issuance of common stock in exchange for Cash Incentive Plan units that are payable in common stock upon an initial public offering.

 

(2)   Adjustment to eliminate Fenway Partners management fees on an annualized basis, assuming a management fee equal to $1,500 per year.

 

(3)   Excludes one-time expenses of $5,125 associated with the payment to Fenway Partners of a management agreement termination fee ($3,125 will be paid in connection with the transaction with the $2,000 remainder due in 2011).

 

(4)   Adjustment to record estimated additional expense associated with being a public company of $1,500 on an annualized basis.

 

(5)   Adjustment to eliminate interest expense associated with debt that will be repaid with the proceeds of this offering.

 

(6)   Adjustment to record interest expense on estimated remaining debt of $36,000 at an assumed rate of 4.5% per annum. An increase or decrease in the interest rate by 0.125% would increase or decrease interest expense by $22.5.

 

(7)   Excludes one-time non-cash expense associated with write-off of deferred financing fees of $1,755.

 

(8)   Reflects the tax impact of pro forma adjustments at an assumed tax rate of 36.0%.

 

(9)   Adjustment to eliminate undeclared cumulative preferred dividends that would have otherwise accrued during the period.

 

(10)   Reflects additional shares for (i) the conversion of all shares of outstanding preferred stock into              common shares, (ii) the exercise of outstanding warrants to acquire              common shares, (iii) the exercise of all in-the-money stock options to acquire              common shares, (iv) the conversion of the Cash Incentive Plan units into              common shares and (v) the issuance of              common shares in the offering.

 

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Unaudited pro forma statement of operations for the

year ended December 31, 2009

(in thousands, except share data)

 

      December 31,
2009
   

Offering

Pro Forma
Adjustments

    Pro Forma
December 31,
2009
 
                          

Revenues

   $ 157,832        $ 157,832   

Operating expenses:

      

Purchased transportation

     115,279          115,279   

Personnel and related benefits

     19,159          (1)      19,159   

Insurance and claims

     6,213          6,213   

Depreciation

     1,579          1,579   

Amortization of intangibles

     8,077          8,077   

Goodwill and intangibles impairment

     33,498          33,498   

Other operating expenses

     12,150        (1,500 )(2)   
         (3)   
       1,500 (4)      12,150   
                        

Total operating expenses

     195,955          195,955   

Operating income (loss)

     (38,123       (38,123

Interest expense

     14,003        (14,003 )(5)   
       1,620 (6)      1,620   

Other expense (income):

     (71       (7)      (71
                        

Total other expense (income)

     13,932        (12,383     1,549   

Income (loss) before taxes

     (52,055     12,383        (39,672

Income tax provision (benefit)

     (8,761     4,458 (8)      (4,303

Net income (loss)

   $ (43,294   $ 7,925      $ (35,369

Undeclared cumulative preferred dividends

   $ (5,015   $ 5,015 (9)    $   

Net income (loss) available to common stockholders

   $ (48,309   $ 12,940      $ (35,369

Average number of shares outstanding

      

Basic and diluted

     3,107,210          (10)   

Earnings per share available to common stockholders

      
                          
(1)   Excludes a one-time non-cash expense of $8,187 associated with the issuance of common stock in exchange for Cash Incentive Plan units that are payable in common stock upon an initial public offering.

 

(2)   Adjustment to eliminate Fenway Partners management fees on an annualized basis, assuming a management fee equal to $1,500 per year.

 

(3)   Excludes one-time expenses of $5,125 associated with the payment to Fenway Partners of a management agreement termination fee ($3,125 will be paid in connection with the transaction with the $2,000 remainder due in 2011).

 

(4)   Adjustment to record estimated additional expense associated with being a public company of $1,500 on an annualized basis.

 

(5)   Adjustment to eliminate interest expense associated with debt that will be repaid with the proceeds of this offering.

 

(6)   Adjustment to record interest expense on estimated remaining debt of $36,000 at an assumed rate of 4.5% per annum. An increase or decrease in the interest rate by 0.125% would increase or decrease interest expense by $45.

 

(7)   Excludes one-time non-cash expense associated with write-off of deferred financing fees of $2,441.

 

(8)   Reflects the tax impact of pro forma adjustments an assumed tax rate of 36.0%.

 

(9)   Adjustment to eliminate undeclared cumulative preferred dividends that would have otherwise accrued during the period.

 

(10)   Reflects additional shares for (i) the conversion of all shares of outstanding preferred stock into              common shares, (ii) the exercise of outstanding warrants to acquire              common shares, (iii) the exercise of all in-the-money stock options to acquire              common shares, (iv) the conversion of the Cash Incentive Plan units into              common shares, and (v) the issuance of              common shares in the offering.

 

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Table of Contents

Selected consolidated financial data

The following table sets forth selected consolidated financial data for the periods and as of the dates indicated. The selected consolidated statement of operations data for the period from January 1, 2005 to June 10, 2005 is derived from the audited consolidated financial statements of our predecessor, Panther Transportation, which financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm. The selected consolidated balance sheet data as of June 10, 2005 is derived from unaudited condensed consolidated financial statements of Panther Transportation. The selected consolidated statement of operations data for the period from June 11, 2005 to December 31, 2005 and for the years ended December 31, 2006, 2007, 2008 and 2009 and the selected consolidated balance sheet data as of December 31, 2005, 2006, 2007, 2008 and 2009 are derived from the audited consolidated financial statements of Panther Expedited Services, Inc., which financial statements have been audited by Ernst & Young LLP. The 2007, 2008 and 2009 audited consolidated financial statements are included elsewhere in this prospectus. The selected consolidated statement of operations data for the six-month periods ended June 30, 2009 and 2010 and the selected consolidated balance sheet data as of June 30, 2010 have been derived from the unaudited condensed consolidated financial statements of Panther Expedited Services, Inc. included elsewhere in this prospectus. The unaudited condensed selected consolidated financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and the results of operations for these periods. Historical results are not necessarily indicative of the results expected for any future period.

 

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The selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus and the information contained in “Summary consolidated financial and other data,” “Capitalization,” and “Management’s discussion and analysis of financial condition and results of operations.”

 

     Predecessor            
(in thousands, except share
data)
  January 1,
2005-
June 10,
2005
       June 11,
2005-
December 31,
2005
    Year ended
December 31,
    Six months
ended
June 30,
 
        2006     2007     2008     2009     2009     2010  
   
    (unaudited)                                      (unaudited)  
 

Consolidated statement of operations data:

                   

Revenues

  $ 60,580       $ 96,151      $ 170,363      $ 190,293      $ 189,961      $ 157,832      $ 66,397      $ 95,009   

Operating expenses:

                   

Purchased transportation

    41,926         66,214        118,260        134,707        135,612        115,279        49,163        69,927   

Personnel and related benefits

    6,138         12,120        15,544        18,466        19,394        19,159        9,603        11,760   

Insurance and claims

    1,299         1,240        2,951        3,935        3,211        6,213        2,475        2,016   

Depreciation

    433         542        923        865        1,179        1,579        812        703   

Amortization of intangibles(1)

            4,447        7,674        7,840        7,827        8,077        4,038        4,038   

Goodwill and intangibles impairment(2)

                                        33,498        33,498          

Other operating expenses

    4,098         5,741        10,221        12,382        12,637        12,150        5,773        6,281   

Total operating expenses

    53,894         90,304        155,573        178,195        179,860        195,955        105,362        94,725   
                 

Operating income (loss)

    6,686         5,847        14,790        12,098        10,101        (38,123     (38,965     284   

Interest expense

    261         2,910        12,449        11,344        12,730        14,003        6,461        7,984   

Other expenses (income)

    3,111         (86     1,862        (141     (319     (71     (31     (32
                 

Income (loss) before taxes

    3,314         3,023        479        895        (2,310     (52,055     (45,395     (7,668

Income tax provision (benefit)

            (643     101        815        (213     (8,761     (7,639     (2,776
                 

Net income (loss)

  $ 3,314       $ 3,666      $ 378      $ 80      $ (2,097   $ (43,294     (37,756     (4,892

Less undeclared cumulative preferred dividends(3)

  $       $ (4,288   $ (3,300   $ (3,809   $ (4,370   $ (5,015   $ (2,421   $ (2,779

Net income (loss) available to common stockholders

  $ 3,314       $ (622   $ (2,922   $ (3,729   $ (6,467   $ (48,309   $ (40,177   $ (7,671

Average number of shares outstanding

                   

Basic and diluted

    10,100         2,700,000        3,026,550        3,046,343        3,061,136        3,107,210        3,105,570        3,108,822   

Earnings (loss) per share available to common stockholders:

                   

Basic and diluted income (loss) per share

  $ 328.13       $ (0.23   $ (0.97   $ (1.22   $ (2.11   $ (15.55   $ (12.94   $ (2.47
   

 

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     Predecessor              
(in thousands, except share data)   January 1,
2005-
June 10,
2005
         June 11,
2005-
December 31,
2005
    Year ended
December 31,
    Six months
ended
June 30,
 
        2006     2007     2008     2009     2009     2010  
    (unaudited)                                        (unaudited)  

Consolidated balance sheet data (as of the end of the period):

                   

Cash and cash equivalents

  $ 735          $ 2,004      $ 2,041      $ 1,669      $ 2,198      $ 439      $ 2,102      $        120   

Total assets

    29,193            196,456        201,799        199,816        201,618        160,100        161,618        162,146   

Total debt

    11,678            57,350        102,239        99,508        105,877        110,580        105,307        113,894   

Cumulative preferred stock(3)

               63,000        21,385        21,385        21,385        21,385        21,385        21,385   

Cumulative preferred stock dividends(3)

          4,288        4,592        8,401        12,772        17,786        15,192        20,565   
 

Other financial data:

                   

Cash flow provided by operating activities

    5,095            3,003        8,294        10,372        4,407        1,172        3,666        968   

Cash flow used in investing activities

    (286         (131,471     (9,580     (7,743     (6,638     (778     (406     (787

Cash flow (used in) provided by financing activities

    (4,074         129,737        1,323        (3,001     2,760        (2,153     (3,356     (500

Capital expenditures

  $ 324          $ 393      $ 438      $ 1,634      $ 2,301      $ 953      $ 479      $ 932   
   

 

(1)   We incur non-cash amortization related to the amortization of our finite-lived intangible assets. As a result of the acquisition of Panther, a portion of the purchase price was allocated to our intangible assets based upon their fair market values. The finite-lived intangible assets, which include our proprietary information systems platform and our customer relationships, are being amortized using the straight-line method over estimated useful lives of seven years and eighteen years, respectively.

 

(2)   As a result of our testing of our goodwill and other indefinite lived intangibles in 2009, non-cash impairment charges were recorded reducing the carrying value of our goodwill and trade name by $28.1 million and $5.4 million, respectively. See “Management’s discussion and analysis of financial condition and results of operations—Non-cash expenses.”

 

(3)   Our cumulative preferred stock ranks senior in right of payment to all other classes or series of our capital stock as to dividends, and upon liquidation, dissolution, or winding up of Panther. The holders of our cumulative preferred stock are entitled to receive, when, as and if declared by our Board of Directors, cumulative preferential dividends on each share of cumulative preferred stock at a rate of 14% per year of the liquidation preference of $1,000 on each share of stock. Dividends on our cumulative preferred stock accrue whether or not we have earnings or the dividends are declared. Upon any voluntary or involuntary liquidation, dissolution, or winding up of Panther, each holder is entitled to payment of an amount equal to the liquidation preference of $1,000 per share of our cumulative preferred stock plus accrued and unpaid dividends before any distribution is made to the holders of other securities, including the common stock.

 

       In January 2006, we issued 2,239 additional shares of cumulative preferred stock for $2.4 million in a private placement to third-party investors and repurchased 44,015 shares of the outstanding cumulative preferred stock for $47.2 million, including $3.2 million of cumulative preferred stock dividends. In connection with our January 2006 refinancing, the dividend rate on our outstanding cumulative preferred stock increased from 12% to 14%.

 

       In connection with this offering, all of the dividends accumulated on the outstanding cumulative preferred stock will be paid in cash or converted to common stock and all the outstanding cumulative preferred stock will be redeemed or converted to common stock. See “Use of proceeds.”

 

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Management’s discussion and analysis of financial condition and results of operations

The following discussion and analysis of our financial condition and results of operations should be read together with “Selected consolidated financial data,” and the consolidated financial statements and the related notes included elsewhere in the prospectus. This discussion contains forward-looking statements as a result of many factors, including those set forth under “Risk factors,” “Forward-looking statements,” and elsewhere in this prospectus. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk factors.”

Overview

We are one of North America’s largest expedited transportation providers with an expanding platform in premium freight logistics and freight forwarding. We offer single-source ground, air and ocean shipping solutions for time-sensitive, high-value and service-critical freight, with on-demand pick-up and delivery to and from anywhere in the world. Our diversified, non-asset based transportation network consists of approximately 1,075 exclusive-use owner-operator vehicles, over 1,600 third-party ground carriers that provide additional North American capacity and over 500 air and ocean cargo carriers that provide global reach. During the twelve months ended June 30, 2010, we handled shipments for over 10,000 customers. We operate throughout nearly all segments of the supply chain for customers in diverse industries. In addition, many of the largest transportation and third-party logistics companies in the world turn to us for transportation solutions they cannot provide for customers on their own. Our proprietary, integrated and scalable information technology platform is a key component of our business. It enables our customers to better manage their supply chain performance and expenses by optimizing cost and service decisions. We believe it also allows us to deliver superior customer service, operate more efficiently, and offer our owner operators enhanced productivity. Our non-asset based business model allows us to expand organically without the capital investments required by our asset-based competitors. This creates the opportunity to generate significant cash flows and to react quickly based on business opportunities and challenges.

We derived approximately 66% of our revenues from North American ground expedited transportation for the first six months of 2010. The balance of our revenues were generated from our growing domestic and international air and ocean freight services, our Elite Services, which involve highly specialized solutions and customized handling for customers with special needs, and our truckload brokerage services. We provide our North American ground services through a 100% owner-operator fleet of straight trucks, tractor-trailers and cargo vans, supplemented with capacity from over 1,600 third-party ground carriers. The owner operators are exclusively contracted to us, while the third-party carriers operate independently and are allocated shipments when our network optimization technology dictates or we require additional capacity. In the first six months of 2010, owner operators generally handled between 70% and 90% of our weekly ground freight volume, with third-party carriers handling the balance and affording us flexible capacity to serve customers.

We believe industry trends support the growth of our addressable market. Many shippers seek to decrease their shipping expenses by tightly managing their supply chains so that only the

 

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required amount of inventory is in the supply chain at any time, thus reducing the carrying costs of inventory. As shippers more tightly manage their supply chain to minimize excess inventory, they become more sensitive to supply chain disruptions as they have less inventory to cover any delay in shipments. Disruptions in the supply chain may be caused by various sources, including extreme weather, labor disputes, natural disasters, troop movements and military transports, and other sources. We generally provide services to a number of shippers with lean inventory business models who benefit from expedited service, but have found that many shippers also turn to expedited providers of transportation services such as us when their supply chain is disrupted to eliminate further delay in their supply chain.

We believe the globalization of manufacturing, shorter product cycles, and the trend towards a demand-driven supply chain has led to increased usage of third-party logistics providers, who specialize in managing all aspects of the supply chain for shippers and who have greater visibility and a better understanding of the total cost of the supply chain, including safety, security, and the ability to access thousands of transportation providers. If the trend towards increased supply chain management continues, we believe that providers such as ourselves will continue to benefit because of our specialized skill set and ability to manage supply chains on behalf of our customers.

Historically, we have achieved stronger gross profit margins in our owner-operator based ground expedited operations than in our third-party based ground operations and freight forwarding operations. As we execute on our strategy to expand our freight forwarding services, in order to benefit from the high growth and large size of this market as well as to further embed ourselves in customer’s supply chains, it is possible that any revenue growth in freight forwarding could be accompanied with higher purchased transportation costs, leading to diminished gross profit percentage. Our third-party and freight-forwarding operations, however, require less investment in personnel and involve less claims risk, because these costs are borne by other parties.

Non-asset based business model

Our non-asset based business model offers significant flexibility to expand without large capital investments and the opportunity to generate strong free cash flows. We obtain 100% of our network capacity from owner operators, third-party carriers, air freight carriers, ocean shipping lines and other transportation asset providers. These transportation asset providers supply revenue-generating equipment capacity and bear virtually all transportation-related expenses in exchange for a specified payment per shipment. Our model also offers our owner operators and third-party providers the incentives of business ownership to operate reliably, safely and productively. We do not have extensive terminal facilities, which also lowers our capital expenditures. In each of the past three years, our capital expenditures (excluding acquisitions) have been approximately one percent of revenues.

Key performance indicators

We use the following key performance indicators to evaluate our operating performance:

 

 

Average shipments per business day, meaning the total number of shipments during the relevant period divided by the total business days in the period, helps us keep track of business volumes and our effectiveness in converting sales opportunities into shipments;

 

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Average revenue per shipment, meaning our total revenues in the referenced period divided by the total number of shipments and for which revenues were recognized over the same period, helps indicate our success in allocating our capacity to move compensatory shipments as well as the general level of rate changes;

 

 

Average number of employees, meaning our total number of employees at the end of each month during the relevant period divided by the number of months in such period, helps us keep track of productivity and overhead costs; and

 

 

Gross profit percentage, which is our revenues, minus purchased transportation costs, divided by revenues, indicates our success in managing transportation costs and our margin to cover all of our other costs;

The table below shows each of our key performance indicators for the years ended December 31, 2007, 2008 and 2009 and for the six month periods ended June 30, 2009 and 2010.

 

      Year ended
December 31,
   Six months ended
June 30,
     2007    2008    2009    2009    2010
 

Average shipments per business day

     868      757      687      600      737

Average revenue per shipment

   $ 871    $ 995    $ 911    $ 894    $ 1,031

Average number of employees

     319      368      341      345      364

Gross profit percentage

     29.2%      28.6%      27.0%      26.0%      26.4%
 

We believe that thorough evaluation of these key performance indicators, together with a careful review of our financial statements and our overall results of operations, is useful in analyzing our financial and operating performance.

Non-cash expenses

In 2009, we incurred non-cash impairment charges aggregating $33.5 million. Impairment charges were recorded that reduced the carrying value of the goodwill and our Panther trade name by $28.1 million and $5.4 million, respectively. The indicators leading to the goodwill impairment charge included the significant decrease in operating results, a decrease in non-financial performance indicators and other macroeconomic factors.

We incur non-cash amortization related to the amortization of our finite-lived intangible assets. As a result of the acquisition of us by Fenway, our equity sponsor, a portion of the purchase price was allocated to our intangible assets based upon their fair market values. The finite-lived intangible assets, which include our proprietary information systems platform and our customer relationships, are being amortized using the straight-line method over estimated useful lives of seven years and eighteen years, respectively. In the years ended December 31, 2007, 2008, and 2009 our non-cash amortization charges on definite lived intangible assets totaled $7.8 million, $7.8 million, and $8.1 million, respectively. We expect this trend to continue for the next three years.

We incur non-cash charges in our personnel and related benefits line item related to equity compensation for grants made under our 2005 Equity Incentive Plan and 2010 Cash Incentive Plan. See “Executive compensation.” We recognized $0.7 million, $0.8 million, and $0.4 million in non-cash equity compensation expense in the years ended December 31, 2007, 2008 and 2009 respectively.

 

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Acquisitions

On July 21, 2006, we acquired certain assets associated with the owner-operator based expedited freight transportation business of Con-way Expedite and Brokerage, a division of Con-way Inc. The acquisition of these assets from Con-way enabled us to expand our ground expedited footprint and customer base. In March 2007, we acquired Integres Global Logistics, Inc. The acquisition of Integres provided the foundation for our One CallSM Solution and our network optimization software. In October 2008, we purchased Elite Transportation Services, LLC, d/b/a Elite Logistics Worldwide, which enabled us to build a West Coast platform for our air freight forwarding business.

We have accounted for each of these acquisitions as a purchase and, accordingly, the results of operations of the acquired company have been included in our consolidated financial statements commencing on the dates of the respective acquisitions. The aggregate purchase price associated with the three transactions was $26.8 million and the aggregate goodwill and other intangible assets allocated to the three transactions was $22.0 million.

Expenses associated with this offering

In connection with this offering, we expect to incur the following non-recurring expenses.

 

 

In connection with the execution of our Amended Credit Facility, we expect to incur non-cash interest expense of approximately $         million of previously deferred financing fees that we would otherwise have amortized over the life of our Credit Facility.

 

 

We expect that our personnel and related benefits will increase for the quarter in which this offering becomes effective as a result of non-cash equity compensation expense for equity grants that vest and are then exercisable upon an initial public offering. Assuming the consummation of this offering, we anticipate that stock compensation expense immediately recognized will be approximately $             million. We also expect to incur approximately $             in compensation expense as a result of              shares of common stock to be issued under our Cash Incentive Plan in connection with this offering. We also expect to incur approximately $             in other expenses as a result of              shares to be issued to directors under our Cash Incentive Plan in connection with this offering.

 

 

We expect to incur approximately $             as a termination fee in connection with terminating our Management Agreement with Fenway Partners, our equity sponsor.

See “Use of proceeds” for additional information.

Factors affecting comparability of future periods with historical periods

In connection with this offering, we expect the following to affect the comparability of our post-offering periods with our pre-offering periods.

 

 

We expect interest expense to decrease because of (1) the reduction of our total debt by approximately $             million with the estimated proceeds of this offering and (2) lower interest rates on our remaining debt based on the execution of our Amended Credit Facility and the redemption and payoff of our 17% senior subordinated notes and Elite note. Our interest expense was approximately $14.0 million in 2009. As of June 30, 2010, assuming the

 

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application of estimated net proceeds of this offering as set forth in “Use of Proceeds” and the execution of our Amended Credit Facility, we expect our total indebtedness to be $             million, all outstanding under our Amended Credit Facility.

 

 

We will no longer pay annual management fees to Fenway Partners, our equity sponsor. The Management Agreement provides that Fenway Partners is entitled to receive an annual management fee equal to the greater of (1) $1,500,000 per fiscal year or (2) 5.0% of EBITDA (as defined in the Management Agreement) for the immediately preceding fiscal year.

 

 

The conversion of our preferred stock and the payment and conversion of the preferred cumulative dividends associated therewith will, assuming we are profitable, increase the earnings available to our common stockholders, but will increase the number of common shares outstanding.

 

 

We are a private company and are not currently required to prepare or file periodic and other reports with the SEC under the applicable U.S. federal securities laws or to comply with the requirements of U.S. federal securities laws applicable to public companies, such as Section 404 of the Sarbanes-Oxley Act of 2002. Following this offering we will be required to implement additional corporate governance practices and to adhere to a variety of reporting requirements and accounting rules. Compliance with these and other Sarbanes-Oxley Act obligations will require significant time and resources from management and will increase our legal, insurance and financial compliance costs. We anticipate that we will incur approximately $1.5 million in additional annual legal, insurance and financial compliance costs related to Sarbanes-Oxley Act compliance and other public company expenses.

Revenues and expenses

Revenues

We primarily generate revenues by arranging for the transportation of freight using our owner operators and third-party carriers. The main factors that affect our revenues are the volume of freight shipped by customers, the nature of the specialized services we provide them and the freight rates we receive for the shipment. The most significant impact on our revenues is industry-wide shipping volumes. These factors are driven by, among other things, the general level of economic activity in North America, inventory levels, specific customer demand, import/export activity, industry-wide capacity and driver availability both in our owner-operator network and our network of third- party carriers. We generally pass through fuel surcharges billed to the customer. Amounts passed through are not recorded as revenues or expenses in our consolidated financial statements.

Expenses

None of our expenses are 100% variable or fixed, but our management generally categorizes expenses as primarily variable or primarily fixed when evaluating our financial performance.

Primarily variable expenses:

 

 

Purchased transportation.    Purchased transportation represents the amount we pay our owner operators or our third-party carriers to transport freight. We generally pay our owner operators on a per loaded mile basis for their services. Purchased transportation for brokerage services is based on a negotiated rate for each shipment transported. Purchased transportation

 

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is the largest component of our operating costs. This expense fluctuates based on market pricing and the mix between purchased transportation expense paid to our owner operators versus purchased transportation expense paid to third-party carriers (which generally equals a higher percentage of the associated revenues). We record the cost of purchased transportation and services in a manner that is consistent with revenue recognition. We believe that a combination of owner operator and third-party capacity allows us to better manage potential capacity shortages compared with many other non-asset based providers. We generally pay our owner operators a fixed rate per mile, which lessens our exposure to spot market increases in underlying transportation costs. Through our third-party carriers we gain capacity to service customers when we otherwise might not be able to do so. We attempt to accept these shipments only when our purchased transportation costs are covered or exceeded by the revenues we generate from such freight.

 

 

Insurance and claims.    Insurance and claims expense represent our insurance premiums and accruals we make for estimated payments for auto liability, physical damage and cargo claims within our self-insured retention amounts. Our claims expense generally varies with the volume of shipments that we handle. Fluctuations in our claims expense can occur based on developments in claims over time.

Primarily fixed expenses:

 

 

Personnel and related benefits.    Personnel and related benefits represent primarily the wages, benefits and payroll taxes of our workforce, including health coverage and workers’ compensation. While we believe this expense is primarily fixed, we do expect an increase in these costs if we are successful in growing our business.

 

 

Depreciation.    Deprecation relates to the depreciation of our property and equipment. We depreciate our property and equipment using the straight-line method over an estimated useful life of ten years for our telecommunications equipment, trailers and leasehold improvements and three to ten years for all other assets.

 

 

Amortization of intangibles.    Amortization of intangibles relates to the amortization of our finite-lived intangible assets. As a result of our acquisition of us by Fenway, our equity sponsor, a portion of the purchase price was allocated to our intangible assets based upon their fair market values. The finite-lived intangible assets, which include our proprietary information systems platform and our customer relationships, are being amortized using the straight-line method over estimated useful lives of seven years and eighteen years, respectively.

 

 

Other operating expenses.    Other operating expenses include the cost of trailer leases and maintenance, headquarters sales office rent, telecommunications expenses, utilities, management fees paid to our sponsor (which will cease contemporaneously with this offering) and other general and administrative expenses.

 

 

Interest expense.    Interest expense consists of the interest and amortization of deferred financing fees we incur under our various debt agreements and for the years ended December 31, 2009 and 2008 also includes interest expense and gain associated with our interest rate swap agreements. Additionally, during the year ended December 31, 2008, we changed to paying interest on our Credit Facility at the base rate. As a result, the interest rate on the Credit Facility no longer matched the interest rate on the related interest rate swaps and we discontinued cash flow hedge accounting and incurred certain related charges to interest expense as described below.

 

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Results of operations

Six-month period ended June 30, 2010 compared to six-month period ended June 30, 2009

In the six months ended June 30, 2010 revenues and operating results improved significantly because of increased freight volumes over our network, improved pricing, and the scalability of our operating model. Increased freight volumes primarily resulted from increasing our sales force and network capacity as well as the economic recovery. Our key performance indicators were as follows:

 

 

average shipments per business day increased by 137, or 22.8%;

 

average revenue per shipment increased by $137 or 15.3%;

 

average number of employees increased by 19, or 5.5%; and

 

gross profit percentage improved by 40 basis points.

The following table sets forth the percentage relationship of certain line items to revenues for the periods indicated:

 

      Six months ended June 30,
     2009    2010
(in thousands)         

% of

Revenues

        

% of

Revenues

 

Revenues

   $ 66,397      100.0%    $ 95,009      100.0%

Operating expenses:

         

Purchased transportation

     49,163      74.0%      69,927      73.6%

Personnel and related benefits

     9,603      14.5%      11,760      12.4%

Insurance and claims

     2,475      3.7%      2,016      2.1%

Depreciation

     812      1.2%      703      0.7%

Amortization of intangibles

     4,038      6.1%      4,038      4.3%

Goodwill and intangibles impairment

     33,498      50.5%          

Other operating expenses

     5,773      8.7%      6,281      6.6%
      

Total operating expenses

     105,362      158.7%      94,725      99.7%
      

Operating income (loss)

     (38,965   (58.7)%      284      0.3%

Interest expense and other

     6,430      9.7%      7,952      8.4%
                         

Loss before income taxes

     (45,395   (68.4)%      (7,668   (8.1)%

Income tax benefit

     (7,639   (11.5)%      (2,776   (2.9)%
      

Net loss

   $ (37,756   (56.9)%    $ (4,892   (5.2)%
 

Revenues.    Revenues increased by $28.6 million, or 43.1%, to $95.0 million in the six months ended June 30, 2010 from $66.4 million in the six months ended June 30, 2009. The increase in revenues was primarily the result of a 22.8% increase in average shipments per business day, to 737 per day in the six months ended June 30, 2010 from 600 per day in the six months ended June 30, 2009, primarily attributable to an increase in the size and expertise of our sales force. Additionally, our average revenue per shipment increased by 15.3% to $1,031 per shipment in the 2010 period, which was attributable to a focused effort to improve pricing based on market fundamentals, new approaches taken for smaller customers or customers who purchase less frequently and an upgraded team that focuses on pricing with our sales force.

 

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Purchased transportation.    Purchased transportation costs increased by $20.8 million, or 42.2%, to $69.9 million in the six months ended June 30, 2010 from $49.2 million in the six months ended June 30, 2009. The increase in purchased transportation was caused by the increase in average shipments per business day. Our gross profit percentage improved by 40 basis points to 26.4% in the six months ended June 30, 2010 from 26.0% in the six months ended June 30, 2009 because we pay our owner operators an established rate per mile while our average revenue per shipment increased which more than offset higher payments to third-party carriers as a result of tightening capacity in the spot market.

Personnel and related benefits.    Personnel and related benefits increased by $2.2 million, or 22.5%, to $11.8 million in the six months ended June 30, 2010 from $9.6 million in the six months ended June 30, 2009 due to increasing the size of our sales force, recording higher incentives based on our improved results, and adding operations personnel to handle the current and expected increase in business. We posted an improvement from a percentage of revenues perspective as a result of the continued ability of our technology platform to handle increased shipment levels without the addition of a proportionate number of personnel. Our headcount increased by 5.5% to 364 employees for the six months ended June 30, 2010 from 345 for the six months ended June 30, 2009.

Insurance and claims.    Insurance and claims expenses decreased by $0.5 million to $2.0 million in the six months ended June 30, 2010 from $2.5 million in the six months ended June 30, 2009, primarily as a result of decreased frequency and severity of claims. Insurance and claims as a percentage of revenues decreased to 2.1% in the six months ended June 30, 2010 from 3.7% in the six months ended June 30, 2009.

Depreciation.    Depreciation expense decreased to $0.7 million in the six months ended June 30, 2010 from $0.8 million in the six months ended June 30, 2009. Depreciation as a percentage of revenues decreased to 0.7% in the six months ended June 30, 2010 from 1.2% in the six months ended June 30, 2009.

Amortization of intangibles.    Amortization expense remained constant between periods. Amortization as a percentage of revenues decreased to 4.3% in the six months ended June 30, 2010 from 6.1% in the six months ended June 30, 2009, as revenues increased.

Goodwill and intangibles impairment.    Goodwill and intangibles impairment was $33.5 million in the six months ended June 30, 2009. Impairment charges were recorded reducing the carrying value of our goodwill and trade name by $28.1 million and $5.4 million, respectively. There was no impairment recorded in the six months ended June 30, 2010.

Other operating expenses.    Other operating expenses increased by $0.5 million, or 8.8%, to $6.3 million in the six months ended June 30, 2010 from $5.8 million in the six months ended June 30, 2009. Other operating expenses as a percentage of revenues decreased to 6.6% in the six months ended June 30, 2010 from 8.7% in the six months ended June 30, 2009, as revenues increased.

Interest expense.    Interest expense increased by $1.5 million to $8.0 million from $6.5 million in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. This increase was the result of higher debt levels and higher interest rates related to our debt amendment in the fourth quarter of 2009. As a percentage of revenues, interest expense declined to 8.4% of revenues from 9.7%.

 

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Income tax benefit.    Our income tax benefit declined from $7.6 million in the six months ended June 30, 2009 to $2.8 million in the six months ended June 30, 2010. Our effective tax rate increased from 16.8% of our pretax loss for the six months ended June 30, 2009 to 36.2% for the six months ended of June 30, 2010. The increase is the result of the permanent tax difference in 2009 from the goodwill and intangible impairment.

Year ended December 31, 2009 vs. year ended December 31, 2008

In 2009, revenues declined significantly due to reduced freight volumes and the lower prices associated with the global economic recession. Freight volumes began to improve in the fourth quarter, but not enough to offset weakness in the first three quarters. Our key performance indicators were as follows:

 

 

average shipments per business day declined by 70, or 9.3%;

 

average revenue per shipment declined by $84 or 8.4%;

 

average number of employees declined by 27 or 7.3%; and

 

gross profit percentage decreased by 160 basis points.

Overall, consolidated revenues declined $32.1 million. During 2009, we did not reduce the payment per mile to our owner operators or certain other costs associated with the development of our business to the same extent as the decline in our overall revenues. In particular, we did not decrease benefits, reduce salaries, cease 401(k) matches, end bonuses, or furlough our employees. This resulted in decreased margins in the short term but, we believe, better positions us for the long term.

The following table sets forth the percentage relationship of certain line items to revenues for the periods indicated:

 

      Year ended December 31,
     2008    2009
(in thousands)         

% of

Revenues

        

% of

Revenues

 

Revenues

   $ 189,961      100.0%    $ 157,832      100.0%

Operating expenses:

         

Purchased transportation

     135,612      71.4%      115,279      73.0%

Personnel and related benefits

     19,394      10.2%      19,159      12.1%

Insurance and claims

     3,211      1.7%      6,213      3.9%

Depreciation

     1,179      0.6%      1,579      1.0%

Amortization of intangibles

     7,827      4.1%      8,077      5.1%

Goodwill and intangibles impairment

          0.0%      33,498      21.2%

Other operating expenses

     12,637      6.7%      12,150      7.7%
      

Total operating expenses

     179,860      94.7%      195,955      124.2%
      

Operating income (loss)

     10,101      5.3%      (38,123   (24.2)%

Internet expense and other

     12,411      6.5%      13,932      8.8%
      

Loss before income taxes

     (2,310   (1.2)%      (52,055   (33.0)%

Income tax benefit

     (213   (0.1)%      (8,761   (5.6)%
      

Net loss

   $ (2,097   (1.1)%    $ (43,294   (27.4)%
 

 

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Revenues.    Revenues decreased by $32.1 million, or 16.9%, to $157.8 million in the year ended December 31, 2009 from $190.0 million in the year ended December 31, 2008. The decrease in revenues was primarily the result of a 9.3% decrease in average shipments per business day to 687 in the year ended December 31, 2009 from 757 in the year ended December 31, 2008. This was primarily attributable to the recession and reduced shipment activity in the economy. This was further compounded by an 8.4% decrease in average revenue per shipment to $911 per shipment in the year ended December 31, 2009 from $995 in the year ended December 31, 2008, which was primarily attributable to significant rate pressure from competitive pricing in our markets.

Purchased transportation.    Purchased transportation costs decreased by $20.3 million, or 15.0%, to $115.3 million in the year ended December 31, 2009 from $135.6 million in the year ended December 31, 2009. The decrease in purchased transportation was caused by the decrease in average shipments per business day. Our gross profit percentage decreased by 160 basis points to 27.0% in the year ended December 31, 2009 from 28.6% in the year ended December 31, 2008, because we pay our owner operators an established rate per mile, which was covered less effectively by lower average revenue per shipment.

Personnel and related benefits.    Personnel and related benefits decreased by $0.3 million to $19.2 million in the year ended December 31, 2009 from $19.4 million in the year ended December 31, 2008. Our 7.3% decrease in average number of employees was largely offset by late year hiring that expanded our sales and operations capability in preparation for improving volumes. Personnel and related benefits expense as a percentage of revenues increased to 12.1% in the year ended December 31, 2009 from 10.2% in the year ended December 31, 2008. This was primarily because lower revenue less effectively covered this primarily fixed expense.

Insurance and claims.    Insurance and claims expenses increased by $3.0 million, or 93.5%, to $6.2 million in the year ended December 31, 2009 from $3.2 million in the year ended December 31, 2008. Insurance and claims as a percentage of revenues increased to 3.9% in the year ended December 31, 2009 from 1.7% in the year ended December 31, 2008. In 2009, there was a decrease in the frequency of our claims and no change in the severity of our claims, however there was a $1.4 million increase in our reserves for prior year claims as some of our historical claims experienced adverse development.

Depreciation.    Depreciation expense increased by $0.4 million to $1.6 million in the year ended December 31, 2009 from $1.2 million in the year ended December 31, 2008. Depreciation as a percentage of revenues increased to 1.0% in the year ended December 31, 2009 from 0.6% in the year ended December 31, 2008, primarily because lower revenues less effectively covered this fixed cost.

Amortization of intangibles.    Amortization expense increased by $0.3 million to $8.1 million in the year ended December 31, 2009 from $7.8 million in the year ended December 31, 2008. Amortization as a percentage of revenues increased to 5.1% in the year ended December 31, 2009 from 4.1% in the year ended December 31, 2008. The increase in amortization was the result of a full year of amortization expense associated with the acquisition of Elite in 2008.

Goodwill and intangibles impairment.    Goodwill and intangibles impairment was $33.5 million in the year ended December 31, 2009. Impairment charges were recorded reducing the carrying value of our goodwill and trade name by $28.1 million and $5.4 million, respectively. There was no impairment recorded in the year ended December 31, 2008.

 

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Other operating expenses.    Other operating expenses decreased by $0.4 million, or 3.2%, to $12.2 million in the year ended December 31, 2009 from $12.6 million in the year ended December 31, 2008. Other operating expenses as a percentage of revenues increased to 7.7% in the year ended December 31, 2009 from 6.7% in the year ended December 31, 2008, primarily because lower revenues less effectively covered this fixed cost.

Interest expense.    Interest expense increased by $1.3 million, to $14.0 million in the year ended December 31, 2009 from $12.7 million in the year ended December 31, 2008. Interest expense as a percentage of revenues increased to 8.9% in the year ended December 31, 2009 from 6.7% in the year ended December 31, 2008 because of higher debt balances, higher interest rates related to an amendment in the fourth quarter of 2009 and lower revenues. Interest expense for the years ended December 31, 2009 and 2008 also include $1.5 million and $0.7 million, respectively, of additional deferred financing fees that we recognized in connection with amendments to our debt agreements. In 2008 we wrote off unamortized deferred financing costs of $1.2 million related to our Credit Facility. As of December 31, 2009 and 2008 we had deferred financing fee balances of $2.4 million and $1.8 million respectively. In addition, interest expense includes charges of $(0.3) million and $1.0 million for the years ended December 31, 2009 and 2008, respectively. These charges to interest expense were necessary when we changed to paying interest on our existing senior secured facility at a prime rate in 2008 and, as a result, the interest rate on our Credit Facility no longer matched the interest rate of our related interest rate swap agreements. The $(0.3) million recorded in interest expense in 2009 was comprised of $(0.7) million representing the change in value of the swap from December 31, 2008 to December 31, 2009 and $0.4 million from the amortization of the value which existed on our consolidated balance sheets at the time the swap became ineffective.

Income tax benefit.    Income tax benefit was $8.8 million in the year ended December 31, 2009. The income tax benefit is primarily the result of our loss before income tax increasing to $52.1 million in the year ended December 31, 2009 as compared to $2.3 million in the year ended December 31, 2008. In the year ended December 31, 2009, our deferred state tax benefit was impacted by an increase in our weighted average state tax rate. The change was caused primarily due to an increased proportion of business activity allocated to California as a result of the Elite acquisition. Furthermore, we experienced a permanent difference in our tax benefit of $9.6 million relating to the impairment of goodwill in 2009.

As a result of the foregoing, net loss increased by $41.2 million, to $43.3 million in the year ended December 31, 2009 from $2.1 million in the year ended December 31, 2008.

Year ended December 31, 2008 vs. year ended December 31, 2007

In 2008, revenues were flat due to the slowdown in the economy. Revenues in the first three quarters of 2008 was improved over 2007, but there was a sharp drop off in volumes in the fourth quarter that countered the growth in the first three quarters. Our key performance indicators were as follows:

 

 

average shipments per business day declined by 111, or 12.8%;

 

average revenue per shipment increased by $124 or 14.2%;

 

average number of employees increased by 50 or 15.6%; and

 

gross profit percentage decreased by 60 basis points.

 

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The following table sets forth the percentage relationship of certain line items to revenues for the periods indicated:

 

      Year ended December 31,
     2007    2008
(in thousands)        

% of

Revenues

        

% of

Revenues

 

Revenues

   $ 190,293    100.0%    $ 189,961      100.0%

Operating expenses:

          

Purchased transportation

     134,707    70.8%      135,612      71.4%

Personnel and related benefits

     18,466    9.7%      19,394      10.2%

Insurance and claims

     3,935    2.1%      3,211      1.7%

Depreciation

     865    0.5%      1,179      0.6%

Amortization of intangibles

     7,840    4.1%      7,827      4.1%

Other operating expenses

     12,382    6.5%      12,637      6.7%
      

Total operating expenses

     178,195    93.7%      179,860      94.7%
      

Operating income

     12,098    6.3%      10,101      5.3%

Interest expense and other

     11,203    5.9%      12,411      6.5%
      

Loss before income taxes

     895    0.4%      (2,310   (1.2)%

Income tax provision (benefit)

     815    0.4%      (213   (0.1)%
      

Net loss

   $ 80    0.0%    $ (2,097   (1.1)%
 

Revenues.    Revenues were flat overall between the year ended December 31, 2008 and December 31, 2007. Volumes declined despite the 2008 acquisition of Elite Transportation Services, LLC the fourth quarter of 2008. Average shipments per business day decreased to 757 in the year ended December 31, 2008 to 868 in the year ended December 31, 2007. This volume decline was offset by increased rates as evidenced by the 14.2% improvement in average revenue per shipment to $995 for the year ended December 31, 2008 from $871 for the year ended December 31, 2007 driven primarily by an increase in the length of haul as we generally charge by the mile.

Purchased transportation.    Purchased transportation costs increased by $0.9 million, or 0.7%, to $135.6 million in the year ended December 31, 2008 from $134.7 million in the year ended December 31, 2007. As a percentage of revenue, purchased transportation increased 0.6% because of increased use of third party carriers. Our gross profit percentage decreased by 60 basis points to 28.6% in the year ended December 31, 2008 from 29.2% in the year ended December 31, 2007.

Personnel and related benefits.    Personnel and related benefits increased by $0.9 million, or 5.0%, to $19.4 million in the year ended December 31, 2008 from $18.5 million in the year ended December 31, 2007. Personnel and related benefits as a percentage of revenues increased to 10.2% in the year ended December 31, 2008 from 9.7% in the year ended December 31, 2007. The increase in personnel and related benefits was the result of a 15.6% increase in the average number of employees to 368 in the year ended December 31, 2008 from 319 in the year ended December 31, 2007.

Insurance and claims.    Insurance and claims expenses decreased by $0.7 million, or 18.4%, to $3.2 million in the year ended December 31, 2008 from $3.9 million in the year ended December 31, 2007. Insurance and claims as a percentage of revenues decreased to 1.7% in the year ended December 31, 2008 from 2.1% in the year ended December 31, 2007. The decrease is primarily the result of a decrease in the frequency and severity of claims in the year ended December 31, 2008.

 

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Depreciation.    Depreciation expense increased by $0.3 million to $1.2 million in the year ended December 31, 2008 from $0.9 million in the year ended December 31, 2007. Depreciation as a percentage of revenues increased to 0.6% in the year ended December 31, 2008 from 0.5% in the year ended December 31, 2007.

Amortization of intangibles.    Amortization expense was $7.8 million in the years ended December 31, 2008 and December 31, 2007. Amortization as a percentage of revenues was 4.1% in the years ended December 31, 2008 and December 31, 2007.

Other operating expenses.    Other operating expenses increased by $0.3 million, or 2.1%, to $12.6 million in the year ended December 31, 2008 from $12.4 million in the year ended December 31, 2007. Other operating expenses as a percentage of revenues increased to 6.7% in the year ended December 31, 2008 from 6.5% in the year ended December 31, 2007.

Interest expense.    Interest expense increased by $1.4 million, to $12.7 million in the year ended December 31, 2008 from $11.3 million in the year ended December 31, 2007. Interest expense as a percentage of revenues increased to 6.7% in the year ended December 31, 2008 from 6.0% in the year ended December 31, 2007. In October of 2008 we amended our Credit Facility in connection with our purchase of Elite Transportation Services, LLC d/b/a elite Logistics Worldwide and wrote off unamortized deferred financing costs of $1.2 million which is recorded in interest expense. As of December 31, 2008 and 2007 we had deferred financing fee balances of $1.8 million and $3.0 million respectively.

Income tax benefit.    Income tax benefit was $0.2 million in the year ended December 31, 2008. The income tax benefit is primarily the result of our loss before income taxes increasing to $2.3 million in the year ended December 31, 2008 as compared to income before income taxes of $0.9 million in the year ended December 31, 2007. In the year ended December 31, 2008, our deferred state tax benefit was impacted by an increase in our weighted average state tax rate. The increase was caused primarily due to an increased proportion of business activity allocated to California as a result of the Integres and Elite acquisitions.

As a result of the foregoing, net loss was $2.1 million in the year ended December 31, 2008 as compared to net income of $80,000 in the year ended December 31, 2007 and Adjusted EBITDA decreased to $23.1 million in the year ended December 31, 2008 from $25.1 million in the year ended December 31, 2007.

Liquidity and capital resources

Over the past three years, our primary sources of cash have been cash flow generated from operations, borrowings under our Credit Facility, sales of subordinated notes, sales of preferred stock, and trailer operating leases. Our principal uses of cash have been to fund working capital, debt service, acquisitions and capital expenditures. We also require letters of credit to support our insurance programs. Cash required to fund capital expenditures has been minimal, averaging approximately one percent of revenues in each of the past three years. At June 30, 2010, we had $0.1 million in cash and cash equivalents, $19.3 million in working capital deficit and $5.0 million of borrowing availability under our Credit Facility.

Assuming the application of the estimated net proceeds of this offering as set forth in “Use of proceeds,” immediately following this offering, we will not have any outstanding debt except for the approximately $             million of estimated borrowings under our Amended Credit Facility.

 

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Accordingly, on an as adjusted basis, at June 30, 2010, we would have had $             million in cash and cash equivalents, $             million in working capital and $             million of borrowing availability under our Amended Credit Facility.

We had a working capital deficit of $19.3 million at June 30, 2010, which was a decrease of $32.0 million from December 31, 2009. This change was primarily due to an increase of $31.1 million in current maturities of long-term debt. From December 31, 2009 to June 30, 2010 our accounts receivables aging over 90 days decreased from approximately 7.0% to 3.5%. As of December 31, 2008 and 2009 we had a working capital surplus of $13.5 million and $13.6 million, respectively.

Following the offering, we expect that cash generated from operating activities and availability under our Amended Credit Facility will be our principal sources of liquidity. Consistent with our historical experience, we anticipate that our annual maintenance capital expenditures will, on average, remain less than one percent of consolidated revenues for the foreseeable future. Based on our current level of operations we believe that our cash flows from operations and available borrowings under our Amended Credit Facility will be adequate to meet our liquidity needs for at least the next 12 months. Over the long-term, we will have capital requirements for general corporate needs, which may require us to seek additional borrowings, lease financing or equity capital. The availability of financing or equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions.

Cash flows

Our summary statements of cash flows information for the years ended December 31, 2007, 2008 and 2009 and for the six months ended June 30, 2009 and 2010 is set forth in the table below:

 

      Years ended
December 31,
     Six months  ended
June 30,
 
(dollars in thousands)    2007     2008     2009      2009     2010  
   
                        (unaudited)  

Net cash provided by operating activities

   $ 10,372      $ 4,407      $ 1,172       $ 3,666      $ 968   

Net cash used in investing activities

   $ (7,743   $ (6,638   $ (778    $ (406   $ (787

Net cash (used in) provided by financing activities

   $ (3,001   $ 2,760      $ (2,153      (3,356   $ (500
   

Operating activities

Net cash provided by operating activities was $1.0 million in the six-month period ended June 30, 2010 compared to $3.7 million in the six-month period ended June 30, 2009, representing a decrease of $2.7 million, and consisted of a $4.9 million net loss, plus $4.7 million of non-cash items consisting primarily of amortization of intangibles and interest expense payable in kind, plus $1.1 million of net cash used for working capital purposes and other activities.

Net cash provided by operating activities was $1.2 million for the year ended December 31, 2009, compared to $4.4 million for the year ended December 31, 2008, representing a decrease of $3.2 million, and consisted of a $43.3 million net loss, plus $39.5 million of non-cash items consisting primary of goodwill and intangibles impairment and depreciation and amortization plus, $4.9 million of net cash provided by working capital changes.

 

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Net cash provided by operating activities was $4.4 million in the year ended December 31, 2008, compared to $10.4 million in the year ended December 31, 2007, representing a decrease of $6.0 million, and consisted of a $2.1 million net loss, plus $11.5 million of non-cash items consisting primary of depreciation and amortization, less $5.0 million of net cash used for working capital purposes and other activities.

Investing activities

Net cash used in investing activities primarily consists of additions to property and equipment, proceeds from the sale of fixed assets and acquisition costs. Net cash used in investing activities was $0.8 million in the six-month period ended June 30, 2010 compared to $0.4 million in the six-month period ended June 30, 2009. There were no acquisitions in either period. The increase was primarily attributable to additions to property and equipment in the 2010 period.

Net cash used in investing activities was $0.8 million in the year ended December 31, 2009 compared to $6.6 million in the year ended December 31, 2008, representing a decrease of $5.9 million. Net cash invested in acquisitions was zero in 2009 compared with $4.8 million in 2008 used for the acquisition of Elite Transportation Services, LLC d/b/a elite Logistics Worldwide. The remaining decrease was primarily attributable to decreased investment in property and equipment.

Net cash used in investing activities was $6.6 million in the year ended December 31, 2008 compared to $7.7 million in the year ended December 31, 2007, representing a decrease of $1.1 million. Net cash used in acquisitions was $4.8 million in 2008 compared with $6.3 million in 2007, primarily attributable to decreased investment in property and equipment.

Financing activities

Net cash used in, or provided by, financing activities relates to proceeds from the issuances of stock, financing fees and payments and borrowings on our credit facilities.

Net cash used in financing activities was $0.5 million in the six-month period ended June 30, 2010 and $3.4 million in the six-month period ended June 30, 2009. The decrease was primarily attributable to $2.4 million in debt repayments in the six-month period ended June 30, 2009.

We acquired Integres Global Logistics, Inc. for $6.3 million in 2007 and Elite Transportation Services, LLC for $9.2 million in 2008 requiring us to finance these purchases with long term debt during the respective periods.

In conjunction with our amendments to our senior security facility in 2009, we issued an additional $10.1 in senior subordinated notes to pay down $8.9 million of our term loan and $1.9 million of our revolving loan balance. We also paid financing fees of $1.5 million and increased our interest rates on each of our debt agreements.

 

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Material debt agreements

Overview

As of June 30, 2010 we had approximately $113.9 million of outstanding indebtedness, including the following: (1) $64.3 million under our Credit Facility, (2) $46.5 million in senior subordinated notes, and (3) $3.1 million payable to the sellers of Elite Logistics Services, LLC. We expect to retire approximately $             million of such obligations with net proceeds of this offering. See “Use of proceeds.”

Credit facility

Our Credit Facility currently consists of a $64.3 million term loan, a $5.0 million revolving credit facility and a letter of credit facility of up to $2.0 million. The revolving credit facility is subject to a borrowing base limitation of 85% of eligible accounts receivable, less any outstanding letter of credit balances. Our Credit Facility matures on December 31, 2011.

Interest on the term loan is payable monthly and accrues, at our option, at either a LIBOR-based interest rate plus an applicable margin of 6.25% or a Prime-based interest rate plus an applicable margin of 5.0%, both subject to a 3% floor. Principal payments are currently due on a quarterly basis based on an agreed-upon payment schedule beginning on March 31, 2011. Borrowings under the revolving credit line facility are substantially all Prime-based rates of 9.25% including the applicable margin, as of June 30, 2010.

The Credit Facility is secured by substantially all of our assets and contains covenants restricting, among other things, the incurrence of additional indebtedness and the making of certain payments, including dividends. We must also fulfill financial covenants relative to capital expenditure limits, senior indebtedness, interest coverage and overall indebtedness, all of which we were in compliance with at June 30, 2010. In March and June of 2009, we were not in compliance with financial covenant requirements under our Credit Facility relating to our senior leverage ratio, fixed charge coverage ratio and interest coverage ratio for the twelve-month periods ending March 31 and June 30, 2009, which led to the amendment of our Credit Facility in August of 2009.

We expect to effect an amendment to our Credit Facility prior to the consummation of the offering. A number of the amendments associated with the Amended Credit Facility are expected to be effective upon execution of the amendment, while others will be effective only upon consummation of this offering. The principal terms of the amendment that are expected to become effective upon execution include (i) an extension of the maturity of the Credit Facility and (ii) an extension of the quarterly principal payments that currently become due beginning on March 31, 2011.

The principal terms of the amendment that are expected to become effective only upon consummation of the offering will include:

Senior subordinated notes

We have issued $46.5 million in unsecured senior subordinated notes which mature on July 31, 2012, which we intend to retire with proceeds of this offering. $25.1 million was issued in January 2006. In conjunction with the amendments to our senior secured facility in 2009, we issued an additional $10.1 million in senior subordinated notes to pay down $2.6 million of our

 

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revolving loan balance and $6.5 million of our term loan. Additionally, in conjunction with the amendment, we issued warrants to purchase 502,689 shares of common stock at $0.1 per share. We expect holders of the warrants will exercise such warrants in connection with the offering. See “Description of common stock.”

These notes incur interest at the rate of 17% per year. Interest on all the senior subordinated notes is payable by way of increasing the principal amount of the notes through December 31, 2010. After this date, we have the option to either pay the interest in cash or to increase the principal amount of the notes.

Elite note payable

We issued a $3.0 million note payable to the sellers of Elite Transportation Services, LLC, d/b/a Elite Logistics Worldwide, LLC, which we intend to retire with proceeds of this offering. In connection with the August 2009 amendment to our Credit Facility, restrictions were placed on the repayment of this note until such time as we meet a defined financial threshold. The note, originally non-interest bearing through its original due date of January 31, 2010, began to accrue interest at 9.0% per annum from its due date until such time the restriction is lifted and the note can be paid. Interest is payable by way of increasing the principal amount of the notes. As of June 30, 2010, the note payable balance was $3.1 million.

Off balance sheet arrangements

We lease certain assets, primarily trailers and real estate facilities, under operating leases, which expire at various dates through February 2015. For the year ended December 31, 2009 amounts expensed under leases totaled $2.3 million. The assets financed under operating leases are not carried on our consolidated balance sheets and lease payments in respect of such equipment are reflected in our consolidated statements of operations in the line item “Other operating expenses.”

Contractual obligations and commitments

At December 31, 2009 our obligations and commitments to make payments under contracts, such as debt and lease agreements, were as follows (in millions):

 

     

Less than

1 year

   1–3
years
   3–5
years
   More than
5 years
   Total
 

Senior subordinated notes(1)

   $    $ 42.8    $    $    $ 42.8

Credit Facility—revolving(2)

     0.5                     0.5

Credit Facility—term(2)

     1.3      63.0                64.3

Elite note

     3.0                     3.0

Operating leases(3)

     1.7      3.0      1.8      0.1      6.7
      

Total

   $ 6.5    $ 108.8    $ 1.8    $ 0.1    $ 117.3
 

 

(1)   Reflects principal and interest.

 

(2)   Borrowings under our Credit Facility include interest at an assumed rate of 9.25% for the revolving portion of our Credit Facility and 9.25% for the term portion of our Credit Facility, the rates in effect as of December 31, 2009. Interest under our Credit Facility fluctuates as described in “Material Debt Agreements” above.

 

(3)   Operating leases primarily include the lease of our trailers and real estate.

 

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The summary of obligations and commitments above does not reflect obligations under our management agreement with Fenway Partners which will be terminated prior to the completion of this offering and does not reflect the use of proceeds from this offering.

The following table sets forth our contractual obligations as of December 31, 2009 on a pro forma basis for this offering, the execution of our Amended Credit Facility and the application of the net proceeds as set forth in “Use of proceeds.”

 

     

Less than

1 year

   1–3
years
   3-5
years
   More than
5 years
   Total
 

Amended Credit Facility—revolving(1)

              

Amended Credit Facility—term(1)

              

Operating leases(2)

              
      

Total

   $                 $                 $                 $                 $             
 

 

(1)   Does not include interest because interest rate is expected to be variable.

 

(2)   Operating leases primarily include the lease of our trailers and real estate.

Seasonality

Our operations can be affected by seasonal events, which can be positive or negative. In winter months, shipments frequently decline because of post-holiday slowdowns but can be subject to short term increases based on weather events. In summer, plant shutdowns typically affect automotive and manufacturing shipments, but hurricanes and other weather events can cause increases.

Inflation

Inflation can potentially have a negative effect on our cost structure. Our owner operators and third-party carriers are responsible for purchasing their own fuel and any fuel surcharges we receive under contractual arrangements are passed on to our owner operators and third-party carriers and are not included in either our revenues and expenses. For that reason, increases in fuel prices over the past several years have not had a direct negative effect on us, but may have a negative impact on our owner operators and third-party carriers, which in turn may negatively impact us. See the risk factor titled “Increases in fuel prices could affect the availability and cost of owner operators.” under the section titled “Risk factors” for a further discussion of how increase in the price of commodities such as energy and fuel may impact us.

Quantitative and qualitative disclosure about market risk

We are exposed to changes in interest rates as a result of our financial activities, primarily our borrowings under our Credit Facility. Borrowings under our credit agreement bear interest at variable rates based on a LIBOR or Prime margin pricing grid adjusted annually, based on our leverage ratio, which under our Credit Facility is generally defined as our total indebtedness (as adjusted under the Credit Facility) divided by Adjusted EBITDA. The interest rate in effect at June 30, 2010 was 9.25% After the completion of the offering, we expect to have materially less debt and expect that all of our debt would bear interest at a variable rate.

 

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We have entered into an interest rate swap agreement for the purpose of hedging variability of interest expense and interest payments on long-term variable rate debt. Our strategy was to use pay-fixed/receive-variable interest rate swaps to reduce our aggregate exposure to interest rate risk. These derivative instruments were not entered into for speculative purposes. As of December 31, 2009, we had an interest rate contract outstanding with an underlying notional amount of $30.0 million (requiring interest to be paid at 4.6% and maturing August 30, 2010). At December 31, 2009 we have recorded a liability of $954,000 representing the fair value of the interest rate contract and it is included in “Other long-term liability” on the consolidated balance sheet.

During the year ended December 31, 2008, we changed to paying interest on our Credit Facility at the base rate. As a result, the interest rate on the Credit Facility no longer matched the interest rate of the related interest rate swaps. As a result, we discontinued cash flow hedge accounting and recorded a loss of $297,000 and a gain of $978,000 respectively, in interest expense during the years ended December 31, 2009 and 2008. The loss of $297,000 recorded in interest expense in 2009 is comprised of a loss of $714,000 representing the change in value of the swap from December 31, 2008 to December 31, 2009 and $417,000 from the amortization of the value which existed on the consolidated balance sheets at the time the swap became ineffective. After August 30, 2010, borrowings under our Credit Facility have variable rates and all swaps have expired, thus we now have greater exposure to the risk of interest rate increases.

A 100 basis point increase or decrease in the prime rate of interest would have increased or decreased our interest expense, as applicable, by $0.7 million for the year ended December 31, 2009.

Critical accounting policies

Estimated cost of self-insurance claims.    We are generally self-insured for losses and liabilities related primarily to trucker’s liability and general liability claims. We utilize commercial insurance as a risk mitigation strategy with respect to catastrophic losses. Our retention for liability is $750,000 per event. Ultimate losses are recorded based on estimates of the aggregate liability for claims incurred using assumptions followed in the insurance industry. The self-insurance accruals include claims for which the ultimate losses will develop over a period of years. The accruals also are affected by changes in the number of new claims incurred and claim severity. The methods for estimating the ultimate losses and the total costs of claims at December 31, 2009 were determined by external consulting actuaries. The resulting accruals are reviewed by management and any adjustments arising from changes in estimates are reflected in the statement of operations currently. We have not had any material adjustments as a result of differences between these estimates and actual results in the periods presented. The self-insurance accruals are based on estimates and while we believe that the amounts recorded are adequate, the ultimate claims may be in excess of or less than the amounts recorded. We do not have any current expectations as to future changes in the estimates used to determine our self-insurance accruals. A 1% increase (decrease) in our self-insurance accrual for the six-month periods ended June 30, 2010 or the year ended December 31, 2009 would not result in a material increase or decrease in net income for such periods.

Allowance for doubtful accounts.    We provide an allowance for doubtful accounts equal to the estimated uncollectible amounts. Our estimate is based on historical collection experience and a review of the current status of trade accounts receivable. If the financial condition of our

 

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customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We have not had any material adjustments as a result of differences between our estimates of uncollectible accounts and actual results in the periods presented. We do not have any current expectations as to future changes in these estimates. A 1% increase (decrease) in our allowance for doubtful accounts for the six-month period ended June 30, 2010 or the year ended December 31, 2009 would not result in a material increase (decrease) in net income for such periods.

Goodwill represents the excess of the purchase price over the fair market value of the net assets of the acquired business. The Company reviews goodwill and other intangible assets with indefinite lives for impairment on an annual basis, or more frequently if events or circumstances indicate that the carrying amount of an asset may not be recoverable. The goodwill asset impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. We estimate fair value using both market information and discounted cash flow projections also referred to as the income approach. The income approach uses a reporting unit’s projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital that reflects current market conditions. The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates in sales, costs and number of units, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. We validate our estimates of fair value under the income approach by comparing the values to fair value estimates using a market approach. A market approach estimates fair value by applying cash flow multiples to the reporting unit’s operating performance. The multiples are derived from comparable publicly traded companies. If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss. The impairment analysis with respect to indefinite lived assets includes comparing the estimated fair value of the indefinite lived asset to its carrying value. Where the fair value is less than its carrying value, the indefinite lived asset is considered impaired and written down to its estimated fair value. The Company conducted its impairment test as of June 30, 2009, which resulted in a non-cash goodwill impairment charge of $28,098 and a non-cash impairment charge related to other intangible assets with indefinite lives of $5,400. This charge is recorded under the caption “Goodwill and intangibles impairment” on the Consolidated Statements of Operations.

Long-lived assets with depreciable or amortizable lives.    We review our long-lived assets for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

 

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Recent issued financial accounting standards

In 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification, which establishes a sole source of U.S. authoritative generally accepted accounting principles (GAAP). The Codification is meant to simplify user access to all authoritative accounting standards by reorganizing U.S. GAAP pronouncements into approximately ninety accounting topics within a consistent structure; its purpose is not to create new accounting and reporting standards. Pursuant to the provisions of the Codification, the Company has updated references to U.S. GAAP in these consolidated financial statements. The adoption of the Codification did not have an effect on our financial position, results of operations or cash flows.

In December 2007, the FASB revised the authoritative guidance for business combinations. The guidance, as prescribed by ASC 805, Business Combinations (ASC 805), changes how an entity accounts for the acquisition of a business. While ASC 805 retains the requirement to account for all business combinations using the acquisition method, the new guidance applies to a wider range of transactions or events and requires, in general, acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed and noncontrolling ownership interests held in the acquiree, among other items. The revised guidance eliminates the cost-based purchase method previously allowed under U.S. GAAP. The revised guidance also introduced changes to certain provisions of the authoritative guidance related to income tax accounting. For acquisitions undertaken after the adoption of the revised guidance, the release of a valuation allowance related to pre-acquisition net operating losses are now being reported as a reduction to income tax expense. Similarly, adjustments to uncertain tax positions made after the acquisition date are now recorded in the statements of operations. The Company adopted ASC 805 on January 1, 2009. The adoption did not have an impact on the Company’s consolidated financial statements.

In September 2006, the FASB issued authoritative guidance regarding fair value measurements and disclosure regarding measuring the fair value of assets and liabilities. The guidance applies to other accounting pronouncements that require or permit assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. In February 2008, the FASB deferred the effective date of this guidance for one year for nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

We assess the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability.

In March 2008, the FASB issued guidance regarding disclosures about derivative instruments and hedging activities. This guidance requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The company adopted this guidance for the year ended December 31, 2009.

 

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The FASB issued subsequent events guidance, which sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements. The guidance also indicates the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, as well as the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. We adopted this guidance effective for the year ending December 31, 2009. The adoption of this guidance had no impact on our financial statements as of December 31, 2009.

In January 2010, the FASB issued ASU No. 2010-06 (ASU 2010-06), Improving Disclosures about Fair Value Measurements. ASU 2010-06 provides amendments to ASC Topic 820, (ASC 820), Fair Value Measurements and Disclosures, that require separate disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements in addition to the presentation of purchases, sales, issuances and settlements for Level 3 fair value measurements. ASU 2010-06 also provides amendments to subtopic 820-10 that clarify existing disclosures about the level of disaggregation, and inputs and valuation techniques. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements of Level 3 fair value measurements. Those disclosures are effective for interim and annual periods beginning after December 15, 2010. As ASU 2010-06 only requires enhanced disclosures, the Company’s adoption of this standard did not have a material effect on its financial statements.

 

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Industry

Industry overview

The global freight transportation industry is highly fragmented and includes a broad range of transportation modes and service levels. Within this industry, Panther operates in three key growing markets, expedited transportation, premium freight logistics and freight forwarding. We have leveraged our extensive experience and strong track record in Expedited transportation services, as well as our leading technology platform, to develop a comprehensive suite of solutions for premium freight logistics and to grow our capabilities and presence in the freight forwarding business.

Expedited transportation

Expedited transportation services are used by clients for time-critical services and are characterized by very stringent pick-up and delivery windows, advanced technology and high levels of customer service. Examples of such time-critical requirements are just-in-time deliveries of spare parts and components to manufacturers, specific delivery windows for large retail chains with significant penalties for delayed deliveries, and special shipments of new electronic product releases for holiday shopping seasons. This time-critical service originated from the need to handle automotive supply chains. Expeditors typically provide 24/7/365 availability, on demand pick-up within 90 minutes of request and delivery within 15 minutes of customer-specified times, and real-time tracking and tracing. Service providers in the expedited market include pure expeditors that maintain a dedicated network for expedited shipments and larger carriers that offer expedited services as a part of a broader transportation offering.

The difference in shipment times between Expedited transportation and transportation via other, non-expedited alternatives can be substantial. For example, a domestic ground coast-to-coast shipment of freight with expedited transportation can typically take approximately 53 hours, while typical transit time for a truckload carrier is four days. Due to the critical nature of the service provided and the added level of reliability, speed, visibility and personalized service, expedited freight services command significant price premiums over traditional, non-expedited modes of transportation.

The expedited transportation market is estimated by SJ Consulting to be $3.0 billion in 2009 with a growth rate of 14.0% in 2010 and then returning to a more normalized annual growth rate of 7.1% for the years 2011 to 2014.

Premium freight logistics

As supply chain requirements of shippers have evolved in recent years, we have seen increased focus on the premium freight logistics market, which is characterized by stringent customer-specific delivery requirements in addition to time-definite pickup and delivery windows. Premium freight logistics include door-to-door transportation of freight requiring specialized services, whether because of time critical requirements, special handling requirements, high value freight, special permit needs or any additional complexities that need customized solutions. While requirements vary from sector to sector, we believe there is an increasing demand for specialized services such as temperature controlled freight with FDA protocol compliant cold-chain solutions, advanced security solutions as well as high-tech shipment tracking and visibility, backed by highly personalized service and sophisticated technology.

 

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Premium freight logistics providers compete primarily on the basis of speed, customization of service offering, technology and customer service. Depending on the complexity of the requirement, these are provided by a wide range of providers including some parcel companies and dedicated truckload carriers. As in the case with the general trucking industry, the ability of service providers to charge a premium for time-critical and other specialized services has been positively impacted by a contracting supply base in ground transportation as several years of below average truck builds have reduced the supply of tractors in the industry. Additionally, we believe that the high rate of trucking bankruptcies during the recent economic downturn has helped to reduce the chronic oversupply of capacity in the industry over the last several years, which has led to more favorable pricing.

The premium freight logistics segment as defined by us corresponds to the premium freight transportation segment and estimated as defined by SJ Consulting to be $22.7 billion for 2009 with a growth rate of 10.0% for 2010 and then returning to a more normalized annual growth rate of 7.5% for the years 2011 to 2014.

Panther has been successful in expanding into the premium freight logistics market through our Elite Services offerings, which involve highly specialized solutions and customized handling for customers with special needs such as temperature-control and temperature-control protocol validation, government certifications, special security, heavy-weight and oversized shipments and emergency recoveries or distributions. This has enabled us to expand from automotive into other non-automotive, high growth verticals such as government and defense, life sciences and pharmaceuticals and high value products.

Freight forwarding

The freight forwarding market is comprised of non-asset based transportation providers that arrange for multimodal transportation of heavyweight, non-local freight. Forwarders do not own transportation equipment, but rather use the available capacity of airlines and trucks to meet the transportation needs of their clients. Forwarders provide transit times that are faster than standard ground transportation and handle freight that is heavier than the general purview of parcel integrators.

The domestic freight forwarding market is estimated by SJ Consulting to be $4.6 billion with projected revenue for 2010 at $5.1 billion, with a growth rate of 10.0% for 2010 and returning to a more normalized growth rate of 4.8% for the years 2011 to 2014. The global freight forwarding market is estimated by SJ Consulting to be $176 billion in 2009 with a growth rate of 19.5% in 2010 and then returning to a more normalized annual growth rate of 10.3% for the years 2011 to 2014.

Panther’s developing capabilities in this market strongly position us to benefit from the growth trends in this large segment and to benefit from increased cross-selling opportunities to our clients.

Key trends

The expedited, premium freight logistics and freight forwarding markets are expected to benefit from a variety of trends including the following:

Increased outsourcing.    Companies are increasingly focused on core competencies and improved customer service that result in the need for third party expert solutions backed by advanced

 

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technology capabilities. Transportation management and logistics is a critical component of many company operations, but is not a core competency for many. As a result, companies continue to outsource their transportation needs to logistics providers to access specialist skills, redeploy resources to core activities and transform fixed costs into variable costs.

LEAN supply chains and low inventory levels.    Companies are continuing to advance their supply chains and to focus on just-in-time delivery. These companies also have a heightened desire to keep inventories and working capital low. As a result, they increasingly need and value efficient expedited solutions.

Complex supply chains.    The growing need for integrated supply chain solutions is driving the need for premium logistics experts that have the ability to offer enhanced real-time visibility, reduced supply chain disruptions and comprehensive customer service. Lower trade barriers, growing trade volumes, globalization of sourcing and relocation to low-cost countries, in combination with modern production and distribution techniques, continue to increase the complexity of supply chains, driving many companies to providers with the subject-matter expertise and technological ability to manage and execute a complex supply chain.

Shortened product cycles.    As product cycles change and the life cycle of products continue to contract, companies are forced to continually reengineer their supply chains to meet changing consumer preferences and introduce new products to the market. We believe that companies will continue to seek out premium providers with the ability to react quickly and efficiently to meet their needs as their supply chains change with their business models.

Continued globalization.    Companies with expanding global operations are confronted with increased regulatory and security requirements as well as production and distribution challenges, creating demand for sophisticated providers with the ability to manage these complexities.

Competition

The Panther’s competitive landscape is highly fragmented. In the expedited services and premium freight logistics segments, quality of service, technological capabilities and industry vertical expertise are critical differentiators. In particular companies with advanced technological systems that offer optimized shipping solutions, real-time visibility of shipments, verification of chain of custody procedures and advanced security carry significant operational advantages and create enhanced customer value. In addition we believe as supply chains become more geographically complex and diverse, carriers that are able to offer better geographic coverage stand to gain over other providers.

 

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Business

Overview

We are one of North America’s largest expedited transportation providers, measured by revenue, as reported by Transport Topics, an industry publication, with an expanding platform in premium freight logistics and freight forwarding. We offer single-source ground, air and ocean shipping solutions for time-sensitive, high-value and service-critical freight, with on-demand pick up and delivery to and from anywhere in the world. Our diversified, non-asset based transportation network consists of approximately 1,075 exclusive-use owner-operator vehicles, over 1,600 third-party ground carriers that provide additional North American capacity and over 500 air and ocean cargo carriers that provide global reach. During the twelve months ended June 30, 2010, we handled shipments for over 10,000 customers. We operate throughout nearly all segments of the supply chain for customers in diverse industries. In addition, many of the largest transportation and third-party logistics companies in the world turn to us for transportation solutions they cannot provide for customers on their own. Our proprietary, integrated and scalable information technology platform is a key component of our business. It enables our customers to better manage their supply chain performance and expenses by optimizing cost and service decisions. We believe it also allows us to deliver superior customer service, operate more efficiently, and offer our owner operators enhanced productivity. Our non-asset based business model allows us to expand organically without the capital investments required by our asset-based competitors. This creates the opportunity to generate significant cash flows and to react quickly based on business opportunities and challenges.

Our history

We were founded as an expedited carrier with five owner operators in 1992 by the current chairman of our Board of Directors, Daniel K. Sokolowski. We have rapidly expanded our non-asset based business through both acquisitions and organic growth since that time. In 1998 we began installing QualComm™ units in all of our owner-operator vehicles. In 2002, we launched our Elite Services offerings and also began offering our services in Mexico. In June 2005, we launched our brokerage services and in the same month were acquired by an affiliate of Fenway Partners, which led to the change of our corporate structure from an S-corporation to a C-corporation. Andrew C. Clarke joined us as our President in May 2006 and became our Chief Executive Officer in June 2007.

After the acquisition of Panther Transportation by Panther Expedited Services, Inc., an affiliate of Fenway Partners, we accelerated our efforts to transform our business from a recognized national ground expedited carrier to a leading provider of premium freight logistics. Our principal goals included expanding the industries and geographies we serve, building a comprehensive suite of premium services and developing an advanced technology platform. Acquisitions have formed a material part of our recent growth and diversification. On July 21, 2006, we acquired the owner-operator based expedited freight transportation business of Con-way Expedite and Brokerage, a division of Con-way Inc., to expand our ground expedite footprint and customer base. In March 2007, we acquired Integres Global Logistics, Inc, which was founded by United Airlines, Unisys and Roadway Express as a technology-based freight-forwarding and logistics company dedicated to providing time-critical air and ground freight services. Integres was headquartered in California, with additional offices in Illinois, Texas

 

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and Ohio. Integres provided the platform for our customer-facing One CallSM Solution shipping quote optimization engine. In October 2008, we acquired Elite Transportation Services, LLC, d/b/a Elite Logistics Worldwide or Elite, a freight-forwarding company that provides logistics solutions for shippers requiring domestic and international ground, air and ocean transportation services. Elite was headquartered in Portland, Oregon with additional offices in metropolitan Seattle, San Francisco, Los Angeles and San Diego. We acquired Elite in order to build a West Coast platform for our air freight forwarding business.

Over the past four years, we have pursued a strategic plan designed to build a comprehensive suite of premium freight logistics services, diversify our customer base, develop an industry-leading technology platform and embed ourselves as an essential component of our customers’ supply chains. The following table demonstrates the progress made in those key areas.

 

Strategic initiative   2006(1)   2010(1)
 
Build comprehensive suite of service categories offered  

92% U.S. ground expedited

8% Elite Services

 

66% North American ground expedited

16% Elite Services

14% air and ocean freight

4% all other

Diversify customer base  

53% automotive

21% 3PL

21% manufacturing

5% government, life science, high value

 

35% 3PL, excluding automotive

26% automotive, including auto 3PL

21% manufacturing

18% government, life science, high value

Enhance technology platform  

Real-time track and trace

Web-based transactions

 

Real-time track and trace

Web-based transactions

One CallSM Solution

Network optimization

Geofencing

EDI and XML integration

Embed in customers’ supply chains   Top ten customers average 1.9 services   Top ten customers average 3.0 services
Expand addressable market   Primarily U.S. expedited transportation  

Expedited transportation

Premium freight logistics

Freight forwarding

 

Total addressable market

 

$3.0 billion

$22.7 billion

$4.6 billion (domestic)

$176.0 billion (global)

$206.3 billion

 

 

(1)   Percentage amounts based on revenue. Information reflects 2005 as the base year. 2010 numbers are results realized through the first six months of 2010 with the exception of the addressable market sizes, which are based on 2009 estimates.

We believe the ongoing execution of our plan has positioned us to capitalize on improving freight volumes in the near term and to achieve substantial growth over the longer term.

Our competitive strengths

We believe our competitive strengths collectively afford us advantages against non-asset based competitors that lack our exclusive owner-operator capacity as well as asset-based and fixed network providers that lack our flexibility. We believe our competitive strengths include the following:

Leader in single-source premium freight logistics.

Our non-asset based network together with our proprietary technology platform, evaluates over 200,000 multi-modal shipment alternatives around the world and presents the customer with

 

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customized shipment options without the constraints of either a fixed-asset or fixed-schedule network or limited geography. This allows us to offer to customers multiple solutions to optimize their shipping dollar with service and cost certainty. In addition, our North American ground franchise and owner-operator capacity provide a strong foundation for cross-selling our growing suite of services.

Proprietary IT platform.

We have made significant investments in technology and believe our proprietary, integrated and scalable information technology platform affords us competitive advantages in marketing, customer service and operations. The platform combines leading technology with local knowledge of shipping schedules and capacity providers to enable us to quickly accept customer orders, manage network density, and optimize our network. We offer customers a fully automated, web-based fulfillment process supported by a specialized staff that is focused on maintaining high levels of service and managing complex customer requirements. Our One Call SM Solution evaluates over 200,000 multi-modal shipping alternatives and presents the customer with the best shipment options based on time, service level and pricing priorities. Our owner-operator fleet is equipped with Qualcomm and other on-board technologies to provide real-time tracking, security and data integrity services to our customers. For our customers with high-value, high-risk shipments, we offer cutting-edge technologies such as geofencing to provide an added layer of security and the ability to monitor shipments in accordance with a defined virtual geographic route. For our owner operators, our web-based network optimization software helps position them for productivity and success by statistically predicting future demand levels. We believe that these applications strengthen our relationships with our customers and owner operators and enhance our productivity.

Non-asset based business model promotes scalable operations.

Our non-asset based business model provides us with significant flexibility to expand without making large capital investments. We obtain 100% of our network capacity from owner operators, third-party ground carriers, air freight carriers, ocean shipping lines and other transportation asset providers. These providers supply assets such as trucks, container ships and aircraft and bear virtually all transportation-related expenses in exchange for a specified payment per shipment or per mile. Our model capitalizes on the incentives that owner operators and third-party providers have as business owners to operate reliably, safely and productively. In each of the past three years, our capital expenditures (excluding acquisitions) have been approximately one percent of revenues.

Industry vertical focus.

We employ industry experts in key vertical markets where specialized knowledge, experience and relationships can help solve our customers’ most pressing transportation challenges. Each industry expert has sales and marketing responsibility over markets such as automotive and heavy truck, diversified manufacturing, pharmaceutical and life science, government and defense, high value products, and 3PL. In the premium freight logistics market, where every shipment is critical, we believe our industry experts’ knowledge of our customers’ businesses provides a competitive advantage. For example, we are able to offer secret clearance and specialized equipment for Department of Defense shipments, customized cold-chain solutions that comply with Food and Drug Administration protocols for pharmaceuticals and hazmat and chain of custody assurance for the pharmaceuticals industry.

 

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Comprehensive premium package that is difficult to replicate.

Unlike the general freight transportation market, we believe the premium freight logistics and freight forwarding market has time and cost hurdles confronting competitors that seek to establish a single-source solution. First, stringent service requirements, which include 24 hours a day, 7 days a week, 365 days a year availability, on-demand pick up and delivery within narrow time windows and a high level of customized service, make it difficult for carriers with asset-intensive, owned networks or a primary focus on traditional freight transportation to provide the type of flexibility and service required by our customers in the premium freight logistics market. Second, our extensive network of North American and global ground, air and ocean carriers would be difficult to replicate without considerable investments in time, relationships and technology. Third, a competitive technology platform would require significant capital investments, resources and time to develop and deploy. Fourth, obtaining a full suite of certifications as a motor carrier, broker, freight forwarder, non-vessel operating common carrier and indirect air carrier, as well as clearance for C-TPAT, Department of Defense and other security agencies, requires time and expertise.

Our growth strategy

We believe that our business model has positioned us well for continued growth and profitability, which we intend to pursue through the following initiatives:

Broader penetration of existing accounts.

Our comprehensive suite of services positions us to expand our share of transportation expenditures of existing accounts through cross-selling opportunities. Since 2006, our account penetration has expanded to 3.0 services per top ten customer (by revenue) from 1.9 services. In the first six months of 2010, over 1,000 customers used more than one service. In the first six months of 2010, nine of our top ten customers utilized our air and ocean freight forwarding offerings, which we introduced in 2007. Customers that use multiple services are more profitable and more frequent users. We will continue to mine our database of 10,000 current and 30,000 historical customers to supply leads to our sales force and commit our North American capacity to large customers based on a total relationship approach.

Expand customer base within targeted industries.

We are leveraging our expertise and anchor relationships in target industries to gain additional customers in those industries. Since 2006, we have hired experts to oversee our operations in several industries. Currently, we employ industry experts in the following industries: (i) third party logistics providers or “3PLs”, (ii) automotive, (iii) manufacturing, (iv) government and defense, (v) high-value products and (vi) life science and pharmaceuticals. Our industry experts have developed detailed operating protocols that can be adapted readily to specific customer requirements and have specific sales goals for their markets. In addition, our industry experts have deep knowledge of each facet of the customer experience from shipment booking through planning, tracking and delivery. We believe our industry experts provide a significant competitive advantage in many of the targeted industries that demand highly specialized transportation solutions.

 

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Expand our North American network.

We are expanding our North American network by actively recruiting owner operators and third-party carriers.

 

 

Owner operators.    Our exclusive owner-operator capacity is a competitive advantage, and we are actively seeking to expand our owner-operator fleet. We seek to offer our owner operators a more attractive package than our competitors. We also offer technology that provides our owner operators visibility of all shipments in our system as well as “hot spots” where they can reposition their vehicles to quickly pick up the next load. In addition, we are highly focused on our owner operators’ quality of life concerns and maintain good relations with our owner operators. We also have identified attributes of successful fleet operators and are actively recruiting small business owners to invest in additional fleets. Based on recent business volumes, we are encouraging our fleet operators to expand their fleets so they, and we, can capitalize on the improving freight environment.

 

 

Third-party carrier network.    Our third-party carrier network allows us to grow independent of the size of our owner-operator fleet. Since 2006, we have expanded our third-party network to over 1,600 third-party ground carriers. Our flexible network of third party carriers allows us to capture significant revenue beyond what our exclusive owner operators can handle.

Our third-party carrier network transports freight that we do not carry within our owner-operator network. Freight carried by our third-party carrier network is compensated on the basis of a bid, rather than on an established per-mile basis as our owner operators are compensated. Additionally, carriers in our third-party carrier network are not exclusive to Panther and do not operate under Panther’s motor carrier operating authority. Third party carriers also do not have access to the same information systems that we grant to our owner operators.

We interface with the customer in the same manner regardless of whether the freight is carried on our owner-operator network or on our third-party carrier network.

Grow international air and ocean freight forwarding.

Since 2008, we have developed an international capability by offering air and ocean freight forwarding services and see tremendous opportunity in this $176 billion global market. In the first six months of 2010 we handled shipments to or from 38 countries, and international shipments contributed 6.5% of our revenue. We are pursuing this market aggressively by soliciting North American customers for their international business as part of our single-source solution. We have targeted 10 international gateway cities in the United States where we are hiring experienced international sales people and investing in building our brand in these markets. Because our international business is non-asset based, the expansion cost is relatively small compared with asset-based network operators.

Pursue selected acquisitions.

Over the past five years we completed three acquisitions and successfully integrated their operations. These acquisitions expanded our owner-operator network, enhanced our air freight forwarding capabilities, provided a West Coast sales and operations footprint and brought us our network optimization software. We intend to continue to evaluate and pursue selected acquisitions with an emphasis on businesses that we expect to expand our geographic coverage, increase our network density, accelerate our expansion into new industry verticals, or expand our service capabilities.

 

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Our services

We offer a portfolio of premium logistics solutions that allow our customers to manage their global supply chains more efficiently. Our focus is on superior, detail-oriented customer service and we have designed our business to provide flexible and personalized responses to our customers through the use of our information technology platform and a wide range of transportation modes, including ground, air and ocean. Our diverse network is available 24 hours a day, 7 days a week and 365 days a year and can quickly respond to almost any transportation need. The design of our software has inherent flexibility that allows our customer service team to work with our customers to further refine or respond to immediate shipping needs as well as long-term service requirements. We offer special handling and delivery options, monitor our customers’ preferred modes of communication, provide detailed tracking and billing information and implement informative and interactive web interfaces.

As we continue to emphasize integrated premium freight logistics solutions, we expect to grow our existing customer base and manage a greater portion of the supply chain and transportation needs for our existing customers. We also intend to expand our international operations by increasing our air and ocean freight services in gateway cities, particularly on the West Coast.

Ground expedite

We offer door-to-door ground freight expedited truckload services to a broad range of industries that value a rapid, customized response and flexible modes of delivery. For the six months ended June 30, 2010, our ground freight services accounted for approximately 66% of our total revenues. Our owner operators operate a large fleet of approximately 1,075 exclusive vehicles including straight trucks, tractor trailers and cargo vans with access to flat-bed, step-deck, lift-gate, temperature-controlled, temperature-validated, secret-cleared and other specialized equipment. We supplement our owner-operator fleet with capacity from third-party carriers. These third-party carriers are available on a transactional basis and provide us with flexibility to serve our customers. We believe a combination of owner operators and third-party carrier capacity is highly beneficial. We are able to guarantee available capacity and pricing, as well as match specialized services through our owner-operator fleet. We also pay our owner operators a fixed rate per mile, which lessens our exposure to spot market increases in underlying transportation costs. Through our third-party carriers we gain capacity to serve customers when we otherwise might not be able to do so.

Because we rely on owner operators and their equipment, as well as third-party carriers, to transport our customers’ freight, we are able to focus our efforts on seeking solutions for our customers without being confined by a fixed, asset-based network, which helps us respond flexibly to business opportunities and challenges. Our ground freight services offer customers advanced technological solutions, speed, reliability and security, as well as a high level of personal service.

By utilizing our fully integrated proprietary software, we can quickly assess the positioning and capabilities of our owner-operator fleet to provide a real-time response to our customers. We can typically electronically dispatch a truck within a few minutes and pick up a shipment within 90 minutes. Additionally, our owner operators have the ability to constantly monitor the location of available shipments, leading to increased utilization of their vehicles and improving our overall operating efficiency. All the vehicles in our exclusive network are equipped with QualComm ™ satellite tracking and two-way communication units, allowing our customer service employees to monitor and maintain continuous communication with our owner operators. Customers can track their shipments down to the street level to confirm their shipments are en route and on-time.

 

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Elite Services

We have also developed a separate and premium customized services offering—Elite Services—to address our customers’ most sensitive transportation requirements, such as temperature-controlled and validated, government qualified, special security, heavy-weight and oversized shipping and emergency recoveries or distributions. We can quickly and cost-effectively move small or large quantities of product from point-to-point overnight using our ground, air and ocean freight service network, provide protective wrapping, handle hazardous materials, monitor temperature, attach a security detail or provide a number of other protective or service-intensive measures required by our customers for the protection of their goods. Elite Services employ state-of-the-art equipment to ensure that the most complicated deliveries are completed in minimal time, with maximum attention to detail.

Through Elite Services, we are an authorized expedited transportation service provider to the U.S. government, to whom we offer different levels of specialized service for various departments, including the Department of Defense, NASA and the Treasury Department. For the six months ended June 30, 2010, revenues from all Elite Services were approximately $10.2 million, or 16%, of our total revenues.

Air and ocean freight

For the six months ended June 30, 2010, our air and ocean freight services together accounted for approximately 14% of our total revenues.

Air freight

We offer high-performance, flexible air freight forwarding and air charter service designed to adapt to the dynamic needs of our customers. With a comprehensive portfolio of time-definite options, we provide tracking, specialized equipment and door-to-door freight service to anywhere in the world. Our customer service team uses its knowledge of the expedited transportation industry and our proprietary software to design custom transport programs—part ground, part air—that minimize delivery time and cost to the customer. We have partnerships with over 500 air carriers to provide us with significant access and buying power.

Our technology lets us optimize freight services to lower costs for our customers. Customers can choose from more urgent services such as next-flight-out and same-day services or select from time-definite services, which have specific time of day commitments with one-, two- or three-day transit times. We also offer less urgent shipments such as day-definite services, which have specific day-but not time of day commitments. Our ability to provide pricing by mode and time allows customers to buy up or buy down based upon service parameters. Customers also can use our advanced online technology to track air freight in real-time or view inbound shipment details.

We also offer value-added services, such as shipping of dangerous goods, hold-for-pick-up, liftgate services, customs clearance, cargo insurance and documentation services and we manage all of the details of such shipments for our customers. Going forward, we expect to continue to increase our air freight business and the proportion of our revenues generated by our air freight services.

 

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Ocean freight

As a full-service, licensed non-vessel operating common carrier, or NVOCC, we offer a comprehensive array of ocean freight transportation services. Our ocean freight services allow customers to simplify their freight processes with a single provider while maximizing routing and transit options to global destinations across a selection of preferred carriers. We handle almost any size of shipment, from less-than-container shipments to full container shipments, special equipment and oversized cargo. From almost any origin, destination or carrier, we provide streamlined freight forwarding to book our customers’ cargo, arrange for pick-up and delivery and manage the shipping documentation. Customers can use our ocean freight services to meet their volume, timing and pricing needs using established, reliable NVOCC services. The primary features of our ocean freight services include our (1) door-to-door service, (2) dependable transit schedules from all major ports, (3) access to space allocations with major carriers and (4) an extensive network of consolidation centers to manage cargo flows. Our status as a C-TPAT participant also helps our customers avoid delays on U.S. inbound shipments. Going forward, we also expect to expand our ocean freight services and the proportion of our revenues attributed to our ocean freight services.

Truckload brokerage

From time to time, customers may request services that are outside the scope of our Panther-branded premium ground expedited logistics service model. However, we remain committed to solving our customers’ needs and having this capability is important to our overall business plan. Since February 2009, we have acted as a licensed freight transport broker for traditional truckload freight. We post these jobs for our third-party capacity providers and they are able to bid for the contracts through our custom-designed, real-time web portal. We offer these customers cost-effective solutions for shipments that aren’t time sensitive, thus preserving our One CallSM Solution which retains the business and maintains the customer relationship. For the six months ended June 30, 2010, our truckload brokerage services accounted for approximately 4% of our total revenues.

Customers

During the twelve months ended June 30, 2010, we handled shipments for over 10,000 customers. Many of these customers are global leaders in their respective industries. We understand that demand for our services is frequently tied to the need to handle high-value goods carefully and rapidly or to expedite goods affecting a high-value process. We define “high value” as shipments that typically require extensive planning and potentially have a high monetary value, high risk of theft or a high cost if not delivered on time or are rare, unique or difficult to replace. In the past, we focused on industries that rely on high-value components as part of large scale processes, which include the automotive and manufacturing sectors, as well as third-party logistics providers that need to fulfill transportation needs on behalf of their corporate clients. More recently, we have expanded into new vertical industry markets and have grown our customer base in the government and defense, high value product, life science and pharmaceutical industries. We believe these customers increasingly seek business partners, such as us, that offer extensive service capabilities, superior technology and a single point of access for global needs to improve the efficiency of their supply chains and reduce the number of providers they manage. Consistent with industry practice, our typical customer contracts do not guaranty

 

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shipment levels or availability. This gives us and our customers a certain degree of flexibility to negotiate rates up or down in response to changes in freight demand and trucking capacity.

In each of 2008 and 2009, we had approximately 4,000 new customers and we continue to look toward expanding our customer base into new industry verticals, as well as expanding our reach in industries we already serve. For the year ended December 31, 2009, no customer represented more than 6% of our revenues and our top 25 customers represented approximately 34% of our revenues. We believe that the diversity of our customers across different industries, together with our diversified geographic presence and well-balanced service offerings, lessens the impact of business cycles or other factors affecting any one customer, geographic region or mode of transportation. In 2008 and 2009, international shipments accounted for less than 1% of our revenues.

Our revenues by industry for the six months ended June 30, 2010 were as follows:

LOGO

Sales and marketing

We have developed a talented sales and marketing team, including experts in the industries we serve, aimed at accelerating the growth of our business by expanding our presence in existing industries, capitalizing on new opportunities in specific industry verticals and continually increasing our geographic coverage. We intend to expand our sales force by opening new offices in domestic and international gateway cities such as Dallas, Houston, Atlanta, Miami, New York. We also intend to increase our sales presence in the Western United States.

Sales

The goal of our sales force is to work with a sense of urgency, sell with confidence and consistently exceed personal, corporate and customer expectations. Our sales team is central to our goal of expanding our existing customer base as well as increasing our market share among current customers through cross-selling. New accounts represented 53% of our total sales calls in the first six months of 2010, while calls to customers in our government and defense, life-science and pharmaceutical, and high-value product verticals represented 28% of our total sales calls and 33% of new account calls.

 

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We strive to create a culture dedicated to identifying and solving the needs of our customers and to execute our sales strategy through the leadership of our vertical directors, account executives and sales support group.

 

 

Vertical Directors. Our vertical directors are industry experts and proven leaders with an average of 20 years of experience in selling domestic and international transportation services to companies in their given vertical markets. We currently employ vertical directors to support our territory managers in the following industries: automotive and heavy truck, diversified manufacturing, pharmaceutical and life science, government and defense, high value products, and 3PL, but as we expand our business in particular industries, we will expand our vertical directors where relationships or expertise requires it. Our vertical directors monitor market trends and industry dynamics and provide strategic direction for our planning purposes. Our vertical directors also assist us in developing new service offerings and executing marketing campaigns and they negotiate pricing and contracts with customers in their verticals.

 

 

Territory Managers. Our territory managers are sales representatives with experience in selling domestic and international transportation services, including ground, air and ocean. Their primary objective is to acquire new accounts while growing our market share within our existing customer base. Our account executives sell our full suite of services to all industries within their defined geographical regions with a heavy focus on large, domestic metropolitan markets. They utilize our software to track customer activity and to develop strategies for increasing that activity. Our account executives also attend sales meetings on a regular basis and are involved in negotiating pricing and contracts for our services.

 

 

Sales Support Group. Our sales support group is committed to advancing existing business relationships and developing new leads and opportunities. This group is our lead generation engine, as well as a support unit devised to help our vice presidents, vertical directors and territory managers.

We strive to position our sales team in areas of customer concentration and continue to expand the geographic reach of our sales offices. Our sales team is supported by all areas of our operations and administration, including our IT system database, which provides them with useful information on customer transactions and patterns by identifying sales patterns, seasonal trends and sales by equipment type and gross profit, thereby allowing them to design new sales programs on a customer-by-customer basis. Each salesperson receives up-to-date reports comparing shipment count, profits, number of services and the last shipment date for our customers to allow them to design effective cross-selling strategies.

To ensure the continued effectiveness of our salespeople, the quantity and quality of in-person sales calls are scrutinized weekly to continually improve productivity and identify areas of improvement. We also perform monthly informal performance reviews and semi-annual formal performance reviews to provide our sales team with continual feedback and we utilize weekly scorecards to measure activity and relative performance among our sales team members.

Marketing

Our marketing team is responsible for the development of marketing and communications strategies that support our growth objectives. Such responsibilities include developing and managing our marketing strategy, plan and budget; monitoring and measuring our marketing program’s return on our investment; identifying new market and service opportunities through

 

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market segmentation and sizing; providing marketing and customer information to further expand our customer base; producing collateral and sales tools to be used by our sales team; managing and coordinating our participation in industry events and trade shows; producing and distributing internal and external company communications; creating, implementing and coordinating marketing campaigns and promotions; and developing and managing our digital strategy, including our website and social media.

Information technology

We believe our technology systems offer distinct marketing, customer service and operational advantages.

Our information technology platform greatly enhances the quality of customer service we provide and is fundamental to our operations. Our One CallSM Solution offers extensive capabilities, complete geographic coverage and the opportunity to bring discipline to transportation processes. We combine best-in-class procurement practices with a powerful shipping engine to offer what we believe is the most advanced bid, quote and tracking system in the transportation industry. Unlike competing systems, our technology builds routes and rates in real time, in full view of our customers. By entering a few freight characteristics into our software—such as the size, weight, dimension and zip codes—our customers retrieve a range of mode-optimized shipping solutions within seconds. Our software allows us to search more than 200,000 shipping options across our transportation network and offer solutions customized to fit our customers’ time, service level, guaranteed delivery and pricing priorities. Customers can then buy up or buy down to the service that best meets their timing and pricing needs. More than just a bid and quote system, our system can be used by our customers to book their freight and to review their data while their shipment is in transit without ever having to place a call to our customer service representatives.

We use EDI and XML to provide seamless data flow and integration into our customers’ logistics systems. Our EDI and XML capabilities include: shipment tender, invoice and freight details and shipment status. Our primary system runs on a UNIX™ platform that interfaces with multiple applications running on diverse hardware and systems platforms. Because the core components of our system are internally generated and controlled, our team of internal developers is devoted to its maintenance, upgrade and improvement and to ensuring that our system meets the evolving needs of our customers. We also have utilized external IT experts when necessary to develop certain features and functions of our system.

Once our customers have booked their freight, we offer email alerts, e-voicing, electronic bills of lading and electronic proofs of delivery. We also provide real-time access to shipment status, location and expected delivery time through our track and trace system, updated every 15 minutes or more for our North American shipments.

For customers with high value, high risk shipments where there is a desire for ultimate control over their shipments, our geofencing service lets customers define a virtual, geographic area to ensure their freight follows approved routes. If a designated boundary is crossed, a notification is immediately generated. As a result, our geofencing service provides an additional layer of security and improves the ability of our customers to manage high-risk geographies. In many cases, geofencing also can lower insurance costs.

Our proprietary information technology platform interfaces with QualComm™ satellite tracking and two-way communication units installed in 100% of our owner-operator network. This gives

 

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us the ability to communicate with our owner operators on a real-time basis and allows them to respond almost instantaneously to requests for service in their location. It also allows us to pinpoint where each owner operator in our entire network is located within seconds, which is information our proprietary software can immediately synthesize to provide our customer service staff with up-to-the-minute information about the availability of equipment, specific equipment types, estimated pick-up times and the status of deliveries, which is also relayed to our customers. Knowing the precise location of each owner operator allows us to reposition our network to high business concentration areas, assuring optimal utilization of our network. We also go beyond traditional on-board technologies to offer a variety of value-added, technology-based services, including untethered trailer tracking, dispatch and live web connect/disconnect notifications, dispatch and live web temperature tracking, dispatch and live temperature alerts when out of range, hard-wired and wireless panic systems, door sensors, driver in-cab temperature alerts, a driver turn-by-turn voice mapping system and a dispatch and web street level tracking of a load.

We use our information technology system to project where owner operators or third-party carriers will be needed based on historical trends, allowing us to predict expected “hot spots.” Our network optimization software allows us and our owner operators to view all current and statistically predicted demand across North America, as well as hours of service, destination preferences and other data to facilitate shipment planning and selection. This information allows our owner operators to place themselves in the most advantageous position for the next load. Our proprietary software also monitors owner-operator performance on a continual basis by recording safety records and on-time performance. The system can coordinate precise interchanges between owner operators and monitor compliance with hours-of-service rules to best match owner operators and third-party carriers with shipments and also takes into account destination preferences of our owner operators. In addition, our information technology system records all historical and pending transportation movements and can produce financial reports that are easily accessed by executive management. This includes both real-time and historical total shipments, revenue and profitability by customer and equipment type. We believe that the advanced combination of flexibility and analysis of our proprietary system is the key differentiator in both the level of service we provide to our customers and the overall experience of our owner operators. We also offer a web-based application for our owner operators, where we provide tools to help them manage their business, including on-time percentages, revenues per mile and related data.

We rely on a combination of trademark, copyright, trade secret and other intellectual property laws, as well as confidentiality agreements, non-disclosure agreements, and other contractual provisions to protect our intellectual property. We have applied in the United States for registrations of a limited number of trademarks and copyrights, some of which have been registered. Our currently-registered trademarks include the terms “Panther Expedited Services, Inc.”, “Panther Expedited Services”, “Panther Expedited Services, Inc.”, “Panther II Transportation” and “Panther II Transportation Inc.” Through our acquisition of Integres Global Logistics, Inc. we obtained certain copyrighted software that is the foundation for our One Callsm Solution. To date, we have not pursued patent protection for our proprietary information technology platform and do not have issued patents or pending patent applications. We will continue to evaluate the registration of additional trademarks, copyrights and other intellectual property rights as applicable.

We endeavor to enter into agreements with our employees, independent contractors, and with third parties with which do business in order to limit access to, and the disclosure of, our proprietary and confidential information. We cannot be certain that the steps we have taken will

 

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prevent unauthorized use of our intellectual property. See “Risk factors—If we are unable to protect confidentiality of our unpatented proprietary information and technology, our business could be adversely affected.”

Owner operators

Owner operators are individuals or teams who own, operate and maintain the cargo vans, straight trucks and tractor trailers comprising our ground network. Approximately 16% of our owner operators have fleets of multiple vehicles dedicated to us. As of June 30, 2010, we contracted with our exclusive owner operators for approximately 1,075 vehicles.

Owner operators

Attracting and retaining owner operators is critical to the execution of our ground services, which is a major component of our overall business plan. Owner operators provide the bulk of our ground services and generated approximately 69% of our revenues in the first six months of 2010. Unlike conventional owner-operator models that emphasize maximizing miles, our strategy is to offer owner operators high per-mile pay, the opportunity for less wear and tear on their equipment and lower variable expense per dollar earned. An important distinguishing feature of our financial package is a rate paid per loaded mile, rather than a percentage of revenue generated by each delivery. Revenues based on a per mile rate provides our owner operators with more certainty and transparency as to their receivables. Because we believe we provide a higher rate per mile than many alternative transportation providers that use owner operators, with the potential for our owner operators to earn higher revenues with fewer miles driven, we believe we have a better ability to recruit and retain productive owner operators, which in turn enables us to achieve high levels of customer service and reliability.

The driver shortage in the trucking industry has made it imperative that we continue our efforts to become the preferred company for owner operators. We believe that we have a favorable retention rate in an industry that is known for its high turnover rates, which we believe is due in part to our focus on owner operator relations. We also recently created a tractor transition team to focus on turnover of owner operators within 90 days, which is typically when a large level of turnover has historically occurred. Our owner operators as of June 30, 2010 averaged 2.9 years with us, —an improvement from an average of 1.9 years as of December 31, 2005. Our owner-operator managers, transition managers and relations managers function as the primary point of contact for our owner operators and are trained to focus on owner operators’ quality of life issues and maintaining good relations with our owner operators. We have implemented our “HomeTyme” program which recognizes the need for owner operators to have undisturbed time at home. We also use our corporate buying power to obtain favorable rates for insurance and maintenance on behalf of our owner operators. We have dedicated facilities at our corporate headquarters to provide training and provide owner-operator services, where we not only house our owner-operator relations staff, but have a fully operational training center, a health clinic, an owner-operator lounge and other facilities dedicated to the safety and training of our owner operators.

Owner operators are responsible for all expenses of owning and operating their equipment, including fuel, required levels of insurance, maintenance, fuel taxes, highway use taxes and debt service. We charge fuel surcharges to our customers for fuel costs in excess of specified rates, reset weekly, which we pass on to our owner operators in addition to their standard pay rates per mile. We enter into annual contracts with our owner operators that renew automatically

 

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absent notice of cancellation and are terminable on short notice. Our contracts require that any vehicle operated under our logo be operated exclusively for us. We do not provide equipment financing to our owner operators or fleet owners. Each owner operator must meet company-wide safety record requirements and must pass a federally mandated drug screen and physical exam before being contracted with.

Fleet owners

We value strong relationships with our fleet owners. We often assist our fleet owners in locating drivers to fill empty trucks as part of our general driver recruitment strategy at no cost to the fleet owner. We believe that fleets held by one owner are an important and stable part of our business model. We have identified a number of characteristics associated with success by these small business owners and we actively recruit additional fleet owners from this population.

Our third-party carrier network

Our third-party carrier network consists of cartage agents, smaller expedited carriers, air freight carriers, and ocean shipping lines. We select carriers based on their ability to serve our customers effectively with respect to price, technology capabilities, geographic coverage and quality of service. We maintain the quality of our carrier network by obtaining documentation to ensure each carrier is properly licensed and insured and has an adequate safety rating. We continuously monitor these qualifications with the use of technology and our internal audit function. In addition, we continuously collect information on the carriers in our network regarding capacity, pricing trends, reliability, quality control standards and overall customer service. We believe this quality control program helps ensure that our customers receive seamless, high-quality customer service.

Our ability to attract new carriers to our network and maintain good relationships with our current carriers is critical to our success. We allocate shipments to third-party ground carriers when the shipment does not fit our owner-operator capacity or the customer (or we) select a third-party solution based on our network optimization criteria.

We are not dependent on any one carrier and our most utilized outside carrier represents only 2.7% of our total purchased transportation expense in 2009.

Employees

As of June 30, 2010, we had 384 employees, none of which was covered under a collective bargaining agreement.

Competition

Panther’s competitive landscape is highly fragmented. While there are few premium freight logistics providers that offer our same combination of technology-enabled time-sensitive and service-critical freight solutions, we still compete with other service providers that offer one or more of our services and the competition within these markets is intense. We compete against other non-asset based logistics companies as well as asset-based logistics companies. These include freight forwarders that dispatch shipments via asset-based carriers, smaller expedited carriers, integrated transportation companies that operate their own aircraft and trucks, cargo sales agents and brokers, internal shipping departments at companies that have substantial

 

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transportation requirements, associations of shippers organized to consolidate their members’ shipments to obtain lower freight rates and smaller niche service providers that provide services in a specific geographic market, industry or service area. Quality of service, technological capabilities and industry expertise are critical differentiators. In particular, companies with advanced technological systems that offer optimized shipping solutions, real-time visibility of shipments, verification of chain of custody procedures and advanced security carry significant operational advantages and create enhanced customer value. In addition, we believe that as supply chains become more geographically complex and diverse, carriers that are able to offer broader geographic coverage stand to gain over other providers.

Regulation

We are subject to various laws, rules and regulations and are required to obtain and maintain various licenses and permits in the operation of our business, some of which are difficult to obtain.

During 2010, the FMCSA will launch a new compliance and enforcement initiative known as Comprehensive Safety Analysis 2010 or CSA 2010. The stated goal under CSA 2010 is to achieve a reduction in large truck and bus crashes, injuries and fatalities. The FMCSA will use a comprehensive measurement system of all safety-based violations found during roadside inspections, weighing such violations by their relationship to crash risk. CSA 2010’s data analysis expands on the previous system utilized by the FMCSA and covers more behavioral areas specifically linked to crash risk such as unsafe or fatigued driving, driver fitness, controlled substances, crash history, vehicle maintenance and improper loading. Safety performance information will be accumulated to assess the safety performance of both carriers and drivers. Safety scores will be published each month and, consequently, each trucking company’s safety ranking could rise or fall each month. The CSA 2010 implementation date is set for late 2010 through mid-2011, although it is operational for a large portion of motor carriers in nine test states. As a result of CSA 2010, certain current and potential owner operators may no longer be eligible to drive for us and our fleet could be ranked poorly as compared to our peer firms. A reduction in eligible drivers or a poor fleet ranking may result in difficulty attracting and retaining qualified owner operators and could cause our customers to direct their business away from us and to carriers with higher fleet rankings, which would adversely affect our results of operations.

Our owner operators also must comply with the safety and fitness regulations of the DOT, including those relating to drug and alcohol testing and hours of service. Such matters as weight and equipment dimensions also are subject to governmental regulations. We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers’ hours of service, ergonomics, on-board reporting of operations, collective bargaining, security at ports and other matters affecting safety or operating methods. The DOT is currently engaged in a rulemaking proceeding regarding drivers’ hours of service and the result could negatively impact our owner operators’ utilization of their equipment. Other agencies, such as the EPA and the DHS, also regulate our operations and owner operators. Future laws and regulations may be more stringent, require changes in our operating practices, influence the demand for transportation services or require us to incur significant additional costs. Higher costs incurred by us or by our suppliers who pass the costs onto us through higher prices could adversely affect our results of operations.

 

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The TSA has adopted regulations that require a determination by the TSA that each driver who applies for or renews his or her license for carrying hazardous materials is not a security threat. This could reduce the pool of drivers, which could require us to increase owner-operator compensation, limit our growth or turn away customers. These regulations also could complicate the matching of available equipment with hazardous material shipments, thereby increasing our response time on customer orders and our owner-operators’ non-revenue miles. As a result, it is possible we may fail to meet the needs of our customers or may incur increased expenses to do so.

From time to time, various federal, state, local or foreign taxes may be increased, including taxes on fuel. We cannot predict whether, or in what form, any such increase applicable to us will be enacted, but such an increase could adversely affect our profitability.

Our air freight business in the United States is subject to regulation as an indirect air carrier by the TSA and the DOT. Our indirect air carrier security program is approved by, and we believe we are in compliance with, the applicable TSA regulations.

Our ocean transportation business in the United States is subject to regulation by the FMC. The FMC licenses intermediaries (combined ocean freight forwarders and NVOCCs). Indirect ocean carriers are subject to FMC regulation under the FMC’s tariff publication and surety bond requirements and under the Shipping Act of 1984 and the Ocean Reform Shipping Act of 1998, particularly those terms prescribing rebating practices. For ocean shipments not originating or terminating in the United States, the applicable regulations and licensing requirements typically are less stringent than those that originate and terminate in the United States.

Our international operations are impacted by a wide variety of U.S. government regulations. These include regulations of the U.S. Department of State, U.S. Department of Commerce and the U.S. Department of Treasury. Regulations cover matters such as what commodities may be shipped to what destination and to what end-user, unfair international trade practices and limitations on entities with which we may conduct business. As we continue to expand our international operations, we will be subject to highly complex and detailed customs laws and regulations and export and import controls.

Transportation-related regulations are greatly affected by U.S. national security legislation and related regulatory initiatives and remain in a state of flux. We believe we are in substantial compliance with applicable material regulations and that the costs of regulatory compliance have not had a materially adverse impact on our operations to date. However, our failure to comply with the applicable regulations or to maintain required permits or licenses could result in substantial fines or revocation of our operating permits or licenses. We cannot predict the degree or cost of future regulations on our business. If we fail to comply with applicable governmental regulations, we could be subject to substantial fines or revocation of our permits and licenses.

Environmental matters

We are subject to a broad range of federal, state, local and foreign environmental, health and safety laws and regulations, both criminal and civil, enforced by such agencies as the Pipeline and Hazardous Materials Safety Administration, the Occupational Safety & Health Administration and the EPA, including regulations governing discharges into the air and water, the handling and disposal of solid and hazardous material and the shipment of explosive or illegal substances. In the course of our operations, we may be asked to transport or to arrange for the transportation

 

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of substances defined as hazardous under applicable laws. Although we have instituted programs to monitor and control environmental risks and promote compliance with applicable environmental laws and regulations, if we transport or arrange for the transportation of hazardous or explosive materials in violation of applicable laws or regulations, we may be subject to cleanup costs and liabilities including substantial fines, civil penalties or civil and criminal liability, as well as bans on making future shipments in particular geographic areas, any of which could have a materially adverse effect on our business and operating results. In the event we are found not to be in compliance with applicable environmental, health and safety laws and regulations, we could be subject to large fines, penalties or lawsuits and face criminal liability. In addition, if any damage or injury occurs as a result of our transportation of hazardous, explosive or illegal materials, we may be subject to claims from third parties and bear liability for such damage or injury.

EPA regulations further limiting exhaust emissions became more restrictive in 2010. On May 21, 2010, President Obama signed an executive memorandum directing the NHTSA and the EPA to develop new, stricter fuel efficiency standards for heavy trucks, beginning in model year 2014. In December 2008, California adopted new performance requirements for diesel trucks, with targets to be met between 2011 and 2023 and California also has adopted aerodynamics requirements for certain trailers. Regulation or legislation related to climate change that potentially imposes restrictions, caps, taxes or other controls on emissions of greenhouse gas also could adversely affect our operations and financial results. Federal and state lawmakers have proposed potential limits on carbon emissions under a variety of climate-change proposals. Compliance with such regulations could increase the cost of new tractors, impair equipment productivity and increase operating expenses. These effects, combined with the uncertainty as to the operating results that will be produced by the newly designed diesel engines and the residual values of these vehicles, could adversely affect our business or operations and those of our owner operators.

In order to reduce exhaust emissions, some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors, such as those used in our operations, may idle. These restrictions could alter our owner-operators’ behavior, force them or us to purchase on-board power units that do not require the engine to idle or face a decrease in productivity.

Properties

Our corporate headquarters and the majority of our operations are located in Seville, Ohio, a suburb of Cleveland. We also have five sales and operations offices located in Elk Grove Village, IL, Rancho Cordova, CA, Kent, WA, Hayward, CA, and Hawthorne, CA. All of our locations are leased. We believe that substantially all of our property is in good condition, subject to normal wear and tear, and that our facilities have sufficient capacity to meet our current needs.

Safety and insurance

Safety

We take pride in our safety-oriented culture and our safety record consistently exceeds the industry average. For the past 18 years, we have successfully responded to safety issues unique to an owner-operator fleet and implemented continuing safety programs throughout our organization. As members of the ATA’s Highway Watch, we train our owner operators to identify threats and minimize risk. Our owner operators certify that their vehicles are in compliance with

 

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FMCSA regulations before they join our fleet and throughout their service while driving for us. In response to CSA 2010, we have stepped up our entire safety program to assure continued excellence and to assure compliance with forthcoming changes in federal regulations. More specifically, we are:

 

 

reviewing all carrier and owner-operator data;

 

 

educating all employees and owner operators regarding our safety policies and the impact of CSA 2010;

 

 

reviewing equipment and driver qualifications to comply with CSA 2010 and its seven categories; and

 

 

collecting additional information before bringing on new owner operators.

We have a “satisfactory” safety rating from the FMCSA, which is the highest rating by that agency.

Insurance

We have a comprehensive risk management program with an emphasis on prevention. We self-insure for a significant portion of our claims exposure and related expenses. The deductibles, maximum benefits per claim, and other limitations on our principal insurance programs are as follows:

 

 

trucker’s liability—$5.0 million of coverage per occurrence and subject to a $750,000 self-insured retention, plus an excess coverage of $25.0 million per occurrence and in the aggregate, plus an additional $20.0 million per year in the aggregate;

 

 

general liability—$2.0 million of aggregate coverage plus the excess coverage of $25.0 million per occurrence and in the aggregate and the additional $20.0 million per year in the aggregate described above;

 

 

cargo damage and loss—$3.0 million limit per truck or trailer with a $5.0 million limit per occurrence, subject to a $10,000 deductible for all perils;

 

 

property damage—limits vary by location and type of property and are generally, subject to a $10,000 deductible;

 

 

workers compensation/employers liability—statutory coverage limits; employers liability of $1.0 million each accident for bodily injury by accident and disease, with no deductible; and

 

 

directors and officers employment practices liability—primary policy with a $10.0 million limit and a $50,000 deductible;

While under dispatch and furthering our business, our owner operators are covered by our liability coverage and subject to self-insured retentions. However, each owner operator is responsible for physical damage to his or her own equipment, occupational accident coverage, and in the case of fleet operators, any applicable workers’ compensation requirements for their employees.

Legal proceedings

The nature of our business routinely results in litigation, primarily involving claims for personal injury and property damage incurred in the transportation of freight. We believe all such litigation is adequately covered by insurance or otherwise reserved for and that adverse results in one or more of those cases would not have a materially adverse effect on our financial condition, operating results and cash flows.

 

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Management

Executive officers and directors

The following table sets forth the names, ages and positions of our executive officers and directors as of September 21, 2010:

 

Name    Age    Position
 

Andrew C. Clarke

   39    Director, President and Chief Executive Officer

R. Louis Schneeberger

   55    Chief Financial Officer and Treasurer

Edward R. Wadel

   45    Chief Information Officer

James M. Adams

   40    Executive Vice President, Sales and Marketing

Allen H. Motter

   45    Vice President, Legal and Risk

Hugh A. Cutler

   55    Executive Vice President, Operations

Daniel K. Sokolowski

   45    Chairman of the Board and Director

Hans O. Allegaert

   36    Director

John Q. Anderson

   59    Director

Robert J. Clanin

   66    Director

Raymond B. Greer

   46    Director

Marc A. Kramer

   41    Director

Peter D. Lamm

   58    Director

Edward M. Straw

   69    Director
 

Andrew C. Clarke has been a member of our Board of Directors since June 2007, has served as our President since May 2006 and was appointed as our Chief Executive Officer in April 2007. Prior to joining us, Mr. Clarke spent five years (April 2001—May 2006) as the Senior Vice President, Chief Financial Officer and Treasurer of Forward Air Corporation, a non-asset based provider of time-definite ground transportation services to the air cargo industry where he also served as a director. From March 2000 to April 2001, Mr. Clarke held a number of management positions with Forward Air Corporation. From August 1998 to March 2000, Mr. Clarke was an investment banker with Deutsche Banc Alex Brown in the Global Transportation Group. Mr. Clarke was elected in 2010 to serve as a director of Blount International, Inc., a publicly traded international industrial company manufacturing and marketing parts and accessories for chainsaws, concrete-cutting equipment and various lawn and garden products. Mr. Clarke served as a director of Pacer International, Inc., a publicly traded company engaged in third-party logistics services, from 2005 to August 2009. Mr. Clarke received his B.S.B.A. from Washington University in St. Louis and his M.B.A. from the University of Chicago. We believe Mr. Clarke’s qualifications to serve on our Board of Directors include his other directorships and his leadership positions with Forward Air Corporation, which have given him familiarity and experience with applicable laws and regulations governing the preparation of SEC filings. Mr. Clarke’s executive experiences also have prepared him well to respond to complex financial and operational challenges and have provided him with extensive knowledge of our industry.

 

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R. Louis Schneeberger has served as our Chief Financial Officer and Treasurer since March 2010. From August 2009 to March 2010, Mr. Schneeberger was a consultant at Qorval. From July 2007 to July 2009, Mr. Schneeberger was Operating Partner and Managing Director of Knowledge Investment Partners, a private equity firm focused on the education sector. From November 2005 to June 2007, Mr. Schneeberger served as Chief Financial Officer for Austin Powder Company, an international distributor and producer of explosive products. From February 2004 to November 2005, Mr. Schneeberger served as Chief Financial Officer for OM Group, a producer and marketer of value-added, metal-based specialty chemicals and related products. From July 1987 to April 2000, Mr. Schneeberger served as Executive Vice President, Chief Financial Officer, board member and owner of Olympic Steel, Inc. during its growth from a small private company to a large public company. Mr. Schneeberger also served as Chairman of the Board and Audit Committee of Royal Appliance Manufacturing Company from July 1995 until its sale in April 2003. Mr. Schneeberger served as a director for Peco II, Inc., a telecommunications company, from November 2003 until its sale in April 2010. Since November 2009, Mr. Schneeberger has served as a director of Energy Focus, Inc., a leading provider of turnkey energy-efficient lighting solutions. Mr. Schneeberger also serves as a director of Libra Industries, Anderson-Dubose Company, JumpStart Inc. and The Cleveland Leadership Center. Mr. Schneeberger began his career with Arthur Andersen, focusing on auditing and mergers and acquisitions with an emphasis on public companies, where he worked for ten years (1977 to 1987). Mr. Schneeberger holds a Bachelor of Business Administration degree in Accounting from Kent State University and is a Certified Public Accountant (inactive).

Edward R. Wadel has served as our Chief Information Officer since May 2006. Before assuming his current position, Mr. Wadel served as our Vice President of Information Technology beginning in February 2006. In August 2002, Mr. Wadel started his own consulting company, Fusion Software, Inc. where he worked with us in the capacity of an onsite consultant and was accepted as an integral part of the senior management team, before formally joining the Panther senior management team as an employee in 2006. Mr. Wadel has worked or consulted for BP Oil, Timken-Latrobe Steel and Tillinghast. Mr. Wadel has been engaged in the IT consulting business since 1987 and has more than 20 years of experience in the field. Mr. Wadel holds a B.S. degree in Computer Science from Eastern Michigan University.

James M. Adams has served as our Executive Vice President of Sales and Marketing since October 2006. Throughout his career, Mr. Adams has successfully combined in-depth quantitative analysis with practical business experience to develop leading-edge products and services, implement best-in-class operations and launch winning marketing and sales initiatives. From April 2005 to September 2006, Mr. Adams was Director of Product Development at Brunswick Corporation, a Fortune 500 Company headquartered in Lake Forest, Illinois with a leadership position in the marine industry. His responsibilities included the oversight of global product launches for 30 marine business units, including Mercury Marine, Boston Whaler, SeaRay and Hatteras Yachts. From August 2002 to March 2005, Mr. Adams was Managing Director at Qorvis Communications in Washington, DC, where he provided sales and marketing consulting services to a number of blue-chip corporations, including Duke Energy, Microsoft, and IBM. From March 2000 to July 2002, Mr. Adams was Managing Partner of TwentyTen, a boutique investment bank serving venture capitalists, private equity funds and portfolio companies. From June 1998 to February 2000, Mr. Adams was a Management Consultant at Pittiglio Rabin Todd and McGrath (PRTM), a global management consulting firm serving Fortune 500 companies. There he helped clients re-organize their supply chains for competitiveness, profitability, and growth. Mr. Adams spent the first 6 years of his career at 3M, where he was responsible for implementing Lean

 

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Manufacturing, Just-In-Time and Six Sigma methodologies at facilities throughout North America and Europe. Mr. Adams received an M.B.A. from the University of Chicago Graduate School of Business and a B.S. in Mechanical Engineering with Honors from the University of Illinois in Urbana-Champaign.

Allen H. Motter has served as our Vice President of Legal and Risk since December 2009. From September 1993 to December 2009, Mr. Motter served as Senior Corporate Counsel & Assistant Secretary for YRC Worldwide, parent to many transportation companies including Roadway Express, USF Corporation and Yellow Transportation. During this tenure he served from 2004 to 2006 as General Counsel to New Penn Motor Express. Mr. Motter has served as an executive board member of the Transportation Lawyers Association for a two-year term from 2007 to 2008. Mr. Motter holds a J.D. from the University of Akron School of Law as well as a B.S. from Kent State University. In addition, Mr. Motter, as a distinguished military graduate of Army ROTC at Kent State University, has been serving in the Army Reserves for over 23 years. He has had various leadership assignments in Military Police, Judge Advocate and Special Operations units. He has been deployed to the Middle East and is a combat veteran. He has a Top-Secret Security Clearance and he currently holds the rank of Lieutenant Colonel. He has extensive experience in transportation security and governmental contracting.

Hugh A. Cutler has served as our Executive Vice President of Operations since September 2010. From June 2009 to September 2010, Mr. Cutler was President of American Traffic Services Group, a logistics consulting company. From February 2008 to June 2009 Mr. Cutler was Vice President of Sales & Marketing of IJS Global a global logistics company, where he was responsible for designing and executing an organic growth business plan supported by strategic customer focus and account management measurements. From May 2005 to January 2008 Mr. Cutler was President of BDP Air Transport a subsidiary of BDP International, a startup organization and global logistics company focused primarily on the global chemical sector where he designed the business plan to create an international air freight organization. Highlights of the plan included multi-level services portfolio, dynamic pricing strategy, multi-USA gateway structure and global core carrier procurement strategy. From March 1982 to May 2005 Mr. Cutler held various positions with Emery Worldwide, a subsidiary of Consolidated Freightways which was acquired by UPS in December 2004. During his tenure at Emery Worldwide he was responsible for Country Management in Canada and was Vice President of International Sales, Vice President of International Operations, Vice President - Eastern USA and Vice President of Global Operations & Transportation. Mr. Cutler attended York University in Toronto Canada as well as executive management courses at Dartmouth College, The Tuck School of Business and The University of Pennsylvania, The Wharton School.

Daniel K. Sokolowski has served as a member of our Board of Directors and Chairman since 1992 and currently serves as a member of the Audit Committee. Mr. Sokolowski founded our Company in 1992, served as our Chief Executive Officer until April 2007 and as our President from January 2000 until June 2005. From 1984 to 1992, Mr. Sokolowski worked at Eagle Expediting where he held a number of positions and ultimately oversaw daily operations. Mr. Sokolowski has partnered with Fenway Resources since 2005 when he sold a majority stake in Panther to Fenway Partners. We believe Mr. Sokolowski’s qualifications to serve on our Board of Directors include his significant leadership experience, his broad understanding of business operations, his extensive knowledge of our Company and his in-depth industry experience.

 

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Hans O. Allegaert has served as a member of our Board of Directors since April 2009. Mr. Allegaert is a principal of Fenway Partners. Prior to joining Fenway in 2002, Mr. Allegaert was a Senior Manager in the Transaction Services Group at Ernst & Young. Mr. Allegaert serves on the boards of Preferred Freezer Services, LLC and Refrigerated Holdings, Inc. and previously served on the board of Targus Group International, Inc. Mr. Allegaert is a Certified Public Accountant and holds a B.S. in Business Administration from the University of California at Berkeley. We believe Mr. Allegaert’s qualifications to serve as a director include his background in finance and managing investments, as well as his experiences with analyzing financial statements.

John Q. Anderson has served as a member of our Board of Directors since June 2005. Mr. Anderson is the Chairman of Big Wheel Partners Inc., a Fenway affiliate that pursues and manages investments in the transportation and logistics industries in conjunction with Fenway. Prior to joining Fenway, Mr. Anderson was a senior executive with two railroads, Burlington Northern Santa Fe and CSX Transportation, where he was Executive Vice President for each. Prior to his railroad experience, Mr. Anderson was a partner with McKinsey & Co. for 13 years, working with clients on global strategy, logistics and mergers and acquisitions. Mr. Anderson received an M.B.A. from Harvard Business School and a B.S. from Stanford University in Mechanical Engineering. Since 2007, Mr. Anderson has been a Director of AbitbiBowater, Inc., a leading producer of newsprint and coated and specialty papers. Mr. Anderson’s qualifications to serve on our Board of Directors include his long career in the transportation industry, as well as past leadership positions and executive experience.

Robert J. Clanin has served as a member of our Board of Directors since July 2010. Mr. Clanin served as Senior Vice President and Chief Financial Officer for United Parcel Service, Inc., or UPS, the world’s largest package distribution company, from 1994 until his retirement in January 2001. Mr. Clanin was responsible for all areas of finance and accounting during various times of his tenure at UPS, including tax, investor relations, mergers and acquisitions, reports and plans, real estate, SEC reporting, procurement, retirement plan investments, treasury and internal audit. Mr. Clanin also retired from the UPS management committee and the UPS Board of Directors in January 2001. Mr. Clanin also serves as a director of JetBlue Airways Corporation since 2007 and currently serves as Audit Committee chair for JetBlue. From March 2009 to the present, Mr. Clanin served as a director of Preferred Freezer Services, LLC. From 2001 to 2009, Mr. Clanin also served as a director of Caraustar Industries, Inc., a major manufacturer of 100% recycled paperboard and converted paperboard products. Within the past five years, Mr. Clanin also served as a director of John H. Harland Co. and Serologicals Corp. Mr. Clanin served as a director for CP Ships LTD from 2001-2007. Mr. Clanin is also a board member of the Annie E. Casey foundation and a trustee at Bradley University. Mr. Clanin’s qualifications to serve on our Board of Directors include business operations, finance and investment experience and risk management oversight.

Raymond B. Greer has served as a member of our Board of Directors since June 2006. From March 2005 to January 2010, Mr. Greer served as President and Chief Executive Officer of Greatwide Logistics Services, a non-asset based logistics and transportation services company. Greatwide and its senior lenders filed a Chapter 11 bankruptcy filing in October 2008 to restructure Greatwide’s debt and permit a purchase of the business. From December 2002 to March 2005, Mr. Greer served as President and Chief Executive Officer for Newgistics, Inc., an industry leader in reverse logistics solutions. Mr. Greer served as President of Global Network Solutions and Services for i2 Technologies, Inc., from February 2002 to November 2002. From July 2000 to February 2002, Mr. Greer served as Chairman and Chief Executive Officer of Esurg Corporation, a leading

 

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e-commerce provider for healthcare providers. Prior to July 2000, Mr. Greer served in senior management positions for Ryder and FedEx Corporation. From June 2005 to April 2007, Mr. Greer also served as a director of Kitty Hawk, Inc., an air cargo company. In August 2010, Mr. Greer was appointed to the board of DCT Industrial Trust, a public real estate investment trust. We believe Mr. Greer’s background in transportation and logistics, coupled with his experience as a senior executive, make him qualified to serve on our Board of Directors.

Marc A. Kramer has served as a member of our Board of Directors and our compensation and Audit Committees since June 2005. Mr. Kramer is a Managing Director of Fenway Partners. Prior to joining Fenway Partners in March 2002, Mr. Kramer was a Principal with Aurora Capital Group in Los Angeles from 1997 to 2002. Mr. Kramer spent five years with Aurora focused on pursuing consolidation strategies across middle-market manufacturing and distribution businesses. From 1995 to 1997, Mr. Kramer was a consultant with Corporate Decisions, Inc., a strategy consulting firm based in Boston. Mr. Kramer received an M.B.A. from Harvard Business School and a B.A. cum laude in Government from Dartmouth College. Mr. Kramer serves on the boards of Fastfrate Holdings, Inc., Preferred Freezer Services, LLC, Refrigerated Holdings, Inc. and Roadlink, Inc. Mr. Kramer’s qualifications to serve on our Board of Directors include his experience with equity and strategy firms, as well as his experience in the transportation and logistics industries.

Peter D. Lamm has served as a member of our Board of Directors since June 2005. Mr. Lamm is the Chairman and Chief Executive Officer of Fenway Partners, which he founded in 1994. He was previously a General Partner and Managing Director of the investment partnerships managed by Butler Capital Corporation from 1982 to 1994. Prior to joining Butler Capital in 1982, Mr. Lamm was involved in launching Photoquick of America Inc., a family business. Mr. Lamm serves on the boards of 1-800 Contacts, Inc., American Achievement Corporation, Coach America Holdings, Inc., Easton-Bell Sports, Inc., Fastfrate Holdings, Inc., Preferred Freezer Services, LLC, Refrigerated Holdings, Inc. and Roadlink, Inc. Mr. Lamm also is a board member and Vice Chairman of the United States Fund for Unicef. Mr. Lamm received a masters degree from the business school of Columbia University and a B.A. in English Literature from Boston University. We believe Mr. Lamm’s extensive experience with equity firms and managing investments, including co-founding Fenway over 15 years ago, qualifies him to serve on our Board of Directors.

Edward M. Straw has served as a member of our Board of Directors since June 2006. Mr. Straw has served as a strategic advisor to IBM Federal Services from 2006 to 2008. Mr. Straw also has served as Executive Vice President of PRTM Management Consultants, Inc., since April 2008. From 2000 to 2005, Mr. Straw served as President, Global Operations of the Estee Lauder Companies, a cosmetics, skin care and fragrance company, where he was head of global operations and supply chain management. From 1998 to 1999, he served as Senior Vice President of Supply Chain Management and Manufacturing at Compaq Computer Corporation and from 1997 to 1998, Mr. Straw served as President of Ryder Integrated Logistics Inc. Prior to joining the private sector, Mr. Straw had a 35 year career in the U.S. Navy, retiring as a three-star Vice Admiral in 1996. Mr. Straw also serves as Chairman of Odyssey Logistics and Technology and Document Capture Technologies, Inc. and on the Board of Directors of MeadWestvaco Corporation and Performance Equity Management, LLC. Mr. Straw was previously on the board of Eddie Bauer Holdings, Inc. and Ply Gem Holdings, Inc. Mr. Straw’s qualifications to serve on our Board of Directors include his many years of experience as an executive officer with specialization in logistics and transportation as well as his experience on other boards, which have provided him with key skills in working with other directors, understanding board processes and functions and overseeing management.

 

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Board composition and leadership structure

Our amended and restated bylaws will provide that our Board of Directors will consist of no more than 12 and no less than six directors. The actual number of directors will be determined from time to time by resolution of a majority of our full Board of Directors. Our Board of Directors is currently comprised of nine directors of which three directors qualify as independent directors, under the corporate governance standards of the                      and the independence requirements of Rule 10A-3 of the Securities Exchange Act of 1934, or the Exchange Act. Within twelve months from the date of our listing, we intend for a majority of our Board of Directors to qualify as independent directors.

The positions of Chairman of the Board and Chief Executive Officer are presently separated. Mr. Sokolowski currently serves as our Chairman and Mr. Clarke currently serves as our President and Chief Executive Officer. We believe that separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairman to lead the Board of Directors in its fundamental role of providing advice to and independent oversight of management. Our Board of Directors recognizes the time, effort and energy that the Chief Executive Officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our Chairman, particularly as the oversight responsibilities of the Board of Directors continue to grow. While our amended and restated bylaws and corporate governance guidelines, which will be effective upon completion of this offering, do not require that our Chairman and Chief Executive Officer positions be separate, our Board of Directors believes that having separate positions is the appropriate leadership structure for us at this time.

Risk management and oversight

Our full Board of Directors oversees a company-wide approach to risk management, carried out by our management. Our full Board of Directors determines the appropriate risk for us generally, assesses the specific risks faced by us and reviews the steps taken by management to manage those risks.

While the full Board of Directors maintains the ultimate oversight responsibility for the risk management process, its committees oversee risk in certain specified areas. In particular, our Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements and the incentives created by the compensation awards it administers. Our Audit Committee oversees management of enterprise risks as well as financial risks and, effective upon the consummation of this offering, also will be responsible for overseeing potential conflicts of interest. Effective upon the listing of our common stock on the             , our Nominating and Corporate Governance Committee will be responsible for overseeing the management of risks associated with the independence of our Board of Directors. Pursuant to the Board of Directors’ instruction, management regularly reports on applicable risks to the relevant committee or the full Board of Directors, as appropriate, with additional review or reporting on risks conducted as needed or as requested by our Board of Directors and its committees.

Committees of the Board of Directors

The standing committees of our Board of Directors consist of an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation Committee. Each of these committees will consistent entirely of independent directors following this offering.

 

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Audit Committee

The Audit Committee:

 

 

reviews the audit plans and findings of our independent registered public accounting firm and our internal audit and risk review staff, as well as the results of regulatory examinations and tracks management’s corrective action plans where necessary;

 

 

reviews our financial statements, including any significant financial items and/or changes in accounting policies, with our senior management and independent registered public accounting firm;

 

 

reviews our financial risk and control procedures, compliance programs and significant tax, legal and regulatory matters; and

 

 

has the sole discretion to appoint annually our independent registered public accounting firm, evaluate its independence and performance and set clear hiring policies for employees or former employees of the independent registered public accounting firm.

The Audit Committee currently consists of Messrs. Clanin (Chair and Audit Committee financial expert), Straw and Greer, each of whom qualifies as “independent” directors as defined under the rules of the              and Rule 10A-3 of the Exchange Act. The composition of the Audit Committee following the completion of this offering will comply with applicable SEC and              requirements.

Compensation Committee

The Compensation Committee:

 

 

annually reviews corporate goals and objectives relevant to the compensation of our named executive officers and evaluates performance in light of those goals and objectives;

 

 

approves base salary and other compensation of our named executive officers;

 

 

oversees and periodically reviews the operation of all of our stock-based employee (including management and director) compensation plans;

 

 

reviews and adopts all employee (including management and director) compensation plans, programs and arrangements, including stock option grants and other perquisites and fringe benefit arrangements;

 

 

periodically reviews the outside directors’ compensation arrangements to ensure their competitiveness and compliance with applicable laws; and

 

 

approves corporate goals and objectives and determines whether such goals are met.

The Compensation Committee currently consists of Messrs. Kramer (Chair), Clanin, Greer, and Straw, each of whom (with the exception of Mr. Kramer) is a “non-employee” director as defined in Rule 16b-3(b)(3) under the Exchange Act and an “outside” director within the meaning of Section 162(m)(4)(c)(i) of the Internal Revenue Code of 1986, as amended (the “Code”). Mr.