As filed with the Securities and Exchange
Commission on September 24, 2010
Registration No. 333-168772
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 1
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
NEW CENTURY TRANSPORTATION,
INC.
(Exact name of registrant as
specified in its charter)
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New Jersey
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4213
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22-3711933
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(State or Other Jurisdiction
of Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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45 East Park Drive
Westampton, New Jersey
08060
(609) 265-1110
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Harry Muhlschlegel
Brian Fitzpatrick
45 East Park Drive
Westampton, New Jersey
08060
(609) 265-1110
(Name, address including zip
code, and telephone number, including area code, of agent for
service)
With copies to:
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Carmen J. Romano, Esq.
Stephen M. Leitzell, Esq.
Dechert LLP
2929 Arch Street
Philadelphia, Pennsylvania 19104
(215) 994-4000
(215) 994-2222 Facsimile
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Michael Kaplan, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
(212) 701-5800 Facsimile
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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 being
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box: o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Aggregate
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Registration
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Securities to be Registered
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Offering Price(1)
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Fee(2)
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Common Stock, par value $0.01 per share, offered by the company
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$
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104,347,826
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$
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7,440
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Common Stock, par value $0.01 per share, offered by the selling
shareholders
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$
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15,652,174
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(3)
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$
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1,116
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Total
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$
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120,000,000
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(3)
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$
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8,556
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(1)
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Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(o)
under the Securities Act of 1933, as amended.
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(3)
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Includes shares of common stock
which may be purchased by the underwriters from the selling
shareholders to cover over-allotments, if any.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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 it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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PROSPECTUS
SUBJECT TO COMPLETION, DATED
SEPTEMBER 24, 2010
Shares
Common Stock
This is an initial public offering of common stock of New
Century Transportation, Inc. We are
offering shares
of common stock. We currently estimate that the initial public
offering price per share of our common stock will be between
$ and
$ per share.
Prior to this offering, there has been no public market for our
common stock. We have applied to list our common stock for
quotation on the Nasdaq Global Market under the symbol
NCTX.
Investing in our common stock involves risk. See
Risk Factors beginning on page 14.
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Per Share
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Total
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Initial price to public
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses, to New Century Transportation,
Inc.
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$
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$
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Proceeds, before expenses, to the selling shareholders(1)
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$
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$
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(1) Assumes full exercise of the underwriters
over-allotment option.
The selling shareholders identified in this prospectus have
granted the underwriters a
30-day
option to purchase up to an
additional shares
from the selling shareholders at the initial public offering
price less the underwriting discounts and commissions if the
underwriters sell more
than shares
of common stock in this offering. We will not receive any of the
proceeds from the sale of the shares by the selling shareholders.
None of the Securities and Exchange Commission, any state
securities commission nor any other regulatory body has approved
or disapproved of these securities or passed upon the accuracy
or adequacy of the disclosures in this prospectus. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares on or
about ,
2010.
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Wells
Fargo Securities |
Stifel Nicolaus Weisel |
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BB&T
Capital Markets |
RBC Capital Markets |
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Stephens
Inc. |
Dahlman Rose & Company |
Prospectus
dated ,
2010.
Neither we nor any of the underwriters have authorized anyone
to provide information different from that contained in this
prospectus and any free writing prospectus we provide to you. If
anyone provides you with different or inconsistent information,
you should not assume we have authorized or verified it. Neither
the delivery of this prospectus nor sale of common stock means
that information contained in this prospectus is correct after
the date of this prospectus or other date stated in this
prospectus. Our business, financial condition, results of
operations and prospects may have changed since that date. This
prospectus is not an offer to sell or solicitation of an offer
to buy these shares of common stock in any circumstances under
which the offer or solicitation is unlawful.
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. ACT Research,
Co., LLC, American Trucking Associations, Inc., or the ATA, the
Council of Supply Chain Management Professionals, the Federal
Reserve, the International Monetary Fund, Manufacturers
Alliance/MAPI Inc., SJ Consulting Group, Inc., the
Transportation Loss Prevention and Security Association,
Transport Topics, Truckloadrate.com, the U.S. Bureau of
Economic Analysis and the U.S. Energy Information Administration
were the primary independent sources of industry and market
data. All data provided by the Federal Reserve, the
International Monetary Fund, Manufacturers Alliance/MAPI Inc.,
Transport Topics, the U.S. Bureau of Economic Analysis and
the U.S. Energy Information Administration are publicly
available, while data provided by ACT Research, Co., LLC, the
ATA, the Council of Supply Chain Management Professionals, the
Transportation Loss Prevention and Safety Association and
Truckloadrate.com can
be obtained by subscription. We also paid SJ Consulting Group,
Inc. for the compilation of certain market and industry data
that were prepared specifically for use in this prospectus. We
believe that all industry publications and reports cited herein
are reliable and take such publications and reports into account
when operating our business. 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. 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
managements understanding of industry conditions.
As used in this prospectus, unless the context otherwise
indicates, the references to New Century and
NCTX refer to New Century Transportation, Inc. and
references to our company, us,
we and our refer to New Century together
with its subsidiaries.
Load-to-Deliver®
is our registered servicemark.
Unless otherwise indicated or the context otherwise requires,
financial data in this prospectus reflect the consolidated
business and operations of New Century and its wholly-owned
subsidiaries. Except where otherwise indicated, references to
dollars and $ are to U.S. dollars.
PROSPECTUS
SUMMARY
This summary highlights significant aspects of our business
and this offering and is qualified in its entirety by more
detailed information and consolidated financial statements
included elsewhere in this prospectus. Because it is a summary,
it does not contain all of the information that you should
consider before making your investment decision. You should
carefully read the entire prospectus, including the information
presented under the section entitled Risk Factors
and the historical and pro forma financial data and related
notes, before making an investment decision. This summary
contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from
the results discussed in the forward-looking statements as a
result of certain factors, including those set forth in
Risk Factors and Forward-Looking
Statements. Unless otherwise indicated, numbers of shares
give effect to
the
for
stock split to be completed prior to this offering.
Overview
We are a growth-oriented motor carrier using a differentiated
Load-to-Deliver
operating model that we believe combines the higher revenue per
tractor characteristics of a
less-than-truckload
carrier with the operating flexibility and lower fixed costs of
a service-sensitive truckload carrier. We offer a full range of
over-the-road
transportation solutions to our customers, including customized,
expedited, time-definite, dedicated and specialized
less-than-truckload
and truckload services. Our specialized services include the
transportation of temperature-controlled and hazardous, or
Hazmat, freight. We believe our
Load-to-Deliver
operating model provides our customers with a breadth of
transportation solutions that fits their time, service and price
points and gives us a competitive advantage in sourcing freight.
As of June 30, 2010, our fleet consisted of 983 owned
tractors and 2,114 owned or leased trailers, including 886
temperature-controlled trailers. Since 2002, we have grown total
revenues at a compound annual growth rate of 21.7%. Over the
same period our net income decreased from approximately $62,000
in 2002 to a net loss of $5.1 million in 2009. During the
fiscal year ended December 31, 2009, we generated total
revenues of $229.3 million, Adjusted EBITDA of
$22.7 million and net loss of $5.1 million. For the
six months ended June 30, 2010, we generated total revenues
of $126.2 million, Adjusted EBITDA of $13.7 million
and net loss of $10.3 million, which includes a
$8.5 million non-cash charge related to a change in the
fair value of warrants. We define Adjusted EBITDA to be earnings
before interest, taxes, depreciation, amortization, changes in
fair value of warrants and leveraged recapitalization expenses.
We serve shippers throughout the continental United States and
parts of Canada but focus primarily on the estimated
$3.2 billion market for
less-than-truckload
freight originating in the Northeast and the estimated
$8.4 billion market of inbound truckload freight back into
the region, according to SJ Consulting Group, Inc.
Less-than-truckload,
or LTL, services involve the consolidation and transport of
freight from numerous shippers to multiple destinations on one
vehicle and thus garner higher net revenue per tractor than
truckload shipments. Truckload services involve the transport of
a single shippers freight to a single destination. We
manage our operations on a round-trip basis to maximize revenue
per tractor by pursuing headhaul freight lanes. For the outbound
portion of our round-trip, we generally deploy our local pickup
fleet to gather LTL shipments throughout the Northeast that we
build into linehaul loads at our Philadelphia metropolitan area
LTL consolidation operations for delivery directly to recipients
without rehandling. For the inbound portion of our round-trip,
we generally transport truckload freight back to the Northeast
to reposition our tractors and trailers near our consolidation
operations.
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The diagram below illustrates a hypothetical round-trip under
our
Load-to-Deliver
operating model.
We believe that we are able to provide our customers
time-definite LTL services with lower cargo claims and fewer
opportunities for delays because our
Load-to-Deliver
operating model requires fewer handlings per LTL shipment than a
traditional LTL carrier. We believe we can reduce a
shipments transit time by up to 24 hours for every
breakbulk terminal that our
Load-to-Deliver
operating model avoids while transporting our customers
freight.
We believe our
Load-to-Deliver
operating model provides us with a competitive advantage in
sourcing freight while enhancing utilization of our tractors and
allowing us to operate more cost effectively. Our
Load-to-Deliver
operating model allows us to avoid the historically unfavorable
pricing of truckload freight outbound from the Northeast and
positions us to take advantage of higher priced truckload
freight inbound to the Northeast, a densely populated, high
consumption area. We believe our
Load-to-Deliver
operating model enables us to optimize the economics of a
round-trip by combining two favorably priced headhauls (an
outbound load of LTL shipments and an inbound truckload
shipment) to maximize revenue per operating tractor. For
example, based on the public filings of nine truckload carriers
and truckload divisions of motor carriers that we reviewed, in
2009 our net revenue per operating tractor per day of
approximately $1,000 was significantly higher than the $500 to
$700 per day of those truckload carriers and truckload divisions
over the same period. In addition, because we generally deliver
LTL freight directly from the trailer to the recipient, we do
not need the capital investment and high-fixed cost structure
that we believe are required to operate the numerous local
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delivery fleets, nationwide breakbulk and destination terminals
and multiple staffs of freight handlers typically associated
with our LTL competitors.
We have a large, stable and diverse base of customers built
around our
Load-to-Deliver
operating model with whom we work closely to develop customized
transportation solutions. In 2009, we served approximately 1,100
active customers for whom we transported at least 50 shipments.
Of our top 200 customers by total revenue in 2007, we continued
to provide services to approximately 90% in 2009. We believe
this high level of retention throughout the economic downturn
and the fact that we have increased our active customers by 17%
from 963 in 2007 to 1,129 in 2009 positions us for growth. In
2009, our 25 largest customers accounted for 34.8% of our total
revenues. Our customer base is heavily weighted toward
industrial, chemical, pharmaceutical, agricultural and food
companies, unlike many other trucking companies for which retail
customers are a large component. We specifically target these
customers because they have less cyclical and more consistent
shipping needs in the freight lanes we prefer and are willing to
appropriately compensate us for the high level of service we
provide. The following chart shows the breakdown of 2009 total
revenues from our top 800 customers by the industry in which
those customers operate.
We believe our
Load-to-Deliver
operating model is management intensive and difficult to
replicate. Our
Load-to-Deliver
operating model and marketing efforts emphasize customer
satisfaction and strategic partnership while simultaneously
focusing on a disciplined approach to pricing and selectively
pursuing freight that fits within our operating system. As an
example of our managements ability to identify freight
that fits our system and freight lanes, in 2009 the percentage
of linehaul miles driven by our tractors on which they were not
generating revenues, or empty miles, was less than 4%, compared
to an average of 27.6% and 13.4% among truckload and LTL
carriers, respectively, according to data from the ATA.
Our management team, led by Harry Muhlschlegel, James Molinari
and Brian Fitzpatrick, is experienced in the trucking industry,
averaging over 27 years of transportation experience,
virtually all of which has been within the
Load-to-Deliver
or a comparable operating model. This team has a proven track
record of building a similar carrier, Jevic Transportation,
Inc., or Jevic, and developed a predecessor to the
Load-to-Deliver
operating model. Following the sale of Jevic,
Mr. Muhlschlegel founded New Century in 2000. Importantly,
23 of our top 34 senior managers have worked together for an
average of over 20 years specifically within a
Load-to-Deliver
or similar operating model. We foster a culture of employee
ownership; following this offering, our employees will
own % of our companys common
stock.
Industry
The trucking industry is extremely sensitive to changes in
economic conditions. Generally, given the dependence of North
American shippers on trucking as a primary means of
transportation, the
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amount of tonnage hauled by carriers, or truck tonnage, is
considered a leading indicator of economic activity. The
economic slowdown that began in 2007 created a difficult
trucking environment characterized by a combination of reduced
truck tonnage, an excess supply of tractors and low freight
rates.
Beginning in the third quarter of 2009, demand for trucking
services has improved as U.S. manufacturing has gradually
increased output and companies have begun to restock their
inventories. According to the U.S. Bureau of Economic
Analysis, U.S. real gross domestic product, or real GDP,
increased at an annualized rate of 5.0% in the fourth quarter of
2009, 3.7% in the first quarter of 2010 and 1.6% in the second
quarter of 2010. For the six months ended June 30, 2010,
the ATA total truck tonnage index increased 6.5%
year-over-year.
The following chart illustrates the correlation of truck tonnage
and real GDP:
Year-over-Year
Change in Total Truck Tonnage and Real GDP
Source: ATA, U.S. Bureau of Economic Analysis.
Many shippers have accelerated their focus on quality
improvement, order cycle time reductions,
just-in-time
inventory management and regional assembly and distribution
methods. We believe other emerging trends in the
over-the-road
transportation industry include the following:
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Continued constraints on increases in truck capacity is creating
opportunities for safe and reliable carriers to capture
additional freight.
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An increased reliance by shippers on a smaller base of core
carriers.
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A growing demand for customized services as more companies seek
to reduce costs and improve returns without sacrificing service
levels.
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Increased outsourcing of non-core functions by shippers in an
effort to redeploy resources.
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Operating
and Growth Strategy
Since our inception in 2000, we have been successful in growing
our business and attracting new customers. For the six months
ended June 30, 2010, our total revenues and Adjusted EBITDA
were $126.2 million and $13.7 million, respectively,
representing improvements of 14.0% and 32.5%, respectively, over
the six months ended June 30, 2009. For the six months
ended June 30, 2010, our net loss was $10.3 million,
which includes a $8.5 million non-cash charge related to a
change in the fair value of warrants. Over the same timeframe,
our shipments per day and net revenue per operating tractor per
day were 2,109 and $1,054, respectively, representing
improvements of 11.2% and 10.4% over the six months ended
June 30, 2009. We believe our experienced management team
and our
Load-to-Deliver
operating model will allow us to capitalize on any volume growth
from an economic recovery as well as key
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ongoing trends in the U.S. freight transportation
industry. The following are the key components of our operating
and growth strategy:
Build
Freight Density in Existing System.
We believe we have growth opportunities in the estimated
$3.2 billion outbound Northeast LTL market and the
estimated $8.4 billion market of inbound truckload freight
back into the region, according to SJ Consulting Group, Inc. The
goal of our marketing and sales strategy is to increase our
freight volumes and density in the Northeast by adding new
customers and building new lanes with, and cross-selling our
services to, existing customers. We believe we are well
positioned to capture a greater percentage of our
customers transportation spend. During 2009, 23 of our top
25 customers by total revenue used both our LTL and truckload
services, and more than half of our top 200 customers by total
revenue have used our temperature-controlled services. For
example, Crayola LLC, which started as a customer for our
truckload services, has since expanded to use our LTL,
temperature-controlled and expedited services. In addition, we
believe that our operational flexibility will position us to
take advantage of the growing trend of shippers who partner with
a small base of core carriers for all of their shipping needs to
improve their supply chain offering and reduce administrative
burden.
Maintain
Emphasis on Specialized Freight.
We have focused and intend to continue focusing on transporting
specialized freight such as pharmaceuticals, chemicals and
certain agricultural and horticultural products. For example,
the percentage of our net revenues generated from pharmaceutical
companies included among our 800 largest customers (excluding
customers of our wholly-owned subsidiary Western Freightways,
LLC) has more than doubled from 4.0% in 2006 to 9.5% in 2009. In
order to accommodate the needs of these customers, we will
continue to emphasize the use of highly experienced drivers with
the necessary certifications as well as specialized equipment.
Our fleet of temperature-controlled trailers has increased from
439 in 2005 to 886 as of June 30, 2010. Total revenues from
the shipment of temperature-controlled freight have grown 52.3%
annually from $9.6 million in 2005 to $51.9 million in
2009 and have increased from 6.9% of our total revenues in 2005
to 22.6% in 2009.
Focus
on Tractor and Trailer Technology.
The technology programs for our tractors and trailers are key
aspects of our operating model and our ability to deliver
consistently high levels of customer service. Over the years,
our management team has been an early adopter of technologies
such as satellite tracking, self-lubricating chassis on both our
tractors and trailers, auxiliary power units, automatic
transmissions, vented mud flaps and super-single tires. We
believe these technologies improve our fuel efficiency, extend
the useful life of our tractors and enhance driver satisfaction.
Most recently, in response to uncertainties in new engine
designs, we have established a program to remanufacture existing
engines. We expect that remanufactured engines will allow us to
use a tractor for up to an additional four years for
approximately 25% of the cost of a new tractor.
Continue
to Focus on Operating Efficiency.
We are focused on implementing operational and financial
improvements to increase asset productivity, accelerate earnings
growth, enhance returns and improve our competitive position. To
achieve these goals, our management has placed emphasis on
optimizing freight mix, controlling costs and tightly managing
our revenue generating equipment. For example, as a result of
the prolonged decline in the general economy, we designated
approximately 160 tractors as non-operating in 2009 and
increased our reliance on purchased transportation for less
profitable lanes. We employ management information systems,
including messaging systems and freight optimization software,
to improve shipment selection and maximize profitability. In
response to the industry-wide downturn in truck tonnage, we
implemented initiatives that removed approximately
$6.8 million of annual costs. We implemented operating and
load planning efficiency initiatives in the second half of 2009
that allowed
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us to transport 11.2% more shipments with 1.9% fewer operating
tractors in the six months ended June 30, 2010 than in the
six months ended June 30, 2009.
Recruit
and Retain Experienced, Professional Drivers.
Our experienced, non-union drivers are critical to our operating
model. We believe that the operational flexibility and safety
track record of our drivers allow us to offer a variety of
services and to compete for freight requiring premium service
levels. Our driver turnover rate, which has ranged from 25% to
32% per year over the last four years, is significantly below
the average turnover for truckload carriers of 83.9% during the
same period, as estimated by the ATA. We believe that we will
continue to be successful at recruiting and retaining skilled
drivers because we promote a driver friendly environment. We
believe that our drivers are compensated very competitively,
allowing us to attract and retain qualified drivers who fit into
our high service culture. We believe our driver friendly culture
emanates from Mr. Muhlschlegel, our founder and Chief
Executive Officer and a former driver, who has continually
emphasized the importance of a stable, high quality driver
force. We believe our driver friendly culture will be an
increasing competitive advantage should the availability of
drivers decrease in the future.
Pursue
Selective Acquisitions.
The transportation and logistics industry is large and highly
fragmented. Since our founding, we have acquired Edward M. Rude
Carrier Corporation, Western Freightways, LLC, or Western
Freightways, and P&P Transport, Inc. or P&P Transport,
each of which complemented and expanded our service offerings
and fit our operating strategy of maximizing revenue per tractor
on a round-trip basis. We will continue to explore other
opportunities to acquire motor carriers and logistics service
providers that would increase our scale and efficiency, expand
our premium service offerings or enhance our customer base.
Refinancing
In connection with this offering, we intend to enter into a new
$60.0 million senior secured credit facility, which we
refer to as our new revolving credit facility. We will repay
amounts outstanding under our senior secured credit facility,
which we refer to as our existing credit facility, and under
three series of subordinated notes with the net proceeds of this
offering and drawings under our new revolving credit facility.
See Description of Indebtedness. This offering is
conditioned upon the concurrent closing of the new revolving
credit facility.
Risk
Factors
An investment in our common stock is subject to risks, including
the following:
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General economic conditions could have a material adverse effect
on our business, financial condition and results of operations;
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We operate in a highly competitive industry;
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Excess capacity in the
over-the-road
freight sector has resulted in downward pricing pressure;
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We expect competition for qualified drivers to increase;
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Our operations depend significantly on our facilities in the
Philadelphia metropolitan area; and
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Our executive officers and key personnel are important to our
business, and these officers and personnel may not remain with
us in the future.
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These risks and the other risks described under Risk
Factors could have a material affect on our business,
financial condition and results of operations.
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Company
Information
We maintain our principal offices at 45 East Park Drive,
Westampton, New Jersey 08060. Our telephone number is
(609) 265-1110.
Our website is www.nctrans.com. The information contained on our
website or that can be accessed through our website does not
constitute part of this prospectus.
About
Jefferies Capital Partners
In June 2006, investment funds affiliated with Jefferies Capital
Partners acquired a controlling interest in New Century from the
then existing shareholders. We refer to these investment funds
collectively as JCP Fund IV. Jefferies Capital
Partners is a private equity investment firm with over
$1.0 billion in equity funds under management. Jefferies
Capital Partners focuses its investment activity on selected
industries in which its professionals have established
expertise, including the transportation industry.
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The
Offering
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Shares of Common Stock Offered by Us |
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shares. |
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Common Stock to be Outstanding After this Offering |
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shares. |
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Shares of Common Stock Offered by the Selling Shareholders
Pursuant to the Over-Allotment Option |
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The underwriters have a
30-day
option to purchase from the selling shareholders up to an
additional shares
of our common stock to cover over-allotments, if any. The
selling shareholders are not offering any other shares in this
offering other than those contemplated in the over-allotment
option. |
|
|
|
Use of Proceeds |
|
Assuming an offering price of
$ per share (the midpoint of
the range set forth on the cover page of this prospectus), we
estimate that we will receive net proceeds from the sale of
shares of our common stock in this offering of
$ million, after deducting
underwriting discounts and commissions and estimated fees and
expenses payable by us. We intend to use the net proceeds of
this offering and an initial drawing of
$ million under our new
revolving credit facility to: |
|
|
|
|
|
repay $ million
of outstanding indebtedness under the term loan portion of our
existing credit facility, which bears interest at a rate of the
London Inter-Bank Offered Rate, or LIBOR, plus 7.0%, and accrued
but unpaid interest thereunder, following which such facility
will be terminated;
|
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|
|
repay $ million
aggregate principal amount of and accrued but unpaid interest
under our 9% subordinated notes due 2012, which notes are
held by certain of our shareholders;
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|
|
repay $ million
aggregate principal amount of and accrued but unpaid interest
under our 14% convertible subordinated notes due 2013; and
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|
repay $ million
aggregate principal amount of and accrued but unpaid interest
under our 7.5% senior subordinated notes due 2014, which
notes are held by JCP Fund IV.
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See Description of Indebtedness. |
|
|
|
In the event any of our 14% convertible subordinated notes due
2013 are converted to common stock prior to the consummation of
the offering, the amount of the initial drawing under our new
revolving credit facility will be reduced. |
|
|
|
An affiliate of Wells Fargo Securities, LLC, one of the joint
book-running managers of this offering, is a lender under our
existing credit facility and will receive a portion of the
proceeds from this offering. See Use of Proceeds and
Underwriting. |
|
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|
We will not receive any of the proceeds from the sale of shares
by the selling shareholders but will pay all fees and expenses
of the selling shareholders associated with this sale, other
than underwriting discounts and commissions. |
8
|
|
|
Dividend Policy |
|
We currently intend to retain any future earnings to fund the
operation, development and expansion of our business, and
therefore we do not anticipate paying any dividends in the
foreseeable future. Any payment of dividends on our common stock
in the future will be at the discretion of our board of
directors and will depend upon our results of operations,
earnings, capital requirements, financial condition, future
prospects, contractual restrictions and other factors deemed
relevant by our board of directors. In addition, our ability to
declare and pay dividends is restricted by covenants in our
existing credit facility, and we expect to be subject to similar
restrictions under our new revolving credit facility. |
|
Risk Factors |
|
Investment in our common stock involves substantial risks. You
should read this prospectus carefully, including the section
entitled Risk Factors, beginning on page 14 of
this prospectus, before investing in our common stock. |
|
Proposed Nasdaq Global Market Symbol |
|
NCTX |
|
Conflicts of Interest |
|
From time to time, certain of the underwriters and/or their
respective affiliates have directly and indirectly engaged in
various financial advisory, investment banking and commercial
banking services for us and our affiliates, for which they
received customary compensation, fees and expense reimbursement.
In particular, affiliates of Wells Fargo Securities, LLC, one of
the joint book-running managers in this offering, are parties to
our existing credit facility. Our existing credit facility was
negotiated on an arms length basis and contains customary
terms pursuant to which the lenders receive customary fees. We
will use a portion of the net proceeds from this offering to
repay amounts outstanding under this credit facility. See
Use of Proceeds. More than 5% of the net proceeds of
the offering are expected to be used to repay borrowings we have
received from Wells Fargo Bank, N.A., an affiliate of Wells
Fargo Securities, LLC. Because Wells Fargo Securities, LLC is a
participating underwriter in this offering, a conflict of
interest is deemed to exist under the applicable
provisions of Rule 2720 of the Conduct Rules of the
Financial Industry Regulatory Authority, Inc., or FINRA.
Accordingly, this offering will be made in compliance with the
applicable provisions of Rule 2720 of the Conduct Rules.
Rule 2720 currently requires that a qualified
independent underwriter, as defined by the FINRA rules,
participate in the preparation of the registration statement and
the prospectus and exercise the usual standards of due diligence
in respect thereto. Stifel, Nicolaus & Company,
Incorporated has agreed to act as qualified independent
underwriter for the offering and to perform a due diligence
investigation and review and participate in the preparation of
the prospectus. An affiliate of Wells Fargo Securities, LLC is
expected to be the arranger and a lender under our new revolving
credit facility. In addition, from time to time, certain of the
underwriters and their affiliates may effect transactions for
their own account or the account of |
9
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|
customers, and hold on behalf of themselves or their customers,
long or short positions in our debt or equity securities or
loans, and may do so in the future. See Conflicts of
Interest. |
The number of shares of our common stock to be outstanding after
this offering gives effect to
the
for
stock split to be completed prior to the completion of this
offering and is based
on shares
outstanding as
of ,
2010. The number of shares of our common stock to be outstanding
after this offering:
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|
includes shares
(assuming an initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus) to be
issued concurrently with this offering upon exercise
of
warrants held by JCP Fund IV on a cashless basis. A $1.00
increase (decrease) in the assumed initial public offering price
of $ per share would increase
(decrease) the number of shares issuable upon exercise of these
warrants by shares. JCP
Fund IV has confirmed to us that it intends to exercise its
warrants on a cashless basis in connection with this offering.
Under the terms of the warrants, we will deliver to JCP
Fund IV a number of shares equal to the number of shares
issuable upon exercise of the warrants less a number of shares
equal to the quotient of the aggregate exercise price of the
warrants by the initial public offering price.
|
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|
excludes shares
of common stock issuable upon conversion of our 14% convertible
subordinated notes due 2013, which we intend to retire with the
net proceeds of this offering and an initial drawing under our
new revolving credit facility.
|
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|
excludes shares
of our common stock that are issuable upon exercise of options
granted to employees under the New Century Transportation Inc.
Equity Incentive Plan, as amended in 2002, and the New Century
Transportation, Inc. 2006 Stock Incentive Plan. See
Compensation Discussion and Analysis Elements
of Compensation Long-Term Equity Incentive
Awards.
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|
excludes shares
of our common stock that are available for future grant under
the New Century Transportation, Inc. Stock Incentive Plan. See
Compensation Discussion and Analysis Elements
of Compensation Long-Term Equity Incentive
Awards.
|
10
Summary
Historical Financial Data
The following table sets forth, for the periods and dates
indicated, our summary historical financial data. The data as of
and for the years ended December 31, 2005, 2006, 2007, 2008
and 2009 have been derived from consolidated financial
statements audited by KPMG LLP, an independent registered public
accounting firm. The historical consolidated financial data as
of December 31, 2008 and 2009, and for the three years
ended December 31, 2009, have been derived from our
consolidated financial information included elsewhere in this
prospectus. We derived the historical financial data as of and
for the six months ended June 30, 2009 and 2010 from
our unaudited interim consolidated financial statements, which
are included elsewhere in this prospectus. The summary
historical and other financial data presented below represent
portions of our financial statements. Our historical results are
not necessarily indicative of the results that should be
expected in the future and our interim results are not
necessarily indicative of the results that should be expected
for the full fiscal year. You should read this information in
conjunction with Use of Proceeds,
Capitalization, Selected Historical Financial
Data and Managements Discussion and Analysis
of Financial Condition and Results of Operations and the
consolidated financial statements and related notes included
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
2005
|
|
|
2006(1)
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands, except share, per share and other data)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues(2)
|
|
$
|
125,252
|
|
|
$
|
149,629
|
|
|
$
|
205,585
|
|
|
$
|
228,966
|
|
|
$
|
203,127
|
|
|
$
|
99,741
|
|
|
$
|
107,955
|
|
Fuel surcharge(3)
|
|
|
15,225
|
|
|
|
22,906
|
|
|
|
33,425
|
|
|
|
59,683
|
|
|
|
26,186
|
|
|
|
10,937
|
|
|
|
18,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
140,477
|
|
|
$
|
172,535
|
|
|
$
|
239,010
|
|
|
$
|
288,649
|
|
|
$
|
229,313
|
|
|
$
|
110,678
|
|
|
$
|
126,172
|
|
Operating income/(loss)
|
|
$
|
13,525
|
|
|
$
|
(4,907
|
)
|
|
$
|
4,916
|
|
|
$
|
11,707
|
|
|
$
|
1,809
|
|
|
$
|
(379
|
)
|
|
$
|
3,616
|
|
Net income/(loss)(4)
|
|
$
|
9,745
|
|
|
$
|
(25,522
|
)
|
|
$
|
(4,902
|
)
|
|
$
|
(1,198
|
)
|
|
$
|
(5,137
|
)
|
|
$
|
(3,221
|
)
|
|
$
|
(10,261
|
)
|
Weighted average common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share available to common shareholders(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Diluted
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Pro forma diluted earnings per share (as adjusted)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments(6)
|
|
|
|
|
|
|
|
|
|
|
447,926
|
|
|
|
474,421
|
|
|
|
493,186
|
|
|
|
239,025
|
|
|
|
265,796
|
|
Net revenue per shipment
|
|
|
|
|
|
|
|
|
|
$
|
459
|
|
|
$
|
483
|
|
|
$
|
412
|
|
|
$
|
417
|
|
|
$
|
406
|
|
Total miles
|
|
|
|
|
|
|
|
|
|
|
100,342,554
|
|
|
|
110,943,067
|
|
|
|
89,506,703
|
|
|
|
44,038,375
|
|
|
|
46,840,750
|
|
Empty miles (linehaul)(7)
|
|
|
|
|
|
|
|
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.4
|
%
|
Average operating tractors(8)
|
|
|
|
|
|
|
|
|
|
|
843
|
|
|
|
935
|
|
|
|
829
|
|
|
|
829
|
|
|
|
813
|
|
Net revenue per operating tractor per day(8)
|
|
|
|
|
|
|
|
|
|
$
|
964
|
|
|
$
|
964
|
|
|
$
|
968
|
|
|
$
|
955
|
|
|
$
|
1,054
|
|
Miles per operating tractor per day(8)
|
|
|
|
|
|
|
|
|
|
|
470
|
|
|
|
467
|
|
|
|
427
|
|
|
|
422
|
|
|
|
457
|
|
Operating ratio(9)
|
|
|
90.4
|
%
|
|
|
102.8
|
%
|
|
|
97.9
|
%
|
|
|
95.9
|
%
|
|
|
99.2
|
%
|
|
|
100.3
|
%
|
|
|
97.1
|
%
|
Adjusted EBITDA (in thousands)(10)
|
|
$
|
23,832
|
|
|
$
|
26,658
|
|
|
$
|
26,004
|
|
|
$
|
34,118
|
|
|
$
|
22,684
|
|
|
$
|
10,331
|
|
|
$
|
13,692
|
|
Capital expenditures (in thousands), net of sales
|
|
$
|
32,979
|
|
|
$
|
32,783
|
|
|
$
|
17,097
|
|
|
$
|
1,355
|
|
|
$
|
1,405
|
|
|
$
|
268
|
|
|
$
|
4,149
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma(11)
|
|
|
As Adjusted(12)
|
|
|
|
(in thousands)
|
|
|
Balance Sheet Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
14,709
|
|
|
$
|
14,709
|
|
|
|
|
|
Total assets
|
|
|
127,300
|
|
|
|
127,300
|
|
|
|
|
|
Total debt
|
|
|
116,754
|
|
|
|
116,754
|
|
|
|
|
|
Shareholders equity/(deficit)
|
|
|
(33,731
|
)
|
|
|
(24,699
|
)
|
|
|
|
|
|
|
|
(1)
|
|
Results of operations include
expenses associated with our June 2006 leveraged
recapitalization transaction. During the leveraged
recapitalization transaction, we repurchased and retired
3,841 shares of Class B common stock for
$3.6 million. In connection with the transaction, we were
required to change our federal tax status to a C corporation
from an S corporation. As a result of the transaction, we
recorded a $28.6 million charge against current year
operating results. This was primarily comprised of a
$15.3 million expense to record the immediate vesting and
payout of certain outstanding stock options, offset by
$6.1 million of favorable tax effect of this expense, a
charge against earnings of $17.1 million to record the tax
effect of changing from an S corporation to a C corporation for
federal tax purposes, primarily representing the recognition of
deferred federal income tax liability, and other fees and
expenses necessary to finance the transaction.
|
|
(2)
|
|
We define net revenues to be total
revenues less fuel surcharges.
|
|
(3)
|
|
At the time of our acquisition of
Western Freightways in December 2006, the accounting systems of
Western Freightways did not permit for the recording of fuel
surcharges. We upgraded their systems in February 2007.
Accordingly, 2006 and 2007 fuel surcharges exclude surcharges
imposed by Western Freightways from the date of acquisition to
February 2007. Fuel surcharges imposed by Western Freightways
during this period are included in net revenues.
|
|
(4)
|
|
We were taxed under the
U.S. Internal Revenue Code of 1986, as amended, or the
Code, as a subchapter S corporation until June 23,
2006. Under subchapter S, we did not pay corporate income taxes
on our taxable income. Instead, our shareholders were liable for
federal and state income taxes on our taxable income. For
comparison purposes, a pro forma income tax provision for
corporate income taxes has been calculated as if we had been
taxed as a subchapter C corporation for 2005 and January 1,
2006 through June 22, 2006. The following is a summary of
the pro forma net income (loss) used in calculating the 2005 and
2006 earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
Historical income/(loss) before taxes
|
|
$
|
10,352
|
|
|
$
|
(12,538
|
)
|
Pro forma income tax provision/(benefit)
|
|
|
3,662
|
|
|
|
(4,388
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income/(loss)
|
|
$
|
6,690
|
|
|
$
|
(8,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
Pro forma diluted earnings per
share (as adjusted) is computed by dividing net income, adjusted
for the elimination of approximately
$ million in interest expense
and the related tax benefit of approximately
$ million, assuming the
retirement of approximately
$ million of our outstanding
debt and accrued but unpaid interest thereunder and the
incurrence of approximately $ of
debt under our new revolving credit facility, by the pro forma
number of weighted average shares outstanding used in the
calculation of diluted earnings per share, assuming the issuance
of
shares (assuming an initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus) to be
issued concurrently with this offering upon exercise
of
warrants held by JCP Fund IV on a cashless basis and the
issuance
of shares
of common stock in this offering (assuming an initial public
offering price of $ per share, the
midpoint of the range set forth on the cover page of this
prospectus).
|
|
(6)
|
|
Number of shipments is equal to the
number of freight bills invoiced to our customers.
|
|
(7)
|
|
We compute empty miles (linehaul)
percentage by dividing the number of empty miles traveled by our
linehaul tractors by the total number of miles traveled by our
linehaul tractors.
|
|
|
|
(8)
|
|
We define operating tractors to be
all tractors with current registrations and assigned drivers
that are available for the transport of freight for our
customers. We compute the number of operating tractors based on
the average number of tractors in operation as of the end of
each week during the period. Prior to February 16, 2007, we
did not track the number of operating tractors, and the number
of operating tractors in 2007 is based on the average number of
tractors in operation as of the end of each week beginning
February 17, 2007. Net revenue per operating tractor per
day and miles per operating tractor per day are computed on the
basis of a
five-day
work week, excluding holidays. As of December 31, 2009 and
June 30, 2010 we had 155 and 178 tractors, respectively,
designated as non-operating.
|
|
|
|
(9)
|
|
We compute our operating ratio by
dividing total operating expenses by total revenues.
|
|
|
|
(10)
|
|
Adjusted EBITDA represents earnings
before interest, income taxes, depreciation, amortization,
changes in the fair value of warrants and leveraged
recapitalization expenses. Adjusted EBITDA and Adjusted EBITDA
margin, which is computed by
|
12
|
|
|
|
|
dividing Adjusted EBITDA by total
revenues, are non-GAAP financial measures that we use to
evaluate financial performance and determine resource
allocation. We believe Adjusted EBITDA and Adjusted EBITDA
margin present a view of our operating results that is important
to prospective investors because it is commonly used as an
analytical indicator of performance within the transportation
services industry. By excluding interest, income taxes,
depreciation, amortization, changes in the fair value of
warrants and leveraged recapitalization expenses, we are able to
evaluate performance without considering decisions that, in most
cases, are not directly related to meeting our customers
transportation requirements and were either made in prior
periods or are related to the structure or financing of our
business. These excluded items are significant components in
understanding and assessing financial performance. Adjusted
EBITDA and Adjusted EBITDA margin should not be considered in
isolation or as an alternative to, or substitute for, net
income, cash flows generated by operations, investing or
financing activities, or other financial statement data
presented in the consolidated financial statements as indicators
of financial performance or liquidity. Adjusted EBITDA and
Adjusted EBITDA margin should be considered in addition to, but
not as a substitute for, other measures of financial performance
reported in accordance with GAAP.
|
|
|
|
|
|
The following table provides a
reconciliation of net income to Adjusted EBITDA as well as the
resulting calculation of Adjusted EBITDA margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended December 31,
|
|
June 30,
|
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
(in thousands)
|
|
Net income/(loss)
|
|
$
|
9,745
|
|
|
$
|
(25,522
|
)
|
|
$
|
(4,902
|
)
|
|
$
|
(1,198
|
)
|
|
$
|
(5,137
|
)
|
|
$
|
(3,221
|
)
|
|
$
|
(10,261
|
)
|
Interest expense (net)
|
|
|
3,173
|
|
|
|
7,631
|
|
|
|
12,547
|
|
|
|
13,535
|
|
|
|
9,631
|
|
|
|
4,590
|
|
|
|
6,104
|
|
Income taxes/(benefit)
|
|
|
607
|
|
|
|
12,984
|
|
|
|
(2,729
|
)
|
|
|
(630
|
)
|
|
|
(2,685
|
)
|
|
|
(1,748
|
)
|
|
|
(679
|
)
|
Depreciation and amortization
|
|
|
10,307
|
|
|
|
13,948
|
|
|
|
21,088
|
|
|
|
22,411
|
|
|
|
20,875
|
|
|
|
10,710
|
|
|
|
10,076
|
|
Change in fair value of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,452
|
|
Leveraged recapitalization expenses(13)
|
|
|
|
|
|
|
17,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
23,832
|
|
|
$
|
26,658
|
|
|
$
|
26,004
|
|
|
$
|
34,118
|
|
|
$
|
22,684
|
|
|
$
|
10,331
|
|
|
$
|
13,692
|
|
Adjusted EBITDA margin(14)
|
|
|
17.0
|
%
|
|
|
15.5
|
%
|
|
|
10.9
|
%
|
|
|
11.8
|
%
|
|
|
9.9
|
%
|
|
|
9.3
|
%
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11)
|
|
The pro forma column gives effect
to the issuance
of shares
(assuming an initial public offering price of
$ per share, the midpoint of
the range set forth on the cover page of this prospectus) to be
issued concurrently with this offering upon exercise
of
warrants held by JCP Fund IV on a cashless basis.
|
|
|
|
(12)
|
|
The pro forma as adjusted column
gives further effect to:
|
|
|
|
|
|
the issuance
of shares
of common stock in this offering (assuming an initial public
offering price of
$
per share, the midpoint of the range set forth on the cover page
of this prospectus); and
|
|
|
|
application of the net proceeds of this offering and an initial
drawing under our new revolving credit facility as described
under Use of Proceeds.
|
|
|
|
(13)
|
|
Leveraged recapitalization expenses
include $15.3 million of expense to record the immediate
vesting and payout of certain outstanding stock options and
$2.3 million of professional fees and other expenses.
|
|
|
|
(14)
|
|
We compute our Adjusted EBITDA
margin by dividing Adjusted EBITDA by total revenues.
|
13
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
Before you invest in our common stock you should be aware that
our business faces numerous financial and market risks,
including those described below, as well as general economic and
business risks. You should consider carefully the following risk
factors and the other information in this prospectus, including
our consolidated financial statements and related notes, before
you decide to purchase our common stock. If any of the events
described in the following risk factors actually occur, our
business, financial condition and operating results could be
adversely affected. As a result, the trading price of our common
stock could decline and you could lose part or all of your
investment.
Risks
Relating to Our Business and Industry
General
Economic Conditions Could Have a Material Adverse Effect on Our
Business, Financial Condition and Results of
Operations.
Our performance is subject to general economic conditions and
their impact on levels of manufacturing activity and consumer
spending in the United States and Canada, which deteriorated
throughout much of 2008 and 2009 and may deteriorate again in
the future. Some of the factors having an impact on
manufacturing activity and consumer spending include general
economic conditions, unemployment, consumer debt, residential
real estate and mortgage markets, taxation, energy prices,
interest rates, consumer confidence and other macroeconomic
factors. Declines in manufacturing activity and customer
spending result in reduced production output, thereby decreasing
demand for
over-the-road
freight shipments. As a result of the prolonged decline in the
general economy, we designated approximately 160 tractors as
non-operating in 2009 and increased our reliance on purchased
transportation for less profitable lanes. This resulted in a
reduction in the number of shipments we could deliver, spread
our fixed costs over a smaller revenue base and decreased our
profit margins on certain routes with our own equipment, all of
which led to an increase in our operating expenses as a
percentage of total revenues. In addition, many of our
competitors aggressively reduced their pricing on certain
routes, which has adversely affected industry-wide rates,
revenues and operating ratios.
There can be no assurances that government responses to the
disruptions in the financial markets and other factors
contributing to the recent recession will restore consumer
confidence and positively impact manufacturing activity and
consumer spending to levels where demand for
over-the-road
freight shipments rebounds. Unfavorable changes in the above
factors or in other business and economic conditions affecting
our customers or our business model could result in continued
reduced demand for freight shipments, increase the number of
tractors we designate as non-operating, reduce our potential
revenues, increase our operating expenses, increase competition
within the transportation industry or force us to reduce the
prices we charge, any of which could have a material adverse
effect on our business, financial condition and results of
operations.
We
Operate in a Highly Competitive Industry.
The
over-the-road
freight industry is highly competitive. We compete, and expect
to continue to compete, with a variety of local, regional,
inter-regional and national LTL, truckload and private fleet
motor carriers of varying sizes and, to a lesser extent, with
brokerage companies, railroads and air freight carriers, many of
whom have greater financial resources, have larger freight
capacity and larger customer bases than we do. Increased
competition in the transportation services industry can lead to
downward pricing pressures and reduced profit margins. There are
many factors that could impair our ability to compete, including
the following:
|
|
|
|
|
expansion of the coverage networks and services offered by our
competitors;
|
|
|
|
reduction of the rates charged by our competitors;
|
14
|
|
|
|
|
solicitation by customers and potential customers of multiple
bids for their shipping needs and the resulting downward pricing
pressures or loss of business;
|
|
|
|
establishment by our competitors of partnering relationships
with our customers to offer customized services;
|
|
|
|
establishment by our competitors of enhanced logistics,
brokerage and other similar services or partnering by existing
service providers with our competitors;
|
|
|
|
continued consolidation of participants in the
over-the-road
freight industry could result in more carriers with greater
financial resources; and
|
|
|
|
commencement of operations by our customers of their own private
trucking fleet or enhancement of any of our customers
private trucking fleets.
|
If we are unable to effectively compete with other participants
in the
over-the-road
freight industry or other modes of transportation, whether on
the basis of pricing, services or otherwise, we may be unable to
retain existing customers or attract new customers, either of
which could have a material adverse effect on our business,
financial condition and results of operations.
Excess
Capacity in the
Over-the-Road
Freight Sector has Resulted in Downward Pricing
Pressure.
Beginning in 2007, the
over-the-road
freight sector experienced
year-over-year
declines in tonnage totaling an aggregate of 4.5% in the three
years through 2009, primarily reflecting a weakening freight
environment in the United States, especially in the
construction, manufacturing and retail sectors. As a result of
overcapacity, pricing for
over-the-road
freight has been highly competitive and subject to downward rate
pressure. We cannot assure you that the pricing environment for
over-the-road
freight will improve significantly, or at all. If the pricing
environment does not improve or we are unable to match the
prices of our competitors within the
over-the-road
freight sector, and the LTL market in particular, there could be
a material adverse effect on our business, financial condition
and results of operations.
We
Expect Competition for Qualified Drivers to
Increase.
There has been intense competition for qualified drivers in
recent years. We believe a large number of drivers are nearing
retirement age and that there is an insufficient number of
younger individuals either currently driving or presently
enrolled in driving schools to replace the number of drivers who
will be retiring in the coming years. The Council of Supply
Chain Management Professionals projects that driver shortages
will increase due to factors including aging driver demographics
and the regulatory environment to which drivers are subject. We
expect that this shortage of qualified drivers will result in
increased competition for such drivers, particularly those with
Hazmat certifications, and that our ability to operate the more
than 160 tractors that are currently designated as non-operating
will be constrained by the current availability of drivers. Any
shortage of drivers could force us to further increase driver
compensation, which could adversely affect our profitability
unless we are able to offset the increased compensation costs
with a corresponding increase in freight rates. In addition, our
industry suffers from high turnover of drivers. This turnover
rate requires us to continuously recruit a substantial number of
drivers in order to operate existing equipment. If we are unable
to attract and retain a sufficient number of qualified drivers,
we could be forced to increase our reliance on purchased
transportation, decrease the number of pickups and deliveries we
are able to make, increase the number of our idle tractors or
limit our growth, any of which could have a material adverse
effect on our business, financial condition and results of
operations.
Our
Operations Depend Significantly on Our Facilities in the
Philadelphia Metropolitan Area.
Our primary facility, which houses our administrative
headquarters, is located in Westampton, New Jersey. In
2009, 85.6% of our outbound LTL shipments were processed at this
facility. Accordingly, any interruption of our operations at
this location could significantly reduce our ability to deliver
freight and to administer and oversee our business. If
prolonged, such interruption could have a material
15
adverse effect on our business, financial condition and results
of operations. In addition, in anticipation of the growth of our
business, we have leased an additional facility in Delanco, New
Jersey, which is approximately five miles from our Westampton
facility. Any interruption of operations at this facility could
impact our ability to grow. Any disruption with a wide impact on
the Philadelphia metropolitan area could also have a material
adverse effect on our business, financial condition and results
of operations.
Our
Executive Officers and Key Personnel are Important to Our
Business, and these Officers and Personnel may not Remain with
Us in the Future.
We depend substantially on the efforts and abilities of our
senior management, including Harry Muhlschlegel, our Chairman
and Chief Executive Officer, James Molinari, our President, and
Brian Fitzpatrick, our Chief Financial Officer, and other key
employees, including members of our sales force, operational
management and load planning team. Our success will depend, in
part, on our ability to retain our current management and to
attract and retain qualified personnel in the future.
Competition for senior management and key employees is intense,
and we may not be able to retain our management team or attract
additional qualified personnel. The loss of a member of senior
management would require our remaining executive officers to
divert immediate and substantial attention to fulfilling the
duties of the departing executive and to seeking a replacement.
The inability to adequately fill vacancies in our senior
executive positions on a timely basis could negatively affect
our ability to implement our business strategy, which could
adversely impact our results of operations. In addition,
following termination of employment and expiration of certain
non-compete provisions in their employment agreements, these
individuals may engage in other businesses that may compete with
us. See Compensation Discussion and
Analysis Employment Agreements and Potential Payments
upon Termination or Change in Control.
If Our
Employees were to Unionize or Our Labor Costs were to Increase,
Our Operating Costs could Increase.
None of our employees is currently represented by a collective
bargaining agreement. We cannot assure you that our employees
will not unionize, or attempt to unionize, in the future, that
they will not otherwise seek higher wages and enhanced employee
benefits or that unionization procedures in the United States
will not be made easier at either the federal or state level.
The unionization of our employees could result in an increase in
wage expenses and our cost of employee benefits, limit our
ability to provide certain services to our customers, cause
customers to limit their use of our services due to the
increased potential for strikes or other work stoppages and
result in increased expenditures in connection with the
collective bargaining process, any of which could have a
material adverse effect on our business, financial condition and
results of operations.
We are
Dependent on Availability of Cost Effective Purchased
Transportation.
In certain instances, we utilize purchased transportation
supplied by third-party local and national trucking companies to
deliver freight. The purchased transportation provider will
either pick up freight, which typically has already been
consolidated into a full trailer, at our facility or one of our
tractors will deliver the freight to the third-partys
facility, in these cases primarily for local delivery to the
recipient. There is significant competition for cost effective
purchased transportation in the
over-the-road
freight industry, and we cannot assure you that we will be able
to contract for sufficient purchased transportation capacity as
and when needed, or at all. Any shortage in purchased
transportation could increase the costs we are charged by
providers of purchased transportation, reduce our ability to
deliver shipments in a timely manner or require us to deliver
shipments that are not economically efficient for us, any of
which could have a material adverse effect on our business,
financial condition and results of operations.
16
We
Operate in a Highly Regulated Industry.
Our operations are subject to extensive federal, state and local
laws and regulations. These laws and regulations are subject to
change based on new legislation and regulatory initiatives,
which could affect the economics of the transportation industry
by requiring changes in operating practices or influencing the
demand for, and the cost of providing, transportation services.
The federal government substantially deregulated the
transportation industry following the enactment of the Motor
Carrier Act of 1980, the Trucking Industry Regulatory Reform Act
of 1994, the Federal Aviation Administration Authorization of
1994 and the ICC Termination Act of 1995. Prices and services
are now largely free of regulatory controls, although individual
states may require compliance with safety and insurance
requirements. As an interstate motor carrier, we also remain
subject to regulatory controls imposed by agencies within the
U.S. Department of Transportation, or DOT, including the
Federal Motor Carrier Safety Administration, such as safety,
insurance and bonding requirements.
We are subject to the hours of service regulations issued by the
Federal Motor Carrier Safety Administration. Under the current
rules, drivers are currently allowed 11 hours of driving
time within a
14-hour,
non-extendable period from the start of the work day. This
driving time must follow 10 consecutive hours of off-duty time.
In addition, calculation of on-duty time limits of 70 hours
in eight days restarts after the driver has had at least
34 hours of off-duty time. In October 2009, the Federal
Motor Carrier Safety Administration entered into a settlement
agreement with Public Citizen and other parties that had filed
suit asserting that the current rules are not stringent enough.
Under this settlement, the Federal Motor Carrier Safety
Administration has submitted a new proposed hours of service
rule and has agreed to publish a final rule by July 2011. We are
not certain of the effect that this proposed rule may have on
our operations.
There also are regulations specifically relating to the trucking
industry, including testing and specifications of equipment,
product handling requirements and hazardous material
requirements. We are also subject to regulations to combat
terrorism imposed by the Department of Homeland Security,
including Customs and Border Protection agencies, and other
agencies. Compliance with existing laws and regulations requires
substantial attention of our management team and the incurrence
of significant costs associated with training, personnel and
information technology. We cannot assure you that compliance
with future laws and regulations will not increase the amount of
management time and costs associated with our compliance
measures, and any increase could be significant. In addition, we
could be subject to fines or penalties and civil and criminal
liability resulting from any failure to comply with federal,
state and local laws and regulations. See
Business Regulation.
Comprehensive
Safety Analysis 2010 Could Adversely Affect Our Profitability
and Operations, Our Ability to Maintain or Grow Our Business and
Our Customer Relationships.
Under new regulations known as the Comprehensive Safety Analysis
2010, or CSA, the Federal Motor Carrier Safety Administration
will begin rating individual driver safety performance,
including all driver violations, over
3-year time
periods. CSA is an initiative designed by the Federal Motor
Carrier Safety Administration to improve large truck and bus
safety and ultimately reduce commercial motor vehicle-related
crashes, injuries and fatalities. Prior to these regulations,
only carriers were rated by the DOT, and the rating only
included
out-of-service
violations and ticketed offenses associated with
out-of-service
violations. This new system changes the safety evaluation
process for all motor carriers and enables the DOT to regulate
individual drivers to make driver safety performance history
more transparent to law enforcement and motor carriers. Full
implementation and enforcement of CSA is expected to begin in
2011. We expect that as a result of this new system, we will be
required to devote greater resources to safety training,
personnel and information technology, which may require
substantial attention of our management team and increase our
operating expenses. In addition, any downgrade in our DOT safety
rating, as a result of these new regulations or otherwise, could
have a material adverse effect on our business, financial
condition and results of operations through a reduction in
eligible drivers, the effects of a poor fleet ranking on
attracting and retaining qualified drivers, a diversion of
business by our current customers to carriers with higher
ratings or otherwise. If we experience
17
unfavorable compliance scores or receive an adverse change in
safety rating, we could be required to install electronic,
on-board recorders in our tractors, which could result in
increased driver turnover, cost increases and decreased asset
utilization.
We
Incur Costs and Liabilities Relating to Various Environmental
Laws and Regulations.
As part of our business, we operate real property, service, fuel
and maintain vehicles and arrange for the transportation of
hazardous materials. As a result, we are subject to various
environmental and safety laws and regulations, including those
governing the handling, transportation, storage, disposal and
release of hazardous materials. These laws and regulations,
including those administered by the U.S. Environmental
Protection Agency, or EPA, and the Pipeline and Hazardous
Materials Safety Administration, also require us to obtain and
maintain various licenses and permits. If hazardous materials
are released into the environment at our facilities or in
connection with our transportation or disposal of waste or other
operations, regardless of whether we are at fault, we may be
required to participate in, or may have liability for, response
costs and the investigation and remediation of such a release.
We could also be subject to claims for personal injury, property
damage and damage to natural resources. Any fines or penalties,
remediation costs or civil and criminal liability resulting from
our failure to comply with environmental requirements or from
the release of hazardous materials could have a material adverse
effect on our business, financial condition and results of
operations.
We are
Impacted by Regulations Governing Engine Exhaust and Greenhouse
Gas Emissions.
The EPA has issued regulations that require manufacturers of
diesel engines to implement progressive reductions in associated
exhaust emissions. Some of the federal regulations required
reductions in the sulfur content of on-road diesel fuel
beginning in June 2006, the introduction of emissions
after-treatment devices on newly-manufactured engines and
vehicles beginning with model year 2007 and the reduction of
nitrogen and non-methane hydrocarbon emissions to be phased in
between model years 2007 and 2010. Tractor engines that comply
with these regulations are generally less fuel-efficient and
have increased maintenance costs compared to engines in tractors
manufactured before these requirements became effective.
Accordingly, these regulations, as well as similar state and
local regulations, particularly in California, have resulted in
us paying higher prices for tractors and diesel engines and
increased our fuel and maintenance costs. See
Business Environmental Matters. We
cannot assure you that continued increases in engine prices or
maintenance costs will not have a material adverse effect on our
business, financial condition and results of operations.
On January 16, 2009, the EPA adopted a waiver that enabled
California to phase in restrictions on transport refrigeration
unit, or TRU, emissions over several years. The TRU Airborne
Toxic Control Measure will require companies that operate TRUs
within California to meet certain emissions in-use performance
standards. These regulations will require other carriers and us
to retrofit or replace our TRUs that enter California or reduce
or eliminate transport in California.
There is also an increased regulatory focus on climate change
and greenhouse gas emissions in the United States. Existing or
future federal, state or local greenhouse gas emission
legislation or regulation could adversely impact our business.
For example, on May 21, 2010, President Obama signed an
executive memorandum directing the National Highway Traffic
Safety Administration and the EPA to develop new, stricter fuel
efficiency standards for heavy trucks, beginning in 2014. In
addition to possible increased fuel costs and other direct
expenses, there could be a decreased demand for our services if
legislation or regulation causes our customers to reduce product
output or to elect different modes of transportation. In
addition, any customer initiatives requiring limitations on the
emission of greenhouse gases could increase our future capital,
or other, expenditures, for example by requiring additional
emissions controls, and have a material adverse impact on our
business, financial condition and results of operations.
18
We may
be Adversely Impacted by Fluctuations in the Price and
Availability of Diesel Fuel and Increases in Diesel Fuel
Taxes.
Diesel fuel is one of our largest operating expenses. Political
events in the Middle East, Venezuela, and elsewhere, as well as
hurricanes and other weather-related events, both as currently
experienced and as might be experienced due to climate change,
and current and future market-based
(cap-and-trade)
greenhouse gas emissions control mechanisms, all may cause an
increase in the price of fuel. In addition, in April 2010, a
deepwater drilling rig sank in the Gulf of Mexico after an
apparent blowout and fire. We cannot predict the full impact of
the incident and resulting spill on our operations, including
any increase in the price of diesel fuel. Because we do not
presently hedge our fuel costs, any such increase will increase
our operating expenses. Historically, consistent with standard
industry practice, we have included a fuel surcharge billed to
our customers to mitigate the impact on us of rising fuel
prices. This surcharge has helped us to defray rising fuel
prices but may not always result in us fully recovering
increases in the cost of fuel, particularly as the surcharge is
benchmarked to the Department of Energys weekly fuel price
increase, which results in an inability to immediately revise
fuel surcharges following an increase in the cost of fuel. The
extent of recovery may vary depending on the amount of
customer-negotiated adjustments and our overall fuel economy. In
addition, the total amount that we can charge our customers is
often determined by competitive pricing pressures and market
factors. Accordingly, we cannot assure you that we will be able
to continue to maintain existing fuel surcharges or increase
surcharges in the event fuel prices increase further. Any
inability to maintain appropriate fuel surcharges, or to
implement corresponding decreases in other operating expenses,
could have a material adverse effect on our business, financial
condition and results of operations.
We may
be Unable to Increase Our Freight Volumes and Our Focus on
Specialized Freight.
Our business strategy is based in part on our ability to
increase our truck tonnage and our focus on specialized freight,
such as temperature-controlled and Hazmat freight. We may not
achieve any such increases, and, even if we do succeed, our
strategy may not have the favorable impact on operations that we
anticipate. In addition, we may incur substantial expenditures
in connection with implementation of these parts of our
strategy, such as acquisitions of additional
temperature-controlled trailers, and may not be able to recoup
the costs of investment in the short term, or at all. If we are
unable to implement our strategy successfully, there could be a
material adverse effect on our business, financial condition and
results of operations.
We may
be Unable to Successfully Execute Our Business Strategy if we
Fail to Satisfy Customer Demands.
Our business strategy is based on our ongoing ability to provide
our customers with premium services, reliability, security and
personalized service. A significant part of our reputation is
based on the levels of customer service that we currently
provide and the ongoing satisfaction of customer expectations.
If we are unable to continue providing premium services,
reliability, security and customized service in the future, or
our customers perceive any such inability, our reputation could
be damaged and our customers could seek alternative providers of
over-the-road
freight services, which could have a material adverse effect on
our business, financial condition and results of operations. In
addition, any such failure could adversely affect our efforts to
attract new customers.
Our
Engine Remanufacturing Program may not Result in Cost Savings we
Expect, or any Cost Savings at All.
We have recently begun an engine remanufacturing program with
Caterpillar, Inc. to extend the life of our tractors. As part of
this remanufacturing program, substantially all of the moving
parts in the engines are replaced. These remanufactured engines
are under full warranty for unlimited miles for four years from
the date of remanufacture. We believe that the remanufacturing
program will reduce our capital expenditures in the short-term,
improve our operating cash flow and delay our need to acquire
new tractors, the prices of which have increased significantly
as a result of new regulations on exhaust
19
emissions. We do not have sufficient data at this point to
determine if there will be an increase in maintenance costs for
the remanufactured engines. We cannot assure you that there will
not be an increase in maintenance costs for these remanufactured
engines, that we will be able to complete the remanufacturing
program on time or that we will achieve the level of benefits
that we expect to realize within the timeframes we currently
expect. Any of these factors could have a material adverse
effect on our business, financial condition and results of
operations. In addition, if remanufactured parts fail more
quickly than expected or our tractors break down more frequently
as a result of the remanufacturing program, we may be unable to
deliver shipments on time, or at all, or incur higher operating
costs, either of which could have a material adverse effect on
our business, financial condition and results of operations.
We may
be Unable to Acquire New Tractors And Trailers at Attractive
Prices, or at All.
Investment in new tractors and trailers historically has been a
significant part of our annual capital expenditures. We
currently expect these expenditures to decrease in the short
term due to the engine remanufacturing program we are currently
implementing. However, as we begin to replace our remanufactured
tractors or expand our fleet, we may have difficulty in
purchasing new tractors and trailers due to a decrease in
production by our major suppliers. We cannot assure you that we
will be able to obtain new tractors and trailers at attractive
prices, or at all, or that we will have sufficient available
capital to finance any new equipment acquisitions.
We are
Impacted by Seasonal Sales Fluctuations.
The transportation industry is subject to seasonal sales
fluctuations as shipments generally are lower in the first
calendar quarter, due to a variety of factors, including
holidays, demand for products shipped by our customers and
overall economic conditions. If we were to experience an
increase in these seasonal sales fluctuations, we may not be
able to satisfy the increased demand for our services during
periods of seasonal peak demand, and we may not be able to
decrease our operating expenses sufficiently during periods of
seasonally weak demand, either of which could have a material
adverse effect on our financial condition and results of
operations.
We are
Exposed to Claims Related to Various Types of Losses, which
could Significantly Reduce Our Profitability.
We are exposed to claims related to accidents, cargo loss and
damage, property and casualty losses, personal injury,
workers compensation and general liability. We have
insurance coverage with third-party insurance carriers to cover
these types of claims, but we do not carry insurance for certain
losses. We cannot assure you that we will be able to obtain or
maintain such policies in the future, and certain types of
losses may be either uninsurable or not economically insurable,
such as losses due to earthquakes, riots or acts of war. If a
loss is insured, we may be required to pay a significant
deductible on any claim for recovery of such a loss prior to our
insurer being obligated to reimburse us for the loss, or the
amount of the loss may exceed our coverage for the loss. If a
loss is uninsured, we could be forced to incur significant
expenditures to replace the lost property or pay damages. In
addition, any accident or incident involving us, whether or not
covered by our insurance policies, could negatively affect our
reputation among customers and the public, thereby making it
more difficult for us to compete effectively. As a result, any
loss, or series of losses, whether related or not, could have a
material adverse effect on our business, financial condition and
results of operations. In addition, insurance carriers typically
require us to obtain letters of credit to pay premiums and
deductibles under the associated policies. We cannot assure you
that we will be able to obtain these letters of credit on
commercially reasonable terms, or at all, which could
significantly affect the cost and availability of insurance in
the future.
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We
Self-Insure Our Fleet with Respect to Physical
Damage.
We currently self-insure for losses resulting from physical
damage to our fleet of tractors. Any increase in the number or
severity of incidents of property damage to our fleet will
result in an increase in our self-insurance expenses.
Accordingly, if we are subject to numerous incidents of property
damage to our fleet or an increase in our historic levels of
severe incidents, there could be a material adverse effect on
our business, financial condition and results of operations. If
we are unable to continue to self-insure against these losses or
otherwise determine continued self-insurance is not in our best
interests, we cannot assure you that we will be able insure
these losses through an insurance carrier at acceptable
premiums, or at all, and the premiums under any insurance policy
could exceed the expenses we historically have incurred in
relation to our self-insurance.
We
have Significant Ongoing Cash Requirements and may not be Able
to Raise Additional Capital to Respond to Business
Opportunities, Challenges, Acquisitions or Unforeseen
Circumstances.
Our business is highly capital intensive. We currently
anticipate capital expenditures, net of sales, will not exceed
$8.0 million for 2010. In the future, we expect our
purchases of property and equipment to increase as we replace or
expand our fleet, particularly given the increased prices of new
tractors and trailers. While we intend to finance expansion and
renovation projects with existing cash, cash flow from
operations and available borrowings under our new revolving
credit facility, we may require additional capital to supplement
operating cash flow from time to time and to respond to business
opportunities, challenges, acquisitions or unforeseen
circumstances. Such capital, however, may not be available when
we need it, or only be available on terms that are unacceptable
to us. For example, the terms of our financing arrangements
could make it more difficult for us to obtain additional debt
financing in the future and to pursue business opportunities,
including potential acquisitions. If we are unable in the future
to generate sufficient cash flow from operations or borrow the
necessary capital to fund our planned capital expenditures, we
will be forced to limit our growth, operate our equipment for
longer periods of time or sell tractors or trailers in the
aftermarket where pricing is currently weak. In addition, we may
not be able to service our existing customers or to acquire new
customers. The inability to raise additional capital on
acceptable terms could have a material adverse effect on our
business, financial condition and results of operations.
We
have a History of Net Losses and may not Become Profitable in
the Future.
Since our 2006 leveraged recapitalization in which JCP
Fund IV acquired majority control of us from the then
existing shareholders, we have not generated positive net
income. As of June 30, 2010, we had an accumulated deficit
of $36.1 million and negative shareholders equity. To
generate positive net income, we will need to generate and
sustain higher revenues while maintaining or reducing expenses,
and we may incur increased capital expenditures in advance of
any corresponding increase in revenues. Because many of our
expenses are fixed in the short term, or are incurred in advance
of receipt of anticipated revenues, we may not be able to
decrease our expenses in a timely manner to offset any shortfall
of sales. We may also face other challenges due to factors
outside of our control, including the status of the overall
U.S. economy. We cannot assure you that we will generate
positive net income or sufficient free cash flow to meet our
obligations. If we do become profitable, we may not be able to
sustain or increase net income on a quarterly or an annual basis.
We
have Several Major Customers, the Loss of One or More of which
could have a Material Adverse Effect on Our
Business.
In 2009, our 25 largest customers accounted for 34.8% of our
total revenues. In addition, our customer base is heavily
weighted toward industrial, chemical, pharmaceutical,
agricultural and food companies. Economic conditions and capital
markets may adversely affect our customers and their ability to
remain solvent. Generally, we do not have contractual
relationships that guarantee any minimum volumes with our
customers, and we cannot assure you that our customer
relationships will continue as presently in effect. A reduction
in or termination of our services by one or more of our major
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customers could have a material adverse effect on our business,
financial condition and results of operations.
We may
be Unable to Successfully Consummate Acquisitions.
We may seek to acquire other
over-the-road
freight carriers as well as other complementary businesses, such
as logistics service providers or freight brokerage firms.
Exploration of potential acquisitions requires significant
attention from our senior management team. In addition, we
expect to compete for acquisition opportunities with other
companies, some of which have greater financial and other
resources than we do. We cannot assure you that we will have
sufficient cash with which to consummate an acquisition or
otherwise be able to obtain financing for any acquisition. If we
are unable to access sufficient funding for potential
acquisition, we may not be able to complete transactions that we
otherwise find advantageous.
Any subsequent acquisition will entail numerous risks, including:
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the diversion of resources from our existing business to the
acquired business;
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failure of the acquired company to achieve projected revenues,
earnings or cash flows;
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potential compliance issues with regard to the acquired company;
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potential loss of key employees and customers of the acquired
company;
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an inability to recognize projected cost savings and economies
of scale and scope; and
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risks associated with any additional debt or assumed liabilities
related to any acquisition.
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In addition, we may have difficulty in integrating any acquired
business and its operations, services and personnel into our
existing operations, and such integration may require a
significant amount of time and effort by our management team. To
the extent we do not successfully avoid or overcome the risks or
problems resulting from any acquisitions we undertake, there
could be a material adverse effect on our business, financial
condition and results of operations.
The
Transportation Industry is Affected by Numerous Factors that are
Out of Our Control.
Businesses operating in the transportation industry are affected
by numerous factors that are out of their control, including
weather conditions, both as currently experienced and as might
be experienced due to climate change, traffic conditions, road
closures and construction-related and other delays. In addition,
our operating expenses as a percentage of total revenues tend to
be highest in the winter months, primarily due to inclement
weather and the associated costs of decreased fuel economy and
transit delays. We cannot assure you that these factors and
conditions will not delay our shipments, impact our ability to
operate without disruption or otherwise have a material adverse
effect on our business, financial condition and results of
operations. In addition, many local, state and federal
transportation authorities levy tolls on tractors and trailers
for their use of highways and other roads. As the need for
improvements to these highways and other roads arise, we expect
that many of these tolls may be increased and that other
transportation authorities will levy additional tolls and fees
on tractors and trailers for use of the roadways. We cannot
assure you that we will be able to pass any portion these
expenses on to our customers, and any failure to do so could
have a material adverse effect on our business, financial
condition and results of operations.
We
have Substantial Debt and may Incur Additional Debt in the
Future, and the Agreements Governing our Debt Contain
Restrictions that could Significantly Restrict our Ability to
Operate our Business.
On a pro forma basis after giving effect to this offering and
the use of proceeds therefrom and an initial drawing of
$ million under our new
revolving credit facility, we will have total outstanding debt
of $ million. This offering
is conditioned upon the concurrent closing of the new revolving
credit
22
facility. We may incur additional debt in the future, which
would result in a greater portion of our cash flow from
operations being dedicated to the payment of principal and
interest on our indebtedness, thereby reducing the funds
available to us for other purposes. We expect that the terms of
our new revolving credit facility will contain a number of
covenants, including provisions that restrict our ability to
incur additional indebtedness, pay dividends, make restricted
payments, make acquisitions or engage in mergers or
consolidations. In addition, we expect that the terms of our new
revolving credit facility will require us to comply with
specified financial ratios and tests, including consolidated
leverage ratio and fixed charge coverage ratio requirements. The
computation of these measures may differ from GAAP financial
measures and the Adjusted EBITDA calculation used in this
prospectus and may not be readily ascertainable from our
financial statements or other financial data that we publish.
See Description of Indebtedness New Revolving
Credit Facility. Our ability to comply with the covenants
and restrictions contained in our debt instruments may be
affected by events beyond our control, including prevailing
economic, financial and industry conditions. We cannot assure
you that we will be able to comply with any covenants or
restrictions contained in our new revolving credit facility. The
breach of any of these covenants or restrictions could result in
a default and would permit the lenders to prohibit subsequent
borrowings under the facility and to declare all amounts
outstanding thereunder to be due and payable, together with
accrued and unpaid interest, and the commitments of the lenders
to make further extensions of credit under our new revolving
credit facility could be terminated. Most of our assets are
pledged as collateral and if we were unable to repay our
indebtedness to our lenders, the lenders could proceed against
the collateral securing that indebtedness.
We may
not be able to Use a Significant Portion of Our Net Operating
Loss Carry Forwards, which could Adversely Affect Our Operating
Results.
Due to losses recognized for federal and state income tax
purposes in prior periods, we have generated significant federal
and state net operating loss carry forwards, which may expire
before we are able to use them. Different states have different
carry-forward periods, and losses may expire in one state even
if the losses remain usable for federal or other state purposes.
In addition, under U.S. federal and state income tax laws,
if over a rolling three-year period, the cumulative change in
our ownership by 5% shareholders exceeds 50%, our
ability to use our net operating loss carry forwards to offset
future taxable income may be limited. Change in ownership may
include changes due to the issuance of additional shares of our
common stock or, in certain circumstances, securities
convertible into our common stock. The effect of this
transaction or future transactions on our cumulative change in
ownership may further limit our ability to use our net operating
loss carry forwards to offset future taxable income.
Furthermore, it is possible that transactions in our stock that
may not be within our control may cause us to exceed the 50%
cumulative change threshold and may impose a limitation on the
utilization of our net operating loss carry forwards in the
future. In the event the usage of our net operating loss carry
forwards is subject to limitation and we are profitable, our
operating results could be adversely affected.
We
have Incurred Net Losses and may not be Able to Grow Our
Revenues, Adjusted EBITDA or Net Income.
We have incurred net losses in each of our past four fiscal
years and our net loss for the six months ended June 30,
2010 was $10.3 million, including a $8.5 million
non-cash
charge related to a change in fair value of warrants. Our annual
net revenues have grown from $125.3 million in 2005 to
$203.1 million in 2009, which represents an average annual
growth rate of 12.9%. Over the same period, our Adjusted EBITDA
and net income have decreased from $23.8 million and
$9.7 million, respectively to $22.7 million and
$(5.1) million, respectively. In the future, we may not be
able to generate positive net income or grow our business at the
same rate as our revenue growth. If we are unable to operate our
business profitably or achieve sustained growth, we may be
unable to execute our business strategy, expand our business or
fund liquidity needs, which could have a material adverse effect
on our business, financial condition and results of operations.
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Anti-Terrorism
Measures, Future Terrorist Attacks and Acts of War could Affect
our Operations.
As a result of past terrorist attacks, federal authorities as
well as many state and municipal authorities have implemented
and are continuing to implement anti-terrorism and enhanced
security measures, including checkpoints and travel restrictions
on large trailers and fingerprinting of drivers in connection
with new hazardous materials endorsements on their licenses.
These and any future anti-terrorism measures could increase the
costs associated with our operations or otherwise reduce driver
productivity. Moreover, large trailers carrying toxic chemicals
are potential terrorist targets, and we may be obligated to take
measures, including possible capital expenditures, to protect
our tractors and trailers. For example, security measures at
bridges and tunnels may cause delays or increase the non-driving
time of our drivers. Future terrorist acts or acts of war could
result in a further increase in existing security measures to
which we are subject and have a general adverse effect on
economic activity. In addition, premiums charged for some or all
of the insurance coverage we currently maintain could increase
dramatically or such coverage could be unavailable in the future.
Our
Long-Lived Assets are Subject to Potential Asset
Impairment.
As of June 30, 2010, goodwill and other intangible assets
represented $13.3 million, or 10.4% of our total assets and
15.4% of our non-current assets, the carrying value of which may
be reduced if we determine that those assets are impaired. In
addition, net property and equipment totaled $70.4 million,
or 55.3% of our total assets, and 81.8% of our non-current
assets.
We review for potential goodwill impairment on an annual basis.
In addition, we test for the recoverability of long-lived assets
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. We conduct
impairment testing based on our current business strategy in
light of present industry and economic conditions, as well as
future expectations. If there are changes to the methods used to
allocate carrying values, if our estimates of future operating
results change or if there are changes to other significant
assumptions, the estimated carrying values and the estimated
fair value of our goodwill and long-lived assets could change
significantly and may result in impairment charges that could
have a material adverse effect on our business, financial
condition and results of operations.
There
may be Conflicts of Interest Arising out of Relationships and
Transactions Between Us and Third-Party Entities in which Harry
Muhlschlegel has Interests.
We have entered into a number of transactions with related
parties, including with entities in which Harry Muhlschlegel,
our Chief Executive Officer, have interests. For example, we
lease our corporate headquarters and primary consolidation
facility from Jenicky L.L.C., an entity managed by
Mr. Muhlschlegel and his wife, Karen Muhlschlegel, and
owned by Harry and Karen Muhlschlegel and trusts established for
the benefit of their children. We have also entered into other
transactions with related parties as described in Certain
Relationships and Related Party Transactions. These
related party transactions could cause conflicts of interest
between us and the other parties to the transaction, which could
lead to less favorable results than if the transactions had been
with unrelated parties.
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.
Under current SEC rules, beginning with our fiscal year ending
December 31, 2011, we will be required to report on our
internal control over financial reporting under Section 404
of Sarbanes-Oxley and related rules and regulations of the SEC.
We will be required to review on an annual basis our internal
control over financial reporting and on a quarterly and annual
basis to evaluate and disclose any changes in our internal
control over financial reporting. Completing documentation of
our internal control system and financial processes, remediation
of control deficiencies, and management testing of
24
internal controls will require substantial time and 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.
Risks
Relating to This Offering
The
Market Price of Our Common Stock may Fluctuate Significantly,
and you could Lose All or Part of your Investment.
The market price and liquidity of the market for shares of our
common stock may be significantly affected by numerous factors,
some of which are beyond our control and may not be directly
related to our operating performance. These factors include:
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significant volatility in the market price and trading volume of
securities of competitors, which is not necessarily related to
their operating performance, and in the stock market generally;
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our quarterly or annual earnings and those of other companies in
our industry;
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the publics reactions to our public announcements and
filings;
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additions or departures of our senior management personnel;
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sales of common stock by our directors and executive officers;
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adverse public reaction to any indebtedness we may incur or
securities we may issue in the future;
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changes in laws or regulations, or new interpretations or
applications of laws and regulations, that are applicable to our
business;
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changes in accounting standards, policies, guidance,
interpretations or principles;
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downgrades of our stock or negative research reports published
by securities or industry analysts;
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actions by shareholders; and
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changes in general conditions in the United States and global
economies or financial markets, including those resulting from
acts of God, war, incidents of terrorism or responses to such
events.
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There
is Currently no Public Market for Our Common Stock, and a Market
for Our Securities may not Develop, which would Adversely Affect
the Liquidity and Price of Our Securities.
There is currently no public market for our common stock. The
initial public offering price for our common stock will be
determined by negotiations between us and the representatives of
the underwriters and may not be indicative of prices that will
prevail in the open market following this offering. Investors,
therefore, have no access to information about prior market
history on which to base their investment decision. An active
market for our common stock may not develop following the
completion of this offering, or if it does develop, may not be
sustained. If an active trading market is not established or is
not sustained, you may have difficulty selling shares of our
common stock at a price greater than or equal to the initial
offering price, or at all.
Our
Directors, Executive Officers and Principal Shareholders will
Continue to have Substantial Control over Us after this Offering
and could Delay or Prevent a Change in Corporate
Control.
After this offering, our directors, executive officers and
current holders of more than 5% of our common stock, together
with their affiliates, will beneficially own, in the aggregate,
approximately %
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of our outstanding common stock, assuming no exercise of the
underwriters option to purchase additional securities. As
a result, these shareholders, including JCP Fund IV, acting
together, would have the ability to control the outcome of
matters submitted to our shareholders for approval, including
the election of directors and any merger, consolidation or sale
of all or substantially all of our assets. In addition, these
shareholders, acting together, would have the ability to control
the management and affairs of our company and may take actions
that you may not agree with or that are not in your interests or
those of other shareholders.
This concentration of ownership also might harm the market price
of our common stock by:
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delaying, deferring or preventing a change in corporate control;
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impeding a merger, consolidation, takeover or other business
combination involving us; or
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discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us.
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Future
Sales of our Common Stock, Including Shares Purchased in this
Offering, in the Public Market could Lower our Stock
Price.
Sales of substantial amounts of our common stock in the public
market by our existing shareholders following the completion of
this offering, upon the exercise of outstanding stock options or
by persons who acquire shares in this offering, may adversely
affect the market price of our common stock. Such sales could
also create public perception of difficulties or problems with
our business. These sales might also make it more difficult for
us to sell common stock in the future at a time and price that
we deem necessary or appropriate.
Upon the completion of this offering, we will have
outstanding shares
of common stock, of which:
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shares
are shares that we are selling in this offering and, unless
purchased by affiliates, may be resold in the public market
immediately after this offering; and
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shares
will be restricted securities, as defined in
Rule 144 under the Securities Act of 1933, as amended, or
the Securities Act, and eligible for sale in the public market
pursuant to the provisions of Rule 144, of
which shares
are subject to
lock-up
agreements and will become available for resale in the public
market beginning 180 days after the date of this prospectus.
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With limited exceptions, these
lock-up
agreements prohibit a shareholder from selling, contracting to
sell or otherwise disposing of any common stock or securities
that are convertible or exchangeable for common stock for
180 days from the date of this prospectus without the
consent of the joint book-running managers. As a result of these
lock-up
agreements, notwithstanding earlier eligibility for sale under
the provisions of Rule 144, none of these shares may be
sold until at least 180 days after the date of this
prospectus. The joint book-running managers have advised us that
they have no present intent or arrangement to release any shares
subject to these
lock-up
arrangements. Upon a request to release any shares subject to a
lock-up, the
joint book-running managers would consider the particular
circumstances surrounding the request, including the length of
time before the
lock-up
expires, the number of shares requested to be released, reasons
for the request, the possible impact on the market or our common
stock and whether the holder of our shares requesting the
release is an officer, director or other affiliate of ours. As
restrictions on resale end, whether by release of shares subject
to lock-up
agreement or otherwise, our stock price could drop significantly
if the holders of these restricted securities sell them or are
perceived by the market as intending to sell them. These sales
might also make it more difficult for us to sell securities in
the future at a time and at a price that we deem appropriate.
26
You
will Suffer Immediate and Substantial Dilution.
The initial public offering price per share is substantially
higher than the pro forma net tangible book value per share
immediately after the offering. As a result, you will pay a
price per share that substantially exceeds the tangible book
value of our assets after subtracting our liabilities. Assuming
an offering price of $ per share,
the midpoint of the range set forth on the cover page of this
prospectus, you will incur immediate and substantial dilution in
the amount of $ per share. See
Dilution. Any future equity issuances will result in
even further dilution to holders of our common stock unless
offered at a premium to our pro forma net tangible book value at
the time of such offering.
If
Securities Analysts or Industry Analysts Downgrade our Stock,
Publish Negative Research or Reports, or do not Publish Reports
About our Business, our Stock Price and Trading Volume could
Decline.
We expect that investors in our common stock will be influenced
by the research and reports that industry or securities analysts
publish about us, our business and our market. If one or more
analysts adversely change their recommendation regarding an
investment in our common stock or that of one of our
competitors, trading prices for our common stock could decline.
In addition, if one or more analysts cease coverage of us or
fail to regularly publish reports on us, we could lose
visibility in the financial markets, which in turn could cause
the trading prices of our common stock or trading volume to
decline.
Certain
Provisions of New Jersey Law and our Restated Certificate of
Incorporation and Amended and Restated Bylaws that will be in
Effect after this Offering may Deter Takeover Attempts, which
may Limit the Opportunity of our Shareholders to Sell their
Shares at a Favorable Price, and may Make it More Difficult for
our Shareholders to Remove our Board of Directors and
Management.
Provisions in our restated certificate of incorporation and
amended and restated bylaws, as they will be in effect upon the
closing of this offering, may have the effect of delaying or
preventing a change of control or changes in our management.
These provisions include the following:
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prohibition on shareholder action through written consents;
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a requirement that special meetings of shareholders be called
only by our board of directors;
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advance notice requirements for shareholder proposals and
nominations;
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availability of blank check preferred stock;
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establishment of a classified board of directors;
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the right of the board of directors to elect a director to fill
a vacancy created by the expansion of the board of directors or
due to the resignation or departure of an existing board member;
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the prohibition of cumulative voting in the election of
directors, which would otherwise allow less than a majority of
shareholders to elect director candidates;
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the ability of our board of directors to alter our bylaws
without obtaining shareholder approval;
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limitations on the removal of directors; and
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the required approval of at least
662/3%
of the shares entitled to vote at an election of directors to
adopt, amend or repeal our bylaws or repeal the provisions of
our amended and restated certificate of incorporation regarding
the election and removal of directors and the inability of
shareholders to take action by written consent in lieu of a
meeting.
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In addition, because we are incorporated in New Jersey, we are
governed by certain provisions of the New Jersey Business
Corporation Act that may make it more difficult and expensive
for a third party to acquire control of us even if a change of
control would be beneficial to the interests of our
shareholders. Provisions in our restated certificate of
incorporation and amended and restated bylaws and New Jersey law
could discourage potential takeover attempts, could reduce the
price that investors are willing to pay for shares of our common
stock in the future and could potentially result in the market
price being lower than they would without these provisions.
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No shares of preferred stock will be outstanding upon the
completion of this offering. Our restated certificate of
incorporation authorizes the board of directors to issue up
to shares
of preferred stock. The preferred stock may be issued in one or
more series, the terms of which will be determined at the time
of issuance by our board of directors without further action by
the shareholders. These terms may include voting rights,
including the right to vote as a series on particular matters,
preferences as to dividends and liquidation, conversion rights,
redemption rights and sinking fund provisions. The issuance of
any preferred stock could diminish the rights of holders of our
common stock and, therefore, could reduce the value of our
common stock. In addition, specific rights granted to future
holders of preferred stock could be used to restrict our ability
to merge with, or sell assets to, a third party. The ability of
our board of directors to issue preferred stock and the
foregoing anti-takeover provisions may prevent or frustrate
attempts by a third party to acquire control of our company,
even if some of our shareholders consider such change of control
to be beneficial. See Description of Capital Stock.
We do
not Expect to Pay any Dividends for the Foreseeable Future, and
Investors in this Offering Therefore may be Forced to Sell their
Stock in Order to Obtain a Return on their
Investment.
We do not anticipate that we will pay any dividends to holders
of our common stock for the foreseeable future. Any payment of
dividends will be at the discretion of our board of directors
and will depend on our financial condition, capital
requirements, legal requirements, earnings and other factors.
Our existing credit facilities limit, and we expect that the
terms of any indebtedness we incur to refinance our existing
indebtedness will limit, our ability to pay dividends. We plan
to use net income for the purpose of investing in the growth of
our business. Consequently, you should not rely on dividends in
order to receive a return on your investment. See Dividend
Policy.
We may
Become Involved in Securities Class Action Litigation that could
Divert Managements Attention and Harm our
Business.
In recent years, the stock markets have experienced significant
price and volume fluctuations that have affected market prices.
These broad market fluctuations have impacted the market price
of securities issued by many companies and, in the future, may
cause the market price of our common stock to fluctuate. In the
past, following periods of market volatility in the price of a
companys securities, shareholders have often brought
securities class action litigation against such company. We may
become involved in this type of litigation in the future.
Litigation often is expensive and diverts managements
attention and resources, which could have a material adverse
effect on our business.
We
will Incur Significant Costs as a Result of Being a Public
Company.
As a public company, we expect to incur legal, accounting and
other administrative expenses of at least $1.0 million in
2011, including costs associated with the periodic reporting
requirements applicable to a company whose securities are
registered under the Exchange Act, that we did not incur as a
private company. In addition, the Sarbanes-Oxley Act of 2002, or
Sarbanes-Oxley, as well as rules of the Securities and Exchange
Commission, or SEC, and The Nasdaq Stock Market, impose
significant corporate governance practices on public companies.
We expect these rules and regulations to increase our legal and
financial compliance costs. We also expect these rules and
regulations to make it more difficult and more expensive for us
to obtain director and officer liability insurance, and we may
be required to incur substantially higher costs to obtain the
same or similar coverage.
We do
not Expect any of the Proceeds from this Offering will be
Available to us in the Operation of our Business.
We intend to use the net proceeds from this offering and an
initial drawing under our new revolving credit facility to repay
all of our existing indebtedness. Accordingly, we do not expect
any of the proceeds of this offering will be available to us for
acquisitions, capital expenditures, working capital or other
general corporate purposes.
28
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements. These
statements relate to future events or our future financial
performance. We have attempted to identify forward-looking
statements by terminology including anticipate,
believe, can, continue,
could, estimate, expect,
intend, may, plan,
potential, predict, should
or will or the negative of these terms or other
comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties, and other
factors, including those discussed under Risk
Factors. The following factors, among others, could cause
our actual results and performance to differ materially from the
results and performance projected in, or implied by, the
forward-looking statements:
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|
|
the impact of general economic conditions and any prolonged
delay in the economic recovery;
|
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|
|
the competitive nature of the transportation industry;
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|
|
fluctuations in the levels of capacity in the freight industry;
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|
|
competition for, and attraction and retention of, qualified
drivers;
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|
|
|
our ability to retain our executive officers and other key
employees;
|
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|
|
the effects of current and future governmental and environmental
regulations, particularly those relating to exhaust and
greenhouse gas emissions;
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|
|
our ability to offer the level and type of services that we
currently provide to our customers;
|
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|
|
our ability to retain customers and expand our customer base;
|
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|
seasonal fluctuations in our business;
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|
our ability to grow our business;
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|
prices of diesel fuel;
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|
prices for and availability of transportation equipment;
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|
|
our ability to operate our Philadelphia metropolitan area
consolidation operations;
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|
|
availability of purchased transportation;
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|
the effects of claims related to accidents, cargo loss and
damage, property damage, personal injury, workers
compensation and general liability;
|
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|
|
|
our ability to make interest and principal payments on our
existing debt obligations and satisfy the other covenants
contained in our existing credit facility, our new revolving
credit facility or any other indebtedness we incur to refinance
our existing indebtedness and other debt agreements;
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|
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our ability to enter into our new revolving credit facility;
|
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|
|
general economic, political and other risks that are out of our
control;
|
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|
|
concentration of ownership among our existing executives,
directors and principal shareholders;
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|
|
the costs associated with being a public company and our ability
to comply with the internal controls and financial reporting
obligations of the SEC and Sarbanes-Oxley; and
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|
other factors discussed under the headings Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Results of Operations, and
Business.
|
Although we believe that the expectations reflected in the
forward-looking statements are reasonable based on our current
knowledge of our business and operations, we cannot guarantee
future results, levels of activity, performance or achievements.
You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.
We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be
required under applicable securities laws.
29
USE OF
PROCEEDS
Assuming an offering price of $
per share (the midpoint of the range set forth on the cover page
of this prospectus), we estimate that we will receive net
proceeds from the sale of shares of our common stock in this
offering of $ million, after
deducting underwriting discounts and commissions and estimated
fees and expenses payable by us. A $1.00 increase (decrease) in
the assumed initial public offering price of
$ per share would increase
(decrease) the net proceeds to us from this offering by
$ million, assuming the
number of shares offered by us, as set forth on the cover of
this prospectus, remains the same and after deducting
underwriting discounts and commissions and estimated expenses
payable by us.
We intend to use the net proceeds of this offering and an
initial drawing of $ million
under our new revolving credit facility to:
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repay $ million of
outstanding indebtedness under the term loan portion of our
existing credit facility, which bears interest at a rate of
LIBOR plus 7.0%, and accrued but unpaid interest thereunder,
following which such facility will be terminated. Our existing
revolving credit facility expires in August 2011, and our
existing term debt is due August 2012;
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repay $ million aggregate
principal amount of and accrued but unpaid interest under our
9% subordinated notes due 2012, which notes are held by
certain of our shareholders;
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repay $ million aggregate
principal amount of and accrued but unpaid interest under our
14% convertible subordinated notes due 2013; and
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|
repay $ million aggregate
principal amount of and accrued but unpaid interest under our
7.5% senior subordinated notes due 2014, which notes are
held by JCP Fund IV. The proceeds from the issuance of
these notes in November 2009 were used to pay down indebtedness
under our existing credit facility. See Description of
Indebtedness.
|
Due to covenants in our existing credit facility and certain
provisions of our 9% subordinated notes due 2012 and our 7.5%
senior subordinated notes due 2013 that will be triggered by
this offering, we will first repay amounts under our existing
credit facility, then repay amounts under our 9% subordinated
notes due 2012 and our 7.5% senior subordinated notes due 2013.
The remaining proceeds will be used to repay amounts under our
14% convertible subordinated notes due 2013. In the event any of
our 14% convertible subordinated notes due 2013 are converted to
common stock prior to the consummation of the offering, the
amount of the initial drawing under our new revolving credit
facility will be reduced.
An affiliate of Wells Fargo Securities, LLC, one of the joint
book-running managers of this offering, is a lender under our
existing credit facility and will receive a portion of the
proceeds from this offering. See Conflicts of
Interest. This offering is conditioned upon the concurrent
closing of the new revolving credit facility.
We will not receive any proceeds from the sale of shares by the
selling shareholders, which include JCP Fund IV and certain
of our executive officers, as part of the underwriters
over-allotment option but will pay all fees and expenses of the
selling shareholders associated with this sale, other than
underwriting discounts and commissions.
30
DIVIDEND
POLICY
We currently intend to retain any future earnings to fund the
operation, development and expansion of our business, and
therefore we do not anticipate paying any dividends in the
foreseeable future. Any payment of dividends on our common stock
in the future will be at the discretion of our board of
directors and will depend upon our results of operations,
earnings, capital requirements, financial condition, future
prospects, contractual restrictions and other factors deemed
relevant by our board of directors. In addition, our ability to
declare and pay dividends is restricted by covenants in our
existing credit facility, and we expect to be subject to similar
restrictions under our new revolving credit facility.
31
CAPITALIZATION
The following table sets forth our total capitalization as of
June 30, 2010:
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on an actual basis;
|
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|
on a pro forma basis to give effect to the issuance
of shares
(assuming an initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus) to be
issued concurrently with this offering upon exercise
of
warrants held by JCP Fund IV on a cashless basis; and
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|
|
on a pro forma as adjusted basis to give further effect to:
(1) the issuance
of shares
of common stock in this offering (assuming an initial public
offering price of $ per share, the
midpoint of the range set forth on the cover page of this
prospectus) and (2) application of the net proceeds of this
offering and an initial drawing under our new revolving credit
facility as described under Use of Proceeds.
|
You should read this information in conjunction with Use
of Proceeds, Selected Historical Consolidated
Financial Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes
included elsewhere in this prospectus.
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|
|
|
As of June 30, 2010
|
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|
|
|
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|
Pro
|
|
|
|
|
|
|
Pro
|
|
|
Forma
|
|
|
|
Actual
|
|
|
Forma
|
|
|
As Adjusted(1)
|
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|
|
(unaudited)
|
|
|
|
(in thousands, except share and per share data)
|
|
|
Existing senior secured credit facility
|
|
$
|
101,687
|
|
|
$
|
101,687
|
|
|
$
|
|
|
New revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5% senior subordinated notes
|
|
|
9,960
|
|
|
|
9,960
|
|
|
|
|
|
9% subordinated notes
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
|
|
14% convertible subordinated notes
|
|
|
3,407
|
|
|
|
3,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
116,754
|
|
|
|
116,754
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|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
9,032
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|
|
|
|
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|
|
|
|
|
|
|
|
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|
Shareholders equity
|
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|
|
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|
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|
Capital stock
|
|
|
|
|
|
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|
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|
Preferred stock, 0 shares authorized, issued and
outstanding, actual and pro forma; and 0 shares, par value
$ , authorized and 0 shares
issued and outstanding, pro forma as adjusted
|
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|
|
|
|
|
|
|
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|
|
Common stock, $0.01 par
value, shares
authorized, shares
issued and outstanding,
actual; shares
authorized, issued and outstanding, pro forma;
and shares
authorized, shares
issued and outstanding, pro forma as adjusted
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Additional paid-in capital
|
|
|
2,535
|
|
|
|
11,567
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(176
|
)
|
|
|
(176
|
)
|
|
|
|
|
Accumulated deficit
|
|
|
(36,091
|
)
|
|
|
(36,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit)
|
|
|
(33,731
|
)
|
|
|
(24,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
92,055
|
|
|
$
|
92,055
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share,
which is the midpoint of the range set forth on the cover page
of this prospectus, would increase (decrease) each of total
shareholders equity and total capitalization by
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us. |
32
DILUTION
Purchasers of shares of our common stock in this offering will
experience immediate and substantial dilution in the net
tangible book value of the common stock from the initial public
offering price. Net tangible book value per share represents the
amount of our total tangible assets less our total liabilities,
divided by the number of shares of our common stock outstanding.
Dilution in net tangible book value per share represents the
difference between the amount per share that you pay in this
offering and the net tangible book value per share immediately
after this offering. As of June 30, 2010, we had negative
net tangible book value of $47.0 million, or
$ per share.
After giving effect to the issuance
of shares (assuming an
initial public offering price of $
per share, the midpoint of the range set forth on the cover page
of this prospectus) to be issued concurrently with this offering
upon exercise of warrants held by
JCP Fund IV on a cashless basis, our pro forma net
tangible book value as of June 30, 2010 would have been
$ , or
$ per share of common stock.
After giving effect to the sale
of shares
of our common stock in this offering at an initial public
offering price of $ per share, and
after the deduction of estimated underwriting discounts and
commissions and estimated fees and expenses payable by us, our
pro forma as adjusted net tangible book value at June 30,
2010 would have been approximately
$ million, or
$ per share. This represents an
immediate increase in net tangible book value of
$ per share to existing
shareholders and an immediate and substantial dilution of
$ per share to new investors. The
following table illustrates this per share dilution:
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|
|
Per Share
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
Actual net tangible book value per share as of June 30, 2010
|
|
$
|
|
|
|
|
|
|
Increase in net tangible book value per share attributable to
cashless exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share as of June 30,
2010
|
|
|
|
|
|
|
|
|
Increase per share attributable to new investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
this offering as of June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share
would increase (decrease) our pro forma as adjusted net tangible
book value by $ million, the
pro forma as adjusted net tangible book value per share after
this offering by $ per share, and
the dilution per share to new investors by
$ per share, assuming the number
of shares offered by us, as set forth on the cover page of this
prospectus, remains the same and after deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us.
The following table summarizes on the pro forma basis described
above, as of June 30, 2010, the total number of shares of
common stock purchased from us and the total consideration and
the average price per share paid by existing holders and by
investors participating in this offering. The calculation below
is based on the assumed initial public offering price of
$ per share, which is the midpoint
of the range set forth on the cover page of this prospectus,
before deducting estimated underwriting discounts and
commissions and estimated fees and expenses payable by us.
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|
|
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|
|
|
|
|
|
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|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
Per Share
|
|
|
Existing shareholders
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Each $1.00 increase (decrease) in the assumed offering price of
$ per share would increase
(decrease) total consideration paid by new investors and total
consideration paid by all shareholders by
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and before deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us.
If the underwriters exercise in full their option to purchase
additional securities, the number of shares of common stock held
by existing shareholders will be reduced
to ,
or % of the aggregate number of
shares of common stock outstanding after this offering, the
number of shares of common stock held by new investors will be
increased
to ,
or % of the aggregate number of
shares of common stock outstanding after this offering.
The pro forma dilution information above is for illustration
purposes only. Our net tangible book value following the
completion of this offering is subject to adjustment based on
the actual initial public offering price of our shares and other
terms of this offering determined at pricing. The number of
shares of our common stock outstanding after the offering as
shown above is based on the number of shares outstanding as of
June 30, 2010. As of June 30, 2010, there were options
outstanding to
purchase shares
of our common stock, with exercise prices ranging from
$ to
$ per share and a weighted average
exercise price of $ per share,
warrants to
purchase shares
of our common stock at an exercise price of
$ per share and $2.5 million
of subordinated notes convertible into an aggregate
of shares
of our common stock. The tables and calculations above assume
that the warrants have been exercised on a cashless basis and
that the convertible notes are repaid with a portion of the
proceeds of this offering and an initial drawing under our new
revolving credit facility. JCP Fund IV has confirmed to us
that it intends to exercise its warrants on a cashless basis in
connection with this offering. Under the terms of the warrants,
we will deliver to JCP Fund IV a number of shares equal to
the number of shares issuable upon exercise of the warrants less
a number of shares equal to the quotient of the aggregate
exercise price of the warrants by the initial public offering
price. In addition, if we grant options, warrants, preferred
stock, or other convertible securities or rights to purchase our
common stock in the future with exercise prices below the
initial public offering price, new investors will incur
additional dilution upon exercise of such securities or rights.
34
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth, for the periods and dates
indicated, our selected historical consolidated financial data.
All of these materials are contained elsewhere in this
prospectus. The data as of and for the years ended
December 31, 2005, 2006, 2007, 2008 and 2009 have been
derived from consolidated financial statements audited by KPMG
LLP, an independent registered public accounting firm. The
selected historical consolidated financial data as of
December 31, 2008 and 2009, and for the three years ended
December 31, 2009, have been derived from our consolidated
financial information included elsewhere in this prospectus. We
derived the historical financial data as of and for the
six months ended June 30, 2009 and 2010 from our
unaudited interim consolidated financial statements, which are
included elsewhere in this prospectus. The selected historical
and other financial data presented below represent portions of
our financial statements and are not complete. Our historical
results are not necessarily indicative of the results that
should be expected in the future and our interim results are not
necessarily indicative of the results that should be expected
for the full fiscal year. You should read this information in
conjunction with Use of Proceeds,
Capitalization and Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
related notes included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
2005
|
|
|
2006(1)
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands, except share, per share and other data)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues(2)
|
|
$
|
125,252
|
|
|
$
|
149,629
|
|
|
$
|
205,585
|
|
|
$
|
228,966
|
|
|
$
|
203,127
|
|
|
$
|
99,741
|
|
|
$
|
107,955
|
|
Fuel surcharge(3)
|
|
|
15,225
|
|
|
|
22,906
|
|
|
|
33,425
|
|
|
|
59,683
|
|
|
|
26,186
|
|
|
|
10,937
|
|
|
|
18,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
140,477
|
|
|
|
172,535
|
|
|
|
239,010
|
|
|
|
288,649
|
|
|
|
229,313
|
|
|
|
110,678
|
|
|
|
126,172
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
67,986
|
|
|
|
97,443
|
|
|
|
112,526
|
|
|
|
130,837
|
|
|
|
114,119
|
|
|
|
57,353
|
|
|
|
58,695
|
|
Supplies and other expenses
|
|
|
36,333
|
|
|
|
48,070
|
|
|
|
70,636
|
|
|
|
95,264
|
|
|
|
62,168
|
|
|
|
28,492
|
|
|
|
37,315
|
|
Purchased transportation
|
|
|
5,650
|
|
|
|
7,514
|
|
|
|
12,431
|
|
|
|
9,037
|
|
|
|
14,236
|
|
|
|
6,829
|
|
|
|
8,708
|
|
Depreciation and amortization
|
|
|
10,307
|
|
|
|
13,948
|
|
|
|
21,088
|
|
|
|
22,411
|
|
|
|
20,875
|
|
|
|
10,710
|
|
|
|
10,076
|
|
Operating taxes and licenses
|
|
|
6,644
|
|
|
|
8,179
|
|
|
|
11,424
|
|
|
|
12,731
|
|
|
|
10,944
|
|
|
|
5,301
|
|
|
|
5,225
|
|
Insurance and claims
|
|
|
4,058
|
|
|
|
4,623
|
|
|
|
6,302
|
|
|
|
6,460
|
|
|
|
5,029
|
|
|
|
2,399
|
|
|
|
2,192
|
|
Loss/(gain) on disposal of property and equipment
|
|
|
(4,025
|
)
|
|
|
(2,335
|
)
|
|
|
(313
|
)
|
|
|
202
|
|
|
|
133
|
|
|
|
(27
|
)
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
13,525
|
|
|
|
(4,907
|
)
|
|
|
4,916
|
|
|
|
11,707
|
|
|
|
1,809
|
|
|
|
(379
|
)
|
|
|
3,616
|
|
Interest expense, net
|
|
|
3,196
|
|
|
|
7,631
|
|
|
|
12,547
|
|
|
|
13,535
|
|
|
|
9,631
|
|
|
|
4,590
|
|
|
|
6,104
|
|
Change in fair value of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
|
10,352
|
|
|
|
(12,538
|
)
|
|
|
(7,631
|
)
|
|
|
(1,828
|
)
|
|
|
(7,822
|
)
|
|
|
(4,969
|
)
|
|
|
(10,940
|
)
|
Income taxes/(benefit)
|
|
|
607
|
|
|
|
12,984
|
|
|
|
(2,729
|
)
|
|
|
(630
|
)
|
|
|
(2,685
|
)
|
|
|
(1,748
|
)
|
|
|
(679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)(4)
|
|
$
|
9,745
|
|
|
$
|
(25,522
|
)
|
|
$
|
(4,902
|
)
|
|
$
|
(1,198
|
)
|
|
$
|
(5,137
|
)
|
|
$
|
(3,221
|
)
|
|
$
|
(10,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share available to common shareholders(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Diluted
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Pro forma diluted earnings per share (as adjusted)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shipments(6)
|
|
|
|
|
|
|
|
|
|
|
447,926
|
|
|
|
474,421
|
|
|
|
493,186
|
|
|
|
239,025
|
|
|
|
265,796
|
|
Net revenue per shipment
|
|
|
|
|
|
|
|
|
|
$
|
459
|
|
|
$
|
483
|
|
|
$
|
412
|
|
|
$
|
417
|
|
|
$
|
406
|
|
Total miles
|
|
|
|
|
|
|
|
|
|
|
100,342,554
|
|
|
|
110,943,067
|
|
|
|
89,506,703
|
|
|
|
44,038,375
|
|
|
|
46,840,750
|
|
Empty miles (linehaul)(7)
|
|
|
|
|
|
|
|
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.4
|
%
|
Average operating tractors(8)
|
|
|
|
|
|
|
|
|
|
|
843
|
|
|
|
935
|
|
|
|
829
|
|
|
|
829
|
|
|
|
813
|
|
Net revenue per operating tractor per day(8)
|
|
|
|
|
|
|
|
|
|
$
|
964
|
|
|
$
|
964
|
|
|
$
|
968
|
|
|
$
|
955
|
|
|
$
|
1,054
|
|
Miles per operating tractor per day(8)
|
|
|
|
|
|
|
|
|
|
|
470
|
|
|
|
467
|
|
|
|
427
|
|
|
|
422
|
|
|
|
457
|
|
Operating ratio(9)
|
|
|
90.4
|
%
|
|
|
102.8
|
%
|
|
|
97.9
|
%
|
|
|
95.9
|
%
|
|
|
99.2
|
%
|
|
|
100.3
|
%
|
|
|
97.1
|
%
|
Adjusted EBITDA (in thousands)(10)
|
|
$
|
23,832
|
|
|
$
|
26,658
|
|
|
$
|
26,004
|
|
|
$
|
34,118
|
|
|
$
|
22,684
|
|
|
$
|
10,331
|
|
|
$
|
13,692
|
|
Capital expenditures (in thousands), net of sales
|
|
$
|
32,979
|
|
|
$
|
32,783
|
|
|
$
|
17,097
|
|
|
$
|
1,355
|
|
|
$
|
1,405
|
|
|
$
|
268
|
|
|
$
|
4,149
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
|
2005
|
|
|
2006(1)
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands, except share, per share and other data)
|
|
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
303
|
|
|
$
|
4,900
|
|
|
$
|
49
|
|
|
$
|
3,395
|
|
|
$
|
2,412
|
|
|
$
|
1,957
|
|
|
$
|
4,983
|
|
Working capital
|
|
|
(1,057
|
)
|
|
|
15,115
|
|
|
|
12,092
|
|
|
|
18,996
|
|
|
|
12,519
|
|
|
|
12,782
|
|
|
|
14,709
|
|
Property and equipment, net
|
|
|
67,900
|
|
|
|
99,742
|
|
|
|
115,631
|
|
|
|
94,966
|
|
|
|
76,059
|
|
|
|
84,842
|
|
|
|
70,394
|
|
Total assets
|
|
|
87,381
|
|
|
|
137,486
|
|
|
|
167,639
|
|
|
|
146,210
|
|
|
|
125,148
|
|
|
|
132,098
|
|
|
|
127,300
|
|
Total debt
|
|
|
62,701
|
|
|
|
125,000
|
|
|
|
148,204
|
|
|
|
135,449
|
|
|
|
118,067
|
|
|
|
123,037
|
|
|
|
116,754
|
|
Shareholders equity/(deficit)
|
|
|
15,506
|
|
|
|
(12,668
|
)
|
|
|
(17,572
|
)
|
|
|
(19,035
|
)
|
|
|
(23,930
|
)
|
|
|
(22,278
|
)
|
|
|
(33,731
|
)
|
|
|
|
(1)
|
|
Results of operations include
expenses associated with our June 2006 leveraged
recapitalization transaction. During the leveraged
recapitalization transaction, we repurchased and retired
3,841 shares of Class B common stock for
$3.6 million. In connection with the transaction, we were
required to change our federal tax status to a C corporation
from an S corporation. As a result of the transaction, we
recorded a $28.6 million charge against current year
operating results. This was primarily comprised of a
$15.3 million expense to record the immediate vesting and
payout of certain outstanding stock options, offset by
$6.1 million of favorable tax effect of this expense, a
charge against earnings of $17.1 million to record the tax
effect of changing from an S corporation to a C corporation for
federal tax purposes, primarily representing the recognition of
deferred federal income tax liability, and other fees and
expenses necessary to finance the transaction.
|
|
(2)
|
|
We define net revenues to be total
revenues less fuel surcharges.
|
|
(3)
|
|
At the time of our acquisition of
Western Freightways in December 2006, the accounting systems of
Western Freightways did not permit for the recording of fuel
surcharges. We upgraded their systems in February 2007.
Accordingly, 2006 and 2007 fuel surcharges exclude surcharges
imposed by Western Freightways from the date of acquisition to
February 2007. Fuel surcharges imposed by Western Freightways
during this period are included in net revenues.
|
|
(4)
|
|
We were taxed under the Code as a
subchapter S corporation until June 23, 2006. Under
subchapter S, we did not pay corporate income taxes on our
taxable income. Instead, our shareholders were liable for
federal and state income taxes on our taxable income. For
comparison purposes, a pro forma income tax provision for
corporate income taxes has been calculated as if we had been
taxed as a subchapter C corporation for 2005 and January 1,
2006 through June 22, 2006. The following is a summary of
the pro forma net income (loss) used in calculating the 2005 and
2006 earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
Historical income/(loss) before taxes
|
|
$
|
10,352
|
|
|
$
|
(12,538
|
)
|
Pro forma income tax provision/(benefit)
|
|
|
3,662
|
|
|
|
(4,388
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income/(loss)
|
|
$
|
6,690
|
|
|
$
|
(8,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
Pro forma diluted earnings per
share (as adjusted) is computed by dividing net income, adjusted
for the elimination of approximately
$ million in interest expense
and the related tax benefit of approximately
$ million, assuming the
retirement of approximately
$ million of our outstanding
debt and accrued but unpaid interest thereunder and the
incurrence of approximately $ of
debt under our new revolving credit facility, by the pro forma
number of weighted average shares outstanding used in the
calculation of diluted earnings per share, assuming the issuance
of
shares (assuming an initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus) to be
issued concurrently with this offering upon exercise
of
warrants held by JCP Fund IV on a cashless basis and the
issuance
of shares
of common stock in this offering (assuming an initial public
offering price of $ per share, the
midpoint of the range set forth on the cover page of this
prospectus).
|
|
(6)
|
|
Number of shipments is equal to the
number of freight bills invoiced to our customers.
|
|
(7)
|
|
We compute empty miles (linehaul)
percentage by dividing the number of empty miles traveled by our
linehaul tractors by the total number of miles traveled by our
linehaul tractors.
|
|
|
|
(8)
|
|
We define operating tractors to be
all tractors with current registrations and assigned drivers
that are available for the transport of freight for our
customers. We compute the number of operating tractors based on
the average number of tractors in operation as of the end of
each week during the period. Prior to February 16, 2007, we
did not track the number of operating tractors, and the number
of operating tractors in 2007 is based on the average number of
tractors in operation as of the end of each week beginning
February 17, 2007. Net revenue per operating tractor per
day and miles per operating tractor per day are computed on the
basis of a
five-day
work week, excluding holidays. As of December 31, 2009 and
June 30, 2010 we had 155 and 178 tractors,
respectively designated as non-operating.
|
|
|
|
(9)
|
|
We compute our operating ratio by
dividing total operating expenses by total revenues.
|
|
|
|
(10)
|
|
Adjusted EBITDA represents earnings
before interest, income taxes, depreciation and amortization and
change in the fair value of warrants. Adjusted EBITDA and
Adjusted EBITDA margin, which is computed by dividing Adjusted
EBITDA by total
|
36
|
|
|
|
|
revenues, are non-GAAP financial
measures that we use to evaluate financial performance and to
determine resource allocation. We believe Adjusted EBITDA and
Adjusted EBITDA margin present a view of our operating results
that is important to prospective investors because it is
commonly used as an analytical indicator of performance within
the transportation services industry. By excluding interest,
income taxes, depreciation and amortization and change in the
fair value of warrants, we are able to evaluate performance
without considering decisions that, in most cases, are not
directly related to meeting our customers transportation
requirements and were either made in prior periods or are
related to the structure or financing of our business. These
excluded items are significant components in understanding and
assessing financial performance. Adjusted EBITDA and Adjusted
EBITDA margin should not be considered in isolation or as an
alternative to, or substitute for, net income, cash flows
generated by operations, investing or financing activities, or
other financial statement data presented in the consolidated
financial statements as indicators of financial performance or
liquidity. Adjusted EBITDA and Adjusted EBITDA margin should be
considered in addition to, but not as a substitute for, other
measures of financial performance reported in accordance with
GAAP.
|
|
|
|
|
|
The following table provides a
reconciliation of net income to Adjusted EBITDA as well as the
resulting calculation of Adjusted EBITDA margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
Net income/(loss)
|
|
$
|
9,745
|
|
|
$
|
(25,522
|
)
|
|
$
|
(4,902
|
)
|
|
$
|
(1,198
|
)
|
|
$
|
(5,137
|
)
|
|
$
|
(3,221
|
)
|
|
$
|
(10,261
|
)
|
Interest expense (net)
|
|
|
3,173
|
|
|
|
7,631
|
|
|
|
12,547
|
|
|
|
13,535
|
|
|
|
9,631
|
|
|
|
4,590
|
|
|
|
6,104
|
|
Income taxes/(benefit)
|
|
|
607
|
|
|
|
12,984
|
|
|
|
(2,729
|
)
|
|
|
(630
|
)
|
|
|
(2,685
|
)
|
|
|
(1,748
|
)
|
|
|
(679
|
)
|
Depreciation and amortization
|
|
|
10,307
|
|
|
|
13,948
|
|
|
|
21,088
|
|
|
|
22,411
|
|
|
|
20,875
|
|
|
|
10,710
|
|
|
|
10,076
|
|
Change in fair value of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,452
|
|
Leveraged recapitalization expenses(11)
|
|
|
|
|
|
|
17,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
23,832
|
|
|
$
|
26,658
|
|
|
$
|
26,004
|
|
|
$
|
34,118
|
|
|
$
|
22,684
|
|
|
$
|
10,331
|
|
|
$
|
13,692
|
|
Adjusted EBITDA margin(12)
|
|
|
17.0
|
%
|
|
|
15.5
|
%
|
|
|
10.9
|
%
|
|
|
11.8
|
%
|
|
|
9.9
|
%
|
|
|
9.3
|
%
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11)
|
|
Leveraged recapitalization expenses
include $15.3 million of expense to record the immediate
vesting and payout of certain outstanding stock options and
$2.3 million of professional fees and other expenses.
|
|
|
|
(12)
|
|
We compute our Adjusted EBITDA
margin by dividing Adjusted EBITDA by total revenues.
|
37
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the Selected Historical Consolidated Financial Data,
and our consolidated financial statements and the related notes
included elsewhere in this prospectus. The following discussion
contains, in addition to historical information, forward-looking
statements that include risks and uncertainties. Our actual
results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including those set forth under the heading Risk
Factors and elsewhere in this prospectus.
Overview
We are a growth-oriented motor carrier using a differentiated
Load-to-Deliver
operating model that we believe combines the higher revenue per
tractor characteristics of an LTL carrier with the operating
flexibility and lower fixed costs of a service-sensitive
truckload carrier. We offer a full range of
over-the-road
transportation solutions to our customers, including customized,
expedited, time-definite, dedicated and specialized LTL and
truckload services. Our specialized services include the
transportation of temperature-controlled and Hazmat freight. We
believe our
Load-to-Deliver
operating model provides our customers with a breadth of
transportation solutions that fits their time, service and price
points and gives us a competitive advantage in sourcing freight.
Specifically, we believe the flexibility of our
Load-to-Deliver
operating model allows us to accommodate a broad range of
shipment sizes and freight for both regional and national
accounts while providing shippers faster and more predictable
transit times with reduced freight damage. As of June 30,
2010, our fleet consisted of 983 owned tractors and 2,114 owned
or leased trailers, including 886 temperature-controlled
trailers. Since 2002, we have grown total revenues at a compound
annual growth rate of 21.7%. Over the same period our net income
decreased from approximately $62,000 in 2002 to a net loss of
$5.1 million in 2009. During the fiscal year ended
December 31, 2009, we generated total revenues of
$229.3 million, Adjusted EBITDA of $22.7 million and
net loss of $5.1 million. For the six months ended
June 30, 2010, we generated total revenues of $126.2
million, Adjusted EBITDA of $13.7 million and net loss of $10.3
million, which includes a $8.5 million
non-cash
charge related to a change in the fair value of warrants.
We serve shippers throughout the continental United States and
parts of Canada but focus primarily on the estimated
$3.2 billion market for LTL freight originating in the
Northeast and the estimated $8.4 billion market of inbound
truckload freight back into the region, according to
SJ Consulting Group, Inc. LTL services involve the
consolidation and transport of freight from numerous shippers to
multiple destinations on one vehicle and thus garner higher net
revenue per tractor than truckload shipments. Truckload services
involve the transport of a single shippers freight to a
single destination. We manage our operations on a round-trip
basis to maximize revenue per operating tractor by pursuing
headhaul freight lanes for both our outbound and inbound trips.
For the outbound portion of our round-trip, we generally deploy
our local pickup fleet to gather LTL shipments throughout the
Northeast that we build into linehaul loads at our Philadelphia
metropolitan area LTL consolidation operations for delivery
directly to recipients without rehandling. The cornerstone of
our
Load-to-Deliver
operating model consists of delivering LTL shipments directly
from a linehaul trailer to the recipient, eliminating the need
for a network of costly and labor-intensive destination and
breakbulk terminals typical of traditional LTL carriers. For the
inbound portion of our round-trip, we generally transport
truckload freight back to the Northeast to reposition our
tractors and trailers near our consolidation operations.
We believe our
Load-to-Deliver
operating model offers multiple solutions to our customers to
address their transportation needs and manage their supply
chains. We believe that we are able to provide our customers
time-definite LTL services with lower cargo claims and fewer
opportunities for delays because our
Load-to-Deliver
operating model requires fewer handlings per LTL shipment than a
traditional LTL carrier. For example, for the year ended
December 31, 2009, our claims ratio was 0.24% as compared
to the average of 1.04% reported by the Transportation Loss
Prevention and Security Association. We believe we can reduce a
shipments transit time by up to 24 hours for every
breakbulk terminal that our
Load-to-Deliver
operating model avoids while transporting our customers
freight. In
38
addition, we believe our customers value the ability to work
with a flexible motor carrier that can service a broad spectrum
of their transportation needs.
We believe our
Load-to-Deliver
operating model provides us with a competitive advantage in
sourcing freight while enhancing utilization of our tractors and
allowing us to operate more cost effectively. Our
Load-to-Deliver
operating model allows us to avoid the historically unfavorable
pricing of truckload freight outbound from the Northeast and
positions us to take advantage of higher priced truckload
freight inbound to the Northeast, a densely populated, high
consumption area. We believe our
Load-to-Deliver
operating model enables us to optimize the economics of a
round-trip by combining two favorably priced headhauls (an
outbound load of LTL shipments and an inbound truckload
shipment) to maximize revenue per operating tractor. For
example, based on the public filings of nine truckload carriers
and truckload divisions of motor carriers that we reviewed, in
2009 our net revenue per operating tractor per day of
approximately $1,000 was significantly higher than the $500 to
$700 per day of those truckload carriers and truckload divisions
over the same period. In addition, because we generally deliver
LTL freight directly from the trailer to the recipient, we do
not need the capital investment and high-fixed cost structure
that we believe are required to operate the numerous local
delivery fleets, nationwide breakbulk and destination terminals
and multiple staffs of freight handlers, typically associated
with our LTL competitors. We believe our customers recognize the
importance of having access to our temperature-controlled and
Hazmat services. As a result, they will often use our services
to transport non-specialized freight to retain access to these
services.
Revenues,
Expenses and Key Performance Indicators
We primarily generate revenues by transporting LTL and truckload
freight. We generally define an LTL shipment as a shipment that
is less than 28,000 pounds or utilizes less than 28 linear feet
on a trailer (although shipments of such size are larger and
heavier than typical LTL shipments), whereas a truckload
shipment is greater than or equal to 28,000 pounds. We generate
additional revenues from our brokerage and warehousing
operations, which historically have accounted for less than 3%
of our total revenues. For LTL freight movements we are
generally paid a rate per hundredweight based on the weight and
volume characteristics of the freight as well as the length of
haul. For truckload freight movements we are generally paid a
rate per mile or per load for our services. We also derive
additional revenues from fuel surcharges, accessorial charges
for temperature-controlled and Hazmat services, and, to a much
lesser extent, other ancillary customer charges. Consistent with
standard industry practice, we generally include a fuel
surcharge in customer contracts to mitigate the impact of
fluctuating fuel prices. This surcharge is benchmarked to the
Department of Energys weekly national fuel price index and
varies based on the specifics of each customers contract.
We manage our operations on a round-trip basis to maximize
revenue per operating tractor by pursuing headhaul freight lanes
for both our outbound and inbound trips. Our revenue growth is
impacted by total number of individually billed shipments,
including both LTL and truckload freight, and revenue per
shipment. Revenue per shipment is principally driven by the mix
between LTL and truckload freight, average length of haul, the
average weight and volume characteristics of the freight and the
per hundredweight, per mile or per load rate we charge for our
services. Our capacity to generate revenues is dependent upon
the number of tractors and trailers available for us to operate,
including the number of drivers available to operate these
tractors, plus the use of third-party purchased transportation.
We monitor total revenues because the costs of diesel fuel and
our ability to collect appropriate fuel surcharges are an
important part of our business. We also focus on revenues before
fuel surcharge, or net revenues. We believe that eliminating the
impact of the fuel surcharge, which is tied to fluctuations in
fuel prices, may lead to a more consistent basis for comparing
our results of operations across periods. We monitor our net
revenues primarily by analyzing the changes and trends in our
shipment count with corresponding changes in net revenue per
shipment and net revenue per operating tractor per day.
Our operating profitability is impacted by variable costs of
transporting freight for our customers, fixed costs and other
expenses containing both fixed and variable components. Our
primary variable costs include driver wages, diesel fuel, tires,
replacement parts and purchased transportation. These expenses
generally vary with the miles driven by our fleet. Expenses that
are primarily fixed in nature
39
include non-driver salaries, wages and benefits, driver
benefits, rent expense and the depreciation related to our
tractors and trailers. Expenses that have both fixed and
variable components include maintenance, warehouse and dock
employee salaries and certain of our insurance coverages. We
focus on the profitability of the round-trip each time we plan a
load, factoring in revenues earned on each portion of the
round-trip, number of stops required, distance between stops and
empty miles. We gauge our overall success by monitoring our
Adjusted EBITDA margin and our operating ratio, a measure of
profitability calculated by dividing total operating expenses by
total revenues. During the stronger economic and freight
environment in 2005, our
Load-to-Deliver
operating model enabled us to achieve an operating ratio of
90.4%. We are continually managing the business to improve our
operating margins, Adjusted EBITDA and net income and believe
that a stronger market for trucking transportation services
should enable us to improve on the ratios we have achieved over
the last 12 months.
The following is a description of our principal operating
expenses:
Salaries, Wages and Benefits. Salaries,
wages and benefits include all expenses relating to driver and
non-driver employees including salary, bonuses and other
benefits. Benefits include such costs as healthcare,
workers compensation and company-matched 401(k)
contributions.
Supplies and Other Expenses. Supplies
and other expenses include the cost of operating and maintaining
our tractors, trailers and operating facilities. The primary
components of supplies and other expenses are diesel fuel, tires
and replacement parts, tolls, vehicle maintenance and rent
expense. We actively manage our fuel costs by purchasing fuel in
bulk for storage at certain of our facilities and have volume
purchasing arrangements with national fuel centers that allow
our drivers to purchase fuel in transit at a discount to
advertised rates. We further manage our exposure to changes in
fuel prices through fuel surcharge programs with our customers.
We have historically been able to pass through a significant
portion of increases in fuel prices and related taxes to
customers in the form of fuel surcharges, although our recovery
of increased expenses varies based on each customer contract.
These fuel surcharges, which adjust with the cost of fuel,
enable us to recover a substantial portion of the higher cost of
fuel as prices increase (subject to some time lag), excluding
non-revenue miles,
out-of-route
miles or fuel used while the tractor is idling. As of
December 31, 2009, we had no derivative financial
instruments to reduce our exposure to fuel price fluctuations.
Purchased Transportation. In certain
instances, we utilize purchased transportation supplied by
third-party local and national trucking companies to deliver
freight. The purchased transportation provider will either pick
up freight, which typically has already been consolidated into a
full trailer, at our facility or one of our tractors will
deliver the freight to the third-partys facility, in these
cases primarily for local delivery to the recipient. The use of
purchased transportation provides flexibility to our operations
and enables us to avoid lanes with insufficient volumes to meet
our round-trip profitability requirements, cover periods of peak
capacity demand and to take advantage of attractive rates in the
purchased transportation market, such as during 2009. In
addition, the use of third-party carriers for certain of our
deliveries allows us to cost effectively deliver freight while
reducing wear and tear on, and preserving the life of, our
tractors and trailers. The amount of purchased transportation we
utilize varies period to period depending on market conditions
and our truck tonnage.
Depreciation and
Amortization. Depreciation and amortization
is a noncash expense charged against earnings to write off the
cost of an asset during its estimated useful life. Our
depreciation and amortization expense is primarily associated
with our tractors and trailers and to a lesser extent with the
intangible assets related to our prior acquisitions. We
capitalize the expenditures related to our engine
remanufacturing program and depreciate these costs over the
increased useful life of the asset, typically 48 months
depending on the utilization of the tractor.
Operating Taxes and Licenses. The
primary components of operating taxes and licenses are federal
and state fuel taxes and registrations and licenses for our
tractors and trailers.
Insurance and Claims. Insurance and
claims includes all expenses relating to the premiums and loss
experience of our insurance coverage, including vehicle
liability, general liability, cargo claim and umbrella policies.
40
Loss/(Gain) on Disposal of Property and
Equipment. Loss/(gain) on disposal of
property and equipment reflects the difference between the
proceeds we receive when disposing of a fixed asset compared to
its book value at the time of disposition.
Trends
and Outlook
A downturn in freight shipments began early in 2007 and worsened
through mid-2009 in connection with the overall economic
recession in the United States, which impacted our results of
operations for the years ended December 31, 2008 and 2009.
The market pricing for Northeast inbound truckload freight
decreased due to truck tonnage reductions as well as excess
available tractors in these trade lanes. Also, certain LTL
carriers pursued price discounting programs in 2009 to gain
market share resulting in industry-wide rate declines in 2009,
which have stabilized at lower levels in 2010. We believe these
factors were the primary contributors to the decrease in our
revenues and earnings for the year ended December 31, 2009.
The adverse effect on our financial results was partially
mitigated by our ability to add new customers, win additional
business from existing customers, handle shipments of
specialized freight and scale back operations to match decreased
truck tonnage. In response to the severe freight downturn, we
implemented several initiatives that removed approximately
$6.8 million of annual costs, including company-wide salary
reductions, headcount reductions and terminating our 401(k)
matching program. We also more efficiently utilized our assets
and designated a number of our tractors and trailers as
non-operating. In addition, as a result of the prolonged decline
in the general economy, we increased our reliance on purchased
transportation for less profitable lanes in 2009, which
contributed to a temporary increase in our operating expenses as
a percentage of total revenues. We expect that our reliance on
purchased transportation will peak in 2010 and begin to decrease
in the second half of 2010 as we hire additional drivers and
redeploy tractors presently designated as non-operating.
The economic recovery that we believe began in the first quarter
of 2010 has led to an increase in shipments and total revenues
of 11.2% and 14.0%, respectively, in the six months ended
June 30, 2010 compared to the six months ended
June 30, 2009. If the economic environment continues to
improve, we believe that there will be higher demand and
competition for qualified employees, which may result in wage
and benefit increases associated with hiring qualified driver
and non-driver employees that could offset our prior cost
reduction measures. Our recent lease of an approximately
170,000 square foot consolidation operation near our
Westampton, New Jersey headquarters will allow us to double the
number of LTL shipments we can consolidate. As of June 30,
2010, we had 178 available tractors, or 18.1% of our
current fleet, that we can place back into operation to meet
growing demand for our services with no additional capital
investment. Furthermore, any increase in our net revenue per
shipment, which decreased 14.7% from $483 in 2008 to $412 in
2009, should improve our operating results.
We believe that pricing in the Northeast inbound truckload
freight market has improved and we expect it will continue to
improve as the economic recovery leads to a better balance
between supply of tractors available for truckload shipments and
demand for transport of truckload freight, which has stabilized
in recent months but continues to exceed 2009 levels. We believe
that pricing for outbound LTL shipments has improved at a slower
rate because there remains an imbalance between supply of
tractors available for LTL shipments and demand for transport of
LTL freight. Because we generally enter into contracts with our
customers lasting one year or longer, we expect that we will
benefit from the improved pricing environment over time,
although we will be able to immediately take advantage of
improvements in spot market pricing on a smaller portion of our
business. Our contracts typically govern price and services but
generally do not guarantee a volume of shipments. We also expect
that following completion of this offering, our administrative
expenses and stock compensation expense will increase as a
result of increased costs associated with being a public company
and vesting of restricted stock and that our interest expense
will be reduced as a result of the application of the net
proceeds to repay existing indebtedness.
41
Operating
Statistics
The following table sets forth operating statistics for our
business for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
Total shipments(1)
|
|
|
447,926
|
|
|
|
474,421
|
|
|
|
493,186
|
|
|
|
239,025
|
|
|
|
265,796
|
|
Net revenue per shipment
|
|
$
|
459
|
|
|
$
|
483
|
|
|
$
|
412
|
|
|
$
|
417
|
|
|
$
|
406
|
|
Total miles
|
|
|
100,342,554
|
|
|
|
110,943,067
|
|
|
|
89,506,703
|
|
|
|
44,038,375
|
|
|
|
46,840,750
|
|
Empty miles (linehaul)(2)
|
|
|
3.9
|
%
|
|
|
3.9
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.4
|
%
|
Average operating tractors(3)
|
|
|
843
|
|
|
|
935
|
|
|
|
829
|
|
|
|
829
|
|
|
|
813
|
|
Net revenue per operating tractor per day(3)
|
|
$
|
964
|
|
|
$
|
964
|
|
|
$
|
968
|
|
|
$
|
955
|
|
|
$
|
1,054
|
|
Miles per operating tractor per day(3)
|
|
|
470
|
|
|
|
467
|
|
|
|
427
|
|
|
|
422
|
|
|
|
457
|
|
Operating ratio(4)
|
|
|
97.9
|
%
|
|
|
95.9
|
%
|
|
|
99.2
|
%
|
|
|
100.3
|
%
|
|
|
97.1
|
%
|
|
|
|
(1) |
|
Number of shipments is equal to the number of freight bills
invoiced to our customers. |
|
(2) |
|
We compute empty miles (linehaul) percentage by dividing the
number of empty miles traveled by our linehaul tractors by the
total number of miles traveled by our linehaul tractors. |
|
|
|
(3) |
|
We define operating tractors to be all tractors with current
registrations and assigned drivers that are available for the
transport of freight for our customers. We compute the number of
operating tractors based on the average number of tractors in
operation as of the end of each week during the period. Prior to
February 16, 2007, we did not track the number of operating
tractors, and the number of operating tractors in 2007 is based
on the average number of tractors in operation as of the end of
each week beginning February 17, 2007. Net revenue per
operating tractor per day and miles per operating tractor per
day are computed on the basis of a
five-day
work week, excluding holidays. As of December 31, 2009 and
June 30, 2010 we had 155 and 178 tractors,
respectively, designated as non-operating. |
|
|
|
(4) |
|
We compute our operating ratio by dividing total operating
expenses by total revenues. |
42
Results
of Operations
The following table summarizes selected income statement data
and outlines selected income statement data as a percentage of
total revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands except percentages)
|
|
|
Net revenues(1)
|
|
$
|
205,585
|
|
|
|
86.0
|
%
|
|
$
|
228,966
|
|
|
|
79.3
|
%
|
|
$
|
203,127
|
|
|
|
88.6
|
%
|
|
$
|
99,741
|
|
|
|
90.1
|
%
|
|
$
|
107,955
|
|
|
|
85.6
|
%
|
Fuel surcharges(2)
|
|
|
33,425
|
|
|
|
14.0
|
|
|
|
59,683
|
|
|
|
20.7
|
|
|
|
26,186
|
|
|
|
11.4
|
|
|
|
10,937
|
|
|
|
9.9
|
|
|
|
18,217
|
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
239,010
|
|
|
|
100.0
|
%
|
|
$
|
288,649
|
|
|
|
100.0
|
%
|
|
$
|
229,313
|
|
|
|
100.0
|
%
|
|
$
|
110,678
|
|
|
|
100.0
|
%
|
|
$
|
126,172
|
|
|
|
100.0
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
112,526
|
|
|
|
47.1
|
%
|
|
|
130,837
|
|
|
|
45.3
|
%
|
|
|
114,119
|
|
|
|
49.8
|
%
|
|
|
57,353
|
|
|
|
51.8
|
%
|
|
|
58,695
|
|
|
|
46.5
|
%
|
Supplies and other expenses
|
|
|
70,636
|
|
|
|
29.6
|
|
|
|
95,264
|
|
|
|
33.0
|
|
|
|
62,168
|
|
|
|
27.1
|
|
|
|
28,492
|
|
|
|
25.7
|
|
|
|
37,315
|
|
|
|
29.6
|
|
Purchased transportation
|
|
|
12,431
|
|
|
|
5.2
|
|
|
|
9,037
|
|
|
|
3.1
|
|
|
|
14,236
|
|
|
|
6.2
|
|
|
|
6,829
|
|
|
|
6.2
|
|
|
|
8,708
|
|
|
|
6.9
|
|
Depreciation and amortization
|
|
|
21,088
|
|
|
|
8.8
|
|
|
|
22,411
|
|
|
|
7.8
|
|
|
|
20,875
|
|
|
|
9.1
|
|
|
|
10,710
|
|
|
|
9.7
|
|
|
|
10,076
|
|
|
|
8.0
|
|
Operating taxes and licenses
|
|
|
11,424
|
|
|
|
4.8
|
|
|
|
12,731
|
|
|
|
4.4
|
|
|
|
10,944
|
|
|
|
4.8
|
|
|
|
5,301
|
|
|
|
4.8
|
|
|
|
5,225
|
|
|
|
4.1
|
|
Insurance and claims
|
|
|
6,302
|
|
|
|
2.6
|
|
|
|
6,460
|
|
|
|
2.2
|
|
|
|
5,029
|
|
|
|
2.2
|
|
|
|
2,399
|
|
|
|
2.2
|
|
|
|
2,192
|
|
|
|
1.7
|
|
Loss/(gain) on disposal of property and equipment
|
|
|
(313
|
)
|
|
|
(0.1
|
)
|
|
|
202
|
|
|
|
0.1
|
|
|
|
133
|
|
|
|
0.1
|
|
|
|
(27
|
)
|
|
|
(0.0
|
)
|
|
|
345
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
$
|
4,916
|
|
|
|
2.1
|
%
|
|
$
|
11,707
|
|
|
|
4.1
|
%
|
|
$
|
1,809
|
|
|
|
0.8
|
%
|
|
$
|
(379
|
)
|
|
|
(0.3
|
)%
|
|
$
|
3,616
|
|
|
|
2.9
|
%
|
Interest expense, net
|
|
|
12,547
|
|
|
|
5.2
|
%
|
|
|
13,535
|
|
|
|
4.7
|
%
|
|
|
9,631
|
|
|
|
4.2
|
%
|
|
|
4,590
|
|
|
|
4.1
|
%
|
|
|
6,104
|
|
|
|
4.8
|
%
|
Change in fair value of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,452
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(7,631
|
)
|
|
|
(3.2
|
)%
|
|
$
|
(1,828
|
)
|
|
|
(0.6
|
)%
|
|
$
|
(7,822
|
)
|
|
|
(3.4
|
)%
|
|
$
|
(4,969
|
)
|
|
|
(4.5
|
)%
|
|
$
|
(10,940
|
)
|
|
|
(8.7
|
)%
|
Income tax benefit
|
|
|
(2,729
|
)
|
|
|
(1.1
|
)
|
|
|
(630
|
)
|
|
|
(0.2
|
)
|
|
|
(2,685
|
)
|
|
|
(1.2
|
)
|
|
|
(1,748
|
)
|
|
|
(1.6
|
)
|
|
|
(679
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,902
|
)
|
|
|
(2.1
|
)%
|
|
$
|
(1,198
|
)
|
|
|
(0.4
|
)%
|
|
$
|
(5,137
|
)
|
|
|
(2.2
|
)%
|
|
$
|
(3,221
|
)
|
|
|
(2.9
|
)%
|
|
$
|
(10,261
|
)
|
|
|
(8.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
We define net revenues to be total
revenues less fuel surcharges.
|
|
(2)
|
|
At the time of our acquisition of
Western Freightways in December 2006, the accounting systems of
Western Freightways did not permit for the recording of fuel
surcharges. We upgraded their systems in February 2007.
Accordingly, 2006 and 2007 fuel surcharges exclude surcharges
imposed by Western Freightways from the date of acquisition to
February 2007. Fuel surcharges imposed by Western Freightways
during this period are included in net revenues.
|
Six
Months Ended June 30, 2010 Compared to Six Months Ended
June 30, 2009
Net
Revenues
Net revenues increased 8.2%, or $8.2 million, in the six
months ended June 30, 2010 to $108.0 million from
$99.7 million in the six months ended June 30, 2009.
The increase in net revenues resulted primarily from a 11.2%
increase in total shipments in the 2010 period to 265,796 as
compared to 239,025 shipments in the comparable period in 2009,
partially offset by a decrease in net revenue per shipment of
2.6% in the 2010 period to $406 from $417 in the comparable
period in 2009. The increase in total shipments was primarily
the result of the improving economic environment and
corresponding increase in demand for freight transportation
services by our customers. The decrease in net revenue per
shipment was primarily the result of a decrease in the average
shipment size of our LTL freight from 3,330 pounds to
3,271 pounds, an increase in the percentage of LTL
shipments as compared to truckload shipments from 85.1% to
86.5%, an increase in the average length of a truckload shipment
from 695 miles to 707 miles and lower industry-wide pricing
resulting from aggressive strategies employed by certain of our
competitors in 2009. This pricing stabilized at lower levels in
2010. Our net revenue per operating tractor per day increased
10.4% in the six months ended June 30, 2010 to $1,054 as
compared to $955 in the comparable period in 2009. The increase
in net revenue per operating tractor per day was primarily the
result of the implementation of operating and load planning
efficiency initiatives beginning in the second half of 2009
which enabled us to transport 11.2% more shipments in the 2010
period with 1.9% fewer operating tractors.
43
Fuel
Surcharges
Fuel surcharge revenues increased 66.6%, or $7.3 million,
in the 2010 period to $18.2 million as compared to
$10.9 million in the comparable period in 2009. The
increase in fuel surcharge revenues was primarily the result of
an increase in average diesel fuel prices of approximately 29.5%
in the first six months of 2010, as reported by the Energy
Information Administration, and a 6.4% increase in the miles
driven in the 2010 period as compared to the comparable period
in 2009.
Total
Revenues
Total revenues increased 14.0%, or $15.5 million, in the
six months ended June 30, 2010 to $126.2 million as
compared to $110.7 million in the comparable period in 2009.
Operating
Expenses
Salaries, wages and benefits increased 2.3%, or
$1.3 million, in the six months ended June 30, 2010 to
$58.7 million as compared to $57.4 million in the
comparable period in 2009. The increase in salaries, wages and
benefits in 2010 was primarily the result of a $1.4 million
increase in total payments to drivers, who are typically paid on
a per mile basis, largely as a result of an increase in the
number of drivers partially offset by a reduction in non-driver
headcount, a company-wide reduction in salaries implemented in
August 2009 and the elimination of our 401(k) match. As a
percentage of total revenues, salaries, wages and benefits
decreased to 46.5% in the 2010 period as compared to 51.8% in
the comparable period in 2009. This decrease as a percentage of
total revenues was primarily due to higher revenues to cover our
fixed expenses and the impact of salary reductions.
Supplies and other expenses increased 31.0%, or
$8.8 million, in the six months ended June 30, 2010 to
$37.3 million as compared to $28.5 million in the
comparable period in 2009. The increase in supplies and other
expenses in the 2010 period was primarily the result of a 6.4%
increase in miles driven by our tractors requiring more diesel
fuel as well as higher average price per gallon at which the
fuel was purchased. In addition, the increase in the miles
driven by our fleet increased maintenance costs. As a percentage
of total revenues, supplies and other expenses increased to
29.6% in the 2010 period from 25.7% in the comparable period in
2009. This percentage increase was primarily due to higher
average fuel prices in the 2010 period as compared to 2009.
Purchased transportation increased 27.5%, or $1.9 million,
in the six months ended June 30, 2010 to $8.7 million
as compared to $6.8 million in the comparable period in
2009. As a percentage of total revenues, purchased
transportation increased to 6.9% in the 2010 period from 6.2% in
the comparable period in 2009. These dollar amount and
percentage increases were primarily due to our increased
reliance on purchased transportation for less profitable lanes.
Depreciation and amortization decreased 5.9%, or
$0.6 million, in the six months ended June 30, 2010 to
$10.1 million as compared to $10.7 million in the
comparable period in 2009. The decrease in depreciation and
amortization was primarily the result of certain vehicles in the
fleet becoming fully depreciated in 2009 and the first half of
2010. As a percentage of total revenues, depreciation and
amortization decreased to 8.0% in the 2010 period from 9.7% in
the comparable period in 2009.
Operating taxes and licenses decreased 1.4%, or
$0.1 million, in the six months ended June 30, 2010 to
$5.2 million as compared to $5.3 million in the
comparable period in 2009. As a percentage of total revenues,
operating taxes and licenses decreased to 4.1% in the 2010
period from 4.8% in the comparable period in 2009. The decreases
in dollar amount and percentage were primarily due to the
designation of certain tractors as non-operating, which reduced
the number of tractors on which registration fees were paid.
Insurance and claims decreased 8.6%, or $0.2 million, to
$2.2 million in the six months ended June 30, 2010 as
compared to $2.4 million in the comparable period in 2009.
As a percentage of total revenues, insurance and claims
decreased to 1.7% in the 2010 period from 2.2% in the comparable
period in 2009. The decreases in dollar amount and percentage
were primarily due to a lower claims ratio.
44
Net
Interest Expense
Net interest expense increased 33.0%, or $1.5 million, to
$6.1 million in the six months ended June 30, 2010 as
compared to $4.6 million in the comparable period in 2009.
This increase was primarily due to the increase in the interest
rate on our existing credit facility and the interest expense
associated with the $10.0 million of senior subordinated
debt issued in November 2009.
Change
of Fair Value of Warrants
The change in fair value of warrants is due to the issuance of
warrants in the fourth quarter of 2009 that are adjusted to fair
value at each reporting period, resulting in a non-cash charge
of $8.5 million.
Income
Tax Benefit
Income tax benefit was $0.7 million during the six months
ended June 30, 2010 as compared to a benefit of
$1.7 million in the comparable period in 2009. The
effective tax rate for the six months ended June 30, 2010
was significantly lower than the effective tax rate in the
comparable prior period due to the change in the fair value of
the warrants, which is not deductible for tax purposes.
Net
Income (Loss)
Net loss increased to $10.3 million in the six months ended
June 30, 2010 as compared to $3.2 million in the
comparable period in 2009.
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Net
Revenues
Net revenues declined 11.3%, or $25.8 million, in 2009 to
$203.1 million as compared to $229.0 million in 2008.
The decrease in net revenues resulted from a 14.7% decline in
net revenue per shipment in 2009 to $412 from $483 in 2008
offset by a 4.0% increase in total shipments in 2009 to 493,186
from 474,421 in 2008. The decrease in net revenue per shipment
was primarily the result of a decrease in the average shipment
size of our LTL freight from 3,619 pounds to 3,259 pounds, an
increase in the percentage of LTL shipments as compared to
truckload shipments from 81.3% to 86.0%, a decrease in the
average length of a truckload shipment from 743 miles to
711 miles and lower industry-wide pricing resulting from
aggressive strategies employed by certain of our competitors. We
were able to partially offset this difficult freight and pricing
environment with higher shipment volumes through new customer
wins as well as additional lanes and routes from existing
customers. Even though 2009 was a difficult pricing environment,
net revenue per operating tractor per day increased to $968 in
2009 as compared to $964 in 2008 primarily due to our ability to
operate more efficiently in markets that did not meet our
Northeast inbound freight density requirements and the greater
emphasis we placed on purchased transportation.
Fuel
Surcharges
Fuel surcharge revenues declined 56.1%, or $33.5 million,
in 2009 to $26.2 million as compared to $59.7 million
in 2008. The decrease in fuel surcharge revenues was primarily
the result of a decrease in average fuel prices of approximately
35.3% in 2009 compared to 2008, as reported by the Energy
Information Administration, as well as a 19.3% decrease in the
miles driven by our fleet.
Total
Revenues
Total revenues declined 20.6%, or $59.3 million, in 2009 to
$229.3 million as compared to $288.6 million in 2008.
Operating
Expenses
Salaries, wages and benefits decreased 12.8%, or
$16.7 million, in 2009 to $114.1 million as compared
to $130.8 million in 2008. The decrease in salaries, wages
and benefits in 2009 was primarily the result of a
$11.4 million decrease in payments to drivers as a result
of headcount reductions and reduced hours
45
and miles driven by our drivers, a decrease in payments to
non-driver employees of $2.7 million as a result of a
reduction in non-driver headcount and reduced hours of certain
non-driver employees and a company-wide reduction in salaries
implemented in August 2009 resulting in savings of
$1.7 million. As a percentage of total revenues, salaries,
wages and benefits increased to 49.8% in 2009 from 45.3% in
2008. Our smaller revenues base from which to cover fixed
expenses and revenue declines that outpaced our cost reduction
initiatives were the primary causes of this percentage increase.
Supplies and other expenses decreased 34.7%, or
$33.1 million, in 2009 to $62.2 million from
$95.3 million in 2008. The decrease in supplies and other
expenses in 2009 was primarily the result of fewer miles driven
by our tractors necessitating a lower volume of diesel fuel
purchases as well as lower average price per gallon at which the
fuel was purchased in 2009 compared to 2008. As a percentage of
total revenues, supplies and other expenses decreased to 27.1%
in 2009 from 33.0% in 2008. This percentage decrease was
primarily due to lower average fuel prices in 2009 compared to
2008.
Purchased transportation increased 57.5%, or $5.2 million,
in 2009 to $14.2 million from $9.0 million in 2008. As
a percentage of total revenues, purchased transportation
increased to 6.2% in 2009 from 3.1% in 2008. These dollar amount
and percentage increases were primarily due to our decision to
designate a number of tractors as non-operating and to increase
use of third-party carriers due to the attractive rates
available to us from these carriers in certain lanes.
Depreciation and amortization decreased 6.9%, or
$1.5 million, in 2009 to $20.9 million from
$22.4 million in 2008. The decrease in depreciation and
amortization was primarily the result of certain vehicles in the
fleet becoming fully depreciated during 2009. As a percentage of
total revenues, depreciation and amortization increased to 9.1%
in 2009 from 7.8% in 2008. This percentage increase was
primarily the result of reduced revenues.
Operating taxes and licenses decreased 14.0%, or
$1.8 million, in 2009 to $10.9 million from
$12.7 million in 2008. As a percentage of total revenues,
operating taxes and licenses increased to 4.8% in 2009 from 4.4%
in 2008. This decrease in operating taxes and licenses was
primarily due to our decision to reduce driver headcount and
designate certain tractors as non-operating, which reduced the
number of tractors on which registration fees were paid.
Insurance and claims decreased 22.2%, or $1.5 million, to
$5.0 million in 2009 from $6.5 million in 2008. As a
percentage of total revenues, insurance and claims was 2.2% in
both 2009 and 2008.
Net
Interest Expense
Net interest expense decreased 28.8%, or $3.9 million, to
$9.6 million in 2009 from $13.5 million in 2008. This
decrease was primarily due to lower average debt balance in 2009
as compared to 2008 partially offset by slightly higher average
interest rates.
Income
Tax Benefit
Income tax benefit was $2.7 million during 2009 compared to
a benefit of $0.6 million in 2008. The effective income tax
rate in each year varies from the federal statutory rate
primarily due to state income taxes and certain permanent
differences.
Net
Income (Loss)
Net loss increased to $5.1 million in 2009 from
$1.2 million in 2008.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Net
Revenues
Net revenues increased 11.4%, or $23.4 million, in 2008 to
$229.0 million as compared to $205.6 million in 2007.
The increase in net revenues resulted from a 5.2% increase in
revenue per shipment in 2008 to $483 as compared to $459 in 2007
and an increase in total shipments of 5.9% in 2008 to 474,421
from 447,926 in 2007. The increase in net revenue per shipment
was primarily the result of an increase in the average shipment
size of our LTL freight from 3,420 pounds to
3,619 pounds, a decrease in the percentage
46
of LTL shipments as compared to truckload shipments from 81.9%
to 81.3% and an increase in the average length of a truckload
shipment from 720 miles to 743 miles. The increase in
shipments was a result of the addition of new customers through
the acquisition of P&P Transport, winning additional
business from existing customers and adding new customers. Net
revenue per operating tractor per day remained constant at $964.
Fuel
Surcharges
Fuel surcharge revenues increased 78.6%, or $26.3 million,
in 2008 to $59.7 million as compared to $33.4 million
in 2007. The increase in fuel surcharge revenues was primarily
the result of an increase in average fuel prices of
approximately 32.1% in 2008 as compared to 2007, as reported by
the Energy Information Administration, as well as a 10.6%
increase in the miles driven by our fleet.
Total
Revenues
Total revenues increased 20.8%, or $49.6 million, in 2008
to $288.6 million as compared to $239.0 million in
2007.
Operating
Expenses
Salaries, wages and benefits increased 16.3%, or
$18.3 million, to $130.8 million in 2008 from
$112.5 million in 2007. The increase in salaries, wages and
benefits in 2008 was primarily the result of an
$8.5 million increase in payments to drivers, a
$3.2 million increase in payments to non-driver employees
and a $5.8 million increase in other costs, including
insurance premiums, associated with maintaining a large
workforce. As a percentage of total revenues, salaries, wages
and benefits decreased to 45.3% in 2008 from 47.1% in 2007. This
percentage decrease was primarily due to improving rates, offset
by the addition of drivers and non-driver employees to service
increased levels of demand. In addition, as a result of the
integration of P&P Transport, we were able to reduce our
non-driver workforce through attrition and termination, which
also helped us reduce our operating expenses as a percentage of
total revenues.
Supplies and other expenses increased 34.9%, or
$24.7 million, to $95.3 million in 2008 from
$70.6 million in 2007. As a percentage of total revenues,
supplies and other expenses increased to 33.0% in 2008 from
29.6% in 2007. These percentage increases were primarily due to
higher average fuel prices in 2008 than 2007, offset slightly by
increased fleet miles per gallon resulting from the elimination
of older vehicles, increased usage of auxiliary power units,
reductions in the maximum speed our tractors can travel and
installation of vented mud flaps that improve aerodynamics of
our tractors and trailers.
Purchased transportation decreased 27.3%, or $3.4 million,
to $9.0 million in 2008 from $12.4 million in 2007. As
a percentage of total revenues, purchased transportation
decreased to 3.1% in 2008 from 5.2% in 2007. The acquisition of
P&P Transport in June 2007, which increased the size of our
fleet by 199 tractors and led to an increase in the number of
available drivers, and the decrease in freight demand reduced
our overall requirements for purchased transportation in 2008.
Depreciation and amortization increased 6.3%, or
$1.3 million, to $22.4 million in 2008 from
$21.1 million in 2007. As a percentage of total revenues,
depreciation and amortization decreased to 7.8% in 2008 from
8.8% in 2007. This percentage decrease was primarily due to
increased revenues more than offsetting the increased
depreciation charges incurred as a result of the addition of the
P&P Transport fleet.
Operating taxes and licenses increased 11.4%, or
$1.3 million, to $12.7 million in 2008 from
$11.4 million in 2007. As a percentage of total revenues,
operating taxes and licenses decreased to 4.4% in 2008 from 4.8%
in 2007. This percentage decrease was primarily due to increased
revenues more than offsetting the increased costs resulting from
higher licensing costs due to the greater number of tractors and
trailers and increased fuel consumption which results in
increased federal and state fuel taxes.
Insurance and claims increased 2.5%, or $0.2 million, to
$6.5 million in 2008 from $6.3 million in 2007. As a
percentage of total revenues, insurance and claims decreased to
2.2% in 2008 from 2.6% in 2007. This percentage decrease was
primarily due to improved claims experience for tractor
liability and
47
freight claims, as well as our continued effort to capitalize on
insurance rate reduction opportunities as they arise.
Net
Interest Expense
Net interest expense increased 7.9%, or $1.0 million, to
$13.5 million in 2008 from $12.5 million in 2007. This
increase was primarily due to the additional debt incurred in
June 2007 as a result of our acquisition of P&P Transport.
Income
Taxes
Income tax benefit was $0.6 million during 2008 compared to
a benefit of $2.7 million in 2007. The effective income tax
rate in each year varies from the federal statutory rate
primarily due to state income taxes and certain permanent
differences, the largest of which is depreciation related to
tractors and trailers.
Net
Income (Loss)
Net loss decreased to $1.2 million in 2008 from
$4.9 million in 2007.
Liquidity
and Capital Resources
Capital
Resources
The operation and growth of our business have required, and will
continue to require, a significant investment in tractors,
trailers and working capital. Our primary sources of liquidity
have been funds provided by operations and borrowings under our
existing credit facility.
We believe that we will be able to finance our working capital
needs for at least the next 12 months with cash, cash flows
from operations and borrowings available under our new revolving
credit facility. We will have significant capital requirements
over the long-term, which may require us to incur additional
debt or seek additional equity. The availability of additional
debt or equity will depend upon prevailing market conditions,
the market price of our common stock and several other factors
over which we have limited control, as well as our financial
condition and results of operations. Based on our recent
operating results, current cash position, anticipated future
cash flows and sources of available financing, we do not expect
that we will experience any significant liquidity constraints
over the next 12 months. Recently, we have developed a
program to remanufacture existing engines in our tractor fleet.
We have entered into this program with Caterpillar, Inc., which
will provide a full warranty on the remanufactured engines for
unlimited miles for four years. We expect that the
remanufactured engines will allow us to use a tractor for up to
an additional four years at approximately 25% of the cost of a
new tractor. We expect that this program will reduce the amount
we would otherwise need to spend on capital expenditures,
thereby enhancing our free cash flow.
At June 30, 2010, we had outstanding debt of
$116.8 million consisting of amounts outstanding under our
existing credit facility and three series of subordinated notes,
all of which we intend to repay with the net proceeds of this
offering and an initial drawing under our new revolving credit
facility. We currently maintain a line of credit, which permits
revolving borrowings and letters of credit up to an aggregate of
$20.0 million. As of June 30, 2010, we had no
borrowings under the revolving line of credit and outstanding
letters of credit of $2.1 million. We are obligated to
comply with certain financial covenants under our line of credit
agreement and were in compliance with these covenants at
June 30, 2010. See Description of Indebtedness.
Our existing revolving credit facility expires in August 2011,
and our existing term debt is due August 2012.
Concurrently with this offering, we intend to enter into a
revolving credit facility with a syndicate of financial
institutions with Wells Fargo Bank, N.A., as administrative
agent, and Wells Fargo Securities, LLC, as sole lead arranger
and book runner. We expect our revolving credit facility will
provide for a $60.0 million revolving credit facility and
that at the closing of this offering we will have
$ million in
48
outstanding borrowings under the facility,
$ million in additional
borrowing capacity under the new revolving credit facility and
$ million in outstanding
letters of credit. We expect that all borrowings under our new
revolving credit facility will be subject to the satisfaction of
required conditions, including the absence of a default at the
time of and after giving effect to such borrowing and the
accuracy of the representations and warranties in the agreement.
See Description of Indebtedness.
Cash
Flows
The following table summarizes our cash flows for the periods
indicated:
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|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
2007
|
|
|
2008
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|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
18,162
|
|
|
$
|
18,213
|
|
|
$
|
19,062
|
|
|
$
|
11,436
|
|
|
$
|
8,800
|
|
Net cash used in investing activities
|
|
|
(43,381
|
)
|
|
|
(1,355
|
)
|
|
|
(1,405
|
)
|
|
|
(268
|
)
|
|
|
(4,149
|
)
|
Net cash provided by (used in) financing activities
|
|
|
20,368
|
|
|
|
(13,512
|
)
|
|
|
(18,640
|
)
|
|
|
(12,606
|
)
|
|
|
(2,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
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|
$
|
(4,851
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)
|
|
$
|
3,346
|
|
|
$
|
(983
|
)
|
|
$
|
(1,438
|
)
|
|
$
|
2,571
|
|
Cash at beginning of period
|
|
|
4,900
|
|
|
|
49
|
|
|
|
3,395
|
|
|
|
3,395
|
|
|
|
2,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
49
|
|
|
$
|
3,395
|
|
|
$
|
2,412
|
|
|
$
|
1,957
|
|
|
$
|
4,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash provided by operating activities was approximately
$8.8 million and $11.4 million for the six months
ended June 30, 2010 and 2009, respectively. The decrease in
net cash provided by operating activities for 2010 is primarily
due to an increase in accounts receivable resulting from
increased revenues.
Net cash provided by operating activities was approximately
$19.1 million, $18.2 million and $18.2 million
for the years ended December 31, 2009, 2008 and 2007,
respectively. The increase in cash flows from operating
activities of $0.8 million for 2009 was primarily due to an
increase in pretax loss of $6.0 million offset by decreases
in accounts receivable and other current assets and increases in
accounts payable and accrued expenses. Cash flow from operating
activities in 2007 and 2008 was approximately the same.
Investing
Activities
Net cash used in investing activities was approximately
$4.1 million and $0.3 million for the six months ended
June 30, 2010 and 2009, respectively. The increase in net
cash used in investing activities for the six months ended
June 30, 2010 is primarily due to capital expenditures
related to our engine remanufacturing program.
Net cash used in investing activities was approximately
$1.4 million, $1.4 million and $43.4 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. Net cash used in investing activities was
considerably higher in 2007 due to the acquisition of P&P
Transport for $26.3 million. In addition, in 2007 we had
higher net capital expenditures, primarily for tractors, as we
decided to acquire tractors which still had 2006 EPA approved
engines. The decreases in 2008 and 2009 as compared to 2007 were
primarily due to a reduction in capital expenditures for
tractors and trailers during such years. Capital expenditures
for the purchase of tractors and trailers, net of equipment
sales and trade-ins, office equipment and land and leasehold
improvements, totaled $1.4 million, $1.4 million and
$17.1 million for the years ended December 31, 2009,
2008 and 2007, respectively.
49
We estimate capital expenditures, net of sales, will not exceed
$3.9 million for the six months ending December 31,
2010 and $9.0 million for 2011. We expect these capital
expenditures will be used primarily to acquire new tractors and
trailers and to finance our engine remanufacturing program.
Financing
Activities
Net cash used in financing activities was approximately
$2.1 million and $12.6 million for the six months
ended June 30, 2010 and 2009, respectively. The decrease in
cash used in financing activities is primarily due to a higher
repayment of our long-term senior debt in 2009.
Net cash used in financing activities was approximately
$18.6 million and $13.5 million for the years ended
December 31, 2009 and 2008, respectively, and net cash
provided by financing activities was $20.4 million for the
year ended December 31, 2007. The increase in net cash used
in financing activities in 2009 is primarily due to a
$27.2 million repayment of our long-term senior debt which
was financed with operating cash flow and the proceeds from our
issuance of $10.0 million of senior subordinated notes. See
Description of Indebtedness.
Net
Operating Loss Carryforwards
We expect that this offering will result in an ownership change
and limit our ability to use our net operating loss
carryforwards to offset future taxable income. As of
December 31, 2009, we had federal net operating loss
carryforwards of $28.8 million and state net operating loss
carryforwards of $42.5 million. Regardless of whether such
an ownership change occurs, we believe that our net operating
loss carryforwards will be sufficiently available, for federal
and state income tax purposes, to offset any regular taxable
income we generate in 2010 and 2011. Accordingly, although our
net operating loss carryforwards might be limited as a result of
an ownership change, we do not believe that the limitation would
materially affect our after-tax cash flow.
Contractual
Obligations
As of December 31, 2009, we had the following contractual
obligations. There are no significant changes to these
contractual obligations as of June 30, 2010.
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|
|
|
|
|
|
|
|
|
|
Payments Due by Year
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|
|
|
Total
|
|
|
2010
|
|
|
2011-2012
|
|
|
2013-2014
|
|
|
After 2014
|
|
|
|
(in millions)
|
|
|
Senior secured credit facility
|
|
$
|
103.8
|
|
|
$
|
4.2
|
|
|
$
|
99.6
|
|
|
$
|
|
|
|
$
|
|
|
14% convertible subordinated notes
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
7.5% subordinated notes(1)
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
10.0
|
|
|
|
|
|
9% senior subordinated notes
|
|
|
1.7
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
Estimated interest payments(2)
|
|
|
27.7
|
|
|
|
8.9
|
|
|
|
13.1
|
|
|
|
5.7
|
|
|
|
|
|
Capital lease obligations
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Rent and operating leases(3)
|
|
|
12.2
|
|
|
|
4.2
|
|
|
|
5.0
|
|
|
|
2.8
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
158.9
|
|
|
$
|
17.4
|
|
|
$
|
119.6
|
|
|
$
|
21.7
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $0.6 million of debt discount related to the
warrants as of December 31, 2009. |
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|
|
(2) |
|
These amounts represent future interest payments related to our
existing debt obligations based on fixed and variable interest
rates specified in the associated debt agreements. Payments
related to variable rate debt are based on applicable rates at
June 30, 2010 plus the specified margin as in effect on
such date in the associated debt agreement for each period
presented. Actual amounts could vary materially. The amounts
provided relate only to existing debt obligations and do not
assume the refinancing of such debt. Refer to note 6 to the
consolidated financial statements for the terms and maturities
of existing debt obligations. |
|
|
|
(3) |
|
Includes $5.2 million in rent obligations related to real
property. |
50
As of December 31, 2009, on a pro forma basis after giving
effect to this offering and the use of proceeds therefrom and an
initial drawing under our new revolving credit facility, we had
the following contractual obligations.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Payments Due by Period
|
|
|
|
Total
|
|
|
2010
|
|
|
2011-2012
|
|
|
3-5 Years
|
|
|
After 2014
|
|
|
|
(in millions)
|
|
|
New revolving credit facility
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Estimated interest payments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and operating leases(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The interest obligation was computed using a rate
of % for our new revolving credit facility. |
|
|
|
(2) |
|
Includes $ million in rent obligations related
to real property. |
Off-Balance
Sheet Transactions
Our liquidity is not materially affected by off-balance sheet
transactions. Like many other trucking companies, we have
utilized operating leases to finance a portion of our tractor
and trailer additions. Vehicles held under operating leases are
not carried on our balance sheet. Our rental expense related to
tractor and trailer leases was $1.5 million,
$2.3 million and $2.0 million for the years ended
December 31, 2007, 2008 and 2009, respectively.
We do not own any real estate and we lease all of our
facilities. These operating leases have termination dates
ranging through June 30, 2015. Rental payments for such
facilities are reflected in our consolidated statements of
income in the line item Supplies and other expenses.
Rental payments for our facilities and trailer storage totaled
$3.1 million, $3.6 million, $3.4 million and
$1.5 million for the years ended December 31, 2007,
2008 and 2009 and the six months ended June 30, 2010
respectively. On March 30, 2010, we entered into a
26-month
lease for a new facility in Delanco, New Jersey providing for
annual lease payments of approximately $560,000. We have options
to renew the lease on our Westampton, New Jersey facility
through April 30, 2021 and to renew the lease on our
Delanco, New Jersey facility through May 31, 2017.
Critical
Accounting Policies
The preparation of financial statements in accordance with
United States Generally Accepted Accounting Principles
(GAAP) requires that management make a number of
assumptions and estimates that affect the reported amounts of
assets, liabilities, revenue, and expenses in our consolidated
financial statements and accompanying notes. Management
evaluates these estimates and assumptions on an ongoing basis,
utilizing historical experience, consulting with experts, and
using other methods considered reasonable in the particular
circumstances. Nevertheless, actual results may differ
significantly from our estimates and assumptions, and it is
possible that materially different amounts would be reported
using differing estimates or assumptions. We consider our
critical accounting policies to be those that are both important
to the portrayal of our financial condition and results of
operations and that require significant judgment or use of
complex estimates.
51
A summary of the significant accounting policies followed in
preparation of the financial statements is contained in
Note 2 to our consolidated financial statements attached
hereto. The following discussion addresses our most critical
accounting policies:
Revenues
Recognition and Accounts Receivable
Revenue and the related direct costs are recognized on the
delivery date, and billing generally occurs on the pick up date.
Revenue and the related direct costs for freight in transit at
period end are deferred and recognized when the freight has been
delivered to the customer, in accordance with Accounting
Standards Codification (ASC) topic
605-20-25-13,
Services for
Freight-in-Transit
at the End of a Reporting Period. Trade accounts
receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is our best
estimate of the amount of probable credit losses in our existing
accounts receivable. We determine the allowance based on our
historical write-off experience and a specific review of all
past due balances, which we perform monthly. Account balances
are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote.
Goodwill
Goodwill represents the excess of the aggregate purchase price
over the fair value of the net assets acquired in a purchase
business combination. Goodwill and intangible assets with
indefinite useful lives are not amortized, but tested for
impairment at least annually and between annual tests if an
event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying
amount. The goodwill impairment test is a two-step test. Under
the first step, the fair value of the reporting unit is compared
to its carrying value (including goodwill). If the fair value of
the reporting unit is less than its carrying value, an
indication of goodwill impairment exists for the reporting unit
and we must perform step two of the impairment test
(measurement). Under step two, an impairment loss is recognized
for any excess of the carrying amount of the reporting
units goodwill over the implied fair value of that
goodwill. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit in a manner
similar to a purchase price allocation. The residual fair value
after this allocation is the implied fair value of the reporting
unit goodwill. If the fair value of the reporting unit exceeds
its carrying value, step two does not need to be performed. We
operate as one reporting unit and perform our annual impairment
review as of November 30 of each year. We concluded no goodwill
impairment was necessary as of our November 30, 2009
impairment review.
Long-Lived
Assets
Long-lived assets, such as property, plant and equipment, and
purchased intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. If circumstances require a long-lived asset
be tested for possible impairment, we first compare undiscounted
cash flows expected to be generated by an asset to the carrying
value of the asset. If the carrying value of the long-lived
asset is not recoverable on an undiscounted cash flow basis, an
impairment is recognized to the extent that the carrying value
exceeds its fair value. Fair value is determined through various
valuation techniques including discounted cash flow models,
quoted market values and third-party independent appraisals, as
considered necessary. As of December 31, 2009, the Company
had a certain number of tractors that were designated as
non-operating, which management viewed as temporary. This was an
event that required management to review for impairment. Based
on their review, management determined that no revision of the
remaining useful lives or write-down of long-lived assets is
required. We concluded that no other such events or changes in
circumstances occurred during 2009.
Income
Taxes
Deferred tax accounts arise as a result of timing differences
between when items are recognized in our consolidated financial
statements compared to when they are recognized in our tax
returns.
52
Significant management judgment is required in determining our
provision for income taxes and in determining whether deferred
tax assets will be realized in full or in part. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
We periodically assess the likelihood that all or some portion
of deferred tax assets will be recovered from future taxable
income. To the extent we believe recovery is not more likely
than not, a valuation allowance is established for the amount
determined not to be realizable. We have not recorded a
valuation allowance at December 31, 2009, as all deferred
tax assets are more likely than not to be realized as they are
expected to be utilized by the reversal of the existing deferred
tax liabilities in future periods.
We believe that we have adequately provided for our future tax
consequences based upon current facts and circumstances and
current tax law. However, should our tax positions be
challenged, different outcomes could result and have a
significant impact on the amounts reported through our
consolidated statements of operations.
Valuation
of Common Stock Warrants and Options
We use the Black-Scholes option-pricing model to value our stock
options awards and our liability-classified warrants to purchase
common stock. The Black-Scholes option-pricing model requires
the input of subjective assumptions, including the fair value of
the underlying common stock, the expected life of the warrants
or stock options and stock price volatility. An expected life of
5 years was utilized in the initial (December 31,
2009) model for the warrants as the warrants can be sold to
us beginning five years from the date of issuance. An expected
life of 4.75 years was utilized in the March 31, 2010
model and 4.50 years in the June 30, 2010 model. For our
stock options we use historical data to estimate the expected
term of the option, such as employee option exercise behavior
and the contractual term of the option. As a private company, we
do not have sufficient history to estimate the volatility of our
common stock price. We use comparable public companies as a
basis for our expected volatility to calculate the fair value of
our common stock. We intend to continue to consistently apply
this process using comparable companies until a sufficient
amount of historical information regarding the volatility of our
own share price becomes available. The risk-free interest rate
is based on U.S. Treasury instruments with a remaining term
equal to the contractual term of the warrants. The assumptions
used in calculating the fair value of the liability classified
warrants represent our best estimate and involve inherent
uncertainties and the application of our judgment. As a result,
if factors change and we use different assumptions, charges
related to changes in the fair value of the warrants could be
materially different in the future.
The fair value of our common stock determined by our board of
directors represents the most important factor in determining
the value of our warrants and our common stock options.
In connection with the issuance of debt that included warrants
to purchase common stock in the fourth quarter of 2009, our
board of directors obtained an independent third-party valuation
to assist it in estimating the fair market value of our common
stock. We engaged an independent third-party valuation firm to
assist our board of directors in determining the fair value of
our common stock as of March 31, 2010 and June 30,
2010.
In order to estimate the fair value of our common stock, we
first estimated our enterprise value and then derived the value
of our common stock implied by the enterprise value as described
in more detail below.
In estimating our enterprise value, we used methodologies and
assumptions consistent with the American Institute of Certified
Public Accountants Practice Guide, or the AICPA Practice Guide,
Valuation of Privately-held-Company Equity Securities Issued
as Compensation. The primary methodologies that we used to
determine our enterprise value were a market-based approach and
an income-based approach.
53
|
|
|
|
|
Under the market-based approach, we calculated the valuation
multiples relative to the market value of capital (MVC) to
EBITDA ratio based on a three-year average ratio as well as the
MVC to recent EBITDA ratio and the ratio of MVC to revenues for
comparable, publicly traded companies. We then applied those
multiples to our basis as of the valuation date. Since investors
tend to place greater emphasis on earnings capacity, we chose to
attribute 80% weight to the earnings multiples and 20% weight to
the revenues multiple.
|
|
|
|
Under the income-based approach, we employed the discounted cash
flow (DCF) model using our projections for the calendar years
2010 through 2012 and extrapolated an additional seven-year
period using certain key assumptions.
|
We then employed the option pricing method to calculate the
implied value of our common stock. Under this method, we
estimated the fair value of our common stock as the net value of
a series of call options, representing the present value of the
expected future returns to the common shareholders.
As discussed above, we then reduced the value of the common
stock using this approach by applying an illiquidity discount to
account for the heightened level of risk associated with our
shares compared to that of comparable, publicly traded companies.
The fair value of our common stock was determined to be
$ per share as of
December 31, 2009, $ per
share as of March 31, 2010 and
$ per share as of June 30,
2010. The increase in the fair value from December to March was
due to our first quarter results that significantly exceeded our
initial projections for 2010 due to signs of an economic
recovery. As a result, the Company revised its financial
projections as of March 31, 2010, which resulted in an
increase in our enterprise value as implied by the discounted
cash flow analysis. Our guideline company multiples also
increased from December to March given the economic environment
which resulted in an increase in our market-based approach
enterprise value. Additionally, our illiquidity discount
decreased due to the increased likelihood of an initial public
offering. The increase from March 31, 2010 to June 30,
2010 is primarily due to an additional decrease in the
illiquidity discount. Finally, given our significant leverage, a
small percentage change in our enterprise value or a small
reduction in our debt results in a relatively large percentage
increase in our equity value.
We issued options in November 2009
with an exercise price of $ per
share. The fair value of our common stock was determined to be
$ and accordingly, the options had
no intrinsic value at the date of grant because the per share
valuation of the common stock was significantly lower than the
exercise price of the options.
We plan to continue to obtain independent third party valuations
at each reporting date until the completion of this offering for
purposes of valuing the outstanding warrants.
Property
and Equipment
Property and equipment are stated at cost. Depreciation on
property and equipment is calculated by the straight-line method
over the estimated useful life, which ranges from four to 10
years, down to an estimated salvage value of the property and
equipment, which ranges from zero to 40% of the capitalized
cost. We periodically review the reasonableness of our estimates
regarding useful lives and salvage values of our revenue
equipment and other long-lived assets based upon, among other
things, our experience with similar assets, conditions in the
used revenue equipment market, the number of tractors designated
as non-operating and prevailing industry practice. We both
routinely and periodically review and make a determination as to
whether the salvage value of our tractors and trailers is higher
or lower than originally expected. This determination is
generally based upon market conditions in equipment sales, and
the average miles driven on the equipment being sold. Future
changes in our useful life or salvage value estimates, or
fluctuation in market value that is not reflected in our
estimates, could have a material effect in our results of
operations. We continually monitor events and changes in
circumstances that could indicate that the carrying amounts of
our property and equipment may not be recoverable.
54
Recently
Adopted Accounting Guidance
On September 30, 2009, we adopted changes issued by the
FASB to accounting for and disclosure of events that occurred
after the balance sheet date but before financial statements are
issued or are available to be issued, otherwise known as
Subsequent Events. Specifically, these changes set
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 circumstances under
which an entity should recognize events or transactions
occurring after the balance sheet date in its financial
statements, and the disclosures that an entity should make about
events that occurred after the balance sheet date. The adoption
of these changes had no impact on the consolidated financial
statements. We have evaluated subsequent events from the balance
sheet date through August 11, 2010, the date at which the
financial statements were issued.
Quantitative
and Qualitative Disclosures about Market Risk
We are subject to interest rate risk in connection with our
existing credit facility. The interest rate on our existing
credit facility fluctuates based on LIBOR plus an applicable
margin. In connection with our existing credit facility, we
entered into an interest rate swap agreement with Wells Fargo
Bank, N.A. in April 2008 that, as amended, expired in August
2010. The notional amount of this interest rate swap is
$75.0 million, and we did not renew it upon its expiration.
Assuming no drawings under the $20.0 million line of credit
under our existing credit facility, a 1.0% change in the
borrowing rate on our existing credit facility would have
changed our annual interest expense by $0.2 million as of
June 30, 2010. We do not use derivative financial
instruments for speculative trading purposes.
We expect to be subject to interest rate changes in connection
with our new revolving credit facility. The interest rate on our
new revolving credit facility is expected to fluctuate based on
LIBOR plus an applicable margin. We do not intend to enter into
interest rate swaps in connection with our new revolving credit
facility. Assuming our new revolving credit facility is fully
drawn, a 1.0% change in the borrowing rate would change our
annual interest expense by $0.6 million.
We are also exposed to commodity price risk related to diesel
fuel prices and manage our exposure to that risk primarily
through the application of fuel surcharges. We cannot assure you
that our fuel surcharge revenue programs will be effective in
the future.
55
INDUSTRY
The U.S. trucking industry is large, fragmented and highly
competitive. According to the ATA, the U.S. trucking
industry generated approximately $544 billion in revenue in
2009 and accounted for approximately 81.9% of the
$664.7 billion in domestic spending on freight
transportation. In general, the trucking industry can be divided
into two distinct segments: for-hire carriers,
including LTL and truckload carriers and private
carriers, which are shipper-owned company fleets. According to
the ATA, for-hire carriers generated $284.8 billion in
2009, or 42.8% of total transportation revenue, while private
carriers generated $259.6 billion, or 39.1% of total
transportation revenue. The ATA expects that trucking will
continue to dominate the overall freight transportation
landscape, accounting for approximately 83.1% of all domestic
spending on freight transportation by 2021. According to the
ATA, total domestic truck revenue is expected to increase to
approximately $932.9 billion by 2021, representing an
average annual increase of 4.6%.
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2009 U.S. Freight
Transportation Market Share
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Annual U.S. Trucking Revenue
Growth by Segment
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Source: ATA, represents percentage of revenue.
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Source: ATA.
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LTL carriers handle a large number of small shipments, that
weigh approximately 1,000 pounds according to the ATA, for
multiple shippers on a scheduled basis. LTL carriers manage a
network of pickup and delivery, breakbulk and destination
terminals and a staff of freight handlers, all of which
contribute to a high fixed cost operating model with ongoing
capital requirements. Furthermore, we believe their use of
breakbulk terminals increases freight transit times and the risk
of cargo damage. LTL carriers typically calculate rates based on
the weight and size of shipments, distance shipped, and type of
freight hauled, which is generally referred to as revenue per
hundredweight. Because LTL carriers can transport multiple
shipments in a single trailer and must maintain a high cost
infrastructure, revenue per tractor is generally higher than
that of truckload carriers. The ATA estimates that LTL industry
revenue totaled $38.6 billion in 2009, representing 5.8% of
domestic transportation revenue. The ATA expects that LTL
carrier revenue will grow to $84.8 billion by 2021,
representing an average annual increase of 6.8% from 2009 and
will account for 7.5% of domestic transportation revenues in
2021, representing a 1.7% increase in market share as compared
to 2009.
Truckload carriers typically utilize a driver, tractor and
53-foot trailer to transport a full load of freight from a
shippers dock to its destination. Since truckload carriers
are able to deliver freight
point-to-point
without rehandling, a fixed network of terminals is not
required, which we believe results in lower fixed costs, greater
operating flexibility and fewer damage claims as compared to LTL
carriers. Truckload carriers can generally transport up to
40,000 pounds per load and typically calculate rates based on
the number of miles required for delivery, the type of freight
hauled and lane specific factors. According to the ATA,
truckload carrier revenue totaled $246.2 billion in 2009,
representing 37.0% of domestic transportation revenue. The ATA
expects that truckload carrier revenue will grow to
$432.5 billion by 2021, representing an average annual
increase of 4.8% from 2009, and will account for 38.5% of
56
total domestic transportation revenue by 2021, representing a
1.5% increase in market share as compared to 2009.
Although certain segments of the trucking industry have been
consolidating, the market remains largely fragmented. According
to 2008 data published by Transport Topics the ten largest
for-hire truckload carriers are estimated to comprise
approximately 5.3% of the total for-hire truckload market while
the top ten LTL carriers accounted for 49.9% of the for-hire LTL
market. We compete with thousands of other carriers, most of
which operate fewer than 100 tractors. To a lesser extent, we
compete with railroads, third-party logistics providers, and
other transportation companies. The principal means of
competition in our industry are service, the ability to provide
capacity when and where needed, and price. In times of strong
freight demand, service and capacity become increasingly
important, and in times of weak freight demand pricing becomes
increasingly important.
Due primarily to regional consumption and manufacturing
patterns, certain freight lanes within the U.S. are
directionally imbalanced. For instance, because the Northeast is
a densely populated area where personal consumption levels
exceed manufacturing output, significantly more freight is
shipped into the region than out of the region. As a result,
freight movements into the Northeast, or inbound shipments,
generally command higher transportation rates than freight
movements originating from the Northeast, or outbound shipments.
The following graphic demonstrates the imbalance of rates per
mile for truckload shipments that we believe provides us with a
competitive advantage because we take advantage of the more
attractive Northeast inbound rates for truckload shipments and
avoid the less attractive Northeast outbound rates for truckload
shipments:
Source: Truckloadrate.com.
Note: Rates for illustrative purposes only; represents an
average of the trailing 12 months as of August 2010
(excluding fuel).
57
Demand for trucking services in the U.S. is primarily
driven by overall economic activity, particularly manufacturing
output, industrial production and consumer demand. There is a
high correlation between real GDP growth and demand for trucking
services. Generally, given the dependence of North American
shippers on trucking as a primary means of transportation, truck
tonnage is considered a leading indicator of economic activity.
We believe that since 2002, two major economic cycles have
occurred: the period from 2002 to 2006, characterized by
economic expansion and growth in the trucking industry; and the
recessionary period from 2007 to 2009, during which there was a
global economic recession, major credit crisis and contraction
in the trucking industry.
During the 2002 to 2006 expansionary period, strong economic
fundamentals bolstered by high manufacturing output and consumer
demand created a growth market for the trucking industry. Annual
growth in real GDP and industrial production of approximately
2.9% and 2.3%, respectively, from 2002 to 2006 led to an annual
increase in total truck tonnage of 2.3% over the same time
period. In addition to steadily increasing freight volumes,
industry pricing accelerated due primarily to equipment and
driver capacity shortages. Increased truck tonnage combined with
an improved pricing environment resulted in a steady increase in
revenue for the trucking industry during the 2002 to 2006 period.
The global recession of 2007 to 2009 created a difficult
trucking environment characterized by a reduction in freight
demand and an excess supply of tractors, which led to a sharp
decline in freight rates. During this time frame, real GDP and
industrial production declined at compound annual growth rates
of approximately 1.3% and 6.3%, respectively. As shown in the
chart below, total truck tonnage increased 3.5% year-over year
in the first quarter of 2008. As the global recession
accelerated in the second half of 2008 and 2009, total truck
tonnage declined sharply, demonstrated by
year-over-year
declines of 10.8%, 12.6% and 8.4% in the first, second and third
quarters of 2009, respectively.
Beginning in the third quarter of 2009, the trucking industry
has rebounded as U.S. manufacturing and industrial
production have gradually increased and consumer demand has
encouraged retailers to restock inventories. According to the
U.S. Bureau of Economic Analysis, real GDP increased at an
annualized rate of 5.0% in fourth quarter of 2009, 3.7% in the
first quarter of 2010 and 1.6% in the second quarter of 2010.
The International Monetary Fund expects real GDP to increase
3.3% in 2010. Similarly, according to the Federal Reserve,
U.S. industrial production grew at an annualized rate of
1.6% in the fourth quarter of 2009 and 7.4% in the first quarter
of 2010 and 6.5% in the second quarter of 2010. Manufacturers
Alliance/MAPI Inc. expects industrial production to grow 6.0% in
2010.
The following chart illustrates the correlation of truck tonnage
and real GDP:
Year-over-Year
Change in Total Truck Tonnage and Real GDP
Source: ATA, U.S. Bureau of Economic Analysis.
Truck tonnage increases resulting from the 2002 to 2006
expansionary period encouraged many trucking carriers to
increase the size of their fleets to meet an anticipated rise in
demand. As shown in
58
the chart below, retail sales of Class 8 tractors, which
are tractors with a gross vehicle weight rating of over 33,000
pounds and include all tractors that haul trailers, averaged
approximately 210,000 units annually over the five year
period, which resulted in a historically high supply of
tractors. In response to the decline in truck tonnage, new
emissions standards and a challenging credit environment, orders
for new tractors decreased precipitously during the 2007 to 2009
period. As a result of this significant capacity reduction, as
shown in the charts below, the number of tractors fifteen years
of age or younger, on an export-adjusted basis, or active
tractors, has declined from 2.3 million in 2006 to an
estimated 2.0 million in 2010, and the average fleet age
has increased from 5.7 years in 2006 to 6.5 years in
2009, according to ACT Research, Co., LLC.
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U.S. Class 8 Retail Sales and
Fleet Age
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Active Tractor Units
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Source: ACT Research, Co., LLC.
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Source: ACT Research, Co., LLC.
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We believe that the recent improvement in economic conditions
and resulting increase in truck freight demand coupled with
several years of below-average tractor purchases, a large number
of trucking company bankruptcies since 2007 and industry-wide
driver capacity shortages will lead to a more favorable
relationship between freight demand and industry-wide trucking
capacity than we have experienced over the last three years. We
believe that pressure on trucking capacity will continue to
increase due to federal mandates requiring more costly engines
and further restrictions of drivers hours-of-service. In
addition, based on the recent decline in active tractors, we do
not believe that new class 8 tractor production will be at
levels necessary to replace aging tractors that will be taken
out of service in the coming years.
Many shippers have accelerated their focus on quality
improvement, order cycle time reductions,
just-in-time
inventory management and regional assembly and distribution
methods We believe other emerging trends in the
over-the-road
transportation industry include the following:
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Continued constraints on increases in truck capacity is creating
opportunities for safe and reliable carriers to capture
additional freight.
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An increased reliance by shippers on a smaller base of core
carriers.
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A growing demand for customized services as more companies seek
to reduce costs and improve returns without sacrificing service
levels.
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Increased outsourcing of non-core functions by shippers in an
effort to redeploy resources.
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59
BUSINESS
Overview
We are a growth-oriented motor carrier using a differentiated
Load-to-Deliver
operating model that we believe combines the higher revenue per
tractor characteristics of an LTL carrier with the operating
flexibility and lower fixed costs of a service-sensitive
truckload carrier. We offer a full range of
over-the-road
transportation solutions to our customers, including customized,
expedited, time-definite, dedicated and specialized LTL and
truckload services. Our specialized services include the
transportation of temperature-controlled and Hazmat freight. We
believe our
Load-to-Deliver
operating model provides our customers with a breadth of
transportation solutions that fits their time, service and price
points and gives us a competitive advantage in sourcing freight.
Specifically, we believe the flexibility of our
Load-to-Deliver
operating model allows us to accommodate a broad range of
shipment sizes and freight for both regional and national
accounts while providing shippers faster and more predictable
transit times with reduced freight damage. As of June 30,
2010, our fleet consisted of 983 owned tractors and 2,114 owned
or leased trailers, including 886 temperature-controlled
trailers. Since 2002, we have grown total revenues at a compound
annual growth rate of 21.7%. Over the same period our net income
decreased from approximately $62,000 in 2002 to a net loss of
$5.1 million in 2009. During the fiscal year ended
December 31, 2009, we generated total revenues of
$229.3 million, Adjusted EBITDA of $22.7 million and
net loss of $5.1 million. For the six months ended
June 30, 2010, we generated total revenues of
$126.2 million, Adjusted EBITDA of $13.7 million and
net loss of $10.3 million, which includes a
$8.5 million non-cash charge related to a change in fair
value of warrants.
We serve shippers throughout the continental United States and
parts of Canada but focus primarily on the estimated
$3.2 billion market for LTL freight originating in the
Northeast and the estimated $8.4 billion market of inbound
truckload freight back into the region, according to SJ
Consulting Group, Inc. LTL services involve the consolidation
and transport of freight from numerous shippers to multiple
destinations on one vehicle and thus garner higher net revenue
per tractor than truckload shipments. Truckload services involve
the transport of a single shippers freight to a single
destination. We manage our operations on a round-trip basis to
maximize revenue per operating tractor by pursuing headhaul
freight lanes for both our outbound and inbound trips. For the
outbound portion of our round-trip, we generally deploy our
local pickup fleet to gather LTL shipments throughout the
Northeast that we build into linehaul loads at our Philadelphia
metropolitan area LTL consolidation operations for delivery
directly to recipients without rehandling. The cornerstone of
our
Load-to-Deliver
operating model consists of delivering LTL shipments directly
from a linehaul trailer to the recipient, eliminating the need
for a network of costly and labor-intensive destination and
breakbulk terminals typical of traditional LTL carriers. For the
inbound portion of our round-trip, we generally transport
truckload freight back to the Northeast to reposition our
tractors and trailers near our consolidation operations.
60
The diagram below illustrates a hypothetical round-trip under
our
Load-to-Deliver
operating model:
We believe our
Load-to-Deliver
operating model offers multiple solutions to our customers to
address their transportation needs and manage their supply
chains. We believe that we are able to provide our customers
time-definite LTL services with lower cargo claims and fewer
opportunities for delays because our
Load-to-Deliver
operating model requires fewer handlings per LTL shipment than a
traditional LTL carrier. For example, for the year ended
December 31, 2009, our claims ratio was 0.24% as compared
to the average of 1.04% reported by the Transportation Loss
Prevention and Security Association. We believe we can reduce a
shipments transit time by up to 24 hours for every
breakbulk terminal that our
Load-to-Deliver
operating model avoids while transporting our customers
freight. In addition, we believe our customers value the ability
to work with a flexible motor carrier that can service a broad
spectrum of their transportation needs.
We believe our
Load-to-Deliver
operating model provides us with a competitive advantage in
sourcing freight while enhancing utilization of our tractors and
allowing us to operate more cost effectively. Our
Load-to-Deliver
operating model allows us to avoid the historically unfavorable
pricing of truckload freight outbound from the Northeast and
positions us to take advantage of higher priced truckload
freight inbound to the Northeast, a densely populated, high
consumption area. We believe our
Load-to-Deliver
operating model enables us to optimize the economics of a
round-trip by combining two favorably priced headhauls (an
outbound load of LTL shipments and an inbound truckload
shipment) to maximize revenue per operating tractor. For
example, based on the public filings of nine truckload carriers
and truckload divisions of motor carriers that we reviewed in
2009 our net revenue per operating
61
tractor per day of approximately $1,000 was significantly
higher than the $500 to $700 per day of those truckload carriers
and truckload divisions over the same period. In addition,
because we generally deliver LTL freight directly from the
trailer to the recipient, we do not need the capital investment
and high-fixed cost structure that we believe are required to
operate the numerous local delivery fleets, nationwide breakbulk
and destination terminals and multiple staffs of freight
handlers typically associated with our competitors. We believe
our customers recognize the importance of having access to our
temperature-controlled and Hazmat services. As a result, they
will often use our services to transport non-specialized freight
to retain access to these services.
We believe our
Load-to-Deliver
operating model is management intensive and difficult to
replicate. We believe successful implementation of our business
model requires professionals with experience in a
Load-to-Deliver
or comparable operating model at multiple levels of the
organization. In particular, our business model requires a
strong focus on outbound logistics, load planning, proprietary
technologies and operating and marketing objectives as well as
an ability to identify strategically located properties for
expansion. Our
Load-to-Deliver
operating model and marketing efforts emphasize customer
satisfaction and strategic partnership while simultaneously
focusing on a disciplined approach to pricing and selectively
pursuing freight that fits within our operating system. As an
example of our managements ability to identify freight
that fits our system and freight lanes, in 2009 our percentage
of empty miles was less than 4%, compared to an average of 27.6%
and 13.4% among truckload and LTL carriers, respectively,
according to data from the ATA.
History
and Management Background
We were founded in 2000 as a New Jersey corporation by Harry
Muhlschlegel, a transportation industry veteran, and began
operating with 29 tractors from a 50,000 square foot
facility in Glassboro, New Jersey. Since our founding,
Mr. Muhlschlegel has been joined by several key members of
the former Jevic management team and together they have
continued to refine our
Load-to-Deliver
operating model in response to a changing transportation
environment. Key milestones to our growth include:
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2001: Introduced temperature-controlled service;
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2002: Acquired Edward M. Rude Carrier Corporation, a West
Virginia-based common carrier operating 22 tractors;
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2002: Transferred operations to 100,000 square foot
consolidation operation in Westampton, New Jersey;
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2004: Expanded Westampton facility to 150,000 square feet;
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2004: Total annual revenue first exceeded $100 million;
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2006: Recapitalization with JCP Fund IV;
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2006: Acquired Western Freightways, a Denver-based motor carrier
operating 119 tractors in a business model similar to our
Load-to-Deliver
operating model;
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2006: Launched brokerage operation;
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2006: Total annual revenue first exceeded $150 million;
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2007: Acquired P&P Transport, a New Jersey-based motor
carrier operating 199 tractors;
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2007: Total annual revenue first exceeded
$200 million; and
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2010: Leased 170,000 square foot facility in Delanco, New
Jersey.
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In 1981, Mr. Muhlschlegel founded Jevic and served as its
chairman and chief executive officer. Mr. Muhlschlegel,
together with his senior management team, pioneered an operating
model similar to our
Load-to-Deliver
operating model.
62
Shortly after our founding, several members of the Jevic
management team, including James Molinari and Brian Fitzpatrick,
joined New Century and have been integral to our growth. Of our
top 34 senior managers, 23 have worked together for an average
of over 20 years specifically within the
Load-to-Deliver
or a comparable operating model.
Operating
and Growth Strategy
We believe our experienced management team and our
differentiated
Load-to-Deliver
operating model will allow us to capitalize on any volume growth
from an economic recovery as well as key ongoing trends in the
U.S. freight transportation industry. The following are the
key components of our operating and growth strategy:
Build
Freight Density in Existing System.
We believe we have growth opportunities in the estimated
$3.2 billion outbound Northeast LTL market and the
estimated $8.4 billion market of inbound truckload freight
back into the region, according to SJ Consulting Group, Inc. The
goal of our marketing and sales strategy is to increase our
freight volumes and density in the Northeast by adding new
customers and building new lanes with, and cross-selling our
services to, existing customers. Despite the economic downturn,
we have been able to grow our number of active customers 17%
from 963 in 2007 to 1,129 in 2009. We believe we are well
positioned to capture a greater percentage of our
customers transportation spend. We offer a broad range of
services to our customers, which gives us multiple opportunities
to attract new customers and to cross-sell additional services
to existing customers. During 2009, 23 of our top 25 customers
by total revenue used both our LTL and truckload services, and
more than half of our top 200 customers by total revenue have
used our temperature-controlled services. For example, Crayola
LLC, which started as a customer for our truckload services, has
since expanded to use our LTL, temperature-controlled and
expedited services. In addition, we believe that our operational
flexibility will position us to take advantage of the growing
trend of shippers who partner with a small base of core carriers
for all of their shipping needs to improve their supply chain
offering and reduce administrative burden. We have proactively
prepared ourselves for increased freight volumes by leasing an
approximately 170,000 square foot consolidation operation
near our Westampton, New Jersey headquarters that will allow us
to double the number of LTL shipments we can consolidate. As of
June 30, 2010, we had 178 available tractors, or 18.1% of
our current fleet, that we can place back into operation to meet
growing demand for our services with no additional capital
investment. We have designated the vast majority of these
tractors as non-operating in response to reduced demand for our
services and in an effort to preserve the economic life of our
tractors. As of June 30, 2010, our other 805 tractors were
available for delivering freight. Furthermore, any increase in
our net revenue per shipment, which decreased 14.7% from $483 in
2008 to $412 in 2009, should improve our operating results.
Maintain
Emphasis on Specialized Freight.
We have focused and intend to continue focusing on transporting
specialized freight such as pharmaceuticals, chemicals and
certain agricultural and horticultural products. For example,
the percentage of our net revenues generated from pharmaceutical
companies included among our 800 largest customers (excluding
customers of our wholly-owned subsidiary Western Freightways)
has more than doubled from 4.0% in 2006 to 9.5% in 2009. We
believe that customers in these industries demand exceptional
service and generally have less cyclical demands for freight
delivery. In order to accommodate the needs of these customers,
we will continue to emphasize the use of highly experienced
drivers with the necessary certifications as well as specialized
equipment. We believe that our 100% Hazmat certified driver
workforce and ability to transport certain hazardous materials
nationwide makes us a leading transportation provider for the
chemical and pharmaceutical industries. Our fleet of
temperature-controlled trailers has increased from 439 in 2005
to 886 as of June 30, 2010. Total revenues from the
shipment of temperature-controlled freight have grown 52.3%
annually from $9.6 million in 2005 to $51.9 million in
2009 and have increased from 6.9% of our total revenues in 2005
to 22.6% in 2009.
63
Focus
on Tractor and Trailer Technology.
The technology programs for our tractors and trailers are key
aspects of our operating model and our ability to deliver
consistently high levels of customer service. Over the years,
our management team has been an early adopter of technologies
such as satellite tracking, self-lubricating chassis on both our
tractors and trailers, auxiliary power units, automatic
transmissions, vented mud flaps and super-single tires. We
believe these technologies improve our fuel efficiency, extend
the useful life of our tractors and enhance driver satisfaction.
Most recently, in response to uncertainties in new engine
designs, we have established a program to remanufacture existing
engines. We have entered into this program with Caterpillar,
Inc., which will provide a full warranty on the engine for
unlimited miles for four years. We expect that remanufactured
engines will allow us to use a tractor for up to an additional
four years for approximately 25% of the cost of a new tractor,
thereby enhancing free cash flow and improving our return on
invested capital.
Continue
to Focus on Operating Efficiency.
We are focused on implementing operational and financial
improvements to increase asset productivity, accelerate earnings
growth, enhance returns and improve our competitive position. To
achieve these goals, our management has placed emphasis on
optimizing freight mix, controlling costs and tightly managing
our revenue generating equipment. For example, as a result of
the prolonged decline in the general economy, we designated
approximately 160 tractors as non-operating in 2009 and
increased our reliance on purchased transportation for less
profitable lanes. We employ management information systems,
including messaging systems and freight optimization software,
to improve shipment selection and maximize profitability. As an
example of our managements ability to identify freight
that fits within our system and freight lanes, in 2009 our
percentage of empty miles was less than 4.0%, compared to an
average of 27.6% and 13.4% among truckload and LTL carriers,
respectively, according to data from the ATA. In response to the
industry-wide downturn in truck tonnage, we implemented
initiatives that removed approximately $6.8 million of
annual costs, including company-wide salary reductions,
headcount reductions and terminating our 401(k) matching
program. While certain of these cost saving initiatives will be
reversed in an improving economic environment, we believe our
less asset intensive operating model eliminates the need for a
terminal network infrastructure and will allow us to continue to
increase our Adjusted EBITDA margins with increasing truck
tonnage and improvements in pricing of freight we transport. In
addition, we implemented operating and load planning efficiency
initiatives in the second half of 2009 that allowed us to
transport 11.2% more shipments with 1.9% fewer operating
tractors in the six months ended June 30, 2010 than in the
six months ended June 30, 2009.
Recruit
and Retain Experienced, Professional Drivers.
Our experienced, non-union drivers are critical to our operating
model. We believe that the operational flexibility and safety
track record of our drivers allow us to offer a variety of
services and to compete for freight requiring premium service
levels. Our driver turnover rate, which has ranged from 25% to
32% per year over the last four years, is significantly below
the average turnover for truckload carriers of 83.9% during the
same period, as estimated by the ATA. We believe that we will
continue to be successful at recruiting and retaining skilled
drivers because we promote a driver friendly environment. We
believe that we provide attractive and comfortable equipment,
direct communication with senior management and the flexibility
to operate either as a single driver or as part of a two-person
team. Our wages and benefits are based on an hourly rate or a
rate per mile plus payments for completion of specific actions,
such as each delivery stop made, and other incentives designed
to encourage driver safety, retention and long-term employment.
We believe that our drivers are compensated very competitively,
allowing us to attract and retain qualified drivers who fit into
our high service culture. We believe our driver friendly culture
emanates from Mr. Muhlschlegel, our founder and Chief
Executive Officer and a former driver, who has continually
emphasized the importance of a stable, high
64
quality driver force. We believe our driver friendly culture
will be an increasing competitive advantage should the
availability of drivers decrease in the future.
Pursue
Selective Acquisitions.
The transportation and logistics industry is large and highly
fragmented. Since our founding, we have acquired Edward M. Rude
Carrier Corporation, Western Freightways and P&P Transport,
each of which complemented and expanded our service offerings
and fit our operating strategy of maximizing revenue per tractor
on a round-trip basis. We will continue to explore other
opportunities to acquire motor carriers and logistics service
providers that would increase our scale and efficiency, expand
our premium service offerings or enhance our customer base,
although we do not have any current acquisition plans, proposals
or understandings.
Load-to-Deliver
Operating Model
We believe that our
Load-to-Deliver
operating model differentiates us from other trucking companies
by combining the higher revenue per tractor characteristics of
an LTL carrier with the operating flexibility and lower fixed
costs of a service-sensitive truckload carrier. Our operating
model also enables us to transport multiple smaller shipments
similar to an LTL carrier together with the
point-to-point,
time-definite delivery of a typical truckload carrier. We
believe that this operating model is substantially different
from the traditional hub and spoke LTL model and enables us to
avoid unfavorable pricing of truckload freight from the
Northeast while capitalizing on the attractive truckload rates
back into the region. We generally define an LTL shipment as a
shipment that is less than 28,000 pounds or utilizes less than
28 linear feet on a trailer (although shipments of such size are
larger and heavier than typical LTL shipments), whereas a
truckload shipment is greater than or equal to 28,000 pounds.
We generally pick up freight within a 150 mile radius of
our consolidation operations, which we refer to as our pickup
dispatch zone. By contrast, we believe that a typical public LTL
carrier operates 30 to 50 breakbulk and consolidation terminals
to cover the same geography as our pickup dispatch zone which we
have historically covered with one facility. The majority of our
LTL shipments are already palletized, do not need to be touched
and can be loaded and unloaded via forklift. On average, our
typical LTL shipment weighs between 3,000 and 3,500 pounds,
which enables us to assemble loads more quickly than traditional
LTL carriers. We believe that our Westampton, New Jersey
facility is larger in both square footage and total cubic area
(due to higher ceilings) than most LTL facilities. As a result,
we are able to handle LTL shipments that are larger and heavier
than those transported by most LTL carriers and to stage freight
for longer periods of time. LTL services constitute the primary
outbound freight from our consolidation operations.
65
The graphic below illustrates our 2009 shipments by origination
region:
The cornerstone of our
Load-to-Deliver
operating model consists of delivering LTL shipments directly
from a linehaul trailer to recipients. Due to our lane density,
we are able to combine and sequence shipments, primarily on
53-foot trailers, such that their final destinations are in
close proximity to each other, thereby increasing our operating
efficiency and asset utilization. The load planning function is
a critical component of our
Load-to-Deliver
system. We believe that our load planning function is more
sophisticated than that of a traditional LTL carrier because it
entails sequential delivery directly from the linehaul trailer.
In planning our outbound loads, we attempt to position our
tractors and trailers so that the final LTL delivery stop is
near the truckload shipment that will complete the round-trip to
our consolidation operations, thereby minimizing empty miles. We
believe our focus on sequential delivery directly from a
linehaul trailer is different than the delivery process of
either traditional LTL or truckload carriers who focus on either
terminal-to-terminal
or
point-to-point
routes, respectively. We employ 14 people in our load
planning department who collectively have an average of
12.4 years of experience in planning loads under either the
Load-to-Deliver
or similar operating model.
66
The graphic below illustrates our 2009 shipments by destination
region:
For the inbound portion of our round-trip, we generally
transport truckload freight into the Northeast to reposition our
tractors and trailers near our LTL consolidation operations in
the Philadelphia metropolitan area. Our dispatchers arrange for
the pickup and delivery of freight and coordinate the associated
routing of our tractors and trailers to the freights final
destination. Although we provide truckload services nationwide
based on pricing and routing factors, we generally transport
truckload freight from the Western and Southern areas of the
United States to the Northeast to reposition our tractors and
trailers near our Philadelphia metropolitan area LTL
consolidation operations. We believe our
Load-to-Deliver
operating model also allows us to increase equipment utilization
and avoid the unfavorable pricing of truckload freight outbound
from the Northeast and positions us to take advantage of higher
priced truckload freight inbound to the Northeast, which is a
densely populated, high consumption area where consumption
levels significantly exceed output levels. As a result of this
imbalance, truckload rates for Northeast inbound freight
typically are greater than the rates for Northeast outbound
freight. The following graphic demonstrates the imbalance of
rates per mile for truckload shipments that we believe provides
us with a competitive advantage because we take advantage of the
67
more attractive Northeast inbound rates for truckload shipments
and avoid the less attractive Northeast outbound rates for
truckload shipments:
Source: Truckloadrate.com.
|
|
Note: |
Rates for illustrative purposes only, represents an average of
the trailing 12 months as of August 2010 (excluding fuel)
|
Benefits
of the
Load-to-Deliver
Operating Model to Our Customers
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Improved Transit Time. We provide our
customers with faster transit times with fewer opportunities for
delays of their LTL freight deliveries. We believe this gives us
a competitive advantage over traditional LTL carriers. For
example, we can transport LTL freight from Philadelphia,
Pennsylvania to Dallas, Texas in two days without stopping at a
breakbulk hub given our point to point delivery model, while the
same shipment traveling through a traditional hub and spoke LTL
network would likely take three days because of the need to
unload and reload the freight at several breakbulk hubs en route.
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Lower Cargo Claims. We provide our
customers time-definite LTL services with lower cargo claims
than a traditional LTL carrier since our
Load-to-Deliver
operating model requires fewer handlings per LTL shipment. For
example, for the year ended December 31, 2009, our claims
ratio was 0.24%, as compared to the average of 1.04% reported by
the Transportation Loss Prevention and Security Association.
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Core Carrier with Operational Flexibility to Ship All
Types of Freight. We provide our customers
with the flexibility to handle a wide range of shipment sizes,
weights and types of freight that we believe is not typically
provided by a typical LTL or truckload carrier. We believe our
customers value the ability to work with a flexible motor
carrier that can service a broad spectrum of their
transportation needs.
|
68
Benefits
of the
Load-to-Deliver
Operating Model to Us
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|
Optimized Round-Trip Economics. We
believe that our
Load-to-Deliver
operating model allows us to increase equipment utilization and
avoid the unfavorable pricing of truckload freight outbound from
the Northeast and positions us to take advantage of higher
priced truckload freight inbound to the Northeast. We believe
our
Load-to-Deliver
operating model enables us to optimize the economics of a
round-trip by combining two favorably priced headhauls (an
outbound LTL shipment and an inbound truckload shipment) to
maximize revenue per operating tractor. For example, based on
the public filings of 9 truckload carriers and truckload
divisions of motor carriers that we reviewed, in 2009 our net
revenue per operating tractor per day of approximately $1,000
was significantly higher than the $500 to $700 per day of those
truckload carriers and truckload divisions over the same period.
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Right Sized Fixed Cost
Infrastructure. We believe that we operate a
less asset intensive operating model. Since we generally deliver
LTL freight directly from the trailer, we do not have the
capital investment and high-fixed cost structure required to
operate the numerous local delivery fleets, nationwide breakbulk
and destination terminals and multiple staffs of freight
handlers and load planners, typically associated with our LTL
competitors. We have a higher percentage of variable costs than
a typical LTL carrier and are better positioned to scale our
operations to operate through economic downturns while still
maintaining significant operating leverage to expand margins in
an economic upturn. For example, based on the public filings of
seven LTL carriers that we reviewed, our Adjusted EBITDA margin
in 2009 of 9.9% was significantly higher than the average EBITDA
margin of those LTL carriers.
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Ability to Cross-Sell Multiple Services to
Customers. We offer a broad range of services
to our customers, which gives us multiple opportunities to
attract new customers and to cross-sell additional services to
existing customers. For example, Crayola LLC, which started as a
customer for our truckload services, has since expanded to use
our LTL, temperature-controlled and expedited services. In
addition, we believe that our operational flexibility positions
us well to take advantage of the growing trend of shippers
partnering with a small base of core carriers for all of their
shipping needs. We believe our customers recognize the
importance of having access to our temperature-controlled and
Hazmat services. As a result, they will often use our services
to transport non-specialized freight to retain access to these
services.
|
Our
Services
We offer a full range of
over-the-road
transportation solutions to our customers, including customized,
expedited, time-definite, dedicated and specialized LTL and
truckload services. We regularly expand our service offerings to
meet our customers evolving freight requirements so that
we are able to address all of their
over-the-road
shipment needs. We provide our customers with the flexibility to
handle a wide range of shipment sizes, weights and types of
freight not typically provided by a traditional LTL or truckload
carrier. In addition, we provide these services over a broad
range of distances ranging from 15 to 3,000 miles. We
believe our ability to transport multiple types of freight over
multiple distances differentiates us from our competitors.
Expedited
Services
As of June 30, 2010, we had 230 drivers working
together in 115 teams of two, which enables us to move a
shipment of freight almost continuously across the country while
allowing the drivers to remain in compliance with applicable
work regulations, particularly hours of service restrictions.
The use of these teams, the members of which always work
together, enables us to offer expedited LTL and truckload
services nationwide, and we can often guarantee delivery of a
shipment from the Northeast to West coast destinations within
three business days.
69
Temperature-Controlled
Services
For LTL and truckload freight, we offer our customers
temperature-controlled services. Temperature-controlled services
consist of both heated service for customers whose freight must
be protected from freezing during winter months and refrigerated
service for customers whose freight must be maintained at a cold
or constant temperature. Customers typically requiring
temperature-controlled trailers include those in the food,
chemical and pharmaceutical industries. We typically receive an
accessorial charge related to our temperature-controlled
services. Our fleet of temperature-controlled trailers, most of
which provide both heating and refrigeration capability, has
increased from 439 in 2005 to 886 as of June 30, 2010.
Total revenues from the shipment of temperature-controlled
freight have grown 52.3% annually from $9.6 million in 2005
to $51.9 million in 2009 and have increased from 6.9% of
our total revenues in 2005 to 22.6% in 2009. Management believes
that we are among the largest providers of
temperature-controlled transportation services in the Northeast.
Hazardous
Materials Services
We believe that our 100% Hazmat certified driver workforce and
ability to transport certain hazardous materials nationwide
makes us a leading transportation provider for the chemical and
pharmaceutical industries. We typically receive an accessorial
charge related to our Hazmat services. The percentage of total
revenues from the transportation of Hazmat freight has increased
from 9.0% in 2007 to 10.3% in 2009.
Dedicated
Services
We offer dedicated truckload services, which provide exclusive
use of equipment and offer tailored solutions under long-term
contracts. Dedicated truckload service allows us to provide
trucking solutions to meet specific customer needs.
Brokerage
Services
We offer LTL and truckload brokerage services to supplement our
core services. This provides us with the ability to service our
customers freight whose economic
and/or
logistical considerations do not fit within our network as well
as to offer capacity to meet seasonal demands. In addition, our
brokerage operation enhances our ability to identify attractive
freight for the Northeast inbound portion of our round-trip. In
the year ended December 31, 2009, less than 1% of our
revenues were derived from brokerage services.
Warehousing
Services
We offer warehousing services at our operations facilities in
the Philadelphia metropolitan area. We can offer
temperature-controlled warehousing services, which allows us to
store temperature sensitive shipments, including chemicals and
pharmaceuticals, for extended periods of time. Our warehousing
facilities provide our customers with a flexible solution for
short-term and fluctuating space requirements. We provide
warehousing services to customers for which we also provide
transportation services.
70
Tractors
and Trailers and Associated Maintenance
We evaluate equipment decisions based on factors including cost,
useful life, warranty terms, technological advances, expected
maintenance costs, fuel economy, driver comfort, customer needs,
manufacturer support and resale value. We typically operate
well-maintained equipment with uniform specifications to
minimize our spare parts inventory, streamline our maintenance
program and simplify driver training. As of June 30, 2010,
our fleet consisted of 983 company-owned tractors,
1,900 company-owned trailers and 214 leased trailers. As of
June 30, 2010, the average age of our owned tractors and
trailers was approximately 5.0 and 6.8 years, respectively.
The major operating systems of most of our tractors are covered
by manufacturers warranties for between 300,000 to
750,000 miles, and most of our trailers are covered by
manufacturers warranties for 60 months. The following
table outlines certain information regarding our fleet as of
June 30, 2010.
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|
|
|
|
|
|
|
|
|
|
|
Tractors
|
|
|
Trailers
|
|
Model year
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|
Owned
|
|
|
Owned
|
|
|
Leased
|
|
|
Total
|
|
|
2011
|
|
|
1
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
2010
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
2009
|
|
|
5
|
|
|
|
6
|
|
|
|
0
|
|
|
|
6
|
|
2008
|
|
|
1
|
|
|
|
118
|
|
|
|
80
|
|
|
|
198
|
|
2007
|
|
|
470
|
|
|
|
227
|
|
|
|
125
|
|
|
|
352
|
|
2006
|
|
|
265
|
|
|
|
235
|
|
|
|
0
|
|
|
|
235
|
|
2005
|
|
|
109
|
|
|
|
392
|
|
|
|
0
|
|
|
|
392
|
|
2004
|
|
|
9
|
|
|
|
240
|
|
|
|
0
|
|
|
|
240
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|
2003
|
|
|
8
|
|
|
|
115
|
|
|
|
0
|
|
|
|
115
|
|
2002
|
|
|
14
|
|
|
|
18
|
|
|
|
6
|
|
|
|
24
|
|
2001
|
|
|
42
|
|
|
|
144
|
|
|
|
3
|
|
|
|
147
|
|
2000
|
|
|
20
|
|
|
|
156
|
|
|
|
0
|
|
|
|
156
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|
Prior to 2000
|
|
|
39
|
|
|
|
247
|
|
|
|
0
|
|
|
|
247
|
|
Unavailable
|
|
|
0
|
|
|
|
2
|
|
|
|
0
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
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|
|
983
|
|
|
|
1,900
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|
|
|
214
|
|
|
|
2,114
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Freightliner and Kenworth manufacture most of our tractors.
Operating a well-maintained fleet allows us to minimize repairs
and service interruptions. The age and various attributes of our
fleet also enhance our ability to attract drivers, increase fuel
economy, minimize breakdowns and allow us to take advantage of
advanced aerodynamics, speed management and idle controls. Over
the years, our management team has been an early adopter of
tractor and trailer technologies such as satellite tracking,
self-lubricating chassis on both our tractors and trailers,
auxiliary power units, automatic transmissions, vented mud flaps
and super-single tires. We believe these technologies also
improve our fuel efficiency, extend the useful life of our
tractors and enhance driver satisfaction. We have also regulated
the maximum speed of our tractors to decrease fuel consumption
and increase safety.
Our current linehaul tractor trade-in cycle ranges from
approximately 36 months to 60 months, depending on
equipment type and usage, although we expect this cycle to be
delayed as a result of our engine remanufacturing program. We
regularly monitor our tractor trade-in cycle based on
maintenance costs, capital requirements, costs of new and used
tractors and other factors. We do not have any agreement with
tractor or trailer manufacturers pursuant to which they have
agreed to repurchase the tractors or trailers or guarantee a
residual value. We therefore could incur losses upon disposition
if resale values of used tractors or trailers decline.
We adhere to a comprehensive maintenance program during the life
of our equipment and perform most routine servicing and repairs
at our facilities in the Philadelphia metropolitan area to
reduce costly on-road repairs and
out-of-route
trips. Most recently, in response to uncertainties in new engine
designs, we have established a program to remanufacture existing
engines. We have entered into this program with Caterpillar,
Inc., which will provide a full warranty on the engine for
unlimited miles for four years.
71
We expect that remanufactured engines will allow us to use a
tractor for up to an additional four years for approximately 25%
of the cost of a new tractor, thereby enhancing free cash flow
and improving our return on invested capital. In addition, in
2009 we designated approximately 160 tractors as
non-operating, which delays maintenance expenses related to
those tractors, and reduced our maintenance expenses for the
year ended December 31, 2009. We do not expect that these
non-operating tractors will otherwise have a material impact on
current or future maintenance needs.
Most of our trailers are equipped with air ride suspensions and
anti-lock brakes. As of June 30, 2010, 886 of our trailers
were equipped with temperature-controlled units that provide
heating and refrigeration capability. We use a combination of
28, 48 and 53 foot trailers, which we believe allows us greater
flexibility in the scheduling and dispatch of both LTL and
truckload shipments.
Drivers
As of June 30, 2010, we employed 974 non-union, Hazmat
certified drivers, which provides us with maximum flexibility in
the types of freight we can transport. The recruitment, training
and retention of safe and qualified drivers are essential to
support our continued growth and to meet the service
requirements of our customers. We hire drivers who meet our
objective guidelines relating primarily to their safety record,
road test evaluations, driving experience and other personal
evaluations, including physical examinations and mandatory drug
and alcohol testing. New hires, who are required to be at least
23 years of age and have two years of experience, undergo
an orientation program to introduce them to our
Load-to-Deliver
operating model. We meet with our drivers periodically to
carefully evaluate performance and discuss any current concerns.
We believe that our stringent selection criteria for drivers and
our regular training courses are an important factor in our
safety record. Senior management is actively involved in the
selection of new drivers.
We believe our driver friendly culture emanates from
Mr. Muhlschlegel, our founder and Chief Executive Officer
and a former driver, who has continually emphasized the
importance of a stable, high quality driver force. We believe
that we provide attractive and comfortable equipment, direct
communication with senior management, wages and benefits at the
high end of market range that are based on an hourly rate or a
rate per mile plus payments for completion of specific actions,
such as each delivery stop made, and other incentives designed
to encourage driver safety, retention and long-term employment.
In addition, our
Load-to-Deliver
operating model maximizes the amount of time our drivers are
able to spend at home relative to truckload drivers because they
frequently return to our Philadelphia area consolidation
operations and, to a much more limited extent, our Denver
facility to begin the next outbound trip. Drivers receive cash
awards for providing superior service and developing
satisfactory safety records. We also offer drivers the ability
to work in teams of two, which allows us to move shipments
almost continuously across the United States while allowing
drivers to remain in compliance with applicable work
regulations. As of June 30, 2010, we had 230 drivers
working in 115 teams of two, the members of which always
work together. We typically recruit drivers who have experience
driving for truckload carriers. Our driver turnover rate, which
has ranged from 25% to 32% per year over the last four years, is
significantly below the average turnover for truckload carriers
of 83.9% during the same period, as estimated by the ATA.
Driver shortages have historically been a significant capacity
constraint for both LTL and truckload carriers. The Council of
Supply Chain Management Professionals projects that driver
shortages will increase due to factors including aging driver
demographics and the regulatory environment to which drivers are
subject. We expect that we will be required to increase wages
paid to our drivers as the driver shortage increases, and we
cannot assure you that we will be able to pass along any wage
increases to our customers. We expect that this shortage of
qualified drivers will result in increased competition for such
drivers, particularly those with Hazmat certifications, and that
our ability to operate the tractors that we have currently
designated as non-operating will be constrained by the current
availability of drivers. We believe our driver friendly culture
will be an increasing competitive advantage should the
availability of drivers decrease in the future.
72
Purchased
Transportation
In certain instances, we utilize purchased transportation
supplied by third-party local and national trucking carriers
under non-exclusive contractual arrangements to deliver freight.
The purchased transportation provider will either pick up
freight, which typically has already been consolidated into a
full trailer load, at our facility or one of our tractors will
deliver the freight to the third-partys facility, in these
cases primarily for local delivery to the recipient. For
example, we will drop off a non-time sensitive portion of a LTL
shipment with a purchased transportation provider who will then
arrange for delivery to our customers. In certain markets in
which we have high shipment volumes, we have established
relationships with preferred purchased transportation providers
that offer us discounted fees due to the volume of our shipments.
The use of purchased transportation provides flexibility to our
operations and enables us to avoid lanes with insufficient
volumes to meet our round-trip profitability requirements, cover
periods of peak capacity demand and to take advantage of
attractive rates in the purchased transportation market, such as
during 2009. In addition, the use of third-party carriers for
certain of our deliveries allows us to cost effectively deliver
our customers freight while reducing wear and tear on, and
preserving the life of, our tractors and trailers. The amount of
purchased transportation we utilize varies period to period
depending on market conditions and truck tonnage. As a result of
the prolonged decline in the general economy, we increased our
reliance on purchased transportation for less profitable lanes
in 2009, which contributed to a temporary increase in our
operating expenses as a percentage of total revenues. In the
year ended December 31, 2009 and the six months ended
June 30, 2010, purchased transportation expenses
represented approximately 6.2% and 6.9% of our total revenues,
respectively. We expect that our reliance on purchased
transportation will peak in 2010 and decrease in the second half
of 2010 as we hire additional drivers and redeploy tractors
presently designated as
non-operating.
Employees
As of June 30, 2010 and December 31, 2009, 2008 and
2007, we had 1,573, 1,519, 1,513 and 1,558 total employees,
respectively, including drivers. Our non-driver employees permit
us to centrally support services such as maintenance,
warehousing, load planning, accounting, information technology,
marketing, human resource support, credit and claims management
and carrier services. None of our employees is covered by a
collective bargaining agreement. We believe that our
relationship with our employees is strong. The following table
details our employees by function as of the dates indicated
below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of June 30,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Drivers
|
|
|
992
|
|
|
|
972
|
|
|
|
941
|
|
|
|
974
|
|
Administrative and Senior Management
|
|
|
193
|
|
|
|
193
|
|
|
|
200
|
|
|
|
194
|
|
Warehouse
|
|
|
153
|
|
|
|
141
|
|
|
|
153
|
|
|
|
160
|
|
Maintenance
|
|
|
72
|
|
|
|
74
|
|
|
|
94
|
|
|
|
96
|
|
Operations, including Load Planning
|
|
|
97
|
|
|
|
89
|
|
|
|
86
|
|
|
|
105
|
|
Sales and Marketing
|
|
|
51
|
|
|
|
44
|
|
|
|
45
|
|
|
|
44
|
|
Sales and
Marketing
We operate a sales force of approximately 40 people who
cover regional markets and an additional 4 sales people who
cover our national accounts. Our sales force includes corporate
account executives, account executives, sales managers, inside
sales representatives, commission sales representatives and
dispatchers. Our average salesperson has more than five years of
experience working for us. We compensate our sales force with
both a base salary and a bonus based on monthly LTL and
truckload shipment performance targets. Our salespersons are
conversant in cross-selling all of our transportation services,
including customized, expedited, time-definite and specialized
LTL and truckload services.
73
We typically market to shippers that value our superior customer
service, including our ability to transport
temperature-controlled and Hazmat freight and to provide
time-definite delivery, as opposed to shippers that base
transportation decisions solely on price.
In marketing and selling our services, these individuals seek to
improve our asset productivity by pursuing freight that allows
for rapid turnaround times, minimizes non-revenues miles between
loads and provides us with competitive rates, balance lanes and
improve the reliability of our delivery schedule. Our
salespersons work with customers to reduce their transportation
costs, inventory carrying costs, handling costs, loss and damage
claims and information processing costs.
We utilize a computerized freight-costing model to determine the
price level at which a particular shipment of freight will be
profitable. This function is overseen by our pricing department,
which works closely with our salespersons to provide price
quotes in a timely fashion. We typically modify elements of this
model to simulate actual conditions under which freight will be
shipped. We believe that our technology-driven pricing model
provides us with a competitive advantage when competing for spot
market freight.
We also routinely compete for business by participating in bid
solicitations with various shippers. Shippers generally solicit
bids for relatively large numbers of shipments for a period of
one to two years and typically choose to enter into contractual
arrangements with a limited number of motor carriers based upon
price and service.
Our senior management team reviews all new potential customers
and evaluates whether the proposed arrangements satisfy our
revenue and asset productivity requirements. We also regularly
review our existing customer base and modify or terminate
relationships that no longer satisfy our requirements.
Customers
We have a large, stable and diverse base of customers built
around our
Load-to-Deliver
operating model with whom we work closely to develop customized
transportation solutions. In 2009, we served approximately 1,100
active customers for whom we transported at least 50 shipments.
Of our top 200 customers by total revenue in 2007, we continued
to provide services to approximately 90% in 2009. We believe
this high level of retention throughout the economic downturn
and the fact that we have increased our active customers by 17%
from 963 in 2007 to 1,129 in 2009 exemplifies the value
proposition we provide to our customers and positions us for
growth. In 2009, our 25 largest customers accounted for 34.8% of
our total revenues and included Air Products and Chemicals,
Inc., Arkema Inc., Cardinal Health, Inc., Crayola LLC, The Dow
Chemical Company, International Flavors and Fragrances, Inc.,
Leveraged Execution Providers (a third party logistics provider
to McDonalds Corporation), Mercedes-Benz USA and Teva
Pharmaceutical Industries Ltd. Our customer base is heavily
weighted toward industrial, chemical, pharmaceutical,
agricultural and food companies, unlike many other trucking
companies for which retail customers are a large component. We
specifically target these customers because they have less
cyclical and more consistent shipping needs in the freight lanes
we prefer and are willing to appropriately compensate us for the
high level of service we provide. Further, we believe our
customer base is well positioned for an industrial-led economic
recovery.
Our customers have stringent shipping requirements and tend to
be subject to increasing regulation of the products they produce
and market. Our
Load-to-Deliver
operating model and marketing efforts emphasize customer
satisfaction and strategic partnership while simultaneously
focusing on disciplined freight selectivity and pricing. We
target customers who are able to generate high transportation
volumes in the geographic markets we cover, allowing us to build
significant traffic lane density with predictable volumes. We
also seek customers whose freight requires special equipment or
handling, as this freight typically commands premium rates for
transportation of temperature-controlled and Hazmat freight and
time-definite delivery. Due to our specialized service offerings
and equipment, we believe we are well-positioned to serve such
customers.
74
The following chart shows the breakdown of 2009 total revenues
from our top 800 customers by the industry in which those
customers operate.
We believe that as a strategic partner and highly regarded
carrier we are able to bid on certain new routes before most
other carriers and may be selected for such routes even where we
are not the lowest cost provider. In addition, we believe that
these awards enhance our ability to attract new customers.
Fuel
We actively manage our fuel costs by purchasing fuel in bulk for
storage at our Westampton, New Jersey, Denver, Colorado,
Spartanburg, South Carolina and Willingboro, New Jersey
facilities and have volume purchasing arrangements with national
fuel centers that allow our drivers to purchase fuel at a
discount to advertised rates while in transit. To help further
reduce fuel consumption, we installed auxiliary power units in
our company-owned tractors during 2007 and 2008. These units
reduce fuel consumption by providing quiet climate control and
electrical power for our drivers without idling the tractor
engine. We have also regulated the maximum speed of our tractors
to decrease fuel consumption and increase safety.
In addition to operating a fuel efficient fleet, we further
manage our exposure to changes in fuel prices through fuel
surcharge programs with our customers. We have historically been
able to pass through a significant portion of long-term
increases in fuel prices and related taxes to customers in the
form of fuel surcharges. These fuel surcharges, which adjust
with the cost of fuel, enable us to recover a substantial
portion of the higher cost of fuel as prices increase, excluding
non-revenues miles,
out-of-route
miles or fuel used while the tractor is idling. As of
June 30, 2010, we had no derivative financial instruments
to reduce our exposure to fuel price fluctuations.
Competition
We compete in the domestic trucking industry, which is a part of
the broader commercial transportation industry. The trucking
industry is extremely competitive and highly fragmented. We
believe that we compete, and expect to continue to compete, with
a variety of local, regional, inter-regional and national LTL,
truckload and private fleet motor carriers of varying sizes and,
to a lesser extent, with brokerage companies, railroads and air
freight carriers, many of whom have greater financial resources,
have larger freight capacity and larger customer bases than we
do. We compete with numerous motor carriers for LTL shipments,
including A. Duie Pyle, Arkansas Best Corporation, Con-way,
Inc., FedEx Corporation, New England Motor Freight, Old Dominion
Freight Line, Inc. and YRC Worldwide Inc. For truckload
shipments, our primary competitors include Heartland Express,
Inc., JB
75
Hunt Transportation Services, Knight Transportation, Inc., Swift
Transportation Co., Inc. and Werner Enterprises, Inc.
We believe that the principal competitive factors in our
business are service, price and the availability and
configuration of equipment that meets a variety of
customers needs. We also compete with other motor carriers
for the services of drivers. We believe that we are able to
compete effectively in our markets by providing consistently
high quality and timely-service at competitive prices.
We believe that there are substantial aspects of our operations
that restrict the ability of competitors to adopt our
Load-to-Deliver
operating model. Traditional LTL and truckload carriers can
efficiently handle freight that is compatible with their
respective operating systems but typically do not have the
flexibility to accommodate a wide range of shipment size and
delivery options. Small LTL carriers typically lack the
necessary critical mass, freight density and capital to adopt
such a system, while large LTL carriers tend to have a high
fixed cost infrastructure, which results in an inability to
focus on specific types of freight, such as large shipment
sizes, and results in smaller average shipment size and a
greater number of deliveries per trailer than we typically make.
Large LTL carriers typically operate breakbulk facilities that
are smaller than our Philadelphia metropolitan area
consolidation operations and therefore are not configured to
handle only large LTL freight shipments. Also, certain large LTL
carriers with whom we compete have unionized workforces
operating under contracts that do not provide sufficient
flexibility to implement a
Load-to-Deliver
operating model. Truckload carriers lack a system to accommodate
both multiple pick ups and multiple deliveries and would require
a substantial capital investment to build the necessary
terminals and significantly larger sales forces. Additionally,
the
Load-to-Deliver
operating model requires high quality drivers who are willing to
make LTL deliveries and sophisticated operating and management
information systems, which we have developed internally over an
extended period of years.
Seasonality
Our revenues are subject to seasonal variations. We believe that
our customers tend to reduce shipments in the first calendar
quarter for a variety of reasons, including holidays, demand for
their products and overall economic conditions. Our operating
expenses as a percentage of total revenues also tend to be
higher in the winter months, primarily due to inclement weather
and the associated costs of decreased fuel economy and transit
delays. Generally, revenues in the first quarter and fourth
quarters are the weakest while the second and third quarters are
the strongest. We believe our ability to offer specialized
services moderates seasonal variations by allowing us to
transport freight during winter and summer months that require
temperature-controlled services.
Technology
We believe that our use of proven technologies enhances our
efficiency and provide us with competitive service advantages.
Over the years, our management team has been an early adopter of
tractor and trailer technologies such as satellite tracking,
self-lubricating chassis on both our tractors and trailers,
auxiliary power units, automatic transmissions, vented mud flaps
and super-single tires. We believe these technologies also
improve our fuel efficiency, extend the useful life of our
tractors and enhance driver satisfaction. We believe our
technology programs assist us in minimizing our percentage of
empty miles, which was less than 4% in 2009.
Through this technology, we provide better and more timely
information to our customers, improve our operating efficiency
and controls and more effectively leverage our resources.
Examples of the technologies we employ include:
|
|
|
|
|
Satellite-based tracking and messaging that allow us to
communicate with our drivers, obtain load position updates,
provide our customers with freight visibility and enable us to
download engine operating information, such as fuel mileage and
idling time;
|
76
|
|
|
|
|
Freight optimization software that aids us in selecting loads
that match our overall criteria, including lane density, pickup
and delivery density and load factor;
|
|
|
|
Automated bill rating system that enables us to price both LTL
and truckload rates and generate our daily invoices in the same
system without manual intervention;
|
|
|
|
Web-based, electronic data interchange and internet
communication with customers concerning freight tendering,
invoices, shipment status and other relevant
information; and
|
|
|
|
Document imaging software that scans documents, including bills
of lading and delivery receipts, onto compact disks, which are
then available for use company-wide.
|
We believe that our technology systems enhance the productivity
of our back office teams. We regularly evaluate our technology
systems to ensure that they are sufficient to satisfy our needs
and those of our customers.
Properties
Our principal consolidation operations in Westampton, New Jersey
and Delanco, New Jersey are strategically located along the
Northeast corridor adjacent to Interstates 95 and 295. From
these locations, we can make deliveries to major freight markets
from New England to the Southeast within one day and to the
Midwest within two days. We also lease warehouse, terminal
facilities and equipment maintenance facilities in Delanco, New
Jersey; Pennsauken, New Jersey; Spartanburg, South Carolina;
Denver, Colorado; and Willingboro, New Jersey. We also lease
properties for equipment storage space in various locations,
including Kensington, Connecticut; Fremont, Indiana; St. Joseph,
Michigan; Brentwood, New York; Dayton, New Jersey; Pennsauken,
New Jersey; Charlotte, North Carolina; and Petersburg, Virginia.
Information regarding our principal facilities appears in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
Current Lease
|
|
|
Location
|
|
Property Function
|
|
Footage
|
|
Expiration
|
|
Renewal Term
|
45 East Park Drive Westampton, New Jersey
|
|
Consolidation facility, bulk fuel storage and headquarters
|
|
150,000
|
|
April 30, 2011
|
|
Option for two 5-year renewals
|
600 Creek Road
Delanco, New Jersey
|
|
Consolidation facility, equipment maintenance facility and
administration
|
|
172,100
|
|
May 31, 2012
|
|
Option for one 2-year and one 3-year renewal
|
9285 Commerce Highway
Pennsauken, New Jersey
|
|
Offices
|
|
17,900
|
|
March 31, 2015
|
|
Option for two 5-year renewals
|
2771 Fairforest Clevedale
Spartanburg, South Carolina
|
|
Trucking terminal, freight warehouse, bulk fuel storage and
office
|
|
17,500
|
|
April 30, 2011
|
|
Option for two 1-year renewals
|
6540 N. Washington Street Denver, Colorado
|
|
Consolidation facility, equipment maintenance facility bulk fuel
storage and offices
|
|
40,260
|
|
November 30,
2012
|
|
Option for one 3-year renewal
|
48 Ironside Court Willingboro, New Jersey
|
|
Equipment maintenance facility, parking lot, bulk fuel storage
and offices
|
|
40,000
|
|
April 30, 2011
|
|
Option for two 5-year renewals
|
49 Ironside Court Willingboro, New Jersey
|
|
Warehouse facility, driver training center
|
|
84,000
|
|
April 30, 2011
|
|
Option for two 5-year renewals
|
Regulation
The federal government substantially deregulated the
transportation industry following the enactment of the Motor
Carrier Act of 1980, the Trucking Industry Regulatory Reform Act
of 1994, the Federal Aviation Administration Authorization of
1994 and the ICC Termination Act of 1995. Prices and services
are now largely free of regulatory controls, although individual
states may require compliance with safety and insurance
requirements. As an interstate motor carrier, we also remain
subject to regulatory controls imposed by agencies within the
DOT, including the Federal Motor Carrier Safety Administration,
such as safety, insurance and bonding requirements.
77
We are subject to the hours of service regulations issued by the
Federal Motor Carrier Safety Administration. Under the current
rules, drivers are allowed 11 hours of driving time within
a 14-hour,
non-extendable period from the start of the work day. This
driving time must follow 10 consecutive hours of off-duty time.
In addition, calculation of the on-duty time limits of
70 hours in eight days restarts after the driver has had at
least 34 hours of off-duty time. In October 2009, the
Federal Motor Carrier Safety Administration entered into a
settlement agreement with Public Citizen and other parties that
had filed suit asserting that the current rules are not
stringent enough. Under this settlement, the Federal Motor
Carrier Safety Administration has submitted a new proposed hours
of service rule and has agreed to publish a final rule by July
2011.
Our business is also subject to changes in legislation and
regulations, which can affect our operations and those of our
competitors. For example, beginning November 30, 2010, the
Federal Motor Carrier Safety Administration will begin to
implement the CSA nationwide, which requires rating individual
driver safety performance, including all driver violations, over
3-year time
periods. However, Colorado fully implemented CSA in July 2010
and New Jersey is expected to do so prior to the nationwide
rollout in November 2010. CSA is an initiative designed by the
Federal Motor Carrier Safety Administration to improve large
truck and bus safety and ultimately reduce commercial motor
vehicle-related crashes, injuries and fatalities. Prior to these
regulations, under the Safety Status Measurement System, only
carriers were rated by the DOT, and the rating included
out-of-service
violations and ticketed offenses associated with
out-of-service
violations. The CSA system changes the safety evaluation process
for all motor carriers and enables the DOT to regulate
individual drivers to make driver safety performance history
more transparent to law enforcement and motor carriers.
In January 2010, the Federal Motor Carrier Safety Administration
issued regulatory guidance prohibiting the use of electronic
devices for texting while driving a commercial motor vehicle on
public roads in interstate commerce. This guidance expressly
notes that it is not intended to prohibit the use of electronic
dispatching tools and fleet management systems.
The DOT requires drivers to obtain commercial drivers
licenses and also requires that we maintain a drug and alcohol
testing program in accordance with DOT regulations. Our program
includes pre-employment, random and post-accident drug testing.
We are authorized by the DOT to haul hazardous materials. We
require all of our drivers to have the proper Hazmat
endorsements and to be regularly trained as prescribed by DOT
regulations. The Transportation Security Administration has
adopted regulations that require determination by the agency
that each driver who applies for or renews his or her license
for carrying Hazmat materials is not a security threat.
We are also subject to regulations to combat terrorism imposed
by the Department of Homeland Security, including Customs and
Border Protection agencies, and other agencies.
Our failure to comply with the laws and regulations to which we
are subject could result in substantial fines or revocation of
our permits or licenses or change in our safety rating.
Environmental
Matters
Our operations and properties are subject to extensive
U.S. federal, state and local and Canadian environmental
protection and health and safety laws, regulations and permits.
These environmental laws govern, among other things, the
generation, storage, handling, transportation, treatment,
disposal and release of hazardous materials; the emission and
discharge of hazardous materials into the ground, air or water;
and the health and safety of our employees.
Environmental laws and regulations are complex, change
frequently and have tended to become stricter over time. There
can be no assurance that violations of environmental laws will
not be identified or occur in the future, or that environmental
laws or permits will not change in a manner that could impose
material costs on us. Some environmental laws hold current or
previous owners or operators of real property liable for the
costs of cleaning up contamination, even if these owners or
operators did not know of and were not responsible for such
contamination. In addition, as a transporter and handler of
78
hazardous materials, we are potentially subject to strict, joint
and several liability for investigating and remediating spills
and other environmental releases of these substances. Third
parties may also make claims against us for personal injuries,
property damage and damage to natural resources associated with
the presence or release of hazardous materials. Although we have
not incurred and do not currently anticipate any material
liabilities in connection with these environmental laws, we may
be required to make expenditures for environmental remediation
in the future.
The EPA issued regulations that required progressive reductions
in exhaust emissions from diesel engines through model year
2010, and there are similar state and local regulations
regarding emissions. These regulations generally required
reductions in the sulfur content of on-road diesel fuel
beginning in June 2006, the introduction of emissions
after-treatment devices on newly-manufactured engines and
vehicles beginning with model year 2007, and reduced nitrogen
and non-methane hydrocarbon emissions to be phased in between
model years 2007 and 2010. These regulations have resulted in
higher prices for tractors and diesel engines and increased fuel
and maintenance costs, and we cannot assure you that continued
increases in pricing or costs will not have a material adverse
effect on our business, financial condition and results of
operations.
On January 16, 2009, the EPA adopted a waiver that enabled
California to phase in restrictions on TRU emissions over
several years. The TRU Airborne Toxic Control Measure will
require companies that operate TRUs within California to meet
certain emissions in-use performance standards. The California
regulations apply not only to California intrastate carriers,
but also to carriers outside of California who wish to enter the
state with TRUs. We have complied with the first compliance
deadline of December 31, 2009 that applied to model year
2002 and older TRU engines, and the next compliance deadline of
December 31, 2010 applies to model year 2003 TRU engines.
California also required the registration of all
California-based TRUs by July 31, 2009, a process we have
completed for our trailers that transport freight within
California. These regulations will require us to retrofit or
replace our TRUs that enter California or we would be required
to reduce or eliminate transport in California, which currently
represents only a small portion of our business.
California has also recently adopted regulations to improve the
fuel efficiency of certain tractors within the state. The
operators of tractors and trailers subject to these regulations
must use U.S. EPA SmartWay certified tractors and trailers,
or retrofit their existing fleet with SmartWay verified
technologies that have been demonstrated to meet or exceed
certain fuel savings percentages. Enforcement of these
regulations for 2011 model year equipment began in January 2010
and will be phased in over several years for older equipment. We
are currently evaluating our options for meeting these
requirements. Based on currently available information, we do
not expect these costs to be material to us.
There is an increased regulatory focus on climate change and
greenhouse gas emissions in the United States. Existing or
future federal, state or local greenhouse gas emission
legislation or regulation could adversely impact our business.
In addition to possible increased fuel costs and other direct
expenses, there could be a decreased demand for our services if
such legislation or regulation causes our customers to reduce
product output or to elect different modes of transportation. In
addition, any customer initiatives requiring limitations on the
emission of greenhouse gases could increase our future capital,
or other, expenditures, for example by requiring additional
emissions controls, and have a material adverse impact on our
business, financial condition and results of operations.
Safety
We are committed to a high level of safety in all of our
operations and have implemented a team approach to risk
management that builds in loss control at the earliest stages.
We provide our employees with the equipment and training
required to do their jobs safely and efficiently and retrain on
a periodic basis to reinforce leading safety techniques. We
employ safety personnel to administer our safety programs and
utilize technology to assist us in managing risks associated
with our business. In addition, we have a recognition program
for driver safety performance and maintain a safety bonus
program. We believe our selective driver recruiting, extensive
training programs, the regulation of the maximum speed
79
at which our tractors can travel and emphasis on a
safety-conscious culture help us to maintain low levels of
claims relative to the broader trucking industry. In 2009, our
claims and insurance as a percentage of our total revenues were
2.2%. We are a member of the Transportation Community Awareness
Emergency Response (Trans(AER)) and the Council on the Safe
Transportation of Hazardous Articles (COSTHA), and we are an
American Chemistry Council (ACC) Responsible Care Partner. In
addition, we received our Responsible Care Management System
(RCMS) Certification in 2009 for LTL and truckload services,
including temperature-controlled and Hazmat freight.
Insurance
We currently self-insure for losses relating from physical
damage to our fleet of tractors. We maintain $25.0 million
of general and automobile liability coverage. We also maintain
$500,000 of insurance coverage per trailer for cargo damage
claims. In addition to vehicle liability, general liability and
cargo claim coverage, our insurance policies also cover other
standard industry risks related to workers compensation
and other property and casualty risks. We believe our insurance
coverage is comparable in terms and amount of coverage to other
companies in our industry and maintain insurance reserves for
anticipated losses and expenses. We also believe that we have a
favorable history of workers compensation claims, and for
the last three years we have been in the top tenth percentile of
workers compensation experience modification rating in New
Jersey.
Litigation
We are routinely a party to litigation incidental to our
business, primarily relating to accidents, claims for
workers compensation or for personal injury and property
damage incurred in the transportation of freight. We believe
that the outcome of such actions will not have a material
adverse effect on our financial position or results of
operations.
80
MANAGEMENT
Executive
Officers and Directors
The following table sets forth certain information with respect
to our executive officers and directors as
of ,
2010.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Harry Muhlschlegel
|
|
|
63
|
|
|
Chairman and Chief Executive Officer
|
James Molinari
|
|
|
59
|
|
|
President and Director
|
Brian Fitzpatrick
|
|
|
50
|
|
|
Chief Financial Officer and Secretary
|
Jerry Shields
|
|
|
51
|
|
|
Senior Vice President, Operations
|
James J. Dowling
|
|
|
64
|
|
|
Director
|
David S. Harris
|
|
|
50
|
|
|
Director
|
Samuel H. Jones, Jr.
|
|
|
77
|
|
|
Director
|
Paul Leand
|
|
|
44
|
|
|
Director
|
Seth E. Wilson
|
|
|
40
|
|
|
Director
|
Set forth below is a brief description of the business
experience of each of our directors and executive officers as
well as certain key employees who, although not in policy-making
positions, are important to the management of our business:
Harry Muhlschlegel is our founder and has served as our
Chairman and Chief Executive Officer since 2000.
Mr. Muhlschlegel served as the Chairman and Chief Executive
Officer of Jevic from its founding in 1982 until it was sold to
Yellow Corporation in 1999. Mr. Muhlschlegel also served in
the United States Marine Corps. We believe that
Mr. Muhlschlegels experience as a driver, business
owner and executive in the trucking industry coupled with his
in-depth understanding of our
Load-to-Deliver
operating model provide him with the necessary skills to serve
as a member of our board of directors and will enable him to
provide valuable insight to the board and our management team
regarding operational, strategic and management issues as well
as general industry trends.
James Molinari has served as the President of New Century
since 2000 and has served as a Director since January 2009.
Prior to his current position, he served as Vice President of
Business Development for Jevic, where he was responsible for new
account development and marketing to existing customers. Prior
to joining Jevic, Mr. Molinari held several senior
operations and sales management roles in various LTL and
truckload companies. We believe that Mr. Molinaris
experience as an executive in the trucking industry and his
knowledge of the trucking industry generally provide him with
the necessary skills to serve as a member of our board of
directors and will enable him to provide valuable insight to the
board regarding operational and management issues as well as
general industry trends.
Brian Fitzpatrick has served as our Chief Financial
Officer and Secretary since 2002 and as a Director from 2006 to
2010. From 2000 to 2002, Mr. Fitzpatrick served as Chief
Financial Officer for Nexi Communications, an outsourced
information technology and internet services provider
headquartered in Princeton, New Jersey. From 1993 to 2000,
Mr. Fitzpatrick was the Chief Financial Officer of Jevic.
From 1982 to 1993, Mr. Fitzpatrick held various commercial
banking positions. Mr. Fitzpatrick received a B.S. in
Finance and Economics from Susquehanna University and an M.B.A.
from Monmouth University.
Jerry Shields has served as our Senior Vice President,
Operations since 2006. In that position, he has direct
responsibility for daily operations of LTL freight movement.
From 2000 to 2006, he served as our Vice President, Operations.
From 1987 to 2000, Mr. Shields held various senior
operational positions with Jevic, including Eastern Regional
Vice President for Operations and Vice President of Linehaul
Operations.
James J. Dowling has served as a Director since 2006.
Mr. Dowling is a Managing Director of Jefferies Capital
Partners and has been employed by Jefferies Capital Partners
since 2002. From 1984
81
until 2002, Mr. Dowling was a senior securities research
analyst specializing in the transportation industry, a portfolio
manager and an investment banker with Furman Selz LLC and its
successors. From 1969 to 1984, Mr. Dowling was a securities
research analyst with Shearson American Express and its
predecessors. Mr. Dowling serves on the boards of directors
of R&R Trucking Holdings, LLC and Aurora Trailer Holdings
LLC and is chairman of K-Sea General Partner GP LLC, the general
partner of the general partner of K-Sea Transportation Partners
L.P. We believe Mr. Dowlings experience advising
portfolio companies of Jefferies Capital Partners and evaluating
the financial performance and operations of companies in the
transportation industry provide him with the necessary skills to
serve as a member of our board of directors and enable him to
provide valuable insight regarding financing and strategic
issues. Mr. Dowling received his B.S. and M.B.A. degrees
from Fairleigh Dickinson University.
David S. Harris has served as a director since 2010.
Since 2004, Mr. Harris has served as a director of Steiner
Leisure Limited and Rex American Resources Corporation. He has
served as President of Grant Capital, Inc., a private investment
company, since January 2002. Mr. Harris served as a
Managing Director of Tri-Artisan Partners, LLC, a private
merchant banking firm engaged in investment banking and
principal investment activities, from January 2005 to June 2006.
From May 2001 until December 2001, Mr. Harris served as a
Managing Director in the investment banking division of ABN Amro
Securities LLC. From September 1997 until May 2001,
Mr. Harris served as a Managing Director and Sector Head of
the Retail, Consumer and Leisure Group of ING Barings LLC, a
financial institution. From 1986 to 1997, Mr. Harris served
in various capacities as a member of the investment banking
group of Furman Selz LLC, which was acquired by ING Barings LLC
in September 1997. Mr. Harris is a director of Rex Stores
Corporation, which engages in the production and sale of ethanol
and leases real estate properties. We believe
Mr. Harris experience as an investment banker and in
evaluating the financial prospects of companies provide him with
the necessary skills to serve as a member or our board of
directors and enable him to provide valuable insight to the
board regarding financial and investor relations issues.
Mr. Harris received a B.S. in Accounting and Finance from
Rider University and an M.B.A. from Columbia University.
Samuel H. Jones, Jr. has served as a director since
2010. Since 2001, Mr. Jones has served as a consultant to
S-J Transportation Co., Inc., a company specializing in the
transportation of industrial waste nationwide and in two
Canadian provinces. Mr. Jones has also served as President
of S-J Venture Capital Company since 1991. From 1971 to 2002,
Mr. Jones was President of S-J Transportation Co. In
addition to serving as director of Jevic from 1997 to 1999,
Mr. Jones board experience includes serving as a
director of Rowan University Tech Park since 2003, serving as
Chairman and Trustee of Fogg Enterprises since 1998, serving as
a director of Viewpoint, Inc. from 1999 to 2008, serving on the
Foundation Board of Salem County Community College from 1997 to
2010 and serving as a director of Salem County Utility Authority
from 1980 to 2006. We believe Mr. Jones experience as
a trucking industry executive provides him with the necessary
skills to serve as a member of our board of directors and will
enable him to provide valuable insight to the board regarding
transportation industry practices and trends.
Paul Leand has served as a director of since 2010.
Mr. Leand is the Chief Executive Officer and Director of
AMA Capital Partners LLC, or AMA, an investment bank
specializing in the maritime industry and also serves on the
board of directors of Ship Finance International Limited and
SeaCo Ltd. From 1989 to 1998 Mr. Leand served at the First
National Bank of Maryland where he managed the Banks
Railroad Division and its International Maritime Division. He
has worked extensively in the U.S. capital markets in
connection with AMAs restructuring and mergers and
acquisitions practices. Mr. Leand serves as a member of
American Marine Credit LLCs Credit Committee and served as
a member of the Investment Committee of AMA Shipping
Fund I, a private equity fund formed and managed by AMA. We
believe Mr. Leands experience as an investment banker
in the transportation industry provides him with the necessary
skills to serve as a member of our board of directors and will
enable him to provide valuable insight to the board regarding
financial planning issues. Mr. Leand received a B.S. in
Business Administration from Boston University.
82
Seth E. Wilson has served as a Director since 2006.
Mr. Wilson is a Managing Director of Jefferies Capital
Partners and has been employed by Jefferies Capital Partners and
its predecessor since 1994. From 1992 until 1994,
Mr. Wilson was employed in the Investment Banking Division
of Furman Selz LLC. Mr. Wilson currently serves on the
boards of directors of R&R Trucking Holdings, LLC, Aurora
Trailer Holdings LLC and EW Transportation LLC (formerly K-Sea
Transportation LLC) and has previously served on the boards
of directors of Arnold Transportation Services, Inc. and IDB
Carriers (BVI) Ltd. We believe Mr. Wilsons experience
advising portfolio companies of Jefferies Capital Partners and
service with the boards of directors of other transportation
companies provide him with the necessary skills to serve as a
member of our board of directors and enable him to provide
valuable insight regarding financing issues and the general
industry outlook for the transportation industry.
Mr. Wilson received an A.B. from Harvard University and an
M.B.A. from the Stanford University Graduate School of Business.
Key
Employees
The following table sets forth certain information with respect
to our key employees, other than our executive officers, as
of ,
2010.
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Name
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Age
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Position
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William Hunter
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50
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Senior Vice President, Sales
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Richard Luhrs
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63
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Senior Vice President, Corporate Development
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Linda Adams
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47
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Vice President of Traffic and Pricing
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Vince Devine
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45
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Vice President and Controller
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Kevin Long
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44
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Vice President of Risk Management
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Timothy Munns
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52
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Treasurer
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Set forth below is a brief description of the business
experience of each of our key employees who, although not in
policy-making positions, are important to the management of our
business:
William Hunter has served as our Senior Vice President,
Sales since 2003 and is currently responsible for daily
management of all of our regional and national accounts. He
initially joined New Century in 2001 as Regional Vice President
of Sales. From 1994 to 2001, Mr. Hunter was the Director of
Regional Sales for the Philadelphia metropolitan area for Jevic.
Before joining Jevic, Mr. Hunter was employed in various
sales capacities with ABF Freight System, Inc. and Consolidated
Freightways Corporation. Mr. Hunter received a B.S. from
St. Josephs University.
Richard Luhrs has served as our Senior Vice President,
Corporate Development since 2006. In that role he assists the
leadership team in enhancing overall operational processes and
identifying and reviewing acquisition opportunities. From 1999
to 2006, Mr. Luhrs was employed as a Senior Vice President
and Group Executive within the Shevell Group of Companies,
L.L.C., a privately-held LTL carrier, with overall profit and
loss responsibilities for three of its four operating companies.
From 1990 to 1999, Mr. Luhrs was a co-founder and partner
of Titan Express, a Northeast LTL carrier. From 1971 to 1990,
Mr. Luhrs was a founder and partner of Management Methods,
Inc., a management consulting firm providing services to the
transportation industry. Prior to founding Management Methods,
he was employed by Interdata Systems Inc. as a Project Manager
with responsibility for designing and implementing productivity
and routing systems for large trucking clients, prior to which,
he worked at APA Transport Corp., a regional LTL carrier, as a
staff engineer working to develop driver and platform
productivity systems.
Linda Adams has served as our Vice President, Traffic and
Pricing since 2000. From 1992 to 2000, Ms. Adams held
various positions at Jevic, ultimately serving as Director of
Pricing and Traffic. From 1982 to 1992, she served in various
positions at Central Transport, ultimately serving as a regional
sales associate within its New Jersey market. Ms. Adams
received a Bachelors of General Studies from Oakland University
and an M.B.A. from Rider University.
83
Vince Devine has served as our Vice President and
Controller since 2007. He served as our Assistant Controller and
Director of Financial Reporting from 2005 to 2007. From 2002 to
2005, Mr. Devine served as the Assistant Controller at
Applied Extrusion Technologies, Inc. From 1992 to 2002,
Mr. Devine served in a variety of positions at Foamex
International, Inc., ultimately serving as Regional
Manufacturing Controller. Earlier in his career, he was as an
internal auditor at IMO Industries, Inc. from 1989 to 1992 and a
Staff Auditor at Coopers & Lybrand from 1987 to 1989.
Mr. Devine received a B.S. in Accounting from Widener
University and is a Certified Public Accountant.
Kevin Long currently serves as our Vice President, Risk
Management and has been employed by us since 2002. From 1993 to
2002, Mr. Long served as Director of Risk Management at
Jevic. From 1991 to 1993, Mr. Long served at National
Freight, Inc., ultimately serving as Insurance Supervisor.
Mr. Long received a B.A. in Business from Widener
University.
Timothy Munns has served as our Treasurer since 2008. He
initially joined us as our Director of Finance in 2007.
Mr. Munns served as the Chief Financial Officer of P&P
Transport from 1998 to 2007. From 1989 to 1998, Mr. Munns
was Vice President of Commercial Lending at the PNC Financial
Services Group. Mr. Munns received a B.A. in Accounting
from Temple University and a M.S. in Taxation from Widener
University.
Board
Composition
Our board of directors will consist of seven members. The board
has determined that Mr. Harris, Mr. Jones and
Mr. Leand are deemed independent for the
purposes of the corporate governance rules and regulations of
The Nasdaq Stock Market. Within 90 days of our listing on
the Nasdaq Global Market, a majority of the members of our
committees will be required to be independent, and within one
year of our listing on the Nasdaq Global Market, a majority of
our full board of directors and all of the members of our
committees will be required to be independent for purposes of
the corporate governance rules and regulations of The Nasdaq
Stock Market.
In accordance with our amended and restated certificate of
incorporation, immediately after this offering, our board of
directors will be divided into three classes with staggered
three-year terms. At each annual general meeting of
shareholders, the successors to directors whose terms then
expire will be elected to serve from the time of election and
qualification until the third annual meeting following election.
Our directors will be divided among the three classes as follows:
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The Class I directors will be Mr. Leand and
Mr. Molinari, and their terms will expire at the annual
general meeting of shareholders to be held in 2011;
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The Class II directors will be Mr. Harris,
Mr. Jones and Mr. Wilson, and their terms will expire
at the annual general meeting of shareholders to be held in
2012; and
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The Class III directors will be Mr. Dowling and
Mr. Muhlschlegel, and their terms will expire at the annual
general meeting of shareholders to be held in 2013.
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Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of
one-third of the directors. The division of our board of
directors into three classes with staggered three-year terms may
delay or prevent a change of our management or a change in
control.
Board
Committees
Our board of directors plans to establish the following
committees: an audit committee, a compensation committee and a
nominating and corporate governance committee. The
responsibilities of each committee are described below. Members
will serve on these committees until their resignation or until
otherwise determined by our board of directors.
84
Audit
Committee
Our audit committee will oversee our corporate accounting and
financial reporting processes. Among other matters, the audit
committee will evaluate the independent auditors
qualifications, independence and performance; determine the
engagement of the independent auditors; review and approve the
scope of the annual audit and the audit fee; discuss with
management and the independent auditors the results of the
annual audit and the review of our quarterly consolidated
financial statements; approve the retention of the independent
auditors to perform any proposed permissible non-audit services;
monitor the rotation of partners of the independent auditors on
the New Century engagement team as required by law; review our
critical accounting policies and estimates; oversee our internal
audit function; review related party transactions; and annually
review the audit committee charter and the committees
performance. All members of our audit committee will meet the
requirements for financial literacy under the applicable rules
and regulations of the SEC and The Nasdaq Stock Market. Our
board will determine that one of the members of the audit
committee is an audit committee financial expert as defined
under the applicable rules of the SEC and has the requisite
financial sophistication as defined under the applicable rules
and regulations of The Nasdaq Stock Market. Within one year of
our listing on the Nasdaq Global Market, all of the members of
the audit committee will be required to be independent directors
as defined under the applicable rules and regulations of the SEC
and The Nasdaq Stock Market. The audit committee will operate
under a written charter that will satisfy the applicable
standards of the SEC and The Nasdaq Stock Market.
Compensation
Committee
Our compensation committee will review and recommend policies
relating to compensation and benefits of our officers and
employees. The compensation committee will review and approve
corporate goals and objectives relevant to compensation of our
chief executive officer and other executive officers, evaluate
the performance of these officers in light of those goals and
objectives and set the compensation of these officers based on
such evaluations. The compensation committee will also
administer the issuance of stock options and other awards under
our stock plans. The compensation committee will review and
evaluate, at least annually, the performance of the compensation
committee and its members, including compliance of the
compensation committee with its charter. Within one year of our
listing on the Nasdaq Global Market, all of the members of our
compensation committee will be required to be independent under
the applicable rules and regulations of the SEC, The Nasdaq
Stock Market and the Code.
Nominating
and Corporate Governance Committee
The nominating and corporate governance committee will be
responsible for making recommendations regarding candidates for
directorships and the size and composition of our board. In
addition, the nominating and corporate governance committee will
be responsible for overseeing our corporate governance
guidelines and reporting and making recommendations concerning
governance matters. Potential candidates will be discussed by
the entire board, and director nominees will be subject to the
approval of the independent members of the board. Within one
year of our listing on the Nasdaq Global Market, our nominating
and corporate governance committee will be required to be
composed exclusively of directors who are independent under the
applicable rules and regulations of The Nasdaq Stock Market.
The nominating and corporate governance committee will consider
nominees to the board of directors recommended by a shareholder,
if such shareholder complies with the advance notice provisions
of our bylaws. Our bylaws provide that a shareholder who wishes
to nominate a person for election as a director at a meeting of
shareholders must deliver written notice to our corporate
secretary. This notice must contain, as to each nominee, all of
the information relating to such person as would be required to
be disclosed in a proxy statement meeting the requirements of
Regulation 14A under the Exchange Act, and certain other
information set forth in the bylaws. In order to be eligible to
be a nominee for election as a director by a shareholder, such
potential nominee must deliver to our corporate
85
secretary a written questionnaire providing the requested
information about the background and qualifications of such
person and a written representation and agreement that such
person is not and will not become a party to any voting
agreements, any agreement or understanding with any person with
respect to any compensation or indemnification in connection
with service on the board of directors, and would be in
compliance with all of our publicly disclosed corporate
governance, conflict of interest, confidentiality and stock
ownership and trading policies and guidelines.
Code of
Ethics
We have adopted a written code of business conduct and ethics,
known as our code of conduct, which applies to all of our
directors, officers, and employees, including our Chief
Executive Officer and our Chief Financial Officer. Our code of
conduct is available at www.nctrans.com. Our code of conduct may
also be obtained by contacting investor relations at
(609) 265-1110.
Any amendments to our code of conduct or waivers from the
provisions of the code for our Chief Executive Officer and our
Chief Financial Officer will be disclosed on our Internet
website promptly following the date of such amendment or waiver.
Compensation
Committee Interlocks and Insider Participation
None of the members of the compensation committee who will
continue to serve on the compensation committee after completion
of this offering is currently or has been at any time one of our
officers or employees. None of our executive officers currently
serves, or has served during the last completed fiscal year, as
a member of the board of directors or compensation committee of
any entity that has one or more executive officers serving as a
member of our board of directors or compensation committee. None
of our executive officers was a director of another entity where
one of that entitys executive officers served on our
compensation committee, and none of our executive officers
served on the compensation committee or the board of directors
of another entity where one of that entitys executive
officers served as a director on our board of directors.
Board
Leadership Structure and Management Oversight
The board of directors recognizes that one of its key
responsibilities is to evaluate and determine its optimal
leadership structure so as to provide independent oversight of
management. The board understands that there is no single,
generally accepted approach to providing board leadership and
that board leadership structure may vary as circumstances
warrant. Our board of directors has determined that having a
combined Chairman and Chief Executive Officer, an independent
lead director and independent members and chairs for each of the
committees of our board of directors provides the best board
leadership structure for us at this time. We believe that having
Mr. Muhlschlegel serve as both Chairman and Chief Executive
Officer demonstrates to our employees, customers, strategic
partners and other stakeholders that we are under strong
leadership, and Mr. Muhlschlegel has primary responsibility
for managing our operations. He has led our company since its
founding, is a recognized leader in the transportation industry
and has the skills necessary to serve as our Chairman. Our
Chairman is responsible for:
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setting the agenda for and chairing meetings of the board of
directors; and
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providing information to directors in advance of each meeting
and as necessary between meetings.
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Upon completion of this offering, we will also establish a lead
director who will be elected annually by the independent members
of the board of directors. Our lead director will be responsible
for:
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chairing meetings of the board of directors when the Chairman is
not present, including presiding at all executive sessions of
the board of directors (without management present) at all
regularly scheduled meetings of the board of directors;
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86
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working with management to determine the information and
materials provided to directors;
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approving the agenda, schedules and other information provided
to the board of directors; and
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serving as a liaison between the Chairman and the independent
directors.
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Our lead director will also consult with the Chairman regularly
on other matters that are pertinent to the board of directors
and is able to call meetings of the independent directors. Our
board of directors believes that the lead director will make
valuable contributions to our company, including monitoring the
performance of the board of directors, helping directors reach
consensus, coordinating the work of the committees of the board
of directors and ensuring and supporting effective shareholder
communications.
Our board of directors believes that this structure will create
an effective balance between strong, capable leadership and
appropriate oversight by non-employee directors.
Subject to active oversight by the board of directors, our
management is primarily responsible for managing the risks we
face in the ordinary course of operating our business. Our board
of directors receives operations and strategic presentations
from management, which presentations include discussions of the
principal risks to our business. In addition, in connection with
this offering, the board of directors will delegate certain risk
oversight functions to each of its committees. The Audit
Committee will assist the board of directors in the management
of our system of disclosure controls and procedures and our
internal controls over financial reporting. The Compensation
Committee will assist the board of directors in risk oversight
functions related to our compensation policies and programs and
employee retention issues. The Nominating and Corporate
Governance Committee will assist the board of directors in risk
oversight functions related to important compliance matters,
including periodic reviews of the Code of Ethics and Code of
Business Conduct to ensure compliance with applicable securities
laws and regulations and stock market rules. We believe that
this leadership structure enhances our efficiency in fulfilling
our oversight functions with respect to our business and
facilitates division of risk management oversight
responsibilities among the full board of directors, each of its
committees and our management team.
87
COMPENSATION
DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis, or CD&A,
provides an overview of our executive compensation program,
together with a description of the material factors underlying
the decisions which resulted in the compensation provided in
2009 to our Chief Executive Officer, Chief Financial Officer,
President and Senior Vice President, Operations (collectively,
the named executive officers), as presented in the
tables which follow this CD&A. This CD&A contains
statements regarding our performance targets and goals. These
targets and goals are disclosed in the limited context of our
compensation program and should not be understood to be
statements of managements expectations or estimates of
financial results or other guidance. We specifically caution
investors not to apply these statements to other contexts.
Objective
of Compensation Policy
The objective of the Companys compensation policy is to
provide a total compensation package to each of the named
executive officers that will enable the Company to:
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attract, motivate and retain high-quality executive officers in
a competitive market for talent who will contribute to the
advancement of our strategic, operational and financial
goals; and
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provide for long-term incentives that will closely align the
financial interests of our named executive officers with the
interests of our shareholders and that encourage long-term
service and loyalty.
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In pursing these objectives, we use a mix of four main elements
of compensation, which are each described in detail below in
Elements of Compensation. The
Companys compensation philosophy places a strong emphasis
on pay for performance. Accordingly, a significant
portion of total executive compensation reflects a risk aspect
and is tied to the achievement of specific strategic,
operational and financial goals. Our practice has been, and
following our initial public offering is expected to continue to
be, to use the components of our executive compensation program
to directly tie the total amount of executive compensation to
the creation of long-term shareholder value and to achieve a
total compensation level appropriate for our size, financial
performance and industry. In pursuing these goals, we offer an
opportunity for greater overall compensation in the event of
superior Company performance, matched with the prospect of lower
overall compensation in the event that the Companys
performance does not meet expectations.
Our philosophy is to base a greater percentage of each
employees compensation on Company performance as the
employee becomes more senior, with a significant portion of
total named executive officer compensation to be directly tied
to the achievement of Company performance goals. We believe that
this philosophy is appropriate because the performance of our
named executive officers is more likely to have a direct impact
on the Companys achievement of strategic, operational and
financial goals, as well as on shareholder value. However, the
Company does provide base salary and perquisites at levels that
it believes are competitive in order to ensure that we will be
able to attract and retain high-caliber executive officers.
Process
for Setting Total Compensation
Prior to this offering, the compensation paid to our named
executive officers was generally determined in accordance with
their employment agreements, which were entered into through
negotiation with Jefferies Capital Partners in connection with
our 2006 recapitalization. The compensation set forth in these
employment agreements was set at levels consistent with the
compensation paid to each of our named executive officers prior
to our recapitalization and was approved by Jefferies Capital
Partners. Since these employment agreements were entered into,
our board of directors has periodically reviewed the total
compensation of our named executive officers and the mix of the
components used to compensate those officers in light of their
responsibilities and performance, as well as the performance
88
of the Company, to ensure that each named executive
officers compensation remains at an appropriate level.
Following this offering, the compensation paid to our named
executive officers is expected to generally be determined in
accordance with their new employment agreements, which were
entered into on August 10, 2010. These employment
agreements are described in detail below in
Employment Agreements and Potential Payments
upon Termination or Change in Control. In addition, in
connection with this offering, our board of directors will
appoint an independent compensation committee to determine
matters of executive compensation.
Historically, our board of directors has reviewed the total
compensation of our named executive officers and the mix of
components used to compensate those officers on an annual basis.
In determining the total amount and mix of the components of
executive compensation, our board of directors strives to create
incentives and rewards for performance consistent with our
short-term and long-term objectives. In determining the total
amount and mix of short-term and long-term compensation and the
portion of each named executive officers income that
should be at risk, our board of directors assesses each named
executive officers overall contribution to our business,
scope of responsibilities, historical compensation and
performance. Our board of directors has not assigned a fixed
weighting among each of the compensation components. Individual
performance is evaluated based on the named executive
officers expertise, leadership, ethics and personal
performance against goals and objectives that are established by
our board of directors in consultation with our named executive
officers. Each named executive officers ownership interest
in the Company is also factored into determining annual
executive compensation.
Our board of directors has not engaged a compensation
consultant, or otherwise used compensation studies or
benchmarking, in setting the compensation of our named executive
officers. Instead, compensation decisions are made by our board
of directors as a whole after taking into account input from
each member of the board, including our chairman and chief
executive officer Harry Muhlschlegel. These decisions are based
on the collective business experience of our board of directors
and are not based on a formulaic or other non-subjective
approach. Following our initial public offering, our
compensation committee may, from time to time as it sees fit,
retain third-party executive compensation specialists in
connection with determining executive compensation and
establishing compensation policies.
Elements
of Compensation
Our compensation program for our named executive officers
consists of the following elements, each of which is described
in greater detail below:
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base salary;
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annual performance-based cash incentive awards;
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long-term equity-incentive awards; and
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perquisites and other benefits.
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Base
Salary
The base salaries that we pay our named executive officers are
determined in accordance with their employment agreements.
Pursuant to their employment agreements,
Messrs. Muhlschlegel, Molinari, Fitzpatrick and Shields are
entitled to receive base salaries of $367,744, $367,744,
$367,744 and $207,992, respectively. In addition, each named
executive officers base salary automatically increases
annually based on the increase in the Consumer Price Index for
the region covering New Jersey, as reported in the Bureau of
Labor Statistics of the U.S. Department of Labor. A named
executive officers base salary also may be subject to
additional increases at the discretion of our board of
directors. Factors that our board of directors may take into
account in determining whether to increase a named executive
officers base salary include, but are not limited to,
(i) individual performance and the level of responsibility
and complexity of the named executive officers position
with the Company; (ii) the amount of the named executive
officers salary in relation to our other named executive
officers; (iii) our overall performance
89
and achievements; and (iv) the then prevailing economic and
business conditions affecting the Company. In addition, in
order to provide our board of directors with flexibility during
industry downturns, each of our named executive officers
base salaries may be unilaterally reduced by up to 5% if the
reduction applies to all employees at the director
level and above or by up to 10% if the reduction applies to all
employees at the managerial level and above. Such
reduction may be instituted no more than one time during any
three year period. The Company believes that the base salary
that we pay our named executive officers is a key element in
being able to attract and retain high-quality executive officers.
In recognition of the recent economic downturn in the United
States and Canada, our named executive officers agreed to waive
their automatic salary increases during 2009 and 2010. In
addition, in August 2009, Messrs. Muhlschlegel, Molinari
and Fitzpatrick each entered into an agreement with us to
voluntarily reduce his base salary by 10% and Mr. Shields
entered into an agreement with us to voluntarily reduce his base
salary by 5%, in each case, for a period of 12 months.
Messrs. Muhlschlegel, Molinari and Fitzpatrick agreed to a
larger base salary reduction than Mr. Shields due to their
higher overall compensation and greater responsibilities with
respect to the Company. As the result of these reductions, each
of Messrs. Muhlschlegels, Molinaris and
Fitzpatricks annual base salary was reduced from $367,744
to $330,970 and Mr. Shields annual base salary was
reduced from $207,992 to $197,592. In addition, in July 2010,
each of Messrs. Muhlschlegel, Molinari, Fitzpatrick and Shields
agreed to extend his base salary reduction through
December 31, 2010. These base salary reductions are
reflected in the named executive officers new employment
agreements.
Annual
Performance-Based Cash Incentive Awards
The Company believes that annual cash bonuses are an appropriate
way to reward our named executive officers for superior Company
performance and to align the interests of our named executive
officers with our shareholders by tying a portion of their
compensation to company and individual performance goals. Prior
to this offering, annual cash bonuses were generally based on
the Companys achievement of specified levels of EBITDA
(excluding gains on the sale of equipment in the ordinary course
of business). In calculating the Companys EBITDA for
purposes of determining bonuses, our board of directors
maintained the discretion to include or exclude the impact of
changes in accounting principles and the occurrence of
extraordinary or unusual events, such as acquisitions.
Each named executive officers bonus opportunity is
determined pursuant to his employment agreement with the
Company. Prior to this offering, (i) Mr. Muhlschlegel
had a bonus opportunity of 50%, 25% and 10% of base salary,
depending on achievement of EBITDA goals,
(ii) Messrs. Molinari and Fitzpatrick each had a bonus
opportunity of 40%, 20% and 10% of base salary, depending on
achievement of EBITDA goals, and (iii) Mr. Shields had
a bonus opportunity of 30%, 15% and 10% of base salary,
depending on achievement of EBITDA goals. The differences in the
level of bonus opportunities were due to the varying levels of
duties and responsibilities of our named executive officers.
Prior to this offering, in the event that the Company achieved
100% of its EBITDA goal, the named executive officers were
entitled to receive a bonus of 50% of base salary, in the case
of Mr. Muhlschlegel, 40% of base salary, in the case of
Messrs. Molinari and Fitzpatrick, or 30% of base salary, in
the case of Mr. Shields. In the event that the Company
achieved 95% or more, but less than 100%, of its EBITDA goal,
the named executive officers were entitled to receive a bonus of
25% of base salary, in the case of Mr. Muhlschlegel, 20% of
base salary, in the case of Messrs. Molinari and
Fitzpatrick, or 15% of base salary, in the case of
Mr. Shields. In the event that the Company achieved 90% or
more, but less than 95%, of its EBITDA goal, the named executive
officers were entitled to receive a bonus of 10% of base salary.
If the Company did not achieve at least 90% of its EBITDA goal,
the named executive officers were not entitled to receive any
bonus. In addition, if the Company achieved EBITDA in excess of
its goal, our board of directors, in its sole discretion, could
elect to award bonuses to our named executive officers in excess
of their maximum bonus opportunity. Factors that our board of
directors considered in awarding an additional bonus if more
than 100% of EBITDA was achieved included overall market
conditions and individual contributions towards the success of
the Company.
90
Prior to this offering, target EBITDA was generally determined
by our board of directors in the beginning of the relevant year
based on our future financial projections, as well as our past
financial results. With respect to 2009, prior to setting any
performance goals, our board of directors determined, in
consultation with our named executive officers, that no bonuses
would be paid to the named executive officers with respect to
2009, regardless of Company or individual performance. This
decision was made by our board of directors and named executive
officers in recognition of the economic downturn in the United
States and Canada and its impact on the transportation business
generally. Accordingly, no performance targets were established
for 2009.
Following this offering, pursuant to their new employment
agreements, our named executive officers will be entitled to
earn an annual discretionary bonus. These bonuses may be based
on (i) individual performance, (ii) the Companys
(a) total revenue, (b) EBITDA (with such adjustments
as our board of directors determines to be appropriate),
(c) earnings per share, (d) operating ratio or
(e) return on invested capital
and/or
(iii) such other measures as determined by our board of
directors in its sole discretion. Each named executive officer
will have a target bonus opportunity of 40% of base salary,
which represents a decrease from a 50% target bonus opportunity
for Mr. Muhlschlegel and an increase from a 30% target
bonus opportunity for Mr. Shields. The changes in target
bonus opportunity for Messrs. Muhlschlegel and Shields were
made because our board of directors determined that it would be
appropriate for each named executive officer to have the same
target bonus opportunity following this offering.
After the final determination of each named executive
officers bonus amount, bonuses will either be paid
currently to the named executive officer in cash or, upon a
previously made election by the named executive officer, will be
deferred to his account under the New Century Transportation,
Inc. Executive SERP Plan (the SERP), as described
below in Perquisites and Other Benefits.
Long-Term
Equity Incentive Awards
Our long-term equity incentive program is designed to
(i) attract key employees, (ii) encourage long-term
retention of key employees, (iii) enable us to recognize
efforts put forth by key employees who contribute to our
development and (iv) align the interests of our key
employees with our shareholders by tying a portion of their
compensation to company performance. Through this program, we
encourage long-term service and loyalty to the Company by
fostering an employee ownership culture. Prior to our
recapitalization, equity-based awards were granted by our board
of directors under the New Century Transportation, Inc. Amended
and Restated Equity Incentive Plan, or the Equity Incentive
Plan. In connection with our recapitalization, the Company
ceased granting awards under the Equity Incentive Plan and
adopted the New Century Transportation, Inc. 2006 Stock
Incentive Plan, or the 2006 Stock Plan.
On ,
2010, our shareholders and board of directors approved the New
Century Transportation Inc. Stock Incentive Plan, or the Stock
Incentive Plan. In connection with the adoption of the Stock
Incentive Plan, both the 2006 Stock Plan and the Equity
Incentive Plan were terminated, provided that the terms of such
plans will continue to govern outstanding awards granted under
such plans. A summary of the terms of the Stock Incentive Plan,
the 2006 Stock Plan and the Equity Incentive Plan is set forth
below in Equity Compensation Plan
Information.
Our board of directors periodically reviews each named executive
officers ownership interest in the Company to ensure that
our named executive officers interests are aligned with
our shareholders interests. Since our 2006
recapitalization, each of our named executive officers has
maintained a significant ownership interest in the Company. As a
result, our board of directors has determined that additional
equity grants to our named executive officers have not been
necessary. Accordingly, our named executive officers have not
been granted equity-based awards under the 2006 Stock Plan,
except for the automatic restricted stock grants made as of
January 1, 2010, as described below.
In connection with our 2006 recapitalization, certain of our
employees, including all of our named executive officers, agreed
to the imposition of certain forfeiture restrictions on shares,
and options to purchase shares, of the Companys common
stock that they already owned (the Restricted
Shares).
91
These restrictions were placed on the Restricted Shares to
ensure the continued employment of our named executive officers
following our recapitalization, as well as to ensure that our
named executive officers maintain a significant ownership stake
in the Company. Under the terms of the Restricted Share
agreements, the restrictions applicable to the Restricted Shares
held by the named executive officers as of our 2006
recapitalization will lapse upon the earlier of
(i) July 1, 2011, (ii) the occurrence of a public
offering or (iii) the first anniversary of an approved sale
(in all cases, provided that the named executive officers
employment with the Company has not been terminated for cause or
by the named executive officer due to a voluntary resignation).
In the event that any Restricted Shares are forfeited, the
forfeited Restricted Shares will be automatically regranted
under the 2006 Stock Plan (in the form of restricted shares of
Company common stock) to each individual who owns, and has not
forfeited, Restricted Shares based on the number of Restricted
Shares owned by such individual as of our 2006 recapitalization
in relation to the total number of Restricted Shares outstanding
as of our 2006 recapitalization (other than Restricted Shares
held by terminated employees). Pursuant to an amendment to the
Restricted Share agreements entered into with each of our named
executive officers in June 2010, any shares that are so granted
will become vested upon the earlier of (i) the
16 month anniversary of a public offering, (ii) an
approved sale in which the consideration received by the
Companys shareholders is primarily cash or (iii) the
first anniversary of an approved sale in which the consideration
received by the Companys shareholders is not primarily
cash, in each case, provided that the named executive
officers employment with the Company has not been
terminated for cause or by the named executive officer due to a
voluntary resignation. These amendments had the effect of
changing the vesting date in connection with a public offering
from the date of such public offering to the 16 month
anniversary of such public offering and were made in order to
ensure our named executive officers continued employment
following a public offering.
Because an individual who held Restricted Shares ceased
employment with the Company on December 31, 2009,
Messrs. Muhlschlegel, Molinari, Fitzpatrick and Shields
received additional automatic grants under the 2006 Stock Plan
of , , and
restricted shares of our common stock, respectively, as of
January 1, 2010.
For purposes of the Restricted Shares and the shares of our
common stock granted in respect of the forfeiture of Restricted
Shares, (i) an approved sale is generally
defined as a sale of the Company, including in one or more
series of related transactions, to another party or group of
parties (including a transaction to recapitalize or form a
holding company of the Company) pursuant to which such party or
parties acquire (a) a majority of the Companys common
stock (whether by merger, consolidation, sale, transfer or
otherwise) or (b) all or substantially all of the
Companys consolidated assets and (ii) a public
offering is generally defined as a successfully completed
firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act in
respect of the offer and sale of shares of the Companys
common stock resulting in aggregate net proceeds to the Company
and any shareholder selling shares of the Companys common
stock in such offering of not less than $40,000,000. The
Companys initial public offering is expected to constitute
a public offering for purposes of the Restricted
Shares.
Perquisites
and Other Benefits
Each of our named executive officers is eligible to participate
in our general employee benefit programs, including medical,
dental, life insurance and disability coverage. In addition,
Messrs. Muhlschlegel, Molinari and Fitzpatrick are each
entitled to receive a monthly car allowance of $1,750 and
Mr. Shields is entitled to receive a monthly car allowance
of $1,200. The Company views car allowances as a meaningful
benefit to our named executive officers who are required to
travel by car in the performance of their duties for the Company.
Our named executive officers are also eligible to participate,
along with our other employees, in the New Century
Transportation, Inc. 401(k) Plan (the 401(k) Plan).
Pursuant to the terms of the 401(k) Plan, each eligible employee
may defer up to 75% of his or her compensation (subject to the
applicable
92
IRS limits) and the Company will make matching contributions at
the rate of 25% of the first 6% of compensation contributed to
the 401(k) Plan by an employee. However, effective March 2009,
because of the recent economic downturn, the Company suspended
all matching contributions under the 401(k) Plan. Company
matching contributions are 100% vested at all times. Company
contributions made to the named executive officers under the
401(k) Plan during 2009 are shown in the All Other
Compensation column of the Summary Compensation Table.
In addition, our named executive officers are eligible to
participate in our SERP. The SERP is a non-qualified deferred
compensation plan that permits eligible employees to defer a
portion of their compensation in excess of the IRS limits on
deferrals that apply to tax-qualified retirement plans, such as
the 401(k) Plan. Under the terms of the SERP, eligible employees
may elect to defer up to 50% of their total compensation to the
SERP. The Company may make matching contributions in an amount
not to exceed 100% of a participants compensation and may
also make discretionary contributions. None of our named
executive officers elected to participate in the SERP in 2009 or
in any previous years.
2010
Compensation
As described above in Base Salary, each
of our named executive officers entered into a new employment
agreement with the Company on August 10, 2010. These
employment agreements extend our named executive officers
base salary reductions through December 31, 2010 and are
described in detail below in Employment
Agreements and Potential Payments upon Termination or Change in
Control. In addition, as described above in
Long Term Equity Incentive Awards, each
of our named executive officers received an automatic grant of
restricted shares of our common stock under the 2006 Stock Plan
as of January 1, 2010 pursuant to the terms of their
Restricted Share agreements. Due to the economic climate
throughout the United States and Canada, our board of directors
has not determined whether our named executive officers will be
eligible to earn any bonus compensation with respect to 2010.
Accordingly, no bonus targets or goals for 2010 have been
established to date, and any bonuses paid to our named executive
officers with respect to 2010 will be at the sole discretion of
our board of directors.
In addition,
on ,
2010, our shareholders and board of directors approved the Stock
Incentive Plan. In connection with the adoption of the Stock
Incentive Plan, both the 2006 Stock Plan and the Equity
Incentive Plan were terminated, provided that the terms of such
plans will continue to govern outstanding awards granted under
such plans. A summary of the Stock Incentive Plan is provided
below in Equity Compensation Plan
Information.
Tax and
Accounting Considerations
The Company is not party to any arrangements that provide for
tax gross-up
payments. In addition, as a privately held company, the Company
was not subject to the deduction limitations of
Section 162(m) of the Code, and accordingly, did not
structure its compensation arrangements in a manner intended to
satisfy the performance-based compensation exception to
Section 162(m) of the Code. Although the Company generally
intends to pay compensation that is deductible following our
initial public offering, because we will compensate our named
executive officers in a manner designed to promote our varying
corporate objectives, the Company may not adopt a policy
requiring all compensation to be deductible. In addition,
although the accounting impact of compensation is not a key
driver of our compensation program, the Company does consider
the accounting impact of compensation when making compensation
decisions.
93
Summary
Compensation Table
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All Other
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Compensation
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Name and Principal
Position
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Year
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Salary ($)(1)
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($)(2)
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Total ($)
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Harry Muhlschlegel
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2009
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|
|
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360,362
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|
|
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21,000
|
|
|
|
381,362
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|
|
|
|
|
Chairman and Chief
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Executive Officer
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|
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Brian Fitzpatrick
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2009
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360,362
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22,163
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382,525
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Chief Financial Officer and Secretary
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James Molinari
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2009
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360,362
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21,000
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381,362
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President and Director
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Jerry Shields
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2009
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204,632
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15,144
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|
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219,776
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Senior Vice President, Operations
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(1) |
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As described above, Messrs. Muhlschlegel, Molinari and
Fitzpatrick each agreed to a 10% voluntary reduction in base
salary in August 2009 (from $367,744 to $330,970) and
Mr. Shields agreed to a 5% voluntary reduction in base
salary at that time (from $207,992 to $197,592). Accordingly,
the amounts reported in this column represent each named
executive officers blended 2009 base salary, which is
determined by pro-rating each named executive officers
pre-reduction and post-reduction base salary rate by the portion
of the year in which such base salary rate was applicable and
then totaling the pro-rated amounts. |
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(2) |
|
Includes: (i) $21,000 car allowance for each of
Messrs. Muhlschlegel, Fitzpatrick and Molinari and $14,400
car allowance for Mr. Shields and (ii) 401(k) matching
contributions of $1,163 and $744 for Messrs. Fitzpatrick
and Shields, respectively. |
Employment
Agreements and Potential Payments upon Termination or Change in
Control
Employment
Agreements and Certain Severance Benefits
In June 2006, in connection with our recapitalization and to
ensure their continued employment, we entered into employment
agreements with each of our named executive officers. These
employment agreements had a term of five years and could be
extended by the Company upon providing the named executive
officer with at least 180 days written notice of extension.
Because these employment agreements were scheduled to expire in
approximately one year and in recognition of this offering, the
Company entered into new employment agreements with each of the
named executive officers on August 10, 2010. The provisions
that follow represent a summary of the key terms of these new
employment agreements.
The new employment agreements will become effective upon the
effectiveness of this Registration Statement and will expire on
December 31, 2012. However, beginning on January 1,
2013 and each anniversary thereafter, the employment agreements
will automatically renew for successive one year periods unless
a notice of non-renewal is provided at least 120 days prior
to the next scheduled renewal date. Pursuant to the terms of the
employment agreements, each of the named executive officers is
entitled to receive, in addition to the base salary described
above in Base Salary, general employee
benefits and a monthly car allowance in the amount of $1,750 for
Messrs. Muhlschlegel, Molinari and Fitzpatrick and $1,200
for Mr. Shields. In addition, each named executive officer
is eligible to earn an annual discretionary bonus, as described
above in Annual Performance-Based Cash Incentive
Awards.
Under the terms of the employment agreements, each of the named
executive officers is prohibited from competing against the
Company and its affiliates during employment and for a period of
two years after termination of employment. The Company may elect
to extend each named executive officers non-competition
restriction by up to twelve months in the event of certain
terminations by providing the
94
named executive officer with notice of extension, along with a
lump sum payment equal to twelve months of the named executive
officers base salary.
Each named executive officer is also entitled to receive certain
severance benefits under his employment agreement in the event
of certain terminations of employment, subject to the execution
of a general release of claims against the Company. The Company
believes that providing reasonable severance benefits is an
appropriate and effective way to attract and retain qualified
executives who have other employment alternatives. These
severance arrangements are also intended to mitigate a potential
disincentive for the named executive officers to cooperate with
an acquisition of the Company, particularly where the services
of the named executive officers may not be required by the
acquirer.
Pursuant to the employment agreements, each of the named
executive officers is entitled to receive a lump sum severance
payment equal to 18 months of base salary and car
allowance, as well as 18 months of employer paid health
coverage under COBRA, in the event of a termination without
cause (including due to disability) or due to justifiable
resignation. In addition, each named executive officers
estate is entitled to receive a lump sum payment equal to
12 months of base salary in the event of a termination due
to death. Any reduction in a named executive officers base
salary imposed under the terms of his employment agreement is
disregarded in determining the amount of severance benefits owed
to the named executive officer. These severance benefits are
provided to the named executive officers if any such termination
occurs during the term of the employment agreement or if such
termination occurs upon or following the Companys
non-renewal of the employment agreement.
Cause is generally defined under the employment
agreements as (i) the indictment of the named executive
officer in a crime involving moral turpitude or any felony,
(ii) the named executive officers conviction of, or
plead of no contest to, a felony, (iii) the named executive
officers dishonesty, fraud, unethical or illegal act,
misappropriation or embezzlement, (iv) a material breach of
the named executive officers fiduciary duties to the
Company, (v) the named executive officers material
failure to perform his job duties, (vi) the named executive
officers willful or deliberate material violations of his
obligations to the Company or (vii) the named executive
officers material breach of the terms of his employment
agreement.
Justifiable resignation is generally defined under
the employment agreements as (A) a resignation due to (i) a
material reduction in the named executive officers
responsibilities, (ii) a decrease in the named executive
officers base salary (other than a reduction permitted
under the terms of the employment agreements), (iii) a
relocation of the named executive officers principal place
of employment by more than 10 miles from its current
location, or (iv) a material violation by the Company of
the named executive officers employment agreement or (B)
upon or after the Companys non-renewal of the employment
agreement, the named executive officers resignation upon
90 days advance written notice. In order for a resignation under
clause (i) or (iv) to qualify as a justifiable
resignation, the named executive officer must provide the
Company with written notice within 60 days after the
occurrence of the event giving rise to the resignation and the
Company must have failed to cure such event within 20 days
after receiving such notice.
Equity-Incentive
Awards
As described above in Long-Term Equity
Incentive Awards, our named executive officers will become
vested in their Restricted Shares upon the earlier of the
occurrence of an initial public offering or the first
anniversary of an approved sale. Although any amounts received
by our named executive officers in connection with the vesting
of their Restricted Shares will not be considered compensation,
we have included the value of such vesting in the table below
because we believe that this provides a more accurate
description of the amounts that our named executive officers may
be entitled to receive in connection with a change in control of
the Company. In addition, our named executive officers will
become vested in the shares of our common stock granted to them
on January 1, 2010 as the result of the forfeiture of a
former employees Restricted Shares upon the earlier of
(i) the 16 month anniversary of a public offering,
(ii) an approved sale in which the consideration received
by the Companys
95
shareholders is primarily cash or (iii) the first
anniversary of an approved sale in which the consideration
received by the Companys shareholders is not primarily
cash.
Amounts
Payable Upon Termination of Employment or Change in
Control
The table below sets forth the amounts that would have been
payable to each named executive officer had such named executive
officer incurred a termination of employment on
December 31, 2009 or if a change in control (in which the
Companys shareholders received predominantly cash) or a
public offering had occurred on December 31, 2009. In
addition, the severance amounts were determined under the terms
of the named executive officers new employment agreements
and assume that such employment agreements had been in effect on
December 31, 2009. Although such shares were not outstanding as
of December 31, 2009, we have included the value of the
vesting of such shares in the table below because the event
entitling the named executive officers to these shares occurred
on December 31, 2009.
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Termination
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Without
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Termination
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Change in Control/
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Cause/Justifiable
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Due to
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Initial Public
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Name
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Resignation/Disability(1)
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Death(2)
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Offering(3)
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Harry Muhlschlegel
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$
|
606,381
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|
|
$
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367,744
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|
|
|
|
|
Brian Fitzpatrick
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|
$
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613,599
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|
|
$
|
367,744
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|
|
|
|
|
James Molinari
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$
|
604,659
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|
|
$
|
367,744
|
|
|
|
|
|
Jerry Shields
|
|
$
|
355,131
|
|
|
$
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207,992
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|
|
|
|
|
|
|
|
(1) |
|
Represents (i) a lump sum payment equal to 18 months
of base salary ($551,616 for Messrs. Muhlschlegel, Molinari
and Fitzpatrick and $311,988 for Mr. Shields), (ii) a
lump sum payment equal to 18 months of car allowance
($31,500 for Messrs. Muhlschlegel, Molinari and Fitzpatrick
and $21,600 for Mr. Shields) and (iii) the cost of
18 months of continued healthcare coverage under COBRA
($23,265 for Mr. Muhlschlegel, $21,543 for
Mr. Molinari, $30,483 for Mr. Fitzpatrick and $21,543
for Mr. Shields). These severance amounts have not been
reduced to reflect any agreed upon reduction in base salary
between the named executive officers and the Company. |
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(2) |
|
Represents a lump sum payment equal to 12 months of base
salary ($367,744 for Messrs. Muhlschlegel, Molinari and
Fitzpatrick and $207,992 for Mr. Shields). These severance
amounts have not been reduced to reflect any agreed upon
reduction in base salary between the named executive officers
and the Company. |
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(3) |
|
Represents the value that each of the named executive officers
would have received with respect to the vesting of his
Restricted Shares, as well as the vesting of his shares of
common stock received as the result of the forfeiture of a
former employees Restricted Shares on December 31,
2009, based on a share price of (which represents the
midpoint of the price range set forth on the cover page of this
prospectus). |
Director
Compensation
We do not pay additional compensation to our employee directors
for serving on our board of directors. However, we do reimburse
our employee directors for the reasonable expenses they incur in
attending meetings of the board of directors or board
committees. In addition, we do not currently pay any
compensation to our non-employee directors, but we do reimburse
our non-employee directors for the reasonable expenses they
incur in attending meetings of the board of directors or board
committees.
Following the effectiveness of the Companys initial public
offering, the Company expects that non-employee directors who
are not affiliated with Jefferies Capital Partners will receive
(i) a $25,000 annual retainer, (ii) $1,000 for each
board meeting attended, (iii) a $20,000 annual grant of
stock options and (iv) reimbursement for all reasonable
expenses incurred in attending meetings of our board of
directors or board committees. In addition, the chair of our
audit committee is expected to receive an additional
96
annual retainer of $10,000, and the chairs of our compensation
committee and our nominating and governance committee are each
expected to receive an additional annual retainer of $5,000.
Equity
Compensation Plan Information
Set forth in the table below is a list of all of our equity
compensation plans and (i) the number of securities to be
issued upon the exercise of outstanding equity rights,
(ii) the weighted average exercise price of outstanding
equity rights and (iii) the number of securities available
for issuance under each of our equity compensation plans
(excluding securities available for purchase upon the exercise
of outstanding equity rights), in each case, as of
December 31, 2009.
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Number of securities
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|
Number of
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Weighted-
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remaining available for
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securities to be
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average exercise
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future issuance under
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issued upon exercise
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price of
|
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equity compensation
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of outstanding
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outstanding
|
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plans (excluding
|
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options, warrants
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|
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options, warrants
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|
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securities reflected
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and rights
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and rights
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|
|
in column (a))
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Plan Category
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(a)
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(b)
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(c)
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Equity compensation plans approved by security holders
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|
New Century Transportation, Inc. 2006 Stock Incentive Plan (the
2006 Stock Plan)
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|
|
|
|
|
|
|
|
|
|
New Century Transportation, Inc. Amended and Restated Equity
Incentive Plan (the Equity Incentive Plan)
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|
|
|
|
|
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|
|
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|
|
Equity compensation plans not approved by security holders
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Total
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|
On , 2010, our board of directors
and shareholders approved the New Century Transportation, Inc.
Stock Incentive Plan (the Stock Incentive Plan). In
connection with the adoption of the Stock Incentive Plan, our
board of directors terminated the 2006 Stock Plan and the Equity
Incentive Plan, provided that the terms of such plans will
continue to govern outstanding awards granted under such plans.
A summary of the Stock Incentive Plan, the 2006 Stock Plan and
the Equity Incentive Plan is provided below.
Summary
of the Stock Incentive Plan
The purpose of the Stock Incentive Plan is to assist us and our
subsidiaries in attracting and retaining valued employees,
consultants and non-employee directors by offering them a
greater stake in our success and a closer identity with us, and
to encourage ownership of our common stock by such individuals.
Our employees, consultants and members of our board of
directors, as well as employees and consultants of our
subsidiaries, are eligible to participate in the Stock Incentive
Plan. The Stock Incentive Plan provides for the grant of stock
options, restricted stock, restricted stock units, stock
appreciation rights and other stock-based awards, collectively
referred to as awards. Each award, and the terms and
conditions applicable thereto, will be evidenced by an award
agreement between us and the participant.
We have
reserved shares
of our common stock for issuance under the Stock Incentive Plan.
Up
to shares
available for awards under the Stock Incentive Plan may be
issued pursuant to incentive stock options and no more
than shares
may be awarded to any participant in any
97
one calendar year. For purposes of determining the number of
shares available for awards under the Stock Incentive Plan, each
stock-settled stock appreciation right will count against the
Stock Incentive Plan limit based on the number of shares
underlying the exercised portion of such stock appreciation
right, rather than the number of shares issued in settlement of
such stock appreciation right. Any shares tendered by a
participant in payment of an exercise price for an award or the
tax liability with respect to an award, including shares
withheld from any such award, will not be available for future
awards under the Stock Incentive Plan. However, if any shares
subject to an award are forfeited or if such award otherwise
terminates or is settled for any reason without an actual
distribution of shares, any shares counted against the number of
shares available for issuance with respect to such award will,
to the extent of any such forfeiture, settlement, or
termination, again be available for awards under the Stock
Incentive Plan. In addition, the number of shares reserved for
issuance under the Stock Incentive Plan (as well as the other
limits described above) are subject to adjustments for stock
splits, stock dividends or other similar corporate events or
transactions.
The compensation committee of our board of directors will
administer the Stock Incentive Plan. The compensation
committees powers include, but are not limited to,
selecting the award recipients, determining the number of shares
to be subject to each award, determining the exercise or
purchase price of each award, determining the vesting and
exercise periods of each award, determining the type or types of
awards to be granted, determining the terms and conditions of
each award and all matters to be determined in connection with
an award, determining whether and certifying that performance
goals are satisfied, correcting any defect or supplying any
omission or reconciling any inconsistency in the Stock Incentive
Plan, adopting, amending and rescinding rules, regulations,
guidelines, forms of agreements and instruments relating to the
Stock Incentive Plan, and making all other determinations as it
may deem necessary or advisable for the administration of the
Stock Incentive Plan. The compensation committee may also
delegate to one or more officers or members of our board of
directors the authority to grant awards to certain eligible
individuals meeting specified requirements. Notwithstanding the
foregoing, our full board of directors administers the Stock
Incentive Plan, and makes all determinations and
interpretations, with respect to non-employee directors.
Awards
Restricted Stock. Restricted stock is a
grant of a specified number of shares of our common stock, which
shares are subject to forfeiture upon the happening of specified
events during the restriction period. The restrictions
applicable to a grant of restricted stock may lapse based upon
the passage of time, the attainment of performance goals or a
combination thereof. During the period that a grant of
restricted stock is subject to forfeiture, the transferability
of such restricted stock is generally prohibited. However,
unless otherwise provided in an award agreement, during such
period, the participant will have all the rights of a
shareholder with respect to the restricted stock, including the
right to receive dividends and to vote. Dividends will be
subject to the same restrictions as the underlying restricted
stock unless otherwise provided in the award agreement, and cash
dividends may be withheld until the applicable restrictions have
lapsed.
Stock Options. Stock options give a
participant the right to purchase a specified number of shares
of our common stock for a specified time period at a fixed
exercise price. Stock options granted under the Stock Incentive
Plan may be either incentive stock options or non-qualified
stock options, provided that only employees may be granted
incentive stock options. The exercise price of a stock option
will be determined by the compensation committee at the time of
grant, but may not be less than the fair market value of our
common stock on the date of grant (or less than 110% of the fair
market value of our common stock on the date of grant in the
case of an incentive stock option granted to a holder of more
than 10% of our, or any of our subsidiaries, voting
power). A participant may pay the exercise price of a stock
option in cash, with shares of our common stock, or with a
combination of cash and shares of our common stock, as
determined by the compensation committee; provided that
participants who are subject to the reporting requirements of
Section 16 of the Exchange Act may elect to pay all or a
portion of the exercise price of a stock option by directing us
to withhold shares of our
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common stock that would otherwise be received upon exercise of
such option. The term of a stock option may in no event be
greater than ten years (five years in the case of an incentive
stock option granted to a holder of more than 10% of our, or any
of our subsidiaries, voting power). Stock options may vest
and become exercisable based upon the passage of time, the
attainment of performance goals or a combination thereof.
Stock Appreciation Rights. A stock
appreciation right provides a participant with the right to
receive, upon exercise, the excess of (i) the fair market
value of one share of our common stock on the date of exercise
over (ii) the grant price of the stock appreciation right
as determined by the compensation committee, but which may never
be less than the fair market value of our common stock on the
date of grant. Stock appreciation rights will be settled in
shares of our common stock (provided that fractional shares will
be settled in cash) unless the compensation committee determines
otherwise. The term of a stock appreciation right will be
determined by the compensation committee at the time of grant,
but will in no event be greater than ten years. Stock
appreciation rights may vest and become exercisable based upon
the passage of time, the attainment of performance goals or a
combination thereof.
Restricted Stock Units. Each restricted
stock unit entitles the participant to receive, on the date of
settlement, an amount equal to the fair market value of one
share of our common stock. Restricted stock units are solely a
device for the measurement and determination of the amounts to
be paid to a participant under the Stock Incentive Plan and do
not constitute shares of our common stock. Restricted stock
units may become vested based upon the passage of time, the
attainment of performance goals or a combination thereof, and
the vested portion of an award of restricted stock units will be
settled within 30 days after becoming vested. Restricted
stock units will be settled in shares of our common stock
(provided that fractional units will be settled in cash) unless
the compensation committee determines otherwise. Restricted
stock units do not give any participant rights as a shareholder
with respect to such award, but the compensation committee may
credit amounts equal to any dividends declared during the
restriction period on the common stock represented by an award
of restricted stock units to the account of a participant, with
such amounts to be deemed to be reinvested in additional
restricted stock units (which will be subject to the same
forfeiture restrictions as the restricted stock units on which
they were granted).
Other Stock-Based Awards. The
compensation committee is authorized to grant any other type of
stock-based award that is payable in, or valued in whole or in
part by reference to, shares of our common stock and that is
deemed by the compensation committee to be consistent with the
purposes of the Stock Incentive Plan.
Termination of Employment or
Service. Generally, and unless otherwise
provided in an award agreement or determined by the compensation
committee, all unvested awards (or portions thereof) held by a
participant will terminate and be forfeited upon his or her
termination of employment or other service with us and our
subsidiaries, and the vested portion of any option or stock
appreciation right held by such participant may be exercised for
a limited period of time following such termination (unless such
termination is for cause).
Performance Goals. The compensation
committee may condition the grant or vesting of an award upon
the attainment of one or more performance goals that must be met
by the end of a specified period. Performance goals may be
described in terms of company-wide objectives or objectives that
are related to the performance of the individual participant or
the subsidiary, division, department or function in which the
participant is employed. Performance goals may be measured on an
absolute or relative basis. Relative performance may be measured
by a group of peer companies or by a financial market index.
Performance goals may be based upon: specified levels of or
increases in our, a divisions or a subsidiarys
return on capital, equity or assets; earnings measures or ratios
(on a gross, net, pre-tax or post-tax basis); net economic
profit (which is operating earnings minus a charge to capital);
net income; operating income; sales; sales growth; gross margin;
direct margin; share price (including growth measures and total
shareholder return); operating profit; per period or cumulative
cash flow or cash flow return on investment (which equals net
cash flow divided by total capital); inventory turns; financial
return ratios; market share; balance sheet measurements;
improvement in or attainment of expense
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levels; improvement in or attainment of working capital levels;
debt reduction; strategic innovation, including entering into,
substantially completing, or receiving payments under, relating
to, or deriving from a joint development agreement, licensing
agreement, or similar agreement; customer or employee
satisfaction; individual objectives; any financial or other
measurement deemed appropriate by the compensation committee as
it relates to the results of operations or other measurable
progress of us and our subsidiaries (or any business unit
thereof); and any combination of any of the foregoing criteria.
Change
in Control and Certain Corporate Transactions
In the event of a change in control, our board of directors may
take any one or more of the following actions with respect to
awards that are outstanding as of such change in control:
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cause all outstanding awards to be fully vested and exercisable
(if applicable);
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cancel outstanding stock options and stock appreciation rights
in exchange for a cash payment in an amount equal to the excess,
if any, of the fair market value of the common stock underlying
the unexercised portion of such award over the exercise price or
grant price, as the case may be, of such portion, provided that
any stock option or stock appreciation right with an exercise
price or grant price, as the case may be, that equals or exceeds
the fair market value of our common stock will be cancelled
without payment;
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terminate stock options and stock appreciation rights effective
immediately prior to the change in control after providing
participants with notice of such cancellation and an opportunity
to exercise such awards;
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require the successor corporation to assume outstanding awards
and/or to
substitute outstanding awards with awards involving the common
stock of such successor corporation; or
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take such other actions as our board of directors deems
appropriate to preserve the rights of participants with respect
to their awards.
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A change in control is generally defined under the Stock
Incentive Plan as:
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the acquisition of more than 50% of the combined voting power of
our then outstanding voting securities by any individual or
entity (other than acquisitions by us, our subsidiaries, any of
our or our subsidiaries benefit plans, an individual or
entity who, as of the effective date of the Stock Incentive
plan, owns 15% or more of the voting power or value of any class
of our capital stock (a substantial shareholder) or
an affiliate of a substantial shareholder);
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a sale or other disposition during any
12-month
period to any person or entity (other than a substantial
shareholder or an affiliate of a substantial shareholder) of 51%
or more of our assets;
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the consummation of a merger or consolidation involving us if
our shareholders, immediately before such merger or
consolidation, do not own, directly or indirectly, immediately
following such merger or consolidation, at least 50% of the
combined voting power of the outstanding voting securities of
the corporation resulting from such merger or
consolidation; or
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a change in the composition of a majority of the members of our
board of directors during any
12-month
period.
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In the event that the compensation committee determines that any
corporate transaction or event (such as a stock dividend,
recapitalization, forward split or reverse split,
reorganization, merger or consolidation) affects our common
stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of the Stock Incentive
Plan participants, the compensation committee will
proportionately and equitably adjust the number and kind of
shares which may be issued in connection with awards, the number
and kind of shares issuable in respect of outstanding awards,
the aggregate number and kind of shares available under the
Stock Incentive Plan (on an aggregate, individual
and/or
award-specific basis) and the exercise price or grant price
relating to any award or, if deemed appropriate, make provision
for a cash payment with respect to any outstanding award. The
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compensation committee may also make adjustments in the terms
and conditions of awards in recognition of unusual or
nonrecurring events or in response to changes in applicable
laws, regulations or accounting principles.
Termination
and Amendment
Unless terminated sooner, the Stock Incentive Plan will
automatically terminate
on ,
2020. Our board of directors has the authority to amend or
terminate the Stock Incentive Plan without shareholder approval.
However, to the extent necessary to comply with applicable
provisions of federal securities laws, state corporate and
securities laws, the Code or the rules of any applicable stock
exchange or national market system, or in the event that we
desire to amend the Stock Incentive Plan to increase the number
of shares subject to the Stock Incentive Plan or to decrease the
price at which awards may be granted, we will obtain shareholder
approval of any such amendment to the Stock Incentive Plan in
such a manner and to such a degree as may be required.
A copy of the Stock Incentive Plan is filed as an exhibit to the
registration statement of which this prospectus forms a part.
Summary
of the 2006 Stock Plan
In connection with the adoption of the Stock Incentive Plan, our
board of directors terminated the 2006 Stock Plan, provided that
its terms will continue to govern outstanding awards granted
thereunder. Prior to that time, the 2006 Stock Plan authorized
the grant of non-qualified stock options and restricted stock
awards to employees of the Company and our subsidiaries. As
of ,
2010, stock options to purchase an aggregate
of shares
of our common stock, and unvested restricted stock awards
covering shares
of our common stock, were outstanding under the 2006 Stock Plan.
Administration
The 2006 Stock Plan is administered by our board of directors,
who has the full authority to make all determinations regarding
the 2006 Stock Plan. Such authority includes the authority to
(i) determine the terms and conditions of awards,
(ii) interpret the 2006 Stock Plan and award agreements and
(iii) take all other actions and make all other
determinations or decisions necessary or appropriate for the
administration of the 2006 Stock Plan.
Stock
Options
All Stock options granted under the 2006 Stock Plan are
non-qualified stock options. Unless otherwise provided in an
award agreement, stock options granted under the 2006 Stock Plan
will have a term of seven years and will immediately terminate
upon the optionholders termination of employment. The
exercise price of a stock option may be paid either in cash or
by check, or, with the consent of our board of directors,
through the withholding of shares of our common stock that would
otherwise be received upon exercise of the stock option.
Restricted
Stock
Restricted stock awards are granted under the 2006 Stock Plan in
accordance with the terms of the Restricted Share agreements
entered into with certain of our current and former employees in
connection with our 2006 recapitalization. Restricted stock
awards are granted only (i) when any such individual
forfeits the shares of our common stock owed by such individual
as of our 2006 recapitalization that were made subject to such
Restricted Share agreements and (ii) to our current
employees who are party to a Restricted Share agreement. The
Restricted Share agreements are described above in
Long-Term Equity Incentive Awards..
101
Transferability
Awards granted under the 2006 Stock Plan are generally not
transferable and may not be pledged or assigned. However, our
board of directors may, in certain circumstances, permit the
transfer of such awards.
Change
in Control and Certain Corporate Transactions
In the event of certain corporate events, such as a
reorganization, recapitalization, stock split, spin-off,
split-off, merger, consolidation or other change in the
structure of the Company affecting our common stock, our board
of directors will make appropriate adjustments to outstanding
awards, including without limitation, adjustments to the number
of shares covered by awards and the exercise price of stock
options. In addition, unless otherwise provided in an award
agreement, in the event of (i) a merger or consolidation of
the Company, (ii) a sale of all or substantially all of the
Companys assets, (iii) a reorganization, liquidation
or partial liquidation or (iv) the acquisition by a person
or a group of a majority of our common stock, our board of
directors may take any of the following actions:
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cause all outstanding awards to be fully vested and terminate
all such awards immediately prior to the transaction (provided
that optionholders are given at least 20 days to exercise
their options);
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terminate all outstanding awards immediately prior to the
transaction (provided that optionholders are given at least
20 days to exercise their options);
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cancel all outstanding stock options in exchange for a cash
payment in an amount equal to the excess, if any, of the fair
market value of the common stock underlying the unexercised
portion of such option over the exercise price of such portion,
provided that any stock option with an exercise price that
equals or exceeds the fair market value of our common stock will
be cancelled without payment;
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require the successor corporation to assume all outstanding
awards or to grant substitute awards; or
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take such other actions as our board of directors deems
appropriate to permit holders to realize the value of their
awards.
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In addition, pursuant to the terms of the stock option award
agreements entered into under the 2006 Stock Plan, all unvested
stock options granted under the 2006 Stock Plan will become
fully vested and exercisable upon the consummation of this
offering.
Amendment
and Termination
The 2006 Stock Plan was terminated in connection with the
adoption of the Stock Incentive Plan, provided that the terms of
the 2006 Stock Plan will continue to govern outstanding awards
granted thereunder. The 2006 Stock Plan may be amended by our
board of directors as it deems appropriate, provided that no
amendment may be made that adversely affects the rights of
participants without their consent (unless such amendment is
required by law) and no amendment will be made without
shareholder approval if such approval is required by applicable
laws or regulations. In addition, following the completion of
this offering, the 2006 Stock Plan will be administered by our
compensation committee.
A copy of the 2006 Stock Plan is filed as an exhibit to the
registration statement of which this prospectus forms a part.
Summary
of the Equity Incentive Plan
In connection with our 2006 recapitalization, we ceased granting
awards under the Equity Incentive Plan. In addition, in
connection with the adoption of the Stock Incentive Plan, the
Equity Incentive Plan was terminated, provided that its terms
will continue to govern outstanding awards granted thereunder.
Prior to its termination, the Equity Incentive Plan authorized
the grant of incentive stock options, non-
102
qualified stock options and stock awards to employees,
directors, consultants and other service providers of the
Company and our affiliates, provided that only employees of the
Company and our subsidiaries could be granted incentive stock
options. As
of ,
2010, stock options to purchase an aggregate
of shares
of our common stock were outstanding under the Equity Incentive
Plan.
Administration
The Equity Incentive Plan is administered by our board of
directors, who has the full authority to make all determinations
regarding the Equity Incentive Plan. Such authority includes the
authority to (i) select the individuals to whom awards will
be granted, (ii) determine the terms and conditions of
awards and (iii) interpret the Equity Incentive Plan and
adopt such rules, regulations and guidelines as it deems
appropriate.
Stock
Options
Stock options granted under the Equity Incentive Plan may be
either incentive stock options or non-qualified stock options.
All stock options granted under the Equity Incentive Plan have
an exercise price equal to at least 100% of the fair market
value of the underlying stock on the date of grant (or at least
110% of the fair market value of the underlying stock on the
date of grant in the case of an incentive stock option granted
to a holder of more than 10% of our, or any of our
subsidiaries, voting power). Stock options granted under
the Equity Incentive Plan have a term of no more than
10 years (5 years in the case of an incentive stock
option granted to a holder of more than 10% of our, or any of
our subsidiaries, voting power). The exercise price of a
stock option may be paid either in cash or by check, or, with
the consent of our board of directors, with previously owned
shares of our common stock. Unless otherwise provided by our
board of directors, upon a participants termination of
service, all unvested options held by the participant will
terminate and all vested options will remain exercisable for a
limited period of time (unless such termination is for cause).
Stock
Awards
Under the terms of the Equity Incentive Plan, our board of
directors is authorized to grant shares of our common stock,
subject to such terms and conditions (including purchase price
and vesting) as determined by our board of directors.
Transferability
Awards granted under the Equity Incentive Plan may not be
transferred (other than by will or the laws of descent and
distribution) without the consent of our board of directors.
Change
in Control and Certain Corporate Transactions
In the event of certain corporate events, such as a
reorganization, recapitalization, stock split, merger,
consolidation or other change in the structure of the Company
affecting our common stock, our board of directors may make
equitable substitutions or adjustments to outstanding awards,
including the exercise price thereof. In addition, unless
otherwise provided in an award agreement, in the event of
(i) a merger, consolidation or reorganization of the
Company in which the shareholders of the Company immediately
before such event do not own at least a majority of the voting
power of the surviving company, (ii) a sale of all or
substantially all of the Companys assets or a liquidation
or dissolution of the Company, (iii) a change in a majority
of our board of directors over a period of two consecutive years
or (iv) the acquisition by a person or an entity (other
than a person or entity who was a shareholder of the Company on
the date the Equity Incentive Plan was approved by our board of
directors) of a majority of the voting power of our capital
stock, all outstanding stock options will become fully vested
and exercisable and our board of directors may take any of the
following actions:
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cancel outstanding stock options in exchange for a substitute
stock option of the successor corporation; or
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cancel all outstanding stock options in exchange for a cash (or
other) payment in an amount equal to the excess, if any, of the
fair market value of the common stock underlying the unexercised
portion of such option over the exercise price of such portion.
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Termination
The Equity Incentive Plan was terminated by our board of
directors in connection with our adoption of the Stock Incentive
Plan, provided that its terms will continue to govern
outstanding awards granted thereunder. The Equity Incentive Plan
may be amended by our board of directors as it deems
appropriate, provided that no amendment may be made that
adversely affects the rights of participants without their
consent. In addition, following the completion of this offering,
the Equity Incentive Plan will be administered by our
compensation committee.
A copy of the Equity Incentive Plan is filed as an exhibit to
the registration statement of which this prospectus forms a part.
104
PRINCIPAL
AND SELLING SHAREHOLDERS
The table below sets forth information regarding the beneficial
ownership of our common stock by:
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each person known to us to beneficially own more than 5% of the
outstanding shares of common stock;
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each of our selling shareholders;
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each of the named executive officers;
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each of our directors; and
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all directors and executive officers as a group.
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The table also sets forth such persons beneficial
ownership of common stock immediately after the offering.
We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the
persons and entities named in the tables below have sole voting
and investment power with respect to all shares of common stock
that they beneficially own, subject to applicable community
property laws. We have based our calculation of the percentage
of beneficial ownership
on shares
of common stock outstanding immediately prior to this offering
and shares of common stock outstanding upon completion of this
offering.
In computing the number of shares of common stock beneficially
owned by a person or group and the percentage ownership of that
person or group, we deemed to be outstanding any shares of
common stock subject to options held by that person or group
that are currently exercisable or exercisable within
60 days
of ,
2010. We did not deem these shares outstanding, however, for the
purpose of computing the percentage ownership of any other
person.
Unless otherwise noted below, the address of each beneficial
owner listed in the table is
c/o 45
East Park Drive, Westampton, New Jersey 08060.
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After Offering (Assuming
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After Offering (Assuming no
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Number of
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Full Exercise of
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Exercise of Option to Purchase
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Shares of
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Option to Purchase
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Before Offering
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Additional Securities)
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Common Stock
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Additional Securities)
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Percent of
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to be Sold upon
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Number of
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Percent of
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Number of
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Shares of
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Exercise
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Number of
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Percent of
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Shares of
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Common
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Shares of
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Common
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of Option to
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Shares of
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Common
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Common Stock
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Stock
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Common Stock
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Stock
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Purchase
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Common Stock
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Stock
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Beneficially
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Beneficially
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Beneficially
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Beneficially
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Additional
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Beneficially
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Beneficially
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Name of Beneficial Owner
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Owned
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Owned
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Owned
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Owned
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Securities
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Owned
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Owned
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James J. Dowling(1)
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Brian Fitzpatrick(2)
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James Molinari(2)
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Harry Muhlschlegel(2)(3)
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Jerry Shields(2)
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David S. Harris
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Samuel H. Jones, Jr.
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Paul Leand
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Seth E. Wilson(1)
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JCP Fund IV(4)
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All directors and executive officers as a group (nine persons)
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(1)
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The address of each of
Messrs. James Dowling and Seth Wilson is
c/o Jefferies
Capital Partners, 520 Madison Avenue, 10th Floor, New York,
New York 10022.
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(2)
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Includes , , and shares
of restricted stock owned of record by Messrs. Brian
Fitzpatrick, James Molinari, Harry Muhlschlegel and Jerry
Shields, respectively, which restricted stock vests upon the
earliest to occur of (a) this offering, (b) the
one-year anniversary of the sale of a majority of our common
stock or all, or substantially all, of our assets to another
party or group of parties or (c) July 1, 2011. Also
includes , , and shares
of restricted stock owned of record by Messrs. Brian
Fitzpatrick, James Molinari, Harry Muhlschlegel and Jerry
Shields, respectively, which restricted stock vests upon the
earliest to occur of (a) the sixteen-month anniversary of
this offering, (b) the sale of a majority of our common
stock, or all or substantially all, of our assets to another
party or group of parties for predominantly cash consideration
or (c) the one-year anniversary of the sale of a majority
of our common stock or all, or substantially all, of our assets
to another party or group of parties for predominantly non-cash
securities. Such shares of restricted stock will be forfeited
if, prior to the applicable vesting date, the holders
employment is terminated for cause or due to a voluntary
resignation.
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(3)
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Includes shares
owned of record by Muhlschlegel NMNH Trust, a trust established
for the benefit of Mr. Muhlschlegels children,
and shares
owned of record by Karen Muhlschlegel,
Mr. Muhlschlegels wife.
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(4)
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Consists
of shares
held by Jefferies Capital Partners IV
L.P., shares
held by Jefferies Employee Partners IV LLC
and shares
held by JCP Partners IV LLC, which are investment funds
affiliated with Jefferies Capital Partners. These shares are
owned of record by NCT Acquisition LLC. Also
includes
shares issuable upon exercise
of
warrants held by Jefferies Capital Partners IV
L.P.,
shares issuable upon exercise
of
warrants held by Jefferies Employee Partners IV LLC
and
shares issuable upon exercise
of
warrants held by JCP Partners IV LLC. Brian
P. Friedman, who is the President of the general partner of
JCP Fund IV, and James L. Luikart, who is the
Executive Vice President of the general partner of JCP
Fund IV, are the managing members of the manager of these
funds and exercise voting and investment control over the
securities being offered for sale by JCP Fund IV. The
address for each of Jefferies Capital Partners IV L.P.,
Jefferies Employee Partners IV LLC and JCP Partners IV
LLC, all of which are managed by Jefferies Capital Partners, is
520 Madison Avenue, 10th Floor, New York, New York 10022. JCP
Fund IV may be deemed to be an affiliate of a registered
broker-dealer. Through the acquisition vehicle NCT Acquisition
LLC, it represented and warranted in June 2006 that it
purchased the shares being registered for resale for investment
and not with a view to any public resale or distribution except
in compliance with applicable securities laws. JCP Fund IV made
similar representations and warranties in November 2009 in
connection with its acquisition of certain warrants from us.
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Relationships
with the Muhlschlegel Family
We lease our Westampton, New Jersey facility from Jenicky
L.L.C., an entity managed by Harry Muhlschlegel, our Chief
Executive Officer, and his wife, Karen Muhlschlegel, and owned
by Harry and Karen Muhlschlegel and trusts established for the
benefit of their children. The current term of this lease
expires April 30, 2011, and the lease provides for two
optional five-year renewal periods. The annual rent for this
facility is approximately $1.1 million, all of which is
paid to Jenicky L.L.C.
We lease a parking lot and equipment maintenance facility from
NMJT, L.L.C., an entity owned by Harry and Karen Muhlschlegel.
These leases have an initial term expiring on April 30,
2011, and the leases provide for two five-year renewal terms.
The annual rent for the parking lot and equipment maintenance
facility are approximately $47,000 and $270,000, respectively,
all of which is paid to NMJT, L.L.C.
We also lease a warehouse facility from 49 Ironside Court, LLC,
an entity owned by Harry and Karen Muhlschlegel. The initial
term of the lease expires April 30, 2011, and the lease
provides for two five-year renewal periods. The annual base rent
for this warehouse facility is approximately $270,000, all of
which is paid to 49 Ironside Court, LLC.
We lease nine refrigerated trailers from HKM, L.L.C., an entity
owned by Harry and Karen Muhlschlegel. The current term of this
lease expires June 1, 2011. The annual rent for these
trailers is approximately $42,000, all of which is paid to HKM,
L.L.C.
We were founded by Harry Muhlschlegel, and a number of his
family members are employed within the Company. The compensation
levels of family members of our directors and executive officers
are set based on reference to external market practice of
similar positions
and/or
internal pay equity when compared to the compensation paid to
non-family members in similar positions. In 2009, Carla English,
our Vice President of Administration and
Mr. Muhlschlegels sister, had total compensation,
including base salary, bonus and other compensation, of
$135,877. In 2009, William English, our Vice President of
Terminal Operations and Mr. Muhlschlegels
brother-in-law,
had total compensation, including base salary, bonus and other
compensation, of $205,800.
Other
Relationships
JCP Fund IV is the holder of our $10.0 million senior
subordinated notes due 2014, which notes will be repaid in
connection with this offering.
We, JCP Fund IV, NCT Acquisition LLC, the entity through
which JCP Fund IV and James J. Dowling, one of our
directors, hold certain of their securities in New Century, and
certain individual investors, including Harry Muhlschlegel, his
wife, Karen Muhlschlegel, his sister, Carla English, James
Molinari, our President, Brian Fitzpatrick, our Chief Financial
Officer and Secretary, and Jerry Shields, our Senior Vice
President, Operations, are party to a securities holder
agreement dated as of June 29, 2006, as amended on
December 1, 2006. This agreement, among other things,
(i) restricts the transfer of our equity securities,
(ii) grants us a purchase option on our equity securities
held by employee shareholders upon certain termination events,
(iii) requires each shareholder who is a party to the
agreement to consent to a sale of our company if such sale is
approved by Holdings, (iv) grants tag-along rights on
certain transfers of our equity securities by any shareholder
who is a party to the agreement and (v) grants preemptive
rights on issuances of our equity securities, subject to certain
exceptions, including issuances pursuant to certain public
equity offerings. This agreement will terminate upon the
consummation of this offering.
NCT Acquisition LLC and certain individual investors, including
Harry Muhlschlegel, his wife, Karen Muhlschlegel, his sister,
Carla English, James Molinari, Brian Fitzpatrick and Jerry
Shields possess certain registration rights with respect to our
common stock. See Description of Capital Stock
Registration Rights.
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Related
Party Transaction Policy
Prior to this offering, we have not adopted a formal written
policy for review and approval of transactions required to be
disclosed pursuant to Item 404(a) of
Regulation S-K.
Our board of directors has approved our leases with Jenicky
L.L.C., NMJT, L.L.C., 49 Ironside Court, LLC and HKM, L.L.C.,
and we believe that each of these leases was on market terms at
the time of its execution. Following this offering, written
policies and procedures will require us to seek the prior
approval of both the audit committee and a majority of the
non-interested members of the board of directors prior to
entering into any transaction between any of our executive
officers, directors and their affiliates and us that, evaluated
together with such persons other transactions with us,
would be required to be disclosed under the SECs rules and
regulations. Prior to entering into a related party transaction,
the related person must provide written notice to the Chief
Financial Officer describing the facts and circumstances of the
proposed transaction. He or she may approve any transaction
that, evaluated together with such persons other
transactions with us, would not require disclosure. If the
transaction, evaluated together with such persons other
transactions with us, would be required to be disclosed, the
proposed transaction will be submitted to the audit committee
for consideration of the relevant facts and circumstances
including: the benefits to us; the availability of other sources
for comparable products or services; the terms of the
transaction; the arms length nature of the arrangement
and, if applicable, the impact on a directors
independence. The audit committee will approve only those
transactions that are in, or not inconsistent with, the best
interests of our shareholders and us. If a transaction is
required to be and is approved by the audit committee, the
non-interested members of the board of directors will then
review and evaluate the transaction based on the same criteria.
108
DESCRIPTION
OF CAPITAL STOCK
General
Our authorized capital stock, as set forth in our amended and
restated certificate of incorporation, consists
of shares
of common stock, par value $0.01 per share,
and shares
of preferred stock, par value of $
per share. As of the date of this prospectus, there
were shares
of common stock issued and outstanding.
All of our existing stock is, and the shares of common stock
being offered by us in this offering will be, upon payment
therefor, validly issued, fully paid and nonassessable. This
discussion set forth below describes the material terms of our
capital stock, restated certificate of incorporation and amended
and restated bylaws as will be in effect upon completion of this
offering.
Common
Stock
The holders of our common stock are entitled to dividends as our
board of directors may declare from funds legally available
therefor, subject to the preferential rights of the holders of
our preferred stock, if any, and any contractual limitations on
our ability to declare and pay dividends. The holders of our
common stock are entitled to one vote per share on any matter to
be voted upon by shareholders. For the purposes of a shareholder
meeting a majority of the outstanding shares of our common stock
constitutes a quorum. Our restated certificate of incorporation
does not provide for cumulative voting in connection with the
election of directors, and accordingly, holders of more than 50%
of the shares voting will be able to elect all of the directors.
No holder of our common stock will have any preemptive right to
subscribe for any shares of capital stock issued in the future.
Upon any voluntary or involuntary liquidation, dissolution, or
winding up of our affairs, the holders of our common stock are
entitled to share ratably in all assets remaining after payment
of creditors and subject to prior distribution rights of our
preferred stock, if any.
Preferred
Stock
Our restated certificate of incorporation authorizes the
issuance
of shares
of preferred stock with such designation, rights and preferences
as may be determined from time to time by our board of
directors. No shares of preferred stock are being issued or
registered in this offering, and no shares of preferred stock
will be outstanding upon the completion of this offering.
Accordingly, our board of directors is empowered, without
shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders
of common stock. Any preferred stock that we issue could be
utilized as a method of discouraging, delaying or preventing a
change in control of us. Although we do not currently intend to
issue any shares of preferred stock, we cannot assure you that
we will not do so in the future.
Registration
Rights
NCT Acquisition LLC, the entity through which JCP Fund IV
and James J. Dowling hold certain of their securities in New
Century, as well as certain individual investors, including
Harry Muhlschlegel, his wife, Karen Muhlschlegel, his sister,
Carla English, James Molinari, Brian Fitzpatrick and Jerry
Shields possess certain registration rights with respect to our
common stock. These shareholders, who
hold shares
of our common stock
( shares
assuming exercise of the underwriters over-allotment
option in full), have certain rights allowing them to demand
that we register the resale of their shares under the Securities
Act. The holders of a majority of
the shares
held by NCT Acquisition LLC
( shares
assuming exercise of the underwriters over-allotment
option in full) may make an unlimited number of demands for
registration at any time. The holders of a majority of
the shares
held by the other investors may make up to two demands for
registration of such shares beginning 18 months after the
completion of this offering. In addition, at any time after
completion of this offering, if we propose to register any of
our securities under the Securities Act, these shareholders
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are entitled to
30-day
notice of the proposed registration and, subject to customary
conditions and limitations, are entitled to have their shares
included in the associated registration statement. We are
required to use our best efforts to effect these registrations,
subject to customary conditions and limitations. We will bear
all expenses incurred in connection with the registration of
shares under these registration rights. NCT Acquisition LLC has
waived its registration rights in connection with this offering
except to the extent that the underwriters exercise their option
to purchase additional securities.
Anti-Takeover
Effects of Our Restated Certificate of Incorporation and Amended
and Restated Bylaws and New Jersey Law
The following is a description of certain provisions of the New
Jersey Business Corporation Act, our restated certificate of
incorporation and amended and restated bylaws. This summary does
not purport to be complete and is qualified in its entirety by
reference to the New Jersey Business Corporation Act, and our
restated certificate of incorporation and amended and restated
bylaws.
The
New Jersey Shareholders Protection Act
We are subject to the New Jersey Shareholders Protection
Act, Section 14A:10A of the New Jersey Business Corporation
Act. Subject to certain qualifications and exceptions, the
statute prohibits an interested stockholder of a corporation
from effecting a business combination with the corporation for a
period of five years from the date the stockholder acquires the
corporations stock unless the corporations board of
directors approved the combination prior to the stockholder
becoming an interested stockholder. In addition, but not in
limitation of the five-year restriction, if applicable,
corporations covered by the New Jersey statute may not engage at
any time in a business combination with any interested
stockholder unless (i) the combination is approved by the
board of directors prior to the interested stockholders
stock acquisition date, (ii) the combination receives the
approval of two-thirds of the voting stock of the corporation
not beneficially owned by the interested stockholder at a
meeting called for such purpose or (iii) the combination
meets minimum financial terms specified by the statute.
An interested stockholder is defined to include any
beneficial owner of 10% or more of the voting power of the
outstanding voting stock of the corporation or any affiliate or
associate of the corporation who within the prior five year
period has at any time directly or indirectly owned 10% or more
of the voting power of the then outstanding stock of the
corporation. The term business combination is
defined broadly to include, among other things:
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the merger or consolidation of the corporation with the
interested stockholder or any corporation that is or after the
merger or consolidation would be an affiliate or associate of
the interested stockholder,
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the sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with an interested stockholder or any
affiliate or associate of the interested stockholder who has 10%
or more of the corporations assets, or
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the issuance or transfer to an interested stockholder or any
affiliate or associate of the interested stockholder of 5% or
more of the aggregate market value of the outstanding stock of
the corporation.
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The effect of the statute is to protect non-tendering,
post-acquisition minority shareholders from mergers in which
they will be squeezed out after the merger, by
prohibiting transactions in which an acquirer could favor itself
at the expense of minority shareholders. The statute generally
applies to corporations that are organized under New Jersey law
and which have either, as of the date that the interested
stockholder first becomes an interested stockholder of the
corporation, their principal executive offices or significant
business operations located in New Jersey. However, unless a
corporations certificate of incorporation provides
otherwise, which ours does not, the statute does not apply to
any business combination with an interested stockholder if the
corporation did not have a class
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of voting stock registered or traded on a national securities
exchange or registered with the SEC under the Exchange Act on
that interested stockholders stock acquisition date.
Certificate
of Incorporation and Bylaws
Certain provisions of our restated certificate of incorporation
and amended and restated bylaws could have anti-takeover
effects. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of our corporate
policies formulated by our board of directors. In addition,
these provisions also are intended to ensure that our board of
directors will have sufficient time to act in what our board of
directors believes to be in the best interests of us and our
shareholders. These provisions also are designed to reduce our
vulnerability to an unsolicited proposal for our takeover that
does not contemplate the acquisition of all of our outstanding
shares or an unsolicited proposal for the restructuring or sale
of all or part of us. The provisions are also intended to
discourage certain tactics that may be used in proxy fights.
However, these provisions could delay or frustrate the removal
of incumbent directors or the assumption of control of us by the
holder of a large block of common stock, and could also
discourage or make more difficult a merger, tender offer, or
proxy contest, even if such event would be favorable to the
interest of our shareholders.
Classified Board of Directors. Our
restated certificate of incorporation provides for our board of
directors to be divided into three classes of directors, with
each class as nearly equal in number as possible, serving
staggered three-year terms (other than directors which may be
elected by holders of preferred stock, if any). As a result,
approximately one-third of our board of directors will be
elected each year. The classified board provision will help to
assure the continuity and stability of our board of directors
and our business strategies and policies as determined by our
board of directors. The classified board provision could have
the effect of discouraging a third party from making an
unsolicited tender offer or otherwise attempting to obtain
control of us without the approval of our board of directors. In
addition, the classified board provision could delay
shareholders who approve of the policies of our board of
directors from electing a majority of our board of directors for
two years.
No Shareholder Action by Written Consent; Special
Meetings. Our restated certificate of
incorporation provides that shareholder action can only be taken
at an annual or special meeting of shareholders and prohibits
shareholder action by written consent in lieu of a meeting. Our
amended and restated bylaws provide that special meetings of
shareholders may be called only by our board of directors or our
Chief Executive Officer. Our shareholders are not permitted to
call a special meeting of shareholders or to require that our
board of directors call a special meeting.
Advance Notice Requirements for Shareholder Proposals and
Director Nominees. Our amended and restated
bylaws establish an advance notice procedure for our
shareholders to make nominations of candidates for election as
directors or to bring other business before an annual meeting of
our shareholders. The shareholder notice procedure provides that
only persons who are nominated by, or at the direction of, our
board of directors or its Chairman, or by a shareholder who has
given timely written notice to our Secretary or any Assistant
Secretary prior to the meeting at which directors are to be
elected, will be eligible for election as our directors. The
shareholder notice procedure also provides that at an annual
meeting only such business may be conducted as has been brought
before the meeting by, or at the direction of, our board of
directors or its Chairman or by a shareholder who has given
timely written notice to our Secretary of such
shareholders intention to bring such business before such
meeting. Under the shareholder notice procedure, if a
shareholder desires to submit a proposal or nominate persons for
election as directors at an annual meeting, the shareholder must
submit written notice to us not less than 90 days nor more
than 120 days prior to the first anniversary of the
previous years annual meeting. In addition, under the
shareholder notice procedure, a shareholders notice to us
proposing to nominate a person for election as a director or
relating to the conduct of business other than the nomination of
directors must contain certain specified information. If the
chairman of a meeting
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determines that business was not properly brought before the
meeting, in accordance with the shareholder notice procedure,
such business shall not be discussed or transacted.
Number of Directors; Removal; Filling
Vacancies. Our amended and restated bylaws
provide that our board of directors will consist of not less
than five or more than eleven directors, the exact number to be
fixed from time to time by resolution adopted by our directors.
Further, subject to the rights of the holders of any series of
our preferred stock, if any, our bylaws authorize our board of
directors to fill any vacancies that occur in our board of
directors by reason of death, resignation, removal, or
otherwise. A director so elected by our board of directors to
fill a vacancy or a newly created directorship holds office
until the next election of the class for which such director has
been chosen and until his successor is elected and qualified.
Subject to the rights of the holders of any series of our
preferred stock, if any, our bylaws also provide that directors
may be removed only for cause and only by the affirmative vote
of holders of a majority of the combined voting power of our
then outstanding stock. The effect of these provisions is to
preclude a shareholder from removing incumbent directors without
cause and simultaneously gaining control of our board of
directors by filling the vacancies created by such removal with
its own nominees.
Indemnification. We have included in
our restated certificate of incorporation and amended and
restated bylaws provisions to (i) eliminate the personal
liability of our directors for monetary damages resulting from
breaches of their fiduciary duty to the extent permitted by the
New Jersey Business Corporation Act and (ii) indemnify our
directors and officers to the fullest extent permitted by
Section 14A:3-5
of the New Jersey Business Corporation Act. We believe that
these provisions are necessary to attract and retain qualified
persons as directors and officers.
Amendments to Certificate of
Incorporation. The provisions of our restated
certificate of incorporation that could have anti-takeover
effects as described above are subject to amendment, alteration,
repeal, or rescission either by (i) our board of directors
without the assent or vote of our shareholders or (ii) the
affirmative vote of the holder of not less than two-thirds of
the outstanding shares of voting securities, depending on the
subject provision. This requirement makes it more difficult for
shareholders to make changes to the provisions in our
certificate of incorporation which could have anti-takeover
effects by allowing the holders of a minority of the voting
securities to prevent the holders of a majority of voting
securities from amending these provisions of our restated
certificate of incorporation.
Amendments to Bylaws. Our restated
certificate of incorporation and our amended and restated bylaws
provide that our amended and restated bylaws are subject to
adoption, amendment, alteration, repeal, or rescission either by
(i) our board of directors without the assent or vote of
our shareholders or (ii) the affirmative vote of the
holders of not less than two-thirds of the outstanding shares of
voting securities. This provision makes it more difficult for
shareholders to make changes in our amended and restated bylaws
by allowing the holders of a minority of the voting securities
to prevent the holders of a majority of voting securities from
further amending our bylaws.
Nasdaq
Global Market Trading
We have applied to have our common stock approved for quotation
on the Nasdaq Global Market under the symbol NCTX.
Transfer
Agent and Registrar
We intend to
appoint
as transfer agent and registrar for our common stock prior to
the completion of this offering.
112
DESCRIPTION
OF INDEBTEDNESS
We summarize below the principal terms of the agreements
governing our outstanding indebtedness and those that we expect
to govern our new revolving credit facility. This summary is not
a complete description of all the terms of such agreements.
Existing
Senior Secured Credit Facility
On August 14, 2006, we entered into a senior secured credit
facility with a syndicate of financial institutions and
institutional lenders with PNC Bank, National Association and
Sovereign Bank, as co-syndication agents, Churchill Financial
Cayman Ltd and CIT Capital Securities, LLC, as co-documentation
agents, Wachovia Bank, National Association, as administrative
agent, and Wachovia Capital Markets LLC, as sole lead arranger
and book runner. Set forth below is a summary of the terms of
our existing credit facility, as amended to date.
Our existing credit facility provides for a $142.0 million
term loan and a $20.0 million revolving credit facility,
which includes a $10.0 million sublimit for swingline loans
and a $10.0 million sublimit for letters of credit. As of
June 30, 2010, a total of $101.7 million was
outstanding under the term loan and no amounts were outstanding
under the revolving credit facility. We also had
$2.1 million outstanding under the letter of credit
subfacility, which amounts reduce the remaining undrawn portion
of the revolving credit facility that is available for future
borrowings. All borrowings under our existing credit facility
are subject to the satisfaction of required conditions,
including the absence of a default at the time of and after
giving effect to such borrowing and the accuracy of the
representations and warranties of the borrowers.
We intend to repay all amounts outstanding under our existing
credit facility and accrued but unpaid interest thereunder with
the proceeds of this offering and our initial drawing under our
new revolving credit facility.
Interest
and Fees
The interest rate per annum applicable to borrowings under the
term loan is generally, at our option, equal to either an
alternate base rate or LIBOR for a one, two, three or six month
interest period, in each case, plus an applicable margin
percentage. The alternate base rate is the greater of
(1) Wells Fargo Bank, N.A.s prime rate and
(2) one-half of 1% over the weighted average of rates on
overnight Federal funds as published by the Federal Reserve Bank
of New York. The interest rate per annum applicable to an
undrawn letter of credit is equal to the applicable margin for
LIBOR rate loans. The interest rate per annum applicable to the
swingline loans is equal to an alternate base rate or the LIBOR
rate plus an applicable margin percentage.
The applicable margin percentage is currently 5.50% and 6.00%
for alternate base rate loans and 6.50% and 7.00% for LIBOR
loans under the revolving credit facility and term loan,
respectively. The applicable margin percentage for borrowings
under the revolving credit facility is subject to change based
upon the ratio of our total indebtedness to consolidated EBITDA
(as computed under the credit agreement).
On the last day of each calendar quarter we are required to pay
each lender a commitment fee equal to 0.50% per annum in respect
of any unused commitments under the revolving credit facility.
Prepayments
Subject to certain customary exceptions, our existing credit
facility requires mandatory prepayments of the $142 million
term loan in amounts equal to:
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50% of our annual excess cash flow, as computed under the credit
agreement, in the event we do not meet certain leverage ratio
thresholds;
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100% of the net cash proceeds from asset sales and casualty and
condemnation events, subject to reinvestment rights and certain
other exceptions;
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50% of the net cash proceeds from certain issuances of equity
securities; and
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100% of the net cash proceeds from certain incurrences of debt.
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In the event that the sum of the aggregate principal amount of
loans outstanding under the revolving credit facility and the
aggregate face amount of all letters of credit outstanding under
the letter of credit subfacility exceeds the aggregate
commitments under the revolving credit facility, we are required
to immediately repay loans under the revolving credit facility
in the amount of such excess.
Voluntary prepayments and commitment reductions are permitted,
in whole or in part, in minimum amounts without premium or
penalty, other than breakage costs with respect to LIBOR rate
loans. Interest on the principal amount prepaid is payable on
the next occurring interest payment date that would have
occurred had such loan not been prepaid.
Amortization
of Principal
The principal amount of our existing term loan matures on
August 14, 2012. The term loan has quarterly repayment
requirements of $1.04 million until maturity, at which time
the remaining balance is due. The principal amount of all
revolving loans mature on August 14, 2011.
Collateral
and Guarantors
Our credit facility is guaranteed by Western Freightways and
will be guaranteed by substantially all of our future
subsidiaries and secured by substantially all of our existing
and future property and assets and by a pledge of the capital
stock of our subsidiaries.
Restrictive
Covenants and Other Matters
Our existing credit facility requires that we comply on a
quarterly basis with certain financial covenants, including a
consolidated leverage ratio test, an interest coverage ratio
test and a consolidated capital expenditures test, which
financial covenants become more restrictive over time. As of
June 30, 2010, we were required to maintain our
consolidated leverage ratio (the ratio of total indebtedness to
consolidated EBITDA for the prior four consecutive fiscal
quarters) at less than 5.75 to 1.00. As of June 30, 2010,
we were required to maintain our interest coverage ratio (the
ratio of consolidated EBITDA to consolidated interest expense
for the prior four consecutive fiscal quarters) at greater than
1.65 to 1.00. For the year ending December 31, 2010, our
consolidated capital expenditures were permitted to be no
greater than $10.0 million. As of June 30, 2010, our
leverage ratio was 3.95 to 1.00, our interest coverage ratio was
2.63 to 1.00, and our capital expenditures net of sales for the
six months were $4.1 million.
In addition, our credit facility includes negative covenants,
subject to significant exceptions, restricting or limiting our
ability and the ability of our subsidiaries to, among other
things:
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incur, assume, permit to exist or guarantee additional debt and
issue or sell or permit any subsidiary to issue or sell
preferred stock;
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incur or permit to exist certain liens on property or assets
owned or acquired;
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alter the character of our business in any material respect;
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dissolve, liquidate or wind up our affairs, or sell, transfer,
lease or otherwise dispose of our property or assets;
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purchase, lease or otherwise acquire property or assets;
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enter into certain related party transactions;
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amend, modify or change our governing documents in any respect
adverse to the interests of the lenders;
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amend or modify any material contracts;
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amend, modify, waive or extend any document governing or related
to any subordinated debt; and
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become liable with respect to any lease, whether an operating
lease or a capital lease, of any property.
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Our existing credit facility also contains certain customary
representations and warranties, affirmative covenants and events
of default. If any event of default occurs, the lenders under
our existing credit facility will be entitled to take various
actions, including the acceleration of amounts due under our
credit facility, foreclosure upon the collateral securing the
amounts owed and all other actions permitted to be taken by a
secured creditor. In addition, upon an event of default, all
outstanding principal, fees and other obligations under the new
revolving credit facility will bear interest at a rate per annum
of 2% in excess of the rate then applicable.
9%
Subordinated Notes
On December 1, 2006, we issued an aggregate of
$1.7 million of subordinated notes to three individuals in
connection with our acquisition of Western Freightways. Interest
on the subordinated notes accrues at an annual rate of 9%. Upon
certain customary events of default, the noteholders may declare
the unpaid principal of and accrued interest on their notes to
be immediately due and payable. The subordinated notes generally
are subordinated to the payment in full of all senior debt,
including our existing credit facility although the notes will
mature upon the occurrence of this offering.
We intend to repay all amounts outstanding under our
9% subordinated notes and accrued but unpaid interest
thereunder with the proceeds of this offering and our initial
drawing under our new revolving credit facility.
14%
Convertible Subordinated Notes
On June 29, 2007, we issued $2.5 million of
convertible subordinated notes due February 28, 2013 as
consideration in connection with our acquisition of P&P
Transport and Evergreen Equipment Leasing Co., Inc. On
March 28, 2008, the notes were amended to allow for
deferment of interest. Interest on the convertible subordinated
notes currently accrues at an annual rate of 14%. The notes are
convertible at a conversion price
of
per
share. shares
are issuable pursuant to the conversion rights under the notes.
Upon certain customary events of default, the noteholders may
declare the unpaid principal of and accrued interest on their
notes to be immediately due and payable. The convertible
subordinated notes generally are subordinated to the payment in
full of all senior debt, including our existing credit facility.
We intend to repay all amounts outstanding under our 14%
convertible subordinated notes and accrued but unpaid interest
thereunder with the proceeds of this offering and our initial
drawing under our new revolving credit facility.
7.5% Senior
Subordinated Notes
On November 19, 2009, we entered into a note and warrant
purchase agreement with JCP Fund IV, whereby we issued an
aggregate of $10.0 million of 7.5% senior subordinated
notes due June 30, 2014 for an aggregate purchase price of
approximately $9.5 million. Concurrently, we also issued
warrants to
purchase shares
of our common stock to JCP Fund IV for an aggregate
purchase price of approximately $0.5 million. The warrants
currently have an exercise price of
$ and expire on November 19,
2019. JCP Fund IV has confirmed to us that it intends to
exercise its warrants on a
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cashless basis in connection with this offering. Under the
terms of the warrants, we will deliver to JCP Fund IV a number
of shares equal to the number of shares issuable upon exercise
of the warrants less a number of shares equal to the quotient of
the aggregate exercise price of the warrants by the initial
public offering price, which we will deem to be the fair market
value of shares of our common stock.
Interest on the senior subordinated notes accrues at an annual
rate of 7.5% and is payable annually on December 15 of each
year. Payment of interest for any annual period concluding prior
to the payment in full of all obligations under our existing
credit facility is delayed until June 30, 2014 with such
interest accruing and compounding at an annual rate equal to
7.5%. Amounts remain outstanding under our credit facility, and
accordingly, interest on the notes is being compounded.
Upon an initial public offering or a change of control, the
outstanding principal and accrued interest on each note is
payable at the option of the noteholders. Upon the occurrence of
certain events of default, including our default in payment of
principal or interest payable on the notes, the noteholders may
accelerate the indebtedness under the notes and cause the unpaid
principal and accrued interest to become immediately due and
payable.
The notes contain certain covenants, including those limiting
our ability to declare or make certain payments and enter into
certain transactions with our affiliates. We intend to repay all
amounts outstanding under our 7.5% senior subordinated
notes and accrued but unpaid interest thereunder with the
proceeds of this offering and our initial drawing under our new
revolving credit facility.
New
Revolving Credit Facility
Concurrently with this offering, we intend to enter into a
revolving credit facility with Wells Fargo Bank, N.A., as
administrative agent, and Wells Fargo Securities, LLC, as sole
lead arranger and book runner, and a syndicate of financial
institutions. We expect our revolving credit facility will
provide for a $60.0 million revolving credit facility,
which amount we will be entitled, under certain circumstances,
to increase by up to $25.0 million at any time. We expect
that all borrowings under our new revolving credit facility will
be subject to the satisfaction of required conditions, including
the absence of a default at the time of and after giving effect
to such borrowing and the accuracy of the representations and
warranties in the agreement.
Interest
and Fees
We anticipate that the applicable interest rate on borrowings
under our new revolving credit facility will be generally, at
our option, equal to either a base rate or LIBOR for a one, two,
three or six month interest period, in each case, plus an
applicable margin percentage. We expect the base rate will be
the greater of (1) Wells Fargo Bank, N.A.s prime
rate, (2) one-half of 1% over the Federal funds rate or
(3) the daily LIBOR rate for a one month interest period
plus 1.00%. We expect the interest rate per annum applicable to
any unreimbursed drawing under any letter of credit will be
equal to the applicable margin for LIBOR rate loans.
The applicable margin percentage for borrowings under our
revolving loans is anticipated to be subject to change based
upon our leverage ratio (as computed under the credit
agreement). The initial applicable margin percentages are
expected to be equal to the base rate plus 1.25% for base rate
loans and the LIBOR rate plus 2.25% for adjusted LIBOR loans.
On the last day of each calendar quarter we expect to be
required to pay each lender a commitment fee in respect of any
unused commitments under the revolving credit facility. The
commitment fee is expected to be 0.35% per annum initially and
will be subject to adjustment based upon our leverage ratio (as
computed under the credit agreement).
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Prepayments
In the event that the sum of the aggregate principal amount of
loans outstanding under the new revolving credit facility and
the aggregate face amount of all letters of credit outstanding
under the new revolving credit facility exceeds the aggregate
commitments under the new revolving credit facility, we expect
that we will be required to immediately repay loans under the
new revolving credit facility in the amount of such excess.
Voluntary prepayments and commitment reductions are expected to
be permitted, in whole or in part, in minimum amounts of
$1.0 million without premium or penalty, other than
breakage costs with respect to LIBOR rate loans.
Maturity
and Availability
The borrowings under the new revolving credit facility are
expected to mature on the date five years following the closing
date of this offering. Loans under the new revolving credit
facility are expected to be available on and after the closing
date at any time prior to such maturity date.
Collateral
and Guarantors
We expect that our credit facility will be guaranteed by Western
Freightways, Inc. and P&P Transport Inc., two of our
subsidiaries, and will be guaranteed by substantially all of our
future subsidiaries and will be secured by substantially all of
our existing and future property and assets, the existing and
future property and assets of our subsidiaries, and by a pledge
of the capital stock of our subsidiaries.
Restrictive
Covenants and Other Matters
We expect that our new revolving credit facility will require
that we comply on a quarterly basis with certain financial
covenants, including a maximum secured leverage ratio test and a
minimum fixed charge coverage ratio test. We anticipate that we
will be required to maintain a secured leverage ratio not
greater than 2.50 to 1.00 and a fixed charge coverage ratio not
less than 1.25 to 1.00.
In addition, we expect our new revolving credit facility will
include negative covenants, subject to significant exceptions,
restricting or limiting our ability and the ability of our
subsidiaries, to, among other things:
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incur, assume, permit to exist or guarantee additional debt and
issue or sell or permit any subsidiary to issue or sell
preferred stock;
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incur or permit to exist certain liens on property or assets
owned or acquired;
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alter the character of our business in any material respect;
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dissolve, liquidate or wind up our affairs, or sell, transfer,
lease or otherwise dispose of our property or assets;
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purchase or otherwise acquire property or assets;
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enter into certain related party transactions;
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amend, modify or change our governing documents in any respect
adverse to the interests of the lenders;
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amend or modify any material contracts;
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amend, modify, waive or extend any document governing or related
to any subordinated debt;
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enter into any sale-leaseback agreements; and
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provide any negative pledges.
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Our new revolving credit facility is also expected to contain
certain customary representations and warranties, affirmative
covenants and events of default. If any event of default occurs,
we expect the lenders under our new revolving credit facility
will be entitled to take various actions, including the
acceleration of amounts due under our credit facility,
foreclosure upon the collateral securing the amounts owed and
all other actions permitted to be taken by a secured creditor.
In addition, we anticipate that upon an event of default, all
outstanding principal, fees and other obligations under the new
revolving credit facility will bear interest at a rate per annum
of 2% in excess of the rate then applicable.
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SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for
shares of our common stock. We cannot predict the effect, if
any, future sales of shares of our common stock, or the
availability for future sale of shares of our common stock, will
have on the market price of shares of our common stock
prevailing from time to time. The sale of substantial amounts of
shares of our common stock in the market, or the perception that
such sales could occur, could harm the prevailing market price
of shares of the common stock.
Sale of
Restricted Shares
Upon completion of this offering, we will
have shares
of common stock outstanding, based
on shares
of common stock outstanding as of the date of this prospectus.
Of these shares, the shares sold in this offering, plus any
shares sold upon exercise of the underwriters option to
purchase additional securities, will be freely tradable without
restriction under the Securities Act, except for any shares
purchased by our affiliates as that term is defined
in Rule 144 under the Securities Act. In general,
affiliates include executive officers, directors and 10%
shareholders. Shares purchased by affiliates will remain subject
to the resale limitations of Rule 144.
As a result of the
lock-up
agreements described below and the provisions of Rule 144
of the Securities Act, the shares of our common stock (excluding
the shares sold in this offering) will be available for sale in
the public market as follows:
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no shares are eligible for sale on the date of this prospectus;
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shares
will be eligible for sale upon the expiration of the
lock-up
agreements, as more particularly described below, beginning
180 days after the date of this prospectus; and
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shares
will be eligible for sale, upon the exercise of vested options,
upon the expiration of the
lock-up
agreements, as more particularly described below, beginning
180 days after the date of this prospectus.
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In addition, upon the completion of this
offering, shares
may be issued upon the exercise of vested options.
Lock-Up
Agreements
We and all of our directors and executive officers, our
shareholders and certain holders of our stock options,
collectively
representing
of our total shares of common stock (including shares of common
stock subject to option) will enter into
lock-up
agreements in connection with this offering, generally providing
that they will not offer, sell, contract to sell, or grant any
option to purchase or otherwise dispose of our common stock or
any securities exercisable for or convertible into our common
stock owned by them for a period of 180 days after the date
of this prospectus without the prior written consent of the
underwriters. Despite possible earlier eligibility for sale
under the provisions of Rule 144, shares subject to
lock-up
agreements will not be salable until these agreements expire or
are waived by the underwriters.
Approximately % of our outstanding
shares of common stock
or %
of our issuable shares of common stock will be subject to such
lock-up
agreements upon closing of this offering. These agreements are
more fully described in Underwriting.
Rule 144
Generally, Rule 144 provides that an affiliate who has
beneficially owned restricted shares for at least
six months will be entitled to sell on the open market in
brokers transactions, within any three-month period, a
number of shares that does not exceed the greater of:
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1% of the number of shares of common stock then
outstanding; or
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the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale.
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Sales under Rule 144 are also subject to requirements with
respect to manner of sale, notice, and the availability of
current public information about us.
In the event that any person who is deemed to be our affiliate
purchases shares of our common stock in this offering or
acquires shares of our common stock pursuant to one of our
employee benefits plans, sales under Rule 144 of the shares
held by that person are subject to the volume limitations and
other restrictions described above.
The volume limitation, manner of sale and notice provisions
described above will not apply to sales by non-affiliates. For
purposes of Rule 144, a non-affiliate is any person or
entity who is not our affiliate at the time of sale and has not
been our affiliate during the preceding three months. Once we
have been a reporting company for 90 days, a non-affiliate
who has beneficially owned restricted shares of our common stock
for six months may rely on Rule 144 provided that certain
public information regarding us is available. The six month
holding period increases to one year in the event we have not
been a reporting company for at least 90 days. However, a
non-affiliate who has beneficially owned the restricted shares
proposed to be sold for at least one year will not be subject to
any restrictions under Rule 144 regardless of how long we
have been a reporting company.
Rule 701
Under Rule 701, each of our employees, officers, directors,
and consultants who purchased shares pursuant to a written
compensatory plan or contract is eligible to resell these shares
90 days after the effective date of this offering in
reliance upon Rule 144, but without compliance with
specific restrictions. Rule 701 provides that affiliates
may sell their Rule 701 shares under Rule 144
without complying with the holding period requirement and that
non-affiliates may sell their shares in reliance on
Rule 144 without complying with the holding period, public
information, volume limitation or notice provisions of
Rule 144.
Form S-8
Registration Statements
We intend to file one or more registration statements on
Form S-8
under the Securities Act as soon as practicable after the
completion of this offering for shares issued upon the exercise
of options and shares to be issued under our employee benefit
plans. As a result, any such options or shares will be freely
tradable in the public market. However, such shares held by
affiliates will still be subject to the volume limitation,
manner of sale, notice, and public information requirements of
Rule 144 unless otherwise resalable under Rule 701.
Registration
Rights
NCT Acquisition LLC, the entity through which JCP Fund IV
and James J. Dowling hold certain of their securities in New
Century, as well as certain individual investors, including
Harry Muhlschlegel, his wife, Karen Muhlschlegel, his sister,
Carla English, James Molinari, Brian Fitzpatrick and Jerry
Shields possess certain registration rights with respect to our
common stock. These shareholders, who
hold shares
of our common stock
( shares
assuming exercise of the underwriters over-allotment
option in full), have certain rights allowing them to demand
that we register the resale of their shares under the Securities
Act. The holders of a majority of
the shares
held by NCT Acquisition LLC may make an unlimited number of
demands for registration at any time. The holders of a majority
of
the shares
held by the other investors may make up to two demands for
registration of such shares beginning 18 months after the
completion of this offering. In addition, at any time after
completion of this offering, if we propose to register any of
our securities under the Securities Act, these shareholders are
entitled to
30-day
notice of the proposed registration and, subject to customary
conditions and limitations, are entitled to have their shares
included in the associated registration statement. We are
required to use our best efforts to effect these registrations,
subject to customary conditions and limitations. We will bear
all expenses incurred in connection with the registration of
shares under these registration rights. NCT Acquisition LLC has
waived its registration rights in connection with this offering
except to the extent that the underwriters exercise their option
to purchase additional securities.
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MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-UNITED
STATES HOLDERS
The following discussion is a general summary of the material
U.S. federal tax consequences of the ownership and
disposition of our common stock applicable to
non-U.S. holders.
As used herein, a
non-U.S. holder
means a beneficial owner of our common stock that is not a
U.S. person for U.S. federal income tax purposes, and
that will hold shares of our common stock as capital assets
(i.e., generally, for investment). For U.S. federal income
tax purposes, a U.S. person includes:
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an individual who is a citizen or resident of the United States;
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a corporation (or other business entity treated as a corporation
for U.S. federal income tax purposes) created or organized
in the United States or under the laws of the United States, any
state thereof or the District of Columbia;
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an estate the income of which is includible in gross income
regardless of source; or
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a trust that (A) is subject to the primary supervision of a
court within the United States and the control of one or more
U.S. persons, or (B) was in existence on
August 20, 1996, was treated as a U.S. domestic trust
immediately prior to that date, and has validly elected to
continue to be treated as a U.S. domestic trust.
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This summary does not consider specific facts and circumstances
that may be relevant to a particular
non-U.S. holders
tax position and does not consider U.S. state and local or
non-U.S. tax
consequences. It also does not consider
non-U.S. holders
subject to special tax treatment under the U.S. federal
income tax laws (including partnerships or other pass-through
entities, banks and insurance companies, dealers in securities,
holders of our common stock held as part of a
straddle, hedge, conversion
transaction or other risk-reduction transaction,
controlled foreign corporations, passive foreign investment
companies, companies that accumulate earnings to avoid
U.S. federal income tax, foreign tax-exempt organizations,
former U.S. citizens or residents, persons who hold or
receive common stock as compensation and
non-U.S. holders
that own or have owned, actually or constructively, more than 5%
of our common stock). This summary is based on provisions of the
Code, applicable Treasury regulations, administrative
pronouncements of the U.S. Internal Revenue Service, or
IRS, and judicial decisions, all as in effect on the date
hereof, and all of which are subject to change, possibly on a
retroactive basis, and different interpretations.
If a partnership holds shares of our common stock, the
U.S. federal income tax treatment of a partner in the
partnership generally will depend on the status of the partner
and the activities of the partnership. Partnerships holding our
common stock and partners in such partnerships should consult
their tax advisors as to the particular U.S. federal income
tax consequences of owning and disposing of our common stock.
We encourage each prospective
non-U.S. holder
to consult its tax advisor with respect to the
U.S. federal, state, local and
non-U.S. income,
estate and other tax consequences of holding and disposing of
our common stock.
U.S.
Trade or Business Income
For purposes of this discussion, dividend income, and gain on
the sale or other taxable disposition of our common stock, will
be considered to be U.S. trade or business
income if such dividend income or gain is
(i) effectively connected with the conduct by a
non-U.S. holder
of a trade or business within the United States and (ii) in
the case of a
non-U.S. holder
that is eligible for the benefits of an income tax treaty with
the United States, attributable to a permanent establishment
(or, for an individual, a fixed base) maintained by the
non-U.S. holder
in the United States. Generally, U.S. trade or business
income is not subject to U.S. federal withholding tax
(provided the
non-U.S. holder
complies with applicable certification and disclosure
requirements); instead, U.S. trade or business income is
subject to U.S. federal income tax on a net income basis at
regular U.S. federal income tax rates in the same manner as
a
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U.S. person. Any U.S. trade or business income
received by a
non-U.S. holder
that is a corporation also may be subject to a branch
profits tax at a 30% rate, or at a lower rate prescribed
by an applicable income tax treaty, under specific circumstances.
Dividends
Distributions of cash or property that we pay on our common
stock will be taxable as dividends for U.S. federal income
tax purposes to the extent paid from our current or accumulated
earnings and profits (as determined under U.S. federal
income tax principles). Subject to our discussion in
Recently-Enacted Federal Tax Legislation below, a
non-U.S. holder
generally will be subject to U.S. federal withholding tax
at a 30% rate, or at a reduced rate prescribed by an applicable
income tax treaty, on any dividends received in respect of our
common stock. If the amount of a distribution exceeds our
current and accumulated earnings and profits, such excess first
will be treated as a tax-free return of capital to the extent of
the
non-U.S. holders
tax basis in our common stock, and thereafter will be treated as
capital gain. In order to obtain a reduced rate of
U.S. federal withholding tax under an applicable income tax
treaty, a
non-U.S. holder
will be required to provide a properly executed IRS
Form W-8BEN
(or appropriate substitute or successor form) certifying its
entitlement to benefits under the treaty. A
non-U.S. holder
of our common stock that is eligible for a reduced rate of
U.S. federal withholding tax under an income tax treaty may
obtain a refund or credit of any excess amounts withheld by
timely filing an appropriate claim for a refund with the IRS. A
non-U.S. holder
should consult its own tax advisor regarding its possible
entitlement to benefits under an income tax treaty.
The U.S. federal withholding tax does not apply to
dividends that are U.S. trade or business income, as
described above, of a
non-U.S. holder
who provides a properly executed IRS
Form W-8ECI
(or appropriate substitute or successor form), certifying that
the dividends are effectively connected with the
non-U.S. holders
conduct of a trade or business within the United States.
Dispositions
of Our Common Stock
Subject to our discussion in Recently-Enacted Federal Tax
Legislation below, a
non-U.S. holder
generally will not be subject to U.S. federal income or
withholding tax in respect of any gain on a sale or other
disposition of our common stock unless:
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the gain is U.S. trade or business income, as described
above;
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the
non-U.S. holder
is an individual who is present in the United States for 183 or
more days in the taxable year of the disposition and meets other
conditions; or
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we are or have been a U.S. real property holding
corporation, which we refer to as USRPHC,
under section 897 of the Code at any time during the
shorter of the five-year period ending on the date of
disposition by the
non-U.S. holder
and the
non-U.S. holders
holding period for our common stock.
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In general, a corporation is a USRPHC if the fair market value
of its U.S. real property interests equals or
exceeds 50% of the sum of the fair market value of its worldwide
(domestic and foreign) real property interests and its other
assets used or held for use in a trade or business. For this
purpose, real property interests include land, improvements and
associated personal property. We do not believe that we are or
have been a USRPHC, nor do we anticipate that we will become a
USRPHC. However, if we are found to be a USRPHC, a
non-U.S. holder,
nevertheless, will not be subject to U.S. federal income or
withholding tax in respect of any gain on a sale or other
disposition of our common stock so long as our common stock is
regularly traded on an established securities market
as defined under applicable Treasury regulations and a
non-U.S. holder
owns, actually and constructively, 5% or less of our common
stock during the shorter of the five-year period ending on the
date of disposition and such
non-U.S. holders
holding period for our common stock. Prospective investors
should be aware that no
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assurance can be given that our common stock will be so
regularly traded when a
non-U.S. holder
disposes of its shares of our common stock.
Information
Reporting and Backup Withholding Requirements
We must annually report to the IRS and to each
non-U.S. holder
any dividend income that is subject to U.S. federal
withholding tax, or that is exempt from such withholding tax
pursuant to an income tax treaty. Copies of these information
returns also may be made available under the provisions of a
specific treaty or agreement to the tax authorities of the
country in which the
non-U.S. holder
resides. Under certain circumstances, the Code imposes a backup
withholding obligation (currently at a rate of 28% and scheduled
to increase to 31% for taxable years 2011 and thereafter) on
certain reportable payments. Dividends paid to a
non-U.S. holder
of our common stock generally will be exempt from backup
withholding if the
non-U.S. holder
provides a properly executed IRS
Form W-8BEN
(or appropriate substitute or successor form) or otherwise
establishes an exemption.
The payment of the proceeds from the disposition of our common
stock to or through the U.S. office of any broker,
U.S. or foreign, will be subject to information reporting
and possible backup withholding unless the owner certifies as to
its
non-U.S. status
under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual
knowledge or reason to know that the holder is a
U.S. person or that the conditions of any other exemption
are not, in fact, satisfied. The payment of the proceeds from
the disposition of common stock to or through a
non-U.S. office
of a
non-U.S. broker
will not be subject to information reporting or backup
withholding unless the
non-U.S. broker
has certain types of relationships with the United States, or a
U.S. related person. In the case of the payment
of the proceeds from the disposition of our common stock to or
through a
non-U.S. office
of a broker that is either a U.S. person or a
U.S. related person, the Treasury regulations require
information reporting (but not the backup withholding) on the
payment unless the broker has documentary evidence in its files
that the owner is a
non-U.S. holder
and the broker has no knowledge to the contrary.
Non-U.S. holders
should consult their own tax advisors on the application of
information reporting and backup withholding to them in their
particular circumstances (including upon their disposition of
our common stock).
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
non-U.S. holder
will be refunded or credited against the
non-U.S. holders
U.S. federal income tax liability, if any, if the
non-U.S. holder
provides the required information on a timely basis to the IRS.
Recently-Enacted
Federal Tax Legislation
Under recently enacted legislation, foreign financial
institutions (which include hedge funds, private equity funds,
mutual funds, securitization vehicles and any other investment
vehicles regardless of their size) and other foreign entities
must comply with new information reporting rules and due
diligence requirements with respect to their U.S. account
holders and investors. A foreign financial institution or other
foreign entity that does not comply with the new reporting
requirements generally will be subject to a 30% withholding tax
with respect to any withholdable payments made after
December 31, 2012, other than such payments that are made
on obligations that are outstanding on
March 18, 2012. For this purpose, withholdable
payments are
U.S.-source
payments, such as dividends, otherwise subject to nonresident
withholding tax, discussed above, and also include the entire
gross proceeds from the sale of any equity of U.S. issuers.
The U.S. Department of Treasury and IRS have announced that
they intend to issue regulations specifying that instruments
treated as equity for U.S. tax purposes, such as our common
stock, will not be considered obligations and thus
will not be excepted from the new reporting and withholding
requirements regardless of when issued. The withholding tax will
apply regardless of whether the payment would otherwise be
exempt from U.S. nonresident withholding tax (e.g., capital
gain from the sale of our stock). The Treasury is authorized to
provide rules for implementing the withholding regime with the
existing nonresident withholding tax rules.
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Withholding under the recently enacted legislation will not
apply to withholdable payments made directly to foreign
governments, international organizations, foreign central banks
of issue and individuals, and the Treasury is authorized to
provide additional exceptions.
Prospective
non-U.S. holders
should consult with their tax advisors regarding the application
of the new provisions to the ownership and disposition of our
common stock.
Federal
Estate Tax
Individual
Non-U.S. holders
and entities the property of which is potentially includible in
such an individuals gross estate for U.S. federal
estate tax purposes (for example, a trust funded by such an
individual and with respect to which the individual has retained
certain interests or powers), should note that, absent an
applicable treaty benefit, the common stock will be treated as
U.S. situs property subject to U.S. federal estate tax.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement dated the date of this prospectus, we have agreed to
sell to the underwriters named below, and the underwriters, for
whom Wells Fargo Securities, LLC and Stifel,
Nicolaus & Company, Incorporated are acting as
joint-book running managers and representatives, have severally
agreed to purchase, the respective numbers of shares of common
stock appearing opposite their names below:
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Number
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Underwriters
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of Shares
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Wells Fargo Securities, LLC
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Stifel, Nicolaus & Company, Incorporated
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BB&T Capital Markets, a division of Scott &
Stringfellow, LLC
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RBC Capital Markets Corporation
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Stephens Inc.
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Dahlman Rose & Company, LLC
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Total
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The underwriters have agreed to purchase all of the shares shown
in the above table if any of those shares are purchased. If an
underwriter defaults, the underwriting agreement provides that
the purchase commitments of the non-defaulting underwriters may
be increased or the underwriting agreement may be terminated.
The shares of common stock are offered by the underwriters,
subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of legal matters by counsel for the
underwriters and other conditions. The underwriters reserve the
right to reject orders in whole or in part.
Commissions
and Discounts
The underwriters have advised us that they propose to offer the
shares of common stock to the public at the public offering
price appearing on the cover page of this prospectus and to
certain dealers at that price less a concession of not more than
$ per share. After the initial
offering, the public offering price and concession to dealers
may be changed.
The following table shows the public offering price,
underwriting discounts and commissions and proceeds, before
expenses, to us and the selling shareholders, both on a per
share basis and in total, assuming either no exercise or full
exercise by the underwriters of their over-allotment option.
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Total
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Per Share
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Without Option
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With Option
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Public offering price
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$
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$
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$
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Underwriting discounts and commissions to be paid
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New Century
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Selling shareholders
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Proceeds, before expenses, to us
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Proceeds, before expenses, to the selling shareholders
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We estimate that the expenses of this offering payable by us,
not including underwriting discounts and commissions, will be
approximately $ . We will not
receive any proceeds from the sale of the shares by the selling
shareholders.
Over-Allotment
Option
Certain of our shareholders have granted to the underwriters an
option, exercisable during the
30-day
period after the date of this prospectus, to purchase up
to
additional shares of our
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common stock at the public offering price per share less the
underwriting discounts and commissions per share shown on the
cover page of this prospectus. To the extent that the
underwriters exercise this option, each underwriter will have a
firm commitment, subject to conditions, to purchase
approximately the same percentage of those additional shares
that the number of shares of common stock to be purchased by
that underwriter as shown in the above table represents as a
percentage of the total number of shares shown in that table.
Indemnity
We and the selling shareholders have agreed to indemnify the
underwriters against specified liabilities, including
liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in
respect of those liabilities.
Lock-Up
Agreements
We and all of our directors and executive officers, our
shareholders and certain holders of our stock options,
collectively
representing
of our total shares of common stock (including shares of common
stock subject to option) have agreed that, without the prior
written consent of Wells Fargo Securities, LLC and Stifel,
Nicolaus & Company, Incorporated, we and they will
not, during the period beginning on and including the date of
this prospectus through and including the date that is the
180th day after the date of this prospectus (as the same
may be extended as described below), directly or indirectly:
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offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of any shares of our common stock
or other capital stock or any securities convertible into or
exercisable or exchangeable for our common stock or other
capital stock;
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file or cause the filing of any registration statement under the
Securities Act with respect to any shares of our common stock or
other capital stock or any securities convertible into or
exercisable or exchangeable for our common stock or other
capital stock, other than any registration statement filed to
register shares of common stock to be sold to the underwriters
pursuant to the underwriting agreement; or
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enter into any swap or other agreement, arrangement or
transaction that transfers to another, in whole or in part,
directly or indirectly, any of the economic consequences of
ownership of our common stock or other capital stock or any
securities convertible into or exercisable or exchangeable for
our common stock or other capital stock,
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whether any transaction described in the first or third bullet
points above is to be settled by delivery of our common stock,
other capital stock, other securities, in cash or otherwise. If:
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during the last 17 days of the
180-day
restricted period described above, we issue an earnings release
or material news or a material event relating to us
occurs, or
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prior to the expiration of the
180-day
restricted period described above, we announce that we will
release earnings results or we become aware that material news
or a material event will occur during the
16-day
period beginning on the last day of such
180-day
restricted period,
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the restrictions described above shall continue to apply until
the expiration of the
18-day
period beginning on the date of issuance of the earnings release
or the occurrence of the material news or material event, as the
case may be, unless Wells Fargo Securities and Stifel,
Nicolaus & Company, Incorporated waive, in writing,
such extension.
The restrictions described in the immediately preceding
paragraph do not apply to:
(1) the sale of shares to the underwriters pursuant to the
underwriting agreement;
126
(2) the issuance by us, in the ordinary course consistent
with past practice, of shares and options to purchase shares, of
common stock pursuant to stock option plans described in this
prospectus, as those plans are in effect on the date of the
underwriting agreement;
(3) the issuance by us of shares of common stock upon the
exercise of stock options that are described in this prospectus
and outstanding on the date of this prospectus, and the issuance
by us of shares of common stock upon the exercise of stock
options issued after the date of this prospectus under stock
option plans referred to in clause (2) above, as those
plans are in effect on the date of this prospectus;
(4) the filing by us of any registration statement on
Form S-8
with the SEC relating to the offering of securities pursuant to
terms of a stock option or similar plan in effect on the date of
this prospectus and as described in this prospectus;
(5) transfers or sales of any common stock or other capital
stock or any securities convertible into or exchangeable or
exercisable for common stock or other capital stock:
(a) if made by any securityholder that is a natural person,
as a bona fide gift or gifts to any member of the immediate
family of that securityholder or to a trust the beneficiaries of
which the beneficiaries are exclusively that securityholder or
members of that securityholders immediate family;
(b) if made by any securityholder that is a natural person,
as bona fide gifts to a charity or education institution; or
(c) if made by a securityholder that is a partnership or
limited liability company, to a partner, member, affiliate or
stockholder of such partnership or limited liability company;
(6) securityholders entering into transactions relating to
shares of common stock or our other securities acquired in open
market transactions after the completion of this offering,
provided that no filing under Section 16(a) of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act, shall be required or shall be voluntarily made in
connection with subsequent sales of common stock or other
securities acquired in such open market transactions;
(7) securityholders establishing a trading plan pursuant to
Rule 10b5-1
under the Exchange Act for the transfer of shares of common
stock, provided that such plan does not provide for the transfer
of common stock during the
180-day
restricted period described above (as the same may be extended
as described above); or
(8) securityholders entering into transaction relating to
sales of shares of common stock underlying employee stock
options that are scheduled to expire during the restricted
period described above in connection with the cashless exercise
of those stock options by our former employees, provided that no
filing under Section 16(a) of the Exchange Act shall be
required or shall be voluntarily made in connection with such
transaction other than filing a Form 5 after the expiration
of the restricted period described above,
provided that, in the case of any transfer described in
clause (5) above, it shall be a condition to the transfer
that (a) the transferee executes and delivers to Wells
Fargo Securities, LLC and Stifel, Nicolaus & Company,
Incorporated, acting on behalf of the underwriters, not later
than one business day prior to such transfer, a written
agreement (it being understood that any references to
immediate family in such agreement shall expressly
refer only to the immediate family of the officer, director or
securityholder who is transferring the securities in question
and not to the immediate family of the transferee) wherein the
transferee agrees to be subject to the restrictions described in
the immediately preceding paragraph, subject to the applicable
exceptions described above in this paragraph, and satisfactory
in form and substance to Wells Fargo Securities, LLC and Stifel,
Nicolaus & Company, Incorporated, (b) the
transfer is not required to be reported in any public report or
filing, including, but not limited to, any filing under
Section 16(a) of the Exchange Act on Form 3,
Form 4 or Form 5 or otherwise, during the
180-day
restricted period, and (c) the transferor shall not effect
any public filing or report regarding such transfer
127
or otherwise publicly disclose any such transfer during the
180-day
restricted period. For purposes of this paragraph,
immediate family shall mean a spouse, lineal
descendent, father, mother, brother or sister of the transferor.
Wells Fargo Securities, LLC and Stifel, Nicolaus &
Company, Incorporated may, in their sole discretion and at any
time and from time to time, without notice, release all or any
portion of the shares of common stock or other securities
subject to the
lock-up
agreements.
Listing
on the Nasdaq Global Market
We have applied to list our common stock on the Nasdaq Global
Market under the symbol NCTX.
Stabilization
In order to facilitate this offering of our common stock, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the market price of our common stock.
Specifically, the underwriters may sell more shares of common
stock than they are obligated to purchase under the underwriting
agreement, creating a short position. A short sale is covered if
the short position is no greater than the number of shares of
common stock available for purchase by the underwriters under
the over-allotment option referred to above. The underwriters
may close out a covered short sale by exercising the
over-allotment option or purchasing common stock in the open
market. In determining the source of common stock to close out a
covered short sale, the underwriters may consider, among other
things, the market price of common stock compared to the price
payable under the over-allotment option. The underwriters may
also sell shares of common stock in excess of the over-allotment
option, creating a naked short position. The underwriters must
close out any naked short position by purchasing shares of
common stock in the open market. A naked short position is more
likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock
in the open market after the date of pricing of this offering
that could adversely affect investors who purchase in this
offering.
As an additional means of facilitating this offering, the
underwriters may bid for, and purchase, common stock in the open
market to stabilize the price of our common stock. The
underwriting syndicate may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing common
stock in this offering if the syndicate repurchases previously
distributed common stock to cover syndicate short positions or
to stabilize the price of the common stock.
The foregoing transactions, if commenced, may raise or maintain
the market price of our common stock above independent market
levels or prevent or retard a decline in the market price of the
common stock.
The representatives of the underwriters have advised us that
these transactions, if commenced, may be effected on the Nasdaq
Global Market or otherwise. Neither we nor any of the
underwriters makes any representation that the underwriters will
engage in any of the transactions described above and these
transactions, if commenced, may be discontinued without notice.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of the effect
that the transactions described above, if commenced, may have on
the market price of our common stock.
Determination
of Offering Price
Prior to this offering, there has been no public market for our
common stock. The initial public offering price will be
determined through negotiations between us and the underwriters.
In addition to prevailing market conditions, the factors to be
considered in determining the initial public offering price will
include the valuation multiples of publicly-traded companies
that the representatives of the underwriters believe are
comparable to us, our history and prospects and the outlook for
our industry, an
128
assessment of our management, our past and present business
operations and relationships, and the prospects for, and timing
of, our future sales and an assessment of these factors in
relation to market values and various valuation measures of
other companies engaged in activities similar to ours. We cannot
assure you that an active or orderly trading market will develop
for our common stock or that our common stock will trade in the
public markets subsequent to this offering at or above the
initial offering price.
Other
From time to time, certain of the underwriters
and/or their
respective affiliates have directly and indirectly engaged in
various financial advisory, investment banking and commercial
banking services for us and our affiliates, for which they
received customary compensation, fees and expense reimbursement.
We will use a portion of the proceeds from this offering to
repay amounts outstanding under this credit facility as
described under Use of Proceeds. As a result of
these repayments, affiliates of Wells Fargo Securities, LLC will
receive 5% or more of the net proceeds from this offering. An
affiliate of Wells Fargo Securities, LLC is expected to be the
arranger and a lender under our new revolving credit facility.
See Conflicts of Interest.
Sales
Outside the United States
No action has been taken in any jurisdiction (except in the
United States) that would permit a public offering of the common
stock or the possession, circulation or distribution of this
prospectus or any other material relating to us or the common
stock in any jurisdiction where action for that purpose is
required. Accordingly, the common stock may not be offered or
sold, directly or indirectly, and neither this prospectus nor
any other offering material or advertisements in connection with
the common stock may be distributed or published, in or from any
country or jurisdiction, except in compliance with any
applicable rules and regulations of any such country or
jurisdiction.
Each of the underwriters may arrange to sell common stock
offered hereby in certain jurisdictions outside the United
States, either directly or through affiliates, where they are
permitted to do so. In that regard, Wells Fargo Securities, LLC
may arrange to sell stock in certain jurisdictions through an
affiliate, Wachovia Securities International Limited, or WSIL.
WSIL is a wholly-owned indirect subsidiary of Wells
Fargo & Company and an affiliate of Wells Fargo
Securities, LLC. WSIL is a U.K. incorporated investment firm
regulated by the Financial Services Authority. Wells Fargo
Securities is the trade name for certain corporate and
investment banking services of Wells Fargo & Company
and its affiliates, including Wells Fargo Securities, LLC and
WSIL.
European Economic Area
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of shares of
common stock described in this prospectus may not be made to the
public in that relevant member state prior to the publication of
a prospectus in relation to the shares of common stock that has
been approved by the competent authority in that relevant member
state or, where appropriate, approved in another relevant member
state and notified to the competent authority in that relevant
member state, all in accordance with the Prospectus Directive,
except that, with effect from and including the relevant
implementation date, an offer of common stock may be offered to
the public in that relevant member state at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (a) an average
of at least 250 employees during the last financial year;
(b) a total balance sheet of more than 43,000,000;
and (c) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives; or
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in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive;
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provided that no such offer of shares of common stock shall
require us or any underwriter to publish a prospectus pursuant
to Article 3 of the Prospective Directive.
Each purchaser of shares of common stock described in this
prospectus located within a relevant member state will be deemed
to have represented, acknowledged and agreed that it is a
qualified investor within the meaning of
Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an offer to
the public in any relevant member state means the
communication in any form and by any means of sufficient
information on the terms of the offer and the securities to be
offered so as to enable an investor to decide to purchase or
subscribe the securities, as the expression may be varied in
that member state by any measure implementing the Prospectus
Directive in that member state, and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each relevant
member state.
United Kingdom
In addition, each underwriter: (a) has only communicated or
caused to be communicated and will only communicate or cause to
be communicated any invitation or inducement to engage in
investment activity (within the meaning of Section 21 of
the Financial Services and Markets Act 2000, or the FMSA)
received by it in connection with the issue or sale of shares of
common stock in circumstances in which Section 21(1) of the
FSMA does not apply to us, and (b) has complied and will
comply with all applicable provisions of the FSMA with respect
to anything done by it in relation to the shares of common stock
in, from or otherwise involving the United Kingdom.
Without limitation to the other restrictions referred to herein,
this prospectus is directed only at (1) persons outside the
United Kingdom; (2) persons having professional experience
in matters relating to investments who fall within the
definition of investment professionals in
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005; or (3) high net
worth bodies corporate, unincorporated associations and
partnerships and trustees of high value trusts as described in
Article 49(2) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005. Without limitation to the
other restrictions referred to herein, any investment or
investment activity to which this prospectus relates is
available only to, and will be engaged in only with, such
persons, and persons within the United Kingdom who receive this
communication (other than persons who fall within (2) or
(3) above) should not rely or act upon this communication.
France
The prospectus (including any amendment, supplement or
replacement thereto) has not been prepared in connection with
the offering of our securities that has been approved by the
Autorité des marchés financiers or by the competent
authority of another State that is a contracting party to the
Agreement on the European Economic Area and notified to the
Autorité des marchés financiers; no security has been
offered or sold or will be offered or sold, directly or
indirectly, to the public in France except to permitted
investors, or Permitted Investors, consisting of persons
licensed to provide the investment service of portfolio
management for the account of third parties, qualified investors
(investisseurs qualifiés) acting for their own account
and/or
corporate investors meeting one of the four criteria provided in
article D.
341-1 of the
French Code Monétaire et Financier and belonging to a
limited circle of investors (cercle restreint
dinvestisseurs) acting for their own account, with
qualified investors and limited circle of
investors having the meaning ascribed to them in
Article L.
411-2, D.
411-1, D.
411-2,
130
D. 734-1, D.
744-1, D.
754-1 and D.
764-1 of the
French Code Monétaire et Financier; neither this prospectus
nor any other materials related to the offer or information
contained herein or therein relating to our securities has been
released, issued or distributed to the public in France except
to Permitted Investors; and the direct or indirect resale to the
public in France of any securities acquired by any Permitted
Investors may be made only as provided by articles L.
411-1, L.
411-2, L.
412-1 and L.
621-8 to L.
621-8-3 of
the French Code Monétaire et Financier and applicable
regulations thereunder.
Switzerland
Our securities may not and will not be publicly offered,
distributed or re-distributed on a professional basis in or from
Switzerland, and neither this prospectus nor any other
solicitation for investments in our securities may be
communicated or distributed in Switzerland in any way that could
constitute a public offering within the meaning of
articles 652a or 1156 of the Swiss Federal Code of
Obligations or of Article 2 of the Federal Act on
Investment Funds of March 18, 1994. This prospectus may not
be copied, reproduced, distributed or passed on to others
without the representatives prior written consent. This
prospectus is not a prospectus within the meaning of
Articles 1156 and 652a of the Swiss Code of Obligations or
a listing prospectus according to article 32 of the Listing
Rules of the Swiss exchange and may not comply with the
information standards required thereunder. We will not apply for
a listing of our securities on any Swiss stock exchange or other
Swiss regulated market and this prospectus may not comply with
the information required under the relevant listing rules. The
securities have not been and will not be approved by any Swiss
regulatory authority. The securities have not been and will not
be registered with or supervised by the Swiss Federal Banking
Commission, and have not been and will not be authorized under
the Federal Act on Investment Funds of March 18, 1994. The
investor protection afforded to acquirers of investment fund
certificates by the Federal Act on Investment Funds of
March 18, 1994 does not extend to acquirers of our
securities.
Italy
The offering of the securities has not been registered pursuant
to the Italian securities legislation and, accordingly, we have
not offered or sold, and will not offer or sell, any securities
in the Republic of Italy in a solicitation to the public, and
sales of the securities in the Republic of Italy shall be
effected in accordance with all Italian securities, tax and
exchange control and other applicable laws and regulations. In
any case, the securities cannot be offered or sold to any
individuals in the Republic of Italy either in the primary
market or the secondary market.
We will not offer, sell or deliver any securities or distribute
copies of this prospectus or any other document relating to the
securities in the Republic of Italy except: to
Professional Investors, as defined in
Article 31.2 of CONSOB Regulation No. 11522 of
July 2, 1998, as amended
(Regulation No. 11522), pursuant to
Article 30.2 and 100 of Legislative Decree No. 58 of
February 24, 1998 as amended (Decree
No. 58), or in any other circumstances where an
expressed exemption to comply with the solicitation restrictions
provided by Decree No. 58 or Regulation No. 11971
of May 14, 1999, as amended, applies, provided, however,
that any such offer, sale or delivery of the securities or
distribution of copies of this prospectus or any other document
relating to the securities in the Republic of Italy must be:
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made by investment firms, banks or financial intermediaries
permitted to conduct such activities in the Republic of Italy in
accordance with Legislative Decree No. 385 of
September 1, 1993, as amended (Decree
No. 385), Decree No. 58, CONSOB
Regulation No. 11522 and any other applicable laws and
regulations;
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in compliance with Article 129 of Decree No. 385 and
the implementing instructions of the Bank of Italy, pursuant to
which the issue, trading or placement of securities in Italy is
subject to a prior notification to the Bank of Italy, unless an
exemption, depending, inter alia, on the aggregate amount and
the characteristics of the securities issued or offered in the
Republic of Italy, applies; and
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in compliance with any other applicable notification requirement
or limitation which may be imposed by CONSOB or the Bank of
Italy.
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131
Dubai
This document relates to an exempt offer in accordance with the
Offered Securities Rules of the Dubai Financial Services
Authority. This document is intended for distribution only to
persons of a type specified in those rules. It must not be
delivered to, or relied on by, any other person. The Dubai
Financial Services Authority has no responsibility for reviewing
or verifying any documents in connection with exempt offers. The
Dubai Financial Services Authority has not approved this
document nor taken steps to verify the information set out in
it, and has no responsibility for it. The shares of common stock
which are the subject of the offering contemplated by this
prospectus may be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the shares which are the subject of the offering contemplated
by this prospectus should conduct their own due diligence on
such shares. If you do not understand the contents of this
document you should consult an authorized financial adviser.
132
CONFLICTS
OF INTEREST
More than 5% of the net proceeds of the offering are expected to
be used to repay borrowings we have received from Wells Fargo
Bank, N.A., an affiliate of Wells Fargo Securities, LLC. Because
Wells Fargo Securities, LLC is a participating underwriter in
this offering, a conflict of interest is deemed to
exist under the applicable provisions of Rule 2720 of the
Conduct Rules of FINRA. Accordingly, this offering will be made
in compliance with the applicable provisions of Rule 2720
of the Conduct Rules. Rule 2720 currently requires that a
qualified independent underwriter, as defined by the
FINRA rules, participate in the preparation of the registration
statement and the prospectus and exercise the usual standards of
due diligence in respect thereto. Stifel, Nicolaus &
Company, Incorporated has agreed to act as qualified independent
underwriter for the offering and to perform a due diligence
investigation and review and participate in the preparation of
the prospectus. In addition, in accordance with Rule 2720,
Wells Fargo Securities, LLC will not make sales to discretionary
accounts without the prior written consent of the customer.
LEGAL
MATTERS
The validity of the shares offered hereby will be passed upon
for us by Dechert LLP, Philadelphia, Pennsylvania. Certain legal
matters in connection with this offering will be passed upon for
the underwriters by Davis Polk & Wardwell LLP, New
York, New York.
EXPERTS
The consolidated financial statements as of December 31,
2008 and 2009 and for each of the years in the
three-year
period ended December 31, 2009, have been included herein
and in this prospectus in reliance upon the report of KPMG LLP,
independent registered public accounting firm, appearing
elsewhere herein, and upon the authority of said firm as experts
in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on
Form S-1
that we have filed with the SEC under the Securities Act
covering the common stock we are offering. As permitted by the
rules and regulations of the SEC, this prospectus omits certain
information contained in the registration statement. For further
information with respect to us and our common stock, you should
refer to the registration statement and to its exhibits and
schedules. We make reference in this prospectus to certain of
our contracts, agreements and other documents that are filed as
exhibits to the registration statement. For additional
information regarding those contracts, agreements and other
documents, please see the exhibits attached to this registration
statement.
You can read the registration statement and the exhibits and
schedules filed with the registration statement or any reports,
statements or other information we have filed or file, at the
public reference facilities maintained by the SEC at
Room 1580, 100 F Street, N.E.,
Washington, D.C. 20549. You may also obtain copies of the
documents from such offices upon payment of the prescribed fees.
You may call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
rooms. You may also request copies of the documents upon payment
of a duplicating fee, by writing to the SEC. In addition, the
SEC maintains a web site that contains reports and other
information regarding registrants (including us) that file
electronically with the SEC, which you can access at
http://www.sec.gov.
In addition, you may request copies of this filing and such
other reports as we may determine or as the law requires at no
cost, by telephone at
(609) 265-1110,
or by mail to New Century Transportation, Inc., 45 East Park
Drive, Westampton, New Jersey 08060, Attention: Investor
Relations.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Exchange
Act, and, in accordance with such requirements, will file
periodic reports, proxy statements and other information with
the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the
public reference facilities and website of the SEC referred to
above.
133
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
New Century Transportation, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
New Century Transportation, Inc. and subsidiaries (the Company)
as of December 31, 2008 and 2009, and the related
consolidated statements of operations, shareholders
deficit and comprehensive loss and cash flows for each of the
years in the three-year period ended December 31, 2009.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
and on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of New Century Transportation, Inc. and subsidiaries as
of December 31, 2008 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
August 11, 2010
F-2
NEW
CENTURY TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In thousands except share data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,395
|
|
|
$
|
2,412
|
|
|
$
|
4,983
|
|
|
$
|
4,983
|
|
Restricted cash
|
|
|
1
|
|
|
|
|
|
|
|
1,243
|
|
|
|
1,243
|
|
Accounts receivable, net of allowance for doubtful accounts of
$629 at December 31, 2008 and 2009 and $318 at
June 30, 2010
|
|
|
25,727
|
|
|
|
24,585
|
|
|
|
28,724
|
|
|
|
28,724
|
|
Deferred income taxes
|
|
|
|
|
|
|
510
|
|
|
|
450
|
|
|
|
450
|
|
Prepaid expenses and other current assets
|
|
|
4,048
|
|
|
|
3,953
|
|
|
|
3,733
|
|
|
|
3,733
|
|
Deferred costs
|
|
|
1,225
|
|
|
|
1,525
|
|
|
|
2,090
|
|
|
|
2,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
34,396
|
|
|
|
32,985
|
|
|
|
41,223
|
|
|
|
41,223
|
|
Property and equipment, net
|
|
|
94,966
|
|
|
|
76,059
|
|
|
|
70,394
|
|
|
|
70,394
|
|
Deferred finance charges, net
|
|
|
1,679
|
|
|
|
1,827
|
|
|
|
1,203
|
|
|
|
1,203
|
|
Intangible assets, net
|
|
|
5,530
|
|
|
|
4,834
|
|
|
|
4,487
|
|
|
|
4,487
|
|
Goodwill
|
|
|
8,798
|
|
|
|
8,798
|
|
|
|
8,798
|
|
|
|
8,798
|
|
Other assets
|
|
|
841
|
|
|
|
645
|
|
|
|
1,195
|
|
|
|
1,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
146,210
|
|
|
$
|
125,148
|
|
|
$
|
127,300
|
|
|
$
|
127,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
1,339
|
|
|
$
|
4,160
|
|
|
$
|
4,160
|
|
|
$
|
4,160
|
|
Accounts payable
|
|
|
6,122
|
|
|
|
7,610
|
|
|
|
9,909
|
|
|
|
9,909
|
|
Accrued expenses
|
|
|
5,648
|
|
|
|
7,004
|
|
|
|
10,062
|
|
|
|
10,062
|
|
Deferred income taxes
|
|
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
1,477
|
|
|
|
1,692
|
|
|
|
2,383
|
|
|
|
2,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
15,400
|
|
|
|
20,466
|
|
|
|
26,514
|
|
|
|
26,514
|
|
Long-term debt
|
|
|
129,637
|
|
|
|
99,607
|
|
|
|
97,527
|
|
|
|
97,527
|
|
Deferred income taxes
|
|
|
14,595
|
|
|
|
13,191
|
|
|
|
12,585
|
|
|
|
12,585
|
|
Unsecured subordinated notes payable to shareholders and
affiliates
|
|
|
1,700
|
|
|
|
11,118
|
|
|
|
11,660
|
|
|
|
11,660
|
|
Convertible unsecured subordinated notes payable to affiliates
|
|
|
2,773
|
|
|
|
3,182
|
|
|
|
3,407
|
|
|
|
3,407
|
|
Warrant liability
|
|
|
|
|
|
|
580
|
|
|
|
9,032
|
|
|
|
|
|
Other long-term liabilities
|
|
|
1,140
|
|
|
|
934
|
|
|
|
306
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
165,245
|
|
|
|
149,078
|
|
|
|
161,031
|
|
|
|
151,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; authorized
180,000 shares; issued and outstanding 57,372, at
December 31, 2008 and 2009 and 57,713 shares at
June 30, 2010
and shares
at June 30, 2010 pro forma
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
2,378
|
|
|
|
2,493
|
|
|
|
2,535
|
|
|
|
11,567
|
|
Accumulated other comprehensive loss
|
|
|
(721
|
)
|
|
|
(594
|
)
|
|
|
(176
|
)
|
|
|
(176
|
)
|
Accumulated deficit
|
|
|
(20,693
|
)
|
|
|
(25,830
|
)
|
|
|
(36,091
|
)
|
|
|
(36,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders deficit
|
|
|
(19,035
|
)
|
|
|
(23,930
|
)
|
|
|
(33,731
|
)
|
|
|
(24,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders deficit
|
|
$
|
146,210
|
|
|
$
|
125,148
|
|
|
$
|
127,300
|
|
|
$
|
127,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
NEW
CENTURY TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
Six months ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In thousands except share data)
|
|
|
Net revenues, excluding fuel surcharge revenues
|
|
$
|
205,585
|
|
|
$
|
228,966
|
|
|
$
|
203,127
|
|
|
$
|
99,741
|
|
|
$
|
107,955
|
|
Fuel surcharge revenue
|
|
|
33,425
|
|
|
|
59,683
|
|
|
|
26,186
|
|
|
|
10,937
|
|
|
|
18,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
239,010
|
|
|
|
288,649
|
|
|
|
229,313
|
|
|
|
110,678
|
|
|
|
126,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and benefits
|
|
|
112,526
|
|
|
|
130,837
|
|
|
|
114,119
|
|
|
|
57,353
|
|
|
|
58,695
|
|
Supplies and other expenses
|
|
|
70,636
|
|
|
|
95,264
|
|
|
|
62,168
|
|
|
|
28,492
|
|
|
|
37,315
|
|
Purchased transportation
|
|
|
12,431
|
|
|
|
9,037
|
|
|
|
14,236
|
|
|
|
6,829
|
|
|
|
8,708
|
|
Depreciation and amortization
|
|
|
21,088
|
|
|
|
22,411
|
|
|
|
20,875
|
|
|
|
10,710
|
|
|
|
10,076
|
|
Operating taxes and licenses
|
|
|
11,424
|
|
|
|
12,731
|
|
|
|
10,944
|
|
|
|
5,301
|
|
|
|
5,225
|
|
Insurance and claims
|
|
|
6,302
|
|
|
|
6,460
|
|
|
|
5,029
|
|
|
|
2,399
|
|
|
|
2,192
|
|
Loss/(gain) on disposal of property and equipment
|
|
|
(313
|
)
|
|
|
202
|
|
|
|
133
|
|
|
|
(27
|
)
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
234,094
|
|
|
|
276,942
|
|
|
|
227,504
|
|
|
|
111,057
|
|
|
|
122,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
4,916
|
|
|
|
11,707
|
|
|
|
1,809
|
|
|
|
(379
|
)
|
|
|
3,616
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
12,567
|
|
|
|
13,569
|
|
|
|
9,658
|
|
|
|
4,597
|
|
|
|
6,113
|
|
Interest income
|
|
|
(20
|
)
|
|
|
(34
|
)
|
|
|
(27
|
)
|
|
|
(7
|
)
|
|
|
(9
|
)
|
Change in fair value of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(7,631
|
)
|
|
|
(1,828
|
)
|
|
|
(7,822
|
)
|
|
|
(4,969
|
)
|
|
|
(10,940
|
)
|
Income tax benefit
|
|
|
(2,729
|
)
|
|
|
(630
|
)
|
|
|
(2,685
|
)
|
|
|
(1,748
|
)
|
|
|
(679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,902
|
)
|
|
$
|
(1,198
|
)
|
|
$
|
(5,137
|
)
|
|
$
|
(3,221
|
)
|
|
$
|
(10,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(85.44
|
)
|
|
$
|
(20.88
|
)
|
|
$
|
(89.54
|
)
|
|
$
|
(56.14
|
)
|
|
$
|
(178.85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic and diluted common shares outstanding
|
|
|
57,372
|
|
|
|
57,372
|
|
|
|
57,372
|
|
|
|
57,372
|
|
|
|
57,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net loss
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma basic and diluted net loss per common share
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average basic and diluted common
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
NEW
CENTURY TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated
Statements of Shareholders Deficit and Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
loss
|
|
|
deficit
|
|
|
Total
|
|
|
|
(In thousands except share data)
|
|
|
Balance at December 31, 2006
|
|
|
57,372
|
|
|
$
|
1
|
|
|
$
|
2,049
|
|
|
$
|
(125
|
)
|
|
$
|
(14,593
|
)
|
|
$
|
(12,668
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap, net of tax benefit
of $92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
(137
|
)
|
Change in fair value of interest rate cap, net of tax benefit of
$6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,902
|
)
|
|
|
(4,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
57,372
|
|
|
|
1
|
|
|
|
2,194
|
|
|
|
(272
|
)
|
|
|
(19,495
|
)
|
|
|
(17,572
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
184
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap, net of tax benefit
of $290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(447
|
)
|
|
|
|
|
|
|
(447
|
)
|
Change in fair value of interest rate cap, net of tax benefit of
$1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,198
|
)
|
|
|
(1,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
57,372
|
|
|
|
1
|
|
|
|
2,378
|
|
|
|
(721
|
)
|
|
|
(20,693
|
)
|
|
|
(19,035
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
115
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap, net of tax expense
of $79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
127
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,137
|
)
|
|
|
(5,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
57,372
|
|
|
|
1
|
|
|
|
2,493
|
|
|
|
(594
|
)
|
|
|
(25,830
|
)
|
|
|
(23,930
|
)
|
Stock-based compensation (unaudited)
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Issuance of restricted common stock (unaudited)
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap, net of tax expense
of $279 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
|
|
|
|
|
|
418
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,261
|
)
|
|
|
(10,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
|
57,713
|
|
|
$
|
1
|
|
|
$
|
2,535
|
|
|
$
|
(176
|
)
|
|
$
|
(36,091
|
)
|
|
$
|
(33,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
NEW
CENTURY TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
Six months ended June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,902
|
)
|
|
$
|
(1,198
|
)
|
|
$
|
(5,137
|
)
|
|
$
|
(3,221
|
)
|
|
$
|
(10,261
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
21,088
|
|
|
|
22,411
|
|
|
|
20,875
|
|
|
|
10,710
|
|
|
|
10,076
|
|
Change in fair value of warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,452
|
|
Amortization of deferred financing costs
|
|
|
525
|
|
|
|
798
|
|
|
|
757
|
|
|
|
344
|
|
|
|
624
|
|
Provision for doubtful accounts
|
|
|
154
|
|
|
|
743
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
145
|
|
|
|
184
|
|
|
|
115
|
|
|
|
60
|
|
|
|
42
|
|
(Gain)/loss on disposal of property and equipment
|
|
|
(313
|
)
|
|
|
202
|
|
|
|
133
|
|
|
|
(27
|
)
|
|
|
345
|
|
Deferred income taxes
|
|
|
(2,735
|
)
|
|
|
(717
|
)
|
|
|
(2,807
|
)
|
|
|
(1,828
|
)
|
|
|
(825
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(339
|
)
|
|
|
1,915
|
|
|
|
659
|
|
|
|
2,443
|
|
|
|
(4,139
|
)
|
Restricted cash
|
|
|
6
|
|
|
|
10
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(1,243
|
)
|
Prepaid expenses and other current assets
|
|
|
(4
|
)
|
|
|
407
|
|
|
|
621
|
|
|
|
217
|
|
|
|
220
|
|
Deferred costs
|
|
|
(549
|
)
|
|
|
351
|
|
|
|
(300
|
)
|
|
|
(439
|
)
|
|
|
(525
|
)
|
Other assets
|
|
|
20
|
|
|
|
(223
|
)
|
|
|
196
|
|
|
|
(305
|
)
|
|
|
(550
|
)
|
Accounts payable
|
|
|
4,874
|
|
|
|
(6,204
|
)
|
|
|
1,488
|
|
|
|
187
|
|
|
|
2,299
|
|
Accrued expenses and other current liabilities
|
|
|
(587
|
)
|
|
|
(141
|
)
|
|
|
1,356
|
|
|
|
2,582
|
|
|
|
2,759
|
|
Other liabilities
|
|
|
130
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
68
|
|
Accrued interest expense on subordinated notes
|
|
|
|
|
|
|
273
|
|
|
|
407
|
|
|
|
194
|
|
|
|
767
|
|
Deferred revenue
|
|
|
649
|
|
|
|
(468
|
)
|
|
|
215
|
|
|
|
518
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
18,162
|
|
|
|
18,213
|
|
|
|
19,062
|
|
|
|
11,436
|
|
|
|
8,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(27,794
|
)
|
|
|
(3,767
|
)
|
|
|
(1,507
|
)
|
|
|
(343
|
)
|
|
|
(4,176
|
)
|
Proceeds from sales of equipment
|
|
|
10,697
|
|
|
|
2,412
|
|
|
|
102
|
|
|
|
75
|
|
|
|
27
|
|
Purchase of P&P Transport, Inc. net of acquired cash
|
|
|
(26,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(43,381
|
)
|
|
|
(1,355
|
)
|
|
|
(1,405
|
)
|
|
|
(268
|
)
|
|
|
(4,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under long-term debt
|
|
|
27,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(1,640
|
)
|
|
|
(9,384
|
)
|
|
|
(27,209
|
)
|
|
|
(13,606
|
)
|
|
|
(2,080
|
)
|
Net borrowing (repayment) under line of credit
|
|
|
(4,356
|
)
|
|
|
(3,644
|
)
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
Deferred financing costs
|
|
|
(636
|
)
|
|
|
(484
|
)
|
|
|
(1,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
20,368
|
|
|
|
(13,512
|
)
|
|
|
(18,640
|
)
|
|
|
(12,606
|
)
|
|
|
(2,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(4,851
|
)
|
|
|
3,346
|
|
|
|
(983
|
)
|
|
|
(1,438
|
)
|
|
|
2,571
|
|
Cash and cash equivalents at beginning of period
|
|
|
4,900
|
|
|
|
49
|
|
|
|
3,395
|
|
|
|
3,395
|
|
|
|
2,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
49
|
|
|
$
|
3,395
|
|
|
$
|
2,412
|
|
|
$
|
1,957
|
|
|
$
|
4,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
12,389
|
|
|
$
|
12,223
|
|
|
$
|
8,584
|
|
|
$
|
4,207
|
|
|
$
|
4,718
|
|
See accompanying notes to consolidated financial statements.
F-6
New Century Transportation, Inc. (the Company) was formed on
February 24, 2000 in the state of New Jersey and commenced
operations during June 2000. The Company offers a full range of
over-the-road transportation solutions to its customers.
|
|
(2)
|
Summary
of Significant Accounting Policies
|
(a) Unaudited Interim Results
The accompanying consolidated balance sheet as of June 30,
2010, the consolidated statements of operations and cash flows
for the six months ended June 30, 2009 and
June 30, 2010 and the consolidated statements of
shareholders deficit and comprehensive loss for the
six months ended June 30, 2010 are unaudited. The
unaudited interim financial statements have been prepared on the
same basis as the annual financial statements and in the opinion
of management reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the
Companys financial position and results of operations and
cash flows for the periods presented. The financial data and
other information disclosed in these notes to consolidated
financial statements related to the six month and
subsequent periods are unaudited. The results for the
six months ended June 30, 2010 are not necessarily
indicative of the results to be expected for the year ending
December 31, 2010 or for any other interim period or for
any other future year.
(b) Principles of Consolidation
The consolidated financial statements include the financial
statements of New Century Transportation, Inc. and its wholly
owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Use of Estimates and Risks and
Uncertainties
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management of the Company to make a number of
estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. Significant items subject to such estimates and
assumptions include salvage values and estimated useful lives of
property and equipment; valuation allowances for receivables;
the valuation of derivatives, deferred tax assets, property and
equipment and stock based compensation; and reserves for self
insurance; and other contingencies.
The Companys operations involve a number of risks and
uncertainties. Factors that could affect the Companys
future operating results and cause actual results to vary
materially from expectations include, but are not limited to,
general economic factors, availability of employee drivers and
owner-operators, capital requirements, competition,
unionization, fuel, seasonality, claims, insurance costs,
difficulty in managing growth, regulation, environmental
hazards, and dependence on key personnel.
(d) Unaudited Pro forma Balance Sheet
Presentation
The unaudited pro forma balance sheet as of June 30, 2010
reflects the cashless exercise of all outstanding warrants
into shares
of common stock upon the closing of the initial public offering
(IPO) contemplated by the Companys prospectus as of
June 30, 2010. The warrant liability of $9.032 million
related to these warrants has been reclassified to additional
paid-in capital as these warrants will no longer be outstanding.
The Company will continue to record changes in the fair value of
the warrants through the consolidated statement of operations
until the cashless exercise occurs.
F-7
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
The shares of common stock issued in the IPO and any related
estimated net proceeds are excluded from such pro forma
information. Additionally, the pro forma information assumes
that the outstanding convertible notes will be repaid in cash
upon the closing of the IPO.
(e) Cash and Cash Equivalents
The Company considers all highly liquid instruments with
original maturities of three months or less to be cash
equivalents. As of December 31, 2009 and June 30, 2010
cash equivalents of $1.513 million and $2.515 million,
respectively, consisted of money market funds.
(f) Restricted Cash
Restricted cash represents funds placed in an escrow account
related to workers compensation claims as well as employee
donations for various charitable activities and is offset by a
deposit liability included within other current liabilities in
the accompanying consolidated balance sheets.
(g) Revenue Recognition and Accounts
Receivable
Revenue and the related direct costs are recognized on the
delivery date, and billing generally occurs on the pick up date.
Revenue and the related direct costs for freight in transit at
period end are deferred and recognized when the freight has been
delivered to the customer, in accordance with Accounting
Standards Codification (ASC) topic 605-20-25-13,
Services for Freight-in-Transit at the End of a
Reporting Period. At December 31, 2008, the
Company had deferred freight revenues and costs of
$1.477 million and $1.225 million, respectively,
related to shipments that were not complete as of
December 31, 2008. At December 31, 2009, the Company
had deferred freight revenues and costs of $1.692 million
and $1.525 million, respectively, related to shipments that
were not complete as of December 31, 2009. At June 30,
2010, the Company had deferred freight revenues and costs of
$2.383 million and $2.090 million, respectively,
related to shipments that were not complete as of June 30,
2010.
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. The allowance for doubtful accounts is
the Companys best estimate of the amount of probable
credit losses in the Companys existing accounts
receivable. The Company determines the allowance based on its
historical write-off experience and a specific review of all
past due balances, which is performed monthly. Account balances
are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any
off-balance-sheet credit exposure related to its customers.
The activity in the allowance for doubtful accounts for impaired
trade receivables as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
|
|
|
|
Year ended
|
|
|
ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Allowance for doubtful accounts at beginning of period
|
|
$
|
349
|
|
|
$
|
629
|
|
|
$
|
629
|
|
Additions charged to bad debt expense
|
|
|
743
|
|
|
|
483
|
|
|
|
|
|
Write-offs charged against the allowance
|
|
|
(463
|
)
|
|
|
(483
|
)
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts at end of period
|
|
$
|
629
|
|
|
$
|
629
|
|
|
$
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-8
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
(h) Property and Equipment
Property and equipment are stated at cost. Major additions and
improvements are capitalized, while maintenance and repairs that
do not improve or extend the life of assets are charged to
expense as incurred. Gains or losses on retirement or disposal
of assets are included in income.
Depreciation and amortization are provided using the
straight-line method over the following estimated useful lives:
|
|
|
Tractors
|
|
4 to 10 years (0% to 20% salvage value)
|
Trailers
|
|
10 years (10% salvage value)
|
Temperature-controlled trailers
|
|
5 to 7 years (40% salvage value)
|
Furniture and fixtures and other equipment
|
|
4 to 10 years
|
Leasehold improvements
|
|
Remaining lease term
|
The Company has established a program to remanufacture existing
engines. The costs of remanufactured engines are capitalized and
depreciated over an estimated 4 year useful life. The
remaining useful life of the original tractor receiving the
remanufactured engine is adjusted to match the estimated useful
life of the remanufactured engine. Other than the cost of the
remanufactured engine, there is no change to the net book value
or estimated salvage value of the original tractor.
(i) Tires
The cost of original tires on revenue equipment is included in
and depreciated as part of the total revenue equipment cost.
Replacement tires are charged to expense when placed in service.
(j) Goodwill
Goodwill represents the excess of the aggregate purchase price
over the fair value of the net assets acquired in a purchase
business combination. Goodwill and intangible assets with
indefinite useful lives are not amortized, but tested for
impairment at least annually. The goodwill impairment test is a
two-step test. Under the first step, the fair value of the
reporting unit is compared to its carrying value (including
goodwill). If the fair value of the reporting unit is less than
its carrying value, an indication of goodwill impairment exists
for the reporting unit and the Company must perform step two of
the impairment test (measurement). Under step two, an impairment
loss is recognized for any excess of the carrying amount of the
reporting units goodwill over the implied fair value of
that goodwill. The implied fair value of goodwill is determined
by allocating the fair value of the reporting unit in a manner
similar to a purchase price allocation. The residual fair value
after this allocation is the implied fair value of the reporting
unit goodwill. If the fair value of the reporting unit exceeds
its carrying value, step two does not need to be performed.
The Company operates as one reporting unit and performs its
annual impairment review as of November 30 of each year. The
Company performed its annual impairment review of goodwill and
intangible assets and concluded that there was no impairment in
2008 or 2009.
(k) Long-Lived Assets
Long-lived assets, such as property and equipment, and purchased
intangible assets subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset be tested for possible
impairment, the Company first compares undiscounted cash flows
expected to be generated by an asset to the carrying value of
the asset. If the carrying value of the long-lived asset is not
recoverable on an undiscounted cash flow basis, an impairment is
recognized to the extent that the carrying value exceeds its
fair value. Fair value is determined through various valuation
techniques
F-9
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
including discounted cash flow models, quoted market values and
third-party independent appraisals, as considered necessary. As
of December 31, 2009 the Company had a certain number of
tractors that were designated as non-operating, which management
viewed as temporary. This was an event that required management
to review for impairment. Based on their review, management
determined that no revision of the remaining useful lives or
write-down of long-lived assets is required. There were no
triggering events in 2008 and 2010. As of December 31, 2008
and June 30, 2010, management believes that no revision of
the remaining useful lives or write-down of long-lived assets is
required.
(l) Claims Reserve
The Company is self-insured for a portion of its workers
compensation and cargo damage expense risk. This self-insurance
results from buying insurance coverage that applies in excess of
a retained portion of risk for each respective line of coverage.
The Company accrues for the cost of the uninsured portion of
pending claims by evaluating the nature and severity of
individual claims and by estimating future claims development
based upon historical claims development trends. Actual
settlement of the self-insured claim liabilities could differ
from managements estimates due to a number of
uncertainties, including evaluation of severity, legal costs and
claims that have been incurred but not reported.
(m) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis, operating loss and
tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to
taxable income in the years in which those differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
In June 2006, the FASB issued guidance related to accounting for
uncertainty in income taxes. This authoritative interpretation
clarified and standardized the manner by which companies are
required to account for uncertain income tax positions. Under
this guidance, the Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not to be
sustained upon examination based on the technical merits of the
position. The amount of the accrual for which an exposure exists
is measured as the largest amount of benefit determined on a
cumulative probability basis that the Company believes is more
likely than not to be realized upon ultimate settlement of the
position. This interpretation also provides guidance on
de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition. The
Company adopted this guidance effective January 1, 2007.
The adoption of this guidance did not have any impact on the
Companys financial position, results of operations or cash
flows.
(n) Concentration of Credit Risk
The Companys customers are primarily located in the
Northeastern and Mid-Atlantic sections of the United States. No
customer accounted for greater than 4%, 6%, 8%, 8% and 8% of
revenue for the years ended December 31, 2007, 2008 and
2009 and six months ended June 30, 2009 and 2010,
respectively.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade
accounts receivable. The Company does not require collateral or
other securities to support customer receivables.
(o) Derivative Instruments and Hedging
Activities
The Company is subject to interest rate risk on the variable
component of the interest rate under the term loan of the
Companys credit agreement. Periodically the Company enters
into interest rate
F-10
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
swap and cap agreements in an effort to mitigate exposure
against such interest rate risk. The Company has designated the
interest rate swaps and caps as cash flow hedges. Changes in the
fair value of the effective portion of the interest rate swap
and caps are recognized in other comprehensive loss until the
hedged items are recognized in earnings (see note 11).
(p) Stock-Based Compensation
The Company measures employee stock-based awards at grant date
fair value and records compensation expense on a straight-line
basis over the vesting period of the award.
Stock-based compensation costs that have been included in income
from continuing operations amounted to $145,000, $184,000,
$115,000, $61,000, and $42,000 for the years ended
December 31, 2007, 2008 and 2009 and six months ended
June 30, 2009 and 2010, respectively, all of which was
recorded in salaries, wages, and benefits.
(q) Net Loss per Common Share
Basic and diluted net loss per common share is determined by
dividing net loss applicable to common shareholders by the
weighted average common shares outstanding less the weighted
average shares subject to repurchase, during the period. The
weighted average shares used to calculate both basic and diluted
loss per share are the same, as a result of the net loss for all
periods.
The following potentially dilutive securities have been excluded
from the computations of diluted weighted average shares as of
December 31, 2007, 2008 and 2009 and June 30, 2009 and
2010, as they would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
Options outstanding
|
|
|
7,322
|
|
|
|
7,322
|
|
|
|
7,905
|
|
|
|
7,322
|
|
|
|
7,564
|
|
Unvested restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341
|
|
Warrants outstanding
|
|
|
|
|
|
|
|
|
|
|
21,053
|
|
|
|
|
|
|
|
21,053
|
|
Impact of convertible note
|
|
|
2,697
|
|
|
|
2,697
|
|
|
|
2,697
|
|
|
|
2,697
|
|
|
|
2,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,019
|
|
|
|
10,019
|
|
|
|
31,655
|
|
|
|
10,019
|
|
|
|
31,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unaudited pro forma net loss per common share is computed
using the weighted average number of common shares outstanding
and assumes the cashless exercise of all outstanding warrants
into shares
of common stock upon the closing of the Companys planned
IPO, as if it had occurred at the later of the beginning of the
period or date of issuance. Accordingly, net loss is adjusted to
remove the expense associated with the warrants. The Company
believes the unaudited pro forma net loss per common share
provides material information to investors as the exercise of
the warrants is expected to occur upon the closing of an IPO,
and the disclosure of pro forma net loss per common share
provides an indication of net loss per common share that is
comparable to what will be reported by the Company as a public
company following the closing of the IPO.
F-11
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes the calculation of unaudited pro
forma basic and diluted net loss per common share (in thousands,
except share data):
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,137
|
)
|
|
$
|
(10,261
|
)
|
Effect of pro forma exercise of warrants:
|
|
|
|
|
|
|
|
|
Change fair value of warrants
|
|
|
|
|
|
|
8,452
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(5,137
|
)
|
|
$
|
(1,809
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
57,372
|
|
|
|
57,372
|
|
Effect of pro forma exercise of warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing unaudited pro forma weighted average
basic and diluted common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma basic and diluted net loss per common share
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
(r) Segment Information
The Company is managed and operated as one business. The entire
business is managed by a single management team that reports to
the chief executive officer. The Company does not operate
separate lines of business or separate business entities with
respect to any of its services. Accordingly, the Company does
not prepare discrete financial information with respect to
separate service areas and does not have separately reportable
segments.
(s) Recently Adopted Accounting Guidance
On September 30, 2009, the Company adopted changes issued
by the FASB to accounting for and disclosure of events that
occurred after the balance sheet date but before financial
statements are issued or are available to be issued, otherwise
known as Subsequent Events. Specifically, these
changes set 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 circumstances under
which an entity should recognize events or transactions
occurring after the balance sheet date in its financial
statements, and the disclosures that an entity should make about
events that occurred after the balance sheet date. The adoption
of these changes had no impact on the consolidated financial
statements. The Company has evaluated subsequent events from the
balance sheet date through August 11, 2010, the date at
which the financial statements were issued.
|
|
(3)
|
Goodwill
and Intangible Assets
|
The Company acquired 100% of Western Freightways, Inc. and
P&P Transport, Inc., on December 1, 2006 and
June 29, 2007, respectively. These transactions were
accounted for under the purchase method of accounting, whereby
the purchase price was allocated to the assets acquired and
liabilities assumed based on their fair market values at the
acquisition date. The excess of the purchase price over the fair
value of net assets acquired was assigned to identifiable
intangibles. As of December 31, 2008 and 2009 and
June 30, 2010, the net amount of goodwill and amortizable
intangibles relating to these transactions is
$14.328 million, $13.632 million and
$13.284 million, respectively. The Company has not recorded
any
F-12
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
goodwill impairment losses since the adoption of Accounting
Standards Codification Topic 350,
Intangibles Goodwill and Other.
The components of amortizable and
non-amortizable
intangible assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2009
|
|
|
June 30, 2010
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Average Life
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
(years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Customer Relationships
|
|
|
9.1
|
|
|
$
|
6,170
|
|
|
$
|
1,260
|
|
|
$
|
6,170
|
|
|
$
|
1,956
|
|
|
$
|
6,170
|
|
|
$
|
2,303
|
|
Trademark
|
|
|
N/A
|
|
|
|
620
|
|
|
|
|
|
|
|
620
|
|
|
|
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,790
|
|
|
$
|
1,260
|
|
|
$
|
6,790
|
|
|
$
|
1,956
|
|
|
$
|
6,790
|
|
|
$
|
2,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for amortizing intangible assets was
$565,000 for the year ended December 31, 2007 and $695,000
for each of the years ended December 31, 2008 and 2009 and
$348,000 for each of the six months ended June 30, 2009 and
2010. The intangible assets have a weighted average amortization
period of 9.1 years. Estimated amortization expense for the
next five years is $695,000 per year in 2010 through 2014.
|
|
(4)
|
Property
and Equipment
|
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Tractors
|
|
$
|
93,850
|
|
|
$
|
94,764
|
|
|
$
|
97,752
|
|
Trailers
|
|
|
53,383
|
|
|
|
52,427
|
|
|
|
52,333
|
|
Warehouse and yard equipment
|
|
|
1,794
|
|
|
|
1,743
|
|
|
|
1,826
|
|
Office, computer, and communications equipment
|
|
|
6,532
|
|
|
|
6,818
|
|
|
|
6,958
|
|
Leasehold improvements
|
|
|
3,077
|
|
|
|
3,406
|
|
|
|
3,446
|
|
Construction in process
|
|
|
148
|
|
|
|
436
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,784
|
|
|
|
159,594
|
|
|
|
162,879
|
|
Less accumulated depreciation and amortization
|
|
|
(63,818
|
)
|
|
|
(83,535
|
)
|
|
|
(92,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94,966
|
|
|
$
|
76,059
|
|
|
$
|
70,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense on property and equipment
was $20.523 million, $21.716 million,
$20.180 million, $9.362 million and
$9.727 million for the years ended December 31, 2007,
2008 and 2009 and the six months ended June 30, 2009 and
2010, respectively.
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Accrued compensation and benefits
|
|
$
|
2,026
|
|
|
$
|
2,244
|
|
|
$
|
4,974
|
|
Accrued insurance reserves
|
|
|
1,432
|
|
|
|
2,034
|
|
|
|
2,428
|
|
Accrued other
|
|
|
2,190
|
|
|
|
2,726
|
|
|
|
2,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,648
|
|
|
$
|
7,004
|
|
|
$
|
10,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
(a) Secured Credit Facility
Prior to November 2009, the Company had a secured credit
facility with various institutional lenders. The prior credit
facility provided the Company with a $25.0 million
revolving credit facility and $142 million term loan. On
November 19, 2009, the Company amended its credit facility
with the same institutional lenders (the Credit Facility). The
Credit Facility, as amended, provides the Company with a
$20 million revolving credit facility and
$142.0 million term loan. The Credit Facility contains
certain financial and nonfinancial covenants. The Credit
Facility is secured by 100% of the equity interest in all of the
Companys subsidiaries and all tangible and intangible
assets of the Company. Proceeds from the term loan were used
primarily to repay all of the Companys then outstanding
loans, line of credit, and notes payable to shareholders and
affiliates, and to finance the Companys acquisitions. At
December 31, 2009, and June 30, 2010, the Company was
in compliance with the terms of the facility including all
covenants, as amended.
Line of Credit
The $20 million line of credit facility bears interest at
the Prime lending rate plus a margin of up to 6% or the London
Interbank Offered Rate (LIBOR) plus a margin of up to 7%, at the
Companys option. The margin rates are variable based upon
the Companys consolidated leverage ratio, measured
quarterly. Interest on outstanding amounts at the Prime rate is
payable monthly. Interest on outstanding balances utilizing the
LIBOR option is payable at the expiration of the LIBOR term. The
Company makes appropriate accruals to recognize any interest
expense incurred but not paid at the end of each accounting
period. After consideration of stand-by letters of credit
outstanding, $18.091 million and $17.860 million were
available under the line of credit as of December 31, 2009
and June 30, 2010, respectively
The line of credit expires on August 14, 2011. There were
no outstanding borrowings under the line of credit as of
December 31, 2008 and 2009 and as of June 30, 2010.
Term Loan
The $142 million term loan bears interest at the Prime
lending rate plus a margin of 6% or the LIBOR rate plus a margin
of 7%, at the Companys option. Interest on outstanding
amounts at the Prime rate is payable monthly. Interest on
outstanding balances utilizing the LIBOR option is payable at
the expiration of the LIBOR term. The Company makes appropriate
accruals to recognize any interest expense incurred but not paid
at the end of each accounting period. The weighted average
interest rate on the debt outstanding on the term loan was
6.71%, 8.67% and 8.67% as of December 31, 2008 and 2009 and
June 30, 2010. The term loan amortizes at a rate of 4% per
year, payable quarterly, with the remaining unpaid balance due
upon maturity on August 14, 2012. The Company made
voluntary prepayments, reducing the outstanding balance of the
term loan totaling $8.0 million during 2008 and
$13.0 million during 2009.
Borrowings under the term loan bear interest at variable rates.
The Company manages its exposure to changes in market interest
rates by entering into interest rate swaps (Note 11).
(b) Notes Payable to Shareholders and
Affiliates
At December 31, 2008 and 2009 and June 30, 2010,
unsecured subordinated notes payable to certain Company
shareholders and affiliates totaled $4.473 million,
$14.3 million and $15.067 million, including accrued
interest of $682,000 and $1.369 million and a discount
associated with detachable warrants of $580,000 and $502,000,
respectively.
F-14
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
In connection with the acquisition of Western Freightways, the
Company issued notes payable to shareholders and affiliates in
the amount of $1.7 million. The notes bear interest at a
rate of 9%, payable quarterly, and are due and payable on
December 1, 2012, or earlier upon a change of control or
qualified initial public offering, as defined.
In connection with the acquisition of P&P Transport,
$2.5 million of convertible notes were issued to
affiliates. On March 28, 2008 the notes were amended to
subordinate interest expense as defined by the Credit Agreement.
As amended, the notes accrue interest quarterly at an interest
rate of 14%. The principal amount of the notes and accrued
interest are due and payable on February 28, 2013. Interest
accrued on the notes was $273,000, $682,000 and $907,000 as of
December 31, 2008 and 2009 and June 30, 2010,
respectively. Prior to the amendment, interest was payable
quarterly at an interest rate of 7%. These notes are convertible
at the option of the holder into 2,697 shares of common
stock, at a conversion price of $927 per share.
On November 19, 2009, $10 million of notes were issued
to Jefferies Capital Partners and its affiliates in exchange for
$10 million in cash proceeds used to reduce the balance of
the Companys term debt in accordance with the terms of the
amended Credit Agreement. The notes bear interest at a rate of
7.5% payable on each December 15 commencing on December 15,
2010, or at the Companys option, interest will accrue and
compound annually. The principal amount of the notes and accrued
interest are due and payable on June 30, 2014 or, at the
holders option, upon a change of control or an initial
public offering. These notes were issued with detachable
warrants exercisable for up to 21,053 shares of common
stock at an exercise price of $475 per share. The detachable
warrants are recorded as a liability, as the warrants entitle
the holder to settle in cash at the option of the holder and are
measured at fair value using the Black-Scholes option pricing
model, with any changes in fair value reported in earnings. For
the year ended December 31, 2009, the fair value of the
warrants was recorded at $580,000 with no change in the value at
December 31, 2009. For the six months ended June 30,
2010 the warrants were valued at $9.032 million with the
change of $8.452 million from December 31, 2009
reported in the consolidated statement of operations. The
following table summarizes the assumptions used for the
Black-Scholes option pricing model for the warrants:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
June 30,
|
|
|
2009
|
|
2010
|
|
Fair value of common stock
|
|
$
|
210.00
|
|
|
$
|
810.00
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
37.5%
|
|
|
|
37.5%
|
|
Risk-free interest rate
|
|
|
2.7%
|
|
|
|
1.8%
|
|
Remaining contractual term
|
|
|
5 years
|
|
|
|
4.5 years
|
|
F-15
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
The aggregate maturities of long-term debt for each of the years
subsequent to December 31, 2009 through the loan maturity
dates are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
to
|
|
|
|
|
|
|
Credit
|
|
|
shareholders and
|
|
|
|
|
|
|
agreement
|
|
|
affiliates
|
|
|
Total
|
|
|
Year ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
4,160
|
|
|
$
|
|
|
|
$
|
4,160
|
|
2011
|
|
|
4,160
|
|
|
|
|
|
|
|
4,160
|
|
2012
|
|
|
95,447
|
|
|
|
1,700
|
|
|
|
97,147
|
|
2013
|
|
|
|
|
|
|
3,180
|
|
|
|
3,180
|
|
2014
|
|
|
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,767
|
|
|
|
14,880
|
|
|
|
118,647
|
|
Less current portion of long-term debt:
|
|
|
(4,160
|
)
|
|
|
|
|
|
|
(4,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
99,607
|
|
|
$
|
14,880
|
|
|
$
|
114,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts above exclude $580,000 of debt discount related to
the warrants as of December 31, 2009.
The Company maintains a 401(k) savings and investment plan that
permits eligible employees to contribute funds on a pretax
basis. The plan provides for employee contributions up to the
maximum allowable by the Internal Revenue Service. Prior to
suspending matching contributions effective March 31, 2009,
the Company matched 25% of the first 6% of employee
contributions. The Companys expense in connection with
such matching was $977,000, $1.063 million, $187,000,
$187,000 and $0 for the years ended December 31, 2007, 2008
and 2009 and the six months ended June 30, 2009 and 2010,
respectively.
F-16
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
(8)
|
Commitments
and Contingencies
|
(a) Operating Leases
The Company leases its corporate headquarters, a warehouse
facility, a maintenance facility and adjacent parking facility,
its Denver, Colorado facility and certain revenue equipment from
related limited liability corporations controlled by the
Companys shareholders or affiliates of the Companys
shareholders. Rental expense under these operating leases was
$1.972 million, $2.021 million, $2.070 million,
$1.027 million and $1.052 million for the years ended
December 31, 2007, 2008 and 2009 and the six months ended
June 30, 2009 and 2010, respectively (note 10). The
Company also leases other office and revenue equipment. Rental
expense under these operating leases for the years ended
December 31, 2007, 2008 and 2009 and the six months ended
June 30, 2009 and 2010 was $2.691 million,
$3.868 million, $3.359 million, $1.583 million
and $1.721 million, respectively. Future lease commitments
under all noncancelable lease commitments are as follows at
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related-party
|
|
|
Other
|
|
|
|
|
|
|
Related-party
|
|
|
equipment
|
|
|
operating
|
|
|
|
|
|
|
facility leases
|
|
|
leases
|
|
|
leases
|
|
|
Total
|
|
|
Year ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
2,078
|
|
|
$
|
18
|
|
|
$
|
2,150
|
|
|
$
|
4,246
|
|
2011
|
|
|
937
|
|
|
|
|
|
|
|
1,912
|
|
|
|
2,849
|
|
2012
|
|
|
329
|
|
|
|
|
|
|
|
1,813
|
|
|
|
2,142
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
1,679
|
|
|
|
1,679
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
1,157
|
|
|
|
1,157
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
3,344
|
|
|
$
|
18
|
|
|
$
|
8,789
|
|
|
$
|
12,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Contingencies
The Company in the normal course of business has commitments,
lawsuits, contingent liabilities, and claims. Based on the
present knowledge of the facts and, in certain cases, opinions
of outside counsel, the Company does not expect that any sum it
may have to pay in connection with these matters will have a
materially adverse effect on its consolidated financial position
or results of operations.
(c) Employment agreements
Certain of the officers of the Company have employment
agreements providing for severance and continuation of benefits
in the event of termination without cause, including in the
event of a Change in Control of the Company, as defined in the
agreements.
The federal and state income tax provision benefit consists of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
December 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
Current provision
|
|
$
|
|
|
|
$
|
87
|
|
|
$
|
122
|
|
Deferred benefit
|
|
|
(2,729
|
)
|
|
|
(717
|
)
|
|
|
(2,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,729
|
)
|
|
$
|
(630
|
)
|
|
$
|
(2,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
The reconciliation between income taxes at the statutory rate
and the amount recorded in the accompanying consolidated
financial statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Statutory federal tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State taxes, net of federal benefit
|
|
|
4.9
|
|
|
|
9.0
|
|
|
|
6.0
|
|
Permanent differences
|
|
|
(2.8
|
)
|
|
|
(12.1
|
)
|
|
|
(2.4
|
)
|
Valuation allowance
|
|
|
(2.5
|
)
|
|
|
10.2
|
|
|
|
|
|
Expired state net operating loss
|
|
|
|
|
|
|
|
|
|
|
|
|
carryforwards
|
|
|
(1.1
|
)
|
|
|
(6.6
|
)
|
|
|
(1.7
|
)
|
Other
|
|
|
3.3
|
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.8
|
%
|
|
|
34.5
|
%
|
|
|
34.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that gave rise to
significant portions of the deferred tax liabilities were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards and
|
|
|
|
|
|
|
|
|
credits
|
|
$
|
14,110
|
|
|
$
|
11,645
|
|
Accruals not currently deductible
|
|
|
369
|
|
|
|
699
|
|
Derivatives
|
|
|
470
|
|
|
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,949
|
|
|
|
12,723
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(29,421
|
)
|
|
$
|
(25,404
|
)
|
Cash to accrual differences
|
|
|
(937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,358
|
)
|
|
|
(25,404
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, net
|
|
$
|
(15,409
|
)
|
|
$
|
(12,681
|
)
|
|
|
|
|
|
|
|
|
|
No valuation allowance was deemed necessary for deferred tax
assets as of December 31, 2008 and 2009. In assessing the
realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or the
entire deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods and in
the tax jurisdictions in which those temporary differences
become deductible. Management considers the scheduled reversal
of deferred tax liabilities (including the impact of available
carryback and carryforward periods), projected future taxable
income, and tax-planning strategies in making this assessment.
Based upon the projections for future taxable income over the
periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company
will realize the benefits of these deductible differences as of
December 31, 2008 and 2009. The amount of the deferred tax
asset considered realizable, however, could be reduced if
estimates of future taxable income during the carryforward
period are reduced.
At December 31, 2009, the Company has approximately
$28.817 million of federal net operating loss
carryforwards, which will begin to expire in 2027. At
December 31, 2009, the Company has approximately
$42.483 million of state net operating loss carryforwards
that begin to expire in 2010. In addition, during 2009 the
Company wrote off $2.294 million of state net operating
loss carryforwards, representing state loss carryforwards which
expired in that year.
F-18
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
The Company evaluated its exposure under the provisions of
ASC 740-10,
Accounting for Uncertainty in Income Taxes, formerly known FASB
Interpretation No. 48, and as a result, concluded that the
Company was not subject to any material liabilities for
unrecognized income taxes.
The Companys U.S. Federal income tax returns for the
years ended December 31, 2006, and thereafter remain
subject to examination by the U.S. Internal Revenue
Service. The Company also files returns in numerous state
jurisdictions, which have varying statutes of limitations.
Generally, state tax returns for years ended December 31,
2006 and thereafter, depending upon the jurisdiction, remain
subject to examination.
The Companys practice is to recognize interest
and/or
penalties related to income tax matters in income tax expense.
The Company had no accrual for interest penalties on the
Companys balance sheets at December 31, 2008 or 2009,
and has not recognized any material interest
and/or
penalties in the statement of operations for the years ended
December 31, 2007, 2008 or 2009.
|
|
(10)
|
Related-Party
Transactions
|
The Company incurred rental expense from operating leases with
related limited liability corporations controlled by the
Companys shareholders or affiliates of the Companys
shareholders (note 8). The lease for the corporate
headquarters as amended on June 23, 2006 is for an initial
five-year term, expiring on April 30, 2011 with two
five-year renewal terms thereafter. The leases for the
maintenance facility and adjacent parking facility are for an
initial
55-month
term, expiring on April 30, 2011 with two five-year renewal
terms thereafter. The lease for the warehouse facility is for an
initial
57-month
term, expiring on April 30, 2011 with two five-year renewal
terms thereafter. The lease for the Denver, Colorado facility is
for an initial three-year term expiring November 30, 2009
with two three-year renewal terms thereafter. The Company also
leased certain revenue equipment from a shareholder pursuant to
operating leases. These leases expire on June 1, 2011.
|
|
(11)
|
Financial
Instruments and Hedging
|
Effective August 18, 2006, the Company entered into an
interest rate swap agreement that effectively converted
$75 million of the Companys variable rate debt to a
fixed-rate basis, thereby hedging against the impact of
potential interest rate changes on future interest expense. The
notional amount of the swap decreased to $50 million on
February 19, 2008. Under this agreement the Company paid a
fixed interest rate of 5.27%. In return the issuing lender
refunded to the Company the variable interest paid to the bank
group under the Companys term loan agreement on the same
notional principal amount.
Effective April 16, 2008, the Company entered into an
interest swap that effectively converted $25 million of the
Companys variable debt to a fixed rate basis, thereby
hedging against the impact of potential interest rate changes on
future interest expense. The notional amount of the swap
agreement was increased to $75 million on August 18,
2008. The agreement was to terminate on August 18, 2009 but
was revised on January 5, 2009 and extended to
August 18, 2010. Under this agreement, the Company
originally paid a fixed interest rate of 2.98%. On
January 5, 2009, the agreement was revised reducing the
rate to 2.22% and extending the terms. In return the issuing
lender refunded to the Company the variable interest paid to the
bank group under the Companys term loan agreement on the
same notional principal amounts.
Both swaps were designed as a hedge of the variability of cash
flows to be paid related to the term loan and met the required
criteria of a cash flow hedge. Accordingly changes in the fair
value of the derivatives are recorded in accumulated other
comprehensive income and reclassified into earnings as
F-19
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
the underlying hedged item affects earnings to the extent the
derivative is effective in offsetting gains and losses and
changes in the fair value of the hedged item.
At December 31, 2008 and 2009 and June 30, 2010, the
fair value of the interest rate swaps were reflected as
liabilities in the amount of $1.14 million, $934,000 and
$238,000, respectively, and as included in Other long-term
liabilities on the accompanying consolidated balance sheet.
|
|
(12)
|
Fair
Value Measurements
|
Management believes that the carrying amounts of the
Companys financial instruments including cash equivalents,
prepaid expenses and other current assets, accounts payable and
accrued expenses, approximates fair value due to the short-term
nature of those instruments. The carrying amount of the
Companys debt obligations approximate fair value based on
interest rates available on similar borrowings.
The Company follows Financial Accounting Standards Board (FASB)
accounting guidance on fair value measurements for financial
assets and liabilities measured on a recurring basis.
ASC 820, Fair Value Measurements and Disclosures, among
other things, define fair value, establish a framework for
measuring fair value and expands disclosure about such fair
value measurements. Assets and liabilities measured at fair
value are based on one or more of three valuation techniques
provided for in the standards. The three valuation techniques
are as follows:
|
|
|
|
Market Approach
|
Prices and other relevant information generated by market
transactions involving identical or comparable assets and
liabilities
|
|
|
Income Approach
|
Techniques to convert future amounts to a single present amount
based on market expectations (including present value techniques
and option-pricing models)
|
|
|
|
|
Cost Approach
|
Amount that currently would be required to replace the service
capacity of an asset (often referred to as replacement cost)
|
The standards clarify that fair value is an exit price,
representing the amount that would be received to sell an asset,
based on the highest and best use of the asset, or paid to
transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement
that should be determined based on assumptions that market
participants would use in pricing an asset or liability. As a
basis for evaluating such assumptions, the standards establish a
three-tier fair value hierarchy, which prioritizes the inputs in
measuring fair value as follows:
|
|
|
|
Level 1
|
Quoted prices in active markets for identical assets or
liabilities;
|
|
|
|
|
Level 2
|
Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; or
|
|
|
Level 3
|
Unobservable inputs in which there is little or no market data,
which require the reporting entity to develop its own
assumptions about what market participants would use in pricing
the asset or liability.
|
The Company evaluates assets and liabilities subject to the fair
value measurements on a recurring and nonrecurring basis to
determine the appropriate level to classify them for each
reporting period. The determination requires significant
judgments to be made by the Company. The following is a brief
summary of the Companys classifications within the fair
value hierarchy of each major category of asset and liabilities
that it measures and reports on its balance sheet at fair value
on a recurring basis.
F-20
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
Interest rate swaps The Companys interest rate
swaps are not actively traded but are valued using valuation
models and credit valuation adjustments, both of which use
significant inputs that are observable in active markets over
the term of the instruments the Company holds, and accordingly,
the Company classifies these valuation techniques as
level 2.
|
|
|
|
Warrants The Companys warrants are valued
using the Companys assumptions that do not have observable
inputs or available market data to support the fair value and
accordingly, the Company classifies these valuation techniques
as level 3.
|
The following liabilities are measured at fair value (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
Liability
|
|
Valuation
|
|
|
|
|
balance
|
|
technique
|
|
Input level
|
|
Interest rate swap
|
|
$
|
1,140
|
|
|
|
Market
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Liability
|
|
Valuation
|
|
|
|
|
balance
|
|
technique
|
|
Input level
|
|
Interest rate swap
|
|
$
|
934
|
|
|
|
Market
|
|
|
|
2
|
|
Warrants
|
|
|
580
|
|
|
|
Income
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
Liability
|
|
Valuation
|
|
|
|
|
balance
|
|
technique
|
|
Input level
|
|
Interest rate swap
|
|
$
|
238
|
|
|
|
Market
|
|
|
|
2
|
|
Warrants
|
|
|
9,032
|
|
|
|
Income
|
|
|
|
3
|
|
The interest rate swap and warrants are measured on a recurring
basis. There were no new swap agreements executed in the six
months ended June 30, 2010. The change in the warrant
liability during the six months ended June 30, 2010 was
$8.452 million and related to the increase in the fair
value.
|
|
(13)
|
Shareholders
Equity
|
(a) Stock-based Compensation
During 2003, the Company established the New Century
Transportation, Inc. Amended and Restated Equity Incentive Plan
(the 2003 Plan), which provides for the issuance of up to
59,061 shares of common stock upon the exercise of stock
options. In 2006 the Company ceased granting awards under the
2003 Plan.
In June 2006, the Company adopted the New Century
Transportation, Inc. 2006 Stock Incentive Plan (the 2006 Plan)
pursuant to which the Companys board of directors may
grant options and restricted stock to officers and key
employees. The Plan authorizes grants of options to purchase up
to 3,200 shares of authorized but unissued common stock.
Stock options can be granted with an exercise price less than,
equal to or greater than the stocks fair market value at
the date of grant. All stock options vest 20% per year over five
years on the anniversary date of the grant date or earlier upon
a change of control or qualified initial public offering, as
defined, and expire seven years after the date of grant. At
June 30, 2010, there were 170 additional options available
for the Company to grant under the Plan.
F-21
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
The fair value of each option award is estimated on the date of
grant using the Black-Scholes option pricing model assuming no
dividends and using the weighted average assumptions in the
following table. The Company uses historical data to estimate
the expected term of the option, such as employee option
exercise behavior and the contractual term of the option. Since
the Companys shares are not publicly traded and its shares
are rarely traded privately, expected volatility is computed
based on the average historical volatility of similar entities
with publicly traded shares. The risk-free rate for the expected
term of the option is based on the U.S. Treasury yield
curve in effect at the time of grant.
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2007
|
|
|
2009
|
|
|
Valuation assumptions:
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
40.0
|
%
|
|
|
45.0
|
%
|
Expected term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
5.0
|
%
|
|
|
2.7
|
%
|
The weighted average grant date fair value of options granted
during 2007 and 2009 was $397.46 and $36.91, respectively. No
options were granted in 2008 or for the six months ended
June 30, 2010. Due to the limited number of option holders,
the Company expects all outstanding options to vest. There were
no options exercised during the years ended December 31,
2007, 2008 and 2009 and the six months ended June 30, 2010.
Stock option activity during the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
Number of shares
|
|
|
exercise
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
2003 Plan
|
|
|
2006 Plan
|
|
|
price
|
|
|
term
|
|
|
value
|
|
|
Outstanding at December 31, 2006
|
|
|
5,442
|
|
|
|
1,440
|
|
|
$
|
206.62
|
|
|
|
6.5 years
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
640
|
|
|
|
927.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
(200
|
)
|
|
|
927.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
5,442
|
|
|
|
1,880
|
|
|
|
249.91
|
|
|
|
5.6 years
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
5,442
|
|
|
|
1,880
|
|
|
|
249.91
|
|
|
|
4.6 years
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
1,350
|
|
|
|
475.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(567
|
)
|
|
|
(200
|
)
|
|
|
443.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
4,875
|
|
|
|
3,030
|
|
|
|
276.75
|
|
|
|
3.8 years
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(341
|
)
|
|
|
|
|
|
|
16.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010
|
|
|
4,534
|
|
|
|
3,030
|
|
|
$
|
288.5
|
|
|
|
3.4 years
|
|
|
$
|
4.119 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010
|
|
|
4,534
|
|
|
|
1,056
|
|
|
$
|
102.71
|
|
|
|
3.1 years
|
|
|
$
|
3.600 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2009 and June 30, 2010, there
were $369,000, $300,000 and $199,000, respectively, of total
unrecognized compensation costs related to nonvested share-based
compensation arrangements granted under the Plan. These costs
are expected to be recognized over a weighted average period of
2.7, 2.6 and 1.4 years, respectively.
F-22
NEW
CENTURY TRANSPORTATION, INC.
Notes to
Consolidated Financial
Statements (Continued)
In 2006 the Company executed Special Stock Agreements with five
key employees who are also shareholders of the Company or option
holders (the Sellers). The terms of the Special Stock Agreements
provide that if any of the Sellers terminate employment prior to
June 30, 2011, a specified number of common stock shares or
options to purchase common stock owned by the terminated
Seller(s) would be forfeited. Upon such termination, the Company
will make a grant of restricted stock pursuant to the
Companys Plan to the remaining Sellers who have not
terminated. The restricted shares will vest upon the earlier of
(i) the 16 month anniversary of an initial public
offering as defined in the agreements (ii) immediately upon
an approved sale of the Company for which cash proceeds are
received or (iii) the first anniversary of an approved sale
for which non-cash proceeds are received. One of the Sellers
terminated as of December 31, 2009 and forfeited 341
options. On January 1, 2010 the Company issued the 341
restricted shares to the remaining Sellers pursuant to the terms
of the Special Stock Agreements. As of June 30, 2010,
5,395 shares remain forfeitable pursuant to the terms of
the Special Stock Agreements.
(b) Warrants
As of December 31, 2009 and June 30, 2010, warrants to
purchase up to 21,053 shares of common stock at an exercise
price of $475 were outstanding. The warrants expire on
November 19, 2019.
The warrants are classified as warrant liability on the
accompanying balance sheet in accordance with FASB accounting
guidance, as the warrants entitle the holder to settle in cash
at the option of the holder beginning November 2014
(note 6).
F-23
Shares
Common Stock
PROSPECTUS
, 2010
Wells Fargo Securities
Stifel Nicolaus Weisel
BB&T Capital Markets
RBC Capital Markets
Stephens Inc.
Dahlman Rose &
Company
Through and
including ,
2010 (25 days after the commencement of this 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 is in addition to a dealers
obligation to deliver a prospectus when acting as an underwriter
and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13. Other
Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other
than the underwriting discounts and commissions, payable by the
registrant in connection with the sale of the common stock being
registered. All amounts shown are estimates, other than the SEC
registration fee, the FINRA filing fee and the Nasdaq Global
Market listing fee.
|
|
|
|
|
SEC registration fee
|
|
$
|
8,556
|
|
FINRA filing fee
|
|
$
|
12,500
|
|
Nasdaq Global Market listing fee
|
|
$
|
125,000
|
|
Accounting fees and expenses
|
|
|
|
*
|
Legal fees and expenses
|
|
|
|
*
|
Printing and engraving expenses
|
|
|
|
*
|
Transfer agent fees
|
|
|
|
*
|
Blue sky fees and expenses
|
|
|
|
*
|
Miscellaneous fees and expenses
|
|
|
|
*
|
|
|
|
|
|
Total
|
|
|
|
*
|
|
|
|
|
|
|
|
|
* |
|
To be completed by amendment. |
Item 14. Indemnification
of Directors and Officers.
Section 14A:3-5
of the New Jersey Business Corporation Act provides that a
corporation may indemnify any person who is or was a director,
officer, employee or agent of a corporation against reasonable
costs, disbursements, counsel fees, judgments, fines and amounts
paid in settlement in connection with any proceeding involving
such person by reason of such person being or having been a
director, officer, employee or agent, other than a proceeding by
or in the right of the corporation; provided, that such person
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and
with respect to any criminal proceeding, such person had no
reasonable cause to believe his conduct was unlawful. The
statute provides that it is not exclusive of other rights to
which those seeking indemnification may be entitled under any
certificate of incorporation, bylaw, agreement, vote of
shareholders or otherwise. In addition, a corporation may
indemnify such corporate agent against his expenses in
connection with any preceding by or in the right of the
corporation to procure a judgment in its favor which involves
such corporate agent by reason of his having been such corporate
agent, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation. However, in such proceeding no indemnification
shall be provided in respect of any claim, issue or matter as to
which such corporate agent shall have been adjudged to be liable
to the corporation, unless and only to the extent that the
Superior Court of the State of New Jersey or the court in which
such proceeding was brought shall determine upon application
that despite the adjudication of liability, but in view of all
circumstances of the case, such corporate agent is fairly and
reasonably entitled to indemnity for such expenses as the
Superior Court or such other court shall deem proper.
As permitted by the New Jersey Business Corporation Act, our
amended and restated bylaws provide that (i) we are
required to indemnify our directors and officers to the fullest
extent permitted by applicable law; (ii) we are permitted
to indemnify our other employees to the extent permitted by
applicable statutory law; (iii) we are required to advance
expenses to our directors and officers in connection with any
legal proceeding, subject to the provisions of applicable
statutory law; and (iv) the rights conferred in our bylaws
are not exclusive.
II-1
Section 14A:2-7
of the New Jersey Business Corporation Act enables a
corporation, in its certificate of incorporation, to eliminate
or limit the personal liability of a director to the corporation
or its shareholders for damages for breach of any duty owed to
the corporation or its shareholders, except that such provision
shall not relieve a director or officer from liability for any
breach of duty based upon an act or omission (i) in breach
of such persons duty of loyalty to the corporation or its
shareholders, (ii) not in good faith or involving a knowing
violation of law or (iii) resulting in receipt by such
person of an improper personal benefit. Our restated certificate
of incorporation provides for such limitations on liability for
our directors.
Section 14A:3-5
of the New Jersey Business Corporation Act also authorizes a
corporation to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against such
person by reason of such persons status as director,
officer, employee or agent of the corporation. In connection
with this offering, we will obtain liability insurance for our
directors and officers. Such insurance would be available to our
directors and officers in accordance with its terms.
Reference is made to the form of underwriting agreement filed as
Exhibit 1.1 hereto for provisions providing that the
underwriters are obligated under certain circumstances, to
indemnify our directors, officers and controlling persons
against certain liabilities under the Securities Act of 1933, as
amended.
Reference is made to Item 17 for our undertakings with
respect to indemnification for liabilities arising under the
Securities Act.
Item 15. Recent
Sales of Unregistered Securities.
In the three years preceding the filing of this registration
statement, the registrant has issued the following securities
without registration under the Securities Act of 1933:
On November 19, 2009, we issued an aggregate of $10,000,000
of subordinated notes to investment funds affiliated with
Jefferies Capital Partners for an aggregate purchase price of
$9,624,981. We also issued warrants to
purchase shares
of our common stock to investment funds affiliated with
Jefferies Capital Partners for an aggregate purchase price of
$375,019. The warrants have an initial exercise price of
$ per share and expire on
November 19, 2019. The notes and warrants both were issued
in reliance on Rule 506 of Regulation D of the
Securities Act of 1933.
On June 29, 2007, we issued $2,500,000 of convertible
subordinated notes in connection with our acquisition of
P&P Transport, Inc. and Evergreen Equipment Leasing Co.,
Inc. The notes are convertible into shares of common stock at an
initial conversion price of $ per
share. The notes were issued in reliance on Rule 506 of
Regulation D of the Securities Act.
Since March 31, 2007, we have granted stock options to
purchase an aggregate
of shares of our
common stock at exercise prices ranging from
$ to
$ per share to a total of 12
employees, consultants and directors under the 2006 Stock Plan.
The grant of the above securities were deemed to be exempt from
registration under the Securities Act in reliance upon
Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions pursuant to benefit plans and
contracts relating to compensation as provided under
Rule 701.
II-2
Item 16. Exhibits
and Financial Statement Schedules.
(a) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Document
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
3
|
.1
|
|
Form of Restated Certificate of Incorporation*
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws*
|
|
4
|
.1
|
|
Form of Stock Certificate*
|
|
4
|
.2
|
|
Form of 14% Amended and Restated Convertible Subordinated Note,
amended and restated March 28, 2008, between New Century
Transportation, Inc. and each of Patricia Montgomery, Joseph
Montgomery, Margaret M. Zanger and Charles A. Zanger**
|
|
4
|
.3
|
|
Form of Senior Subordinated Promissory Note, dated
November 19, 2009, between New Century Transportation, Inc.
and each of Jefferies Capital Partners IV L.P., Jefferies
Employee Partners IV LLC and JCP Partners IV LLC**
|
|
4
|
.4
|
|
Form of Subordinated Promissory Note, dated December 1,
2006, between New Century Transportation, Inc. and each of Marc
L. Haney, Paul A. Haney and Leonard A. Haney**
|
|
4
|
.5
|
|
Form of Warrant to Purchase Shares of Common Stock, dated
November 19, 2009, issued to each of Jefferies Capital
Partners IV L.P., Jefferies Employee Partners IV LLC
and JCP Partners IV LLC**
|
|
4
|
.6
|
|
Registration Rights Agreement, dated June 23, 2006, by and
among New Century Transportation, Inc., NCT Acquisition LLC and
the other investors named therein**
|
|
4
|
.7
|
|
Securities Holders Agreement, dated June 23, 2006, by and
among New Century Transportation, Inc., NCT Acquisition LLC and
the other investors named therein**
|
|
4
|
.8
|
|
First Amendment to the Securities Holders Agreement, dated
December 1, 2006, by and among New Century Transportation,
Inc. NCT Acquisition LLC and the Management Investors named
therein**
|
|
4
|
.9
|
|
Special Stock Agreement, dated June 23, 2006, between NCT
Acquisition LLC, New Century Transportation, Inc., Harry J.
Muhlschlegel, Brian J. Fitzpatrick, James J. Molinari, Jerry
Shields, Jr. and Dave Russell**
|
|
4
|
.10
|
|
Form of Amendment to Special Stock Agreement, dated June 7,
2010, between NCT Acquisition, LLC and each of Harry
Muhlschlegel, Brian Fitzpatrick, James Molinari and Gerald T.
Shields, Jr.**
|
|
5
|
.1
|
|
Opinion of Dechert LLP*
|
|
10
|
.1
|
|
Credit Agreement, dated August 14, 2006, among New Century
Transportation, Inc., certain domestic subsidiaries, the lenders
from time to time party thereto, PNC Bank, National Association
and Sovereign Bank, as co-syndication agents, Churchill
Financial Cayman Ltd and CIT Capital Securities, LLC, as
co-documentation agents and Wachovia Bank, National Association,
as administrative agent**
|
|
10
|
.2
|
|
First Amendment to Credit Agreement, dated December 1,
2006, by and among New Century Transportation, Inc., certain of
its domestic subsidiaries and Wachovia Bank, National
Association, as administrative agent**
|
|
10
|
.3
|
|
Second Amendment to Credit Agreement, dated June 29, 2007,
by and among New Century Transportation, Inc., certain of its
domestic subsidiaries and Wachovia Bank, National Association,
as administrative agent**
|
|
10
|
.4
|
|
Third Amendment to Credit Agreement, dated February 13,
2008, by and among New Century Transportation, Inc., certain of
its domestic subsidiaries and Wachovia Bank, National
Association, as administrative agent**
|
II-3
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Document
|
|
|
10
|
.5
|
|
Fourth Amendment to Credit Agreement, dated November 19,
2009, by and among New Century Transportation, Inc., certain of
its domestic subsidiaries and Wachovia Bank, National
Association, as administrative agent**
|
|
10
|
.6
|
|
Note and Warrant Purchase Agreement, dated November 19,
2009, by and among New Century Transportation, Inc., Jefferies
Capital Partners IV L.P., Jefferies Employee
Partners IV LLC and JCP Partners IV LLC**
|
|
10
|
.7
|
|
New Century Transportation, Inc. Amended and Restated Equity
Incentive Plan, amended and restated December 27, 2002**
|
|
10
|
.8
|
|
New Century Transportation, Inc. 2006 Stock Incentive Plan**
|
|
10
|
.9
|
|
New Century Transportation Inc. Executive SERP Plan, revised and
restated January 1, 2008**
|
|
10
|
.10
|
|
2010 New Century Transportation, Inc. Stock Incentive Plan*
|
|
10
|
.11
|
|
Form of Letter Agreement between New Century Transportation,
Inc. and each of Harry Muhlschlegel, Brian Fitzpatrick, James
Molinari and Jerry Shields**
|
|
10
|
.12
|
|
Amended and Restated Employment Agreement between New Century
Transportation, Inc. and Harry J. Muhlschlegel
|
|
10
|
.13
|
|
Amended and Restated Employment Agreement between New Century
Transportation, Inc. and Brian J. Fitzpatrick
|
|
10
|
.14
|
|
Amended and Restated Employment Agreement between New Century
Transportation, Inc. and James J. Molinari
|
|
10
|
.15
|
|
Amended and Restated Employment Agreement between New Century
Transportation, Inc. and Gerald T. Shields
|
|
10
|
.16
|
|
Amended and Restated Lease, dated June 23, 2006, between
Jenicky, L.L.C. and New Century Transportation, Inc.**
|
|
10
|
.17
|
|
Industrial Building Lease, dated March 30, 2010, between
First Industrial, L.P. and New Century Transportation, Inc.*
|
|
10
|
.18
|
|
Letter, dated September 10, 2010, from Caterpillar, Inc.
and Ransome Cat
|
|
21
|
.1
|
|
Subsidiaries of New Century Transportation, Inc.**
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2
|
|
Consent of Dechert LLP (included in Exhibit 5.1)*
|
|
24
|
.1
|
|
Powers of Attorney (included on the signature page of the
Registration Statement)
|
|
99
|
.1
|
|
Consent of ACT Research, Co., LLC
|
|
99
|
.2
|
|
Consent of American Trucking Associations, Inc.
|
|
99
|
.3
|
|
Consent of SJ Consulting Group, Inc.
|
|
|
|
* |
|
To be filed by amendment. |
(b) Financial Statement Schedule
See the Index to Financial Statements included on
page F-1
for a list of the financial statements included in this
registration statement.
All schedules not identified above have been omitted because
they are not required, are not applicable or the information is
included in the selected consolidated financial data or notes
contained in this registration statement.
II-4
Item 17. Undertakings.
a. The undersigned registrant hereby undertakes to provide
to the underwriters at the closing specified in the underwriting
agreements, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
b. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
c. The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
2. For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Westampton, State of New Jersey, on
September 24, 2010.
NEW CENTURY TRANSPORTATION, INC.
|
|
|
|
By:
|
/s/ Harry
Muhlschlegel
|
Harry Muhlschlegel
Chief Executive Officer and Chairman
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints each of Harry
Muhlschlegel and Brian Fitzpatrick, as
his/her true
and lawful attorney-in-fact and agent, each acting alone, with
full power of substitution and resubstitution, for him/her and
in his/her
name, place and stead, in any and all capacities, to sign any or
all amendments to this registration statement, including
post-effective amendments, and any registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, and hereby ratifies
and confirms all that said attorneys-in-fact and agents or any
of them or their substitute or substitutes may lawfully do or
cause to be done by virtue thereof.
This power of attorney may be executed in multiple counterparts,
each of which shall be deemed an original, but which taken
together shall constitute one instrument.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ HARRY
MUHLSCHLEGEL
Harry
Muhlschlegel
|
|
Chairman and Chief Executive Officer (principal executive
officer)
|
|
September 24, 2010
|
|
|
|
|
|
/s/ BRIAN
FITZPATRICK
Brian
Fitzpatrick
|
|
Chief Financial Officer, Secretary and Director (principal
financial and accounting officer)
|
|
September 24, 2010
|
|
|
|
|
|
/s/ JAMES
DOWLING
James
Dowling
|
|
Director
|
|
September 24, 2010
|
|
|
|
|
|
/s/ JAMES
MOLINARI
James
Molinari
|
|
Director
|
|
September 24, 2010
|
|
|
|
|
|
/s/ SETH
WILSON
Seth
Wilson
|
|
Director
|
|
September 24, 2010
|
II-6
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Document
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
3
|
.1
|
|
Form of Restated Certificate of Incorporation*
|
|
3
|
.2
|
|
Form of Amended and Restated Bylaws*
|
|
4
|
.1
|
|
Form of Stock Certificate*
|
|
4
|
.2
|
|
Form of 14% Amended and Restated Convertible Subordinated Note,
amended and restated March 28, 2008, between New Century
Transportation, Inc. and each of Patricia Montgomery, Joseph
Montgomery, Margaret M. Zanger and Charles A. Zanger**
|
|
4
|
.3
|
|
Form of Senior Subordinated Promissory Note, dated
November 19, 2009, between New Century Transportation, Inc.
and each of Jefferies Capital Partners IV L.P., Jefferies
Employee Partners IV LLC and JCP Partners IV LLC**
|
|
4
|
.4
|
|
Form of Subordinated Promissory Note, dated December 1,
2006, between New Century Transportation, Inc. and each of Marc
L. Haney, Paul A. Haney and Leonard A. Haney**
|
|
4
|
.5
|
|
Form of Warrant to Purchase Shares of Common Stock, dated
November 19, 2009, issued to each of Jefferies Capital
Partners IV L.P., Jefferies Employee Partners IV LLC
and JCP Partners IV LLC**
|
|
4
|
.6
|
|
Registration Rights Agreement, dated June 23, 2006, by and
among New Century Transportation, Inc., NCT Acquisition LLC and
the other investors named therein**
|
|
4
|
.7
|
|
Securities Holders Agreement, dated June 23, 2006, by and
among New Century Transportation, Inc., NCT Acquisition LLC and
the other investors named therein**
|
|
4
|
.8
|
|
First Amendment to the Securities Holders Agreement, dated
December 1, 2006, by and among New Century Transportation,
Inc. NCT Acquisition LLC and the Management Investors named
therein**
|
|
4
|
.9
|
|
Special Stock Agreement, dated June 23, 2006, between NCT
Acquisition LLC, New Century Transportation, Inc., Harry J.
Muhlschlegel, Brian J. Fitzpatrick, James J. Molinari, Jerry
Shields, Jr. and Dave Russell**
|
|
4
|
.10
|
|
Form of Amendment to Special Stock Agreement, dated June 7,
2010, between NCT Acquisition, LLC and each of Harry
Muhlschlegel, Brian Fitzpatrick, James Molinari and Gerald T.
Shields, Jr.**
|
|
5
|
.1
|
|
Opinion of Dechert LLP*
|
|
10
|
.1
|
|
Credit Agreement, dated August 14, 2006, among New Century
Transportation, Inc., certain domestic subsidiaries, the lenders
from time to time party thereto, PNC Bank, National Association
and Sovereign Bank, as co-syndication agents, Churchill
Financial Cayman Ltd and CIT Capital Securities, LLC, as
co-documentation agents and Wachovia Bank, National Association,
as administrative agent**
|
|
10
|
.2
|
|
First Amendment to Credit Agreement, dated December 1,
2006, by and among New Century Transportation, Inc., certain of
its domestic subsidiaries and Wachovia Bank, National
Association, as administrative agent**
|
|
10
|
.3
|
|
Second Amendment to Credit Agreement, dated June 29, 2007,
by and among New Century Transportation, Inc., certain of its
domestic subsidiaries and Wachovia Bank, National Association,
as administrative agent**
|
|
10
|
.4
|
|
Third Amendment to Credit Agreement, dated February 13,
2008, by and among New Century Transportation, Inc., certain of
its domestic subsidiaries and Wachovia Bank, National
Association, as administrative agent**
|
II-7
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Document
|
|
|
10
|
.5
|
|
Fourth Amendment to Credit Agreement, dated November 19,
2009, by and among New Century Transportation, Inc., certain of
its domestic subsidiaries and Wachovia Bank, National
Association, as administrative agent**
|
|
10
|
.6
|
|
Note and Warrant Purchase Agreement, dated November 19,
2009, by and among New Century Transportation, Inc., Jefferies
Capital Partners IV L.P., Jefferies Employee
Partners IV LLC and JCP Partners IV LLC**
|
|
10
|
.7
|
|
New Century Transportation, Inc. Amended and Restated Equity
Incentive Plan, amended and restated December 27, 2002**
|
|
10
|
.8
|
|
New Century Transportation, Inc. 2006 Stock Incentive Plan**
|
|
10
|
.9
|
|
New Century Transportation Inc. Executive SERP Plan, revised and
restated January 1, 2008**
|
|
10
|
.10
|
|
2010 New Century Transportation, Inc. Stock Incentive Plan*
|
|
10
|
.11
|
|
Form of Letter Agreement between New Century Transportation,
Inc. and each of Harry Muhlschlegel, Brian Fitzpatrick, James
Molinari, and Jerry Shields**
|
|
10
|
.12
|
|
Amended and Restated Employment Agreement between New Century
Transportation, Inc. and Harry J. Muhlschlegel
|
|
10
|
.13
|
|
Amended and Restated Employment Agreement between New Century
Transportation, Inc. and Brian J. Fitzpatrick
|
|
10
|
.14
|
|
Amended and Restated Employment Agreement between New Century
Transportation, Inc. and James J. Molinari
|
|
10
|
.15
|
|
Amended and Restated Employment Agreement between New Century
Transportation, Inc. and Gerald T. Shields
|
|
10
|
.16
|
|
Amended and Restated Lease, dated June 23, 2006, between
Jenicky, L.L.C. and New Century Transportation, Inc.**
|
|
10
|
.17
|
|
Industrial Building Lease, dated March 30, 2010, between
First Industrial, L.P. and New Century Transportation, Inc.*
|
|
10
|
.18
|
|
Letter dated September 10, 2010, from Caterpillar, Inc. and
Ransome Cat
|
|
21
|
.1
|
|
Subsidiaries of New Century Transportation, Inc.**
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2
|
|
Consent of Dechert LLP (included in Exhibit 5.1)*
|
|
24
|
.1
|
|
Powers of Attorney (included on the signature page of the
Registration Statement)
|
|
99
|
.1
|
|
Consent of ACT Research, Co., LLC
|
|
99
|
.2
|
|
Consent of American Trucking Associations, Inc.
|
|
99
|
.3
|
|
Consent of SJ Consulting Group, Inc.
|
|
|
|
* |
|
To be filed by amendment |
II-8