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Table of Contents

As filed with the Securities and Exchange Commission on May 9, 2012

Registration No. 333-167854


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Amendment No. 15

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933


LINC LOGISTICS COMPANY

(Exact name of registrant as specified in its charter)


Michigan   4731   38-3645748

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(IRS Employer

Identification No.)

11355 Stephens Road

Warren, MI 48089

(586) 467-1500

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


H. E. “Scott” Wolfe

Chief Executive Officer

LINC Logistics Company

11355 Stephens Road

Warren, MI 48089

(586) 467-1500

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


With copies to:

C. Douglas Buford, Jr.

Mitchell, Williams, Selig,

Gates & Woodyard, P.L.L.C.

425 W. Capitol Avenue, Ste. 1800

Little Rock, AR 72201

(501) 688-8800

 

Marc D. Jaffe

Christopher D. Lueking

Latham & Watkins LLP

233 S. Wacker Drive, Suite 5800

Chicago, IL 60606

(312) 876-7700


Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    ¨

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.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

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

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

CALCULATION OF REGISTRATION FEE

 


Title of each class of
securities to be registered
  Proposed maximum
aggregate offering
price (1)(2)
  Amount of
registration fee

Common stock, no par value

  $208,533,328   $16,568.09(3)

(1)   Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, solely for the purpose of calculating the registration fee.
(2)   Includes offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any.
(3)   $12,069.66 of the registration fee has been previously paid.

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



Table of Contents

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

 

 

Subject to Completion, Dated May 9, 2012

 

PRELIMINARY PROSPECTUS

 

LOGO

 

11,333,333 Shares

LINC Logistics Company

Common Stock

$             per share

 


 

This is the initial public offering of our common stock. Prior to this offering, there has been no public market for our common stock. We are offering 9,913,333 shares of our common stock. We currently expect the initial public offering price to be between $14.00 and $16.00 per share. The selling shareholder identified in this prospectus is offering an additional 1,420,000 shares of our common stock. LINC Logistics Company will not receive any of the proceeds from the sale of the shares being sold by the selling shareholder.

 

The selling shareholder has granted the underwriters an option to purchase up to 1,700,000 additional shares of common stock to cover over-allotments. We will not retain any of the proceeds from the sale of these shares by the selling shareholder.

 

We have applied to have our common stock listed on the NASDAQ Global Select Market under the symbol “LLGX.” We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 14.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 


 

     Per Share

     Total

 

Public Offering Price

   $                    $                

Underwriting Discount

   $                    $                

Proceeds to LINC Logistics Company (before expenses)

   $                    $                

Proceeds to the selling shareholder (before expenses)

   $         $     

 

The underwriters expect to deliver the shares to purchasers on or about                     , 2012 through the book-entry facilities of The Depository Trust Company.

 


 

                    Citigroup       Stifel Nicolaus Weisel

 


 

RBC Capital Markets       Baird
             
         
Comerica Securities           The Huntington Investment Company

 

                    , 2012

 


Table of Contents

LOGO


Table of Contents

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 

TABLE OF CONTENTS

 

     Page

 

Summary

     1   

Risk Factors

     14   

Forward-Looking Statements

     32   

Use of Proceeds

     33   

Dividend Policy

     34   

Capitalization

     35   

Dilution

     37   

Selected Consolidated Financial and Operating Data

     39   

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

     42   

Industry

     69   

Business

     73   

Management

     87   

Compensation Discussion and Analysis

     92   

Certain Relationships and Related Transactions

     100   

Principal and Selling Shareholder

     104   

Description of Capital Stock

     105   

Shares Eligible for Future Sale

     108   

Material United States Federal Income Tax Consequences to Non-U.S. Holders

     110   

Underwriting

     113   

Relationships and Conflict of Interest

     115   

Legal Matters

     118   

Experts

     118   

Where You Can Find More Information

     118   

Index to Financial Statements

     F-1   

 

Unless the context requires otherwise, the terms “LINC,” “we,” “Company,” “us” and “our” refer to LINC Logistics Company and its subsidiaries. Logistics Insight Corporation®, LINC®, Central Global Express®, and C.T.X.® are trademarks of LINC Logistics Company and its subsidiaries. All other trademarks, service marks or tradenames referred to in this prospectus are the property of their respective owners. This prospectus also contains references to trademarks and service marks of other companies.

 


 

The market and industry data and forecasts included in this prospectus are based upon independent industry sources, including Armstrong & Associates, CSM Worldwide and JD Power and Associates. Although we believe that these independent sources are reliable, we have not independently verified the accuracy and completeness of this information, nor have we independently verified the underlying economic or other assumptions relied upon in preparing any data or forecasts.

 

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SUMMARY

 

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. You should read this summary together with the entire prospectus, including the more detailed information regarding us and the common stock being sold in this offering and our consolidated financial statements and related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the section entitled “Risk Factors.”

 

Our Business

 

We are a leading provider of custom-developed third-party logistics solutions that allow our customers and clients to reduce costs and manage their global supply chains more efficiently. We believe many of our services are essential to the successful operations of our customers’ production processes. We offer a comprehensive suite of supply chain logistics services, including value-added, transportation and specialized services. Our value-added logistics services include material handling and consolidation, sequencing and sub-assembling, kitting and repacking, and returnable container management. We also provide a broad range of transportation services, such as dedicated truckload, shuttle operations and yard management. Our specialized services include air and ocean freight forwarding, expedited ground transportation and final-mile delivery. Historically, our largest end-market has been the automotive segment, where we maintain strong and long-term relationships with our customers. For the fiscal year ended December 31, 2011, 79.2% of our revenue was derived from customers in the North American automotive industry, including 63.7% from affiliates of Ford, General Motors and Chrysler. We continue to expand our business outside of the automotive sector into the industrial products, aerospace, medical equipment and technology sectors. Our revenues in sectors outside of automotive grew from $22.4 million for the year ended December 31, 2007 to $60.4 million for the year ended December 31, 2011. For the year ended December 31, 2011, our business with non-automotive customers represented 20.8% of total revenues. For the years ended December 31, 2009, 2010 and 2011, we generated revenues of $177.9 million, $245.8 million, and $290.9 million respectively. Our net income for such years was $14.9 million, $33.0 million and $35.6 million respectively.

 

We operate, manage or provide transportation services at 43 locations in the United States, Canada and Mexico. Our facilities and services are often directly integrated into and located near the production processes of our customers and represent a critical piece of their supply chains. Our proprietary information technology platform is integrated with our customers’ and their vendors’ information technology networks, allowing real-time end-to-end supply chain visibility. As a result of our close integration with our customers, most of our value-added services are contracted for the duration of our customers’ production programs, which typically last three to five years. In 2011, over 89.0% of our value-added services revenue was derived from multi-year contracts.

 

We employ an asset-light business model that lowers our capital expenditure requirements and which we believe, based on our internal research, generates greater investment returns and cash-flow as compared with an asset-based model. We believe our asset-light business model is highly scalable and will continue to support our growth with relatively modest capital expenditure requirements. Our asset-light model, combined with a disciplined approach to contract structuring and pricing, creates a highly flexible cost structure that allows us to scale our business up and down quickly in response to changes in demand from our customers. This flexibility helped us to deliver positive operating income in each of the past sixteen quarters, despite an unprecedented slowdown in demand from our U.S. automotive customers as a result of the global recession and the government-led restructurings of General Motors and Chrysler.

 

According to Armstrong & Associates, gross revenue for the U.S. third-party logistics (3PL) market grew at a compound annual rate of 10.7% from $30.8 billion in 1996 to $127.3 billion in 2010. Despite a 15.7% decline in the sector in 2009, Armstrong estimates that the 3PL market resumed its growth and expanded by 10.9% in 2011, reaching $141.2 billion. Growth in this sector is being driven primarily by the elongation and increasing complexity of supply chains and by the continued desire of manufacturers to reduce costs, increase efficiencies and improve customer service.

 

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For the years ended December 31, 2010 and 2011, we generated $245.8 million and $290.9 million in revenues, $33.0 million and $35.6 million in net income, and $42.7 million and $48.2 million in Adjusted EBITDA, respectively, representing year-over-year increases of 18.4%, 8.1% and 12.6%, respectively. See “— Summary Consolidated Financial and Operating Data” for our definition of Adjusted EBITDA and why we present it, and for a reconciliation of net income to Adjusted EBITDA.

 

Our Strengths

 

We believe the following strengths position us for sustainable growth:

 

Leading provider of custom-developed supply chain solutions to the North American automotive industry. Our single-source, comprehensive logistics solutions, extensive expertise serving automotive supply chains, and longstanding customer relationships have contributed to our position as a leading provider of third-party logistics services to the automotive industry. We are a core 3PL provider to many of our customers. For example, we operate the largest receiving and distribution operations for both Ford and Chrysler, delivering inbound components within stringent supply chain schedules. As a leading provider of logistics services to the automotive industry, we are well positioned to benefit from the continuation of favorable outsourcing trends within the automotive sector.

 

Broad portfolio of integrated third-party logistics services.    We provide an extensive range of logistics services that includes value-added warehousing and material handling services, dedicated transportation services, international freight forwarding, and expedited freight delivery. We believe our ability to provide integrated logistics solutions is a competitive advantage as customers continue to seek a single point of contact for logistics services. For example, we can provide an integrated single-source solution incorporating value-added operations, transportation services and specialized logistics services to support one or multiple customer locations. Our broad range of capabilities also provides us with multiple growth platforms and significant cross-selling opportunities.

 

Multi-faceted labor strategies enhance value proposition.    We believe our ability to structure effective labor contracts and our ability to draw from a variety of union, non-union and contract labor pools are strengths that differentiate us when competing for a contract. Our balanced labor structure allows us to provide customized and cost-effective solutions that accommodate our customers’ labor strategies. Our senior operational management team has extensive experience managing contract services in unionized environments. We currently have ten collective bargaining agreements with three different unions. Each collective bargaining agreement with each union covers a single facility with that union, enhancing our flexibility in developing our labor strategies. No single union has represented more than 38.4% of our employees in any given year over the past five years.

 

Disciplined customer contract pricing.    We use a standard customer contract approval process to evaluate, develop and price contracts for new large program logistics opportunities. This mandatory process includes an evaluation of pricing, capital expenditure requirements, financial return and risk assessment prior to approval. Additionally, a significant percentage of our contracts for value-added services includes a fixed price component that produces a stable revenue stream regardless of a customer’s supply chain activity. Our disciplined contract pricing strategy and ability to include a fixed price component in our contracts has helped us to maintain profitability despite volatility in customer demand.

 

Enduring customer relationships.    We have long-term relationships with most of our largest customers. We have provided services to our top five customers for an average of 16 years. Typically our services are directly linked into our customers’ production processes, requiring a high level of integration with our customers’ operations and technology systems, which improves our competitive position and increases our customers’ costs of switching logistics providers. Since December 31, 2006, our customers retained our services for over 90% of the value-added services agreements that were expiring and subsequently renewed with a 3PL provider. In 2011, over 89.0% of our value-added services revenue was derived from multi-year contracts, and over 95.0% of our

 

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transportation revenue was derived from contracts with existing durations or prospective terms of at least one year. The duration of these agreements improves the predictability of our cash flows. Approximately 38.0% of our revenue from continuing business in the fiscal year ended December 31, 2011, was derived from contracts subject to expiration on or before December 31, 2012. Approximately 44.2% of such revenues are related to value added or transportation contracts that are in renewal discussions, 35.0% have been renewed, and the balance are revenues related to our specialized services business, which is predominantly transactional. These contracts may or may not be renewed.

 

Flexible, asset-light business model.    Our asset-light, variable-cost-based operating structure enables us to scale our business up and down in response to changing business conditions and generates strong cash flows and return on capital. Substantially all of our operating facilities are either provided to us by customers, leased by us on a month-to-month basis, or leased by us on terms that match the related customer contracts to the greatest extent possible. Additionally, to accommodate our customers’ freight transportation needs, we use a network of independent tractor owners (owner-operators) and third-party transportation providers in addition to our Company-owned tractors. As of December 31, 2011, owner-operators supplied approximately 32.5% of the tractors used over the road in our transportation services and specialized services operations. We believe that our highly scalable operating platform will continue to support our growth with limited capital expenditure requirements.

 

State-of-the-art proprietary information technology system.    We have developed a proprietary, integrated and scalable information technology platform that allows us to efficiently manage key processes across our customers’ supply chains. The advanced functionality of our IT system enables seamless integration with customers’ and vendors’ IT networks and allows us to provide real-time end-to-end supply chain visibility. We believe that these applications improve our services and quality controls, strengthen our relationships with our customers and enhance our value proposition.

 

Highly experienced management team.    Our management team has a track record of delivering strong, profitable growth. Senior management is comprised of experienced professionals with an average of over 26 years of experience in transportation and logistics services, and related outsourcing businesses, and who have an average of 31 years of experience in the global automotive industry.

 

Our Strategy

 

Our goal is to strengthen our position as a leading logistics services provider through the following strategies:

 

Continue to capitalize on strong industry fundamentals and outsourcing trends.    The U.S. 3PL industry has expanded rapidly since 2006. According to Armstrong & Associates, the industry is expected to increase by 10.9% in 2011 to $141.2 billion. Although there is no guarantee such growth will continue, we believe long-term industry growth will be supported by manufacturers seeking to outsource non-core logistics functions to cost-effective third-party providers that can efficiently manage increasingly complex global supply chains. We intend to leverage our integrated suite of logistics services, our network of facilities in the United States, Canada and Mexico, our long-term customer relationships, and our reputation for operational excellence to capitalize on favorable industry fundamentals and growth expectations.

 

Target further penetration of key customers in the North American automotive industry.    The automotive industry is one of the largest users of global outsourced logistics services, providing us growth opportunities with both existing and new customers. We intend to capitalize on anticipated continued growth in outsourcing of higher value logistics services in the automotive sector such as sub-assembly and sequencing, which link directly into production lines and require specialized capabilities, technological expertise and strict quality controls. We believe we are well positioned to capitalize on this increased outsourcing activity as a result

 

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of our extensive experience and enduring customer relationships. For example, we launched a value-added services operation inside a General Motors (GM) assembly plant in Michigan that assembles a new fuel-efficient subcompact passenger car. We believe this contract represents the first material handling outsourcing arrangement of its kind for a third-party vendor within a GM assembly facility in the U.S. We regularly pursue opportunities to further penetrate our core automotive customer base by leveraging our position in the supply chains of our original equipment manufacturer (OEM) customers to extend our services to their suppliers and by cross-selling a wide range of transportation and specialized services to existing customers. We are also targeting and expect to increase our services to foreign-owned automotive manufacturers operating in North America and to Tier I automotive component suppliers, who provide parts, subassemblies or systems directly to OEMs.

 

Continue to expand into new industry verticals.    We have provided highly complex value-added logistics services to automotive customers for more than 19 years. These capabilities and our broad portfolio of other logistics services are highly transferable to other vertical markets. In recent years, we have successfully targeted other end-markets where we believe we can leverage the expertise we developed in the automotive sector. In addition to automotive, our targeted industries include industrial products, aerospace, medical equipment, and technology. In April 2011, we launched two U.S. consolidation centers for Wal-Mart Stores, which represents our first contract with a major national retail chain. Revenues from customers outside of the automotive industry increased to $60.4 million, or 20.8% of total revenues, in the year ended December 31, 2011. We believe our ability to provide a broad range of services in key markets in the U.S. and internationally provides us with additional growth platforms and cross-selling opportunities.

 

Expand our logistics services capabilities and geographical reach.    We intend to continue to expand our portfolio of services in response to customer demands for greater innovation and responsiveness from their logistics providers. We will also continue to pursue high growth sectors within our specialized services, such as expedited ground transportation and international freight forwarding. In addition, we intend to increase penetration of our services into other regions of the United States and in international markets, such as Mexico, where we deliver logistics services to General Motors’ newest North American automotive assembly plant.

 

Continue to invest in technological advances to meet customer requirements.    With continued outsourcing of supply chain activities, customers are requiring greater advances in information technology to support increasingly complex logistics solutions. We intend to continue to improve our proprietary IT system and expand the technology component of our service portfolio through a combination of internally and externally developed software. We believe that these ongoing technology investments will enhance the differentiation of our services relative to competing providers.

 

Grow through selected acquisitions.    The 3PL industry is highly fragmented, with hundreds of small and mid-sized competitors that are either specialized in specific vertical markets, specific service offerings, or limited to local and regional coverage. We expect to selectively evaluate and pursue acquisitions that will enhance our service capabilities, expand our geographic network, diversify our customer base and accelerate our earnings growth. Although we regularly evaluate and engage in discussions with potential targets, we do not currently have any agreements in place for material acquisitions.

 

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RECENT DEVELOPMENTS

 

We are currently finalizing our unaudited interim financial statements as of and for the three months ended March 31, 2012, including our results of operations for that period. The preliminary financial data included herein has been prepared on a consistent basis with the audited financial statements included in the registration statement and our actual results are not expected to vary materially from that reflected in the preliminary first quarter 2012 financial data. While these financial statements are not available, based on the information currently available, we preliminarily estimate that, for the three months ended March 31, 2012:

 

   

Revenue was between $79.0 million and $81.0 million, compared with $69.6 million for the three months ended April 2, 2011;

 

   

operating income was between $11.8 million and $12.2 million, compared with $10.7 million for the three months ended April 2, 2011; and

 

   

net income was between $9.9 million and $10.5 million, compared with net income of $9.5 million for the three months ended April 2, 2011.

 

The estimated increase in revenue for the three months ended March 31, 2012 as compared to the three months ended April 2, 2011 was attributable to increased demand for services from existing and new value-added services operations. Increased revenue from value-added services reflects higher overall U.S. automotive production, a new operation launched inside a General Motors assembly plant, two consolidation centers launched for Wal-Mart Stores in April 2011, and four smaller, value-added services operations launched in 2011. The overall increase in revenue was somewhat offset by reduced demand for transportation services and specialized services, which primarily reflects the cancellation of selected transportation services provided in the United States to a Tier I automotive supplier. The estimated increase in operating income for the three months ended March 31, 2012 as compared to the three months ended April 2, 2011 was driven by the increase in net revenue as well as by increased operating margins as our business mix has changed.

 

On April 20, 2012, employees located at our new General Motors operation, representing approximately 4.0% of our total employees at December 31, 2011, voted to accept an offer from GM to join a collective bargaining unit contracted directly with GM. Although our contract for this operation has not been modified yet, it may result in lower revenues from this General Motors operation. We believe we will continue to deliver higher value-added workflow design, supervision and inventory management services to GM, with fewer workers.

 

The preliminary financial information above is unaudited and there can be no assurance that it will not vary from our actual financial results as of and for the three months ended March 31, 2012. The preliminary financial information above reflects estimates based only on preliminary information available to us as of the date of this prospectus, has not been subject to our normal quarterly closing procedures and adjustments, which may be material, and is not a comprehensive statement of our financial results for the three months ended March 31, 2012. Accordingly, you should not place undue reliance on these preliminary estimates. The estimates above are not necessarily indicative of any future period and should be read together with “Risk Factors,” “Selected Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and notes thereto included elsewhere in this prospectus. The foregoing constitutes forward-looking statements. Please see “Forward-Looking Statements.”

 

The preliminary financial information above has been prepared by, and is the responsibility of, our management. Our independent, registered public accounting firm has not audited, reviewed or performed any procedures with respect to the preliminary financial information and does not express an opinion or any other form of assurance with respect thereto.

 

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Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We have not made a decision whether to take advantage of any or all of these exemptions. If we do take advantage of any of these exemptions, we do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock and our stock price may be more volatile.

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

Risk Factors

 

Our business is subject to numerous risks, which are highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks represent challenges to the successful implementation of our strategy and to the growth and future profitability of our business. Some of these risks are:

 

   

our revenue is highly dependent on the automotive industry and any decrease in demand for outsourced services in this industry or our other targeted industries could reduce our revenue and seriously harm our business;

 

   

we derive a significant portion of our revenue from a few major customers, and the loss of one or more of them, or a reduction in their operations, could have a material adverse effect on our business;

 

   

customer manufacturing plant closures could have a material adverse effect on our performance;

 

   

competition and consolidation in the 3PL market may harm our business; and

 

   

our profitability could be negatively impacted by downward pricing pressure from certain of our customers.

 

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Corporate Information

 

LINC Logistics Company was incorporated in Michigan on March 11, 2002, to combine certain logistics and transportation businesses of CenTra, Inc. (CenTra). One such business, Logistics Insight Corp., began operations in 1992 and is now one of our wholly-owned subsidiaries. On December 31, 2006, CenTra completed a corporate reorganization through which all entities included in our consolidated financial statements as of and for the year ended December 31, 2006 came under our direct ownership and control. In connection with that reorganization, on December 29, 2006, we declared a $93.0 million cash dividend payable to CenTra, and on December 31, 2006, we distributed a $33.4 million net receivable to CenTra. Immediately following the distribution of the net receivable, CenTra distributed all of our outstanding common stock in a spin-off transaction to its stockholders, Matthew T. Moroun and a trust controlled by Manuel J. Moroun, Matthew T. Moroun’s father.

 

On December 31, 2008, LINC issued a $25.0 million Dividend Distribution Promissory Note due December 31, 2013, to CenTra. The promissory note was issued in connection with extending the maturity and reducing to $68.0 million the value of the outstanding payment obligation to CenTra. On December 22, 2010, we paid $10.0 million to CenTra to further reduce the outstanding dividend payable.

 

On April 21, 2011, we executed a Revolving Credit and Term Loan Agreement with a syndicate of banks to refinance a substantial portion of outstanding secured debt and to pay an additional $31.0 million of our outstanding dividend payable to CenTra. The syndicated senior secured loan package includes a $40 million revolving credit facility, a $25 million equipment credit facility, and a $30 million senior secured term loan. The loan agreement incorporates an “accordion feature” that permits a future increase in the credit facility of up to $25 million.

 

Since January 1, 2007, we have been treated as an S-corporation for U.S. federal income tax purposes. Before completing this offering, we intend to terminate our S-corporation status. Historically, we have paid to shareholders, Matthew T. Moroun and a trust controlled by Manuel J. Moroun, and we expect to continue to pay dividends to our shareholders, Matthew T. Moroun and trusts controlled by Manuel J. Moroun and Matthew T. Moroun, equal to our taxable income including the period from January 1, 2012 to the termination date of our S-corporation status, plus taxable income for any prior years that has not previously been distributed. On April 23, 2012 we distributed an additional $28.0 million by promissory note to our shareholders in connection with the termination of our S-corporation status. These promissory notes were equal to our estimated taxable income for S-corporation periods prior to the termination date of our S-corporation status, less any dividends previously distributed. The promissory notes will be satisfied by payment of the lesser of its principal amount or the final determination of the applicable taxable income.

 

Our principal executive offices are located at 11355 Stephens Road, Warren, Michigan 48089, and our telephone number is (586) 467-1500. Our website address is www.4linc.com. Information on or accessed through our website is not incorporated into this prospectus and is not part of this prospectus.

 

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The Offering

 

Common stock being offered by us

9,913,333 shares

 

Common stock being offered by the selling shareholder

1,420,000 shares

 

Common stock to be outstanding after
this offering

30,666,667 shares

 

Use of proceeds

We estimate that our net proceeds from this offering will be approximately $138.4 million. We intend to use $82.0 million of our net proceeds to repay our $30 million senior secured term loan, to pay an outstanding $27.0 million cash dividend payable to CenTra, our sole shareholder on December 29, 2006, the record date for that dividend, and to pay a related $25.0 million dividend distribution promissory note initially issued to CenTra plus accrued but unpaid interest. We also intend to use a portion of our net proceeds to repay the outstanding balance and to terminate our Fifth Third Bank Equipment Financing Facility. As of December 31, 2011, indebtedness in connection with this facility was $3.0 million. We also intend to use a portion of our net proceeds to repay the outstanding balance on our $40 million revolving credit facility. As of December 31, 2011, indebtedness in connection with this facility was $14.0 million. We may also use additional net proceeds to pay down the outstanding balance on our $25 million equipment credit facility, which was $11.1 million as of December 31, 2011. The balance of our net proceeds will be used for working capital and general corporate purposes. In addition, although we have no specific acquisition plans at this time, we may use a portion of our net proceeds to make acquisitions. We will not receive any of the proceeds from the sale of the shares to be offered by the selling shareholder. See “Use of Proceeds.”

 

Dividend policy

Following this offering, we intend to pay quarterly cash dividends. We expect that our first dividend will be paid in the fourth quarter of 2012 and will be $0.038 per share of our common stock. See “Dividend Policy.”

 

Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, any covenants included in our credit facilities, any legal or contractual restrictions on the payment of dividends and other factors the board of directors deems relevant.

 

Risk factors

See the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

 

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Proposed NASDAQ Global Select
Market symbol

We have applied to have the common stock listed on the NASDAQ Global Select Market under the symbol “LLGX.”

 

Conflict of interest

Because affiliates of Comerica Securities, Inc. and The Huntington Investment Company are lenders under our Revolving Credit and Term Loan Agreement and will receive more than 5% of the net proceeds of the offering, which are being used to repay a portion of these facilities, Comerica Securities, Inc. and The Huntington Investment Company are deemed to have a conflict of interest under Rule 5121 of the Financial Industry Regulatory Authority, Inc., or FINRA. Accordingly, this offering will be conducted in accordance with all applicable provisions of FINRA Rule 5121. In accordance with FINRA Rule 5121, Comerica Securities, Inc. and The Huntington Investment Company will not make sales to discretionary accounts without the prior written consent of the account holders.

 

Upon completion of this offering, it is expected that Matthew T. Moroun, the Chairman of our board of directors, and trusts controlled by Manuel J. Moroun and Matthew T. Moroun, will together own approximately 63.0% of our outstanding common stock or 57.5% of our common stock if the underwriters exercise their option to purchase additional shares from us in full. Because the Moroun family will continue to hold a controlling interest in the outstanding common stock of the Company, we intend to avail ourselves of the “controlled company” exemption under the corporate governance rules of the NASDAQ Stock Market. See “Management—Board Structure.”

 

Except as otherwise indicated, the number of shares shown to be outstanding after this offering is based on 20,753,334 shares outstanding as of December 31, 2011, and includes 39,000 shares of restricted common stock to be issued immediately subsequent to effectiveness of this offering pursuant to the Long-Term Incentive Plan and that will be vested upon issuance, and excludes the following:

 

   

156,000 shares of restricted common stock to be issued immediately subsequent to effectiveness of this offering pursuant to the Long-Term Incentive Plan and that will vest at a later date;

 

   

105,000 shares of common stock issuable upon exercise of options to be granted immediately subsequent to effectiveness of this offering pursuant to the Long-Term Incentive Plan, at an exercise price equal to the initial public offering price; and

 

   

200,000 additional shares of common stock available for issuance under the Long-Term Incentive Plan.

 

The selling shareholder has granted the underwriters an option to purchase up to 1,700,000 additional shares of common stock to cover over-allotments.

 

Except as otherwise indicated, all information in this prospectus assumes:

 

   

a 20,753.334-for-1 split of shares of our common stock, which will be effective on the effective date of our offering;

 

   

an initial public offering price of $15.00 per share, the midpoint of the range set forth on the cover of this prospectus; and

 

   

no exercise of the underwriters’ over-allotment option.

 

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Summary Consolidated Financial and Operating Data

 

The following table sets forth a summary of our consolidated financial and operating data as of and for the periods presented. The table includes certain pro forma information that reflects the impact of our conversion from an S-corporation to a C-corporation in connection with this offering. We derived the summary consolidated statements of income data for the years ended December 31, 2009, 2010 and 2011 from our audited consolidated financial statements included elsewhere in this prospectus.

 

The information below should be read in conjunction with the information included under the headings “Selected Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus. The results for any interim period are not necessarily indicative of the results that may be expected for the full year. The following historical financial information may not be indicative of our future performance.

 

     Year Ended December 31,

 
                 2009             

                 2010             

                 2011             

 
    

(in thousands, except share and per share amounts

and employee and facility counts)

 

Statements of Income Data:

        

Revenue

   $ 177,938       $ 245,785       $ 290,929   

Operating expenses

     160,316         208,732         249,287   
    


  


  


Operating income

     17,622         37,053         41,642   

Interest expense, net

     1,354         1,514         2,215   
    


  


  


Income before provision for income taxes

     16,268         35,539         39,427   

Provision for income taxes

     1,339         2,574         3,794   
    


  


  


Net income

   $ 14,929       $ 32,965       $ 35,633   
    


  


  


Earnings Per Share

                          

Basic and diluted

   $ 0.72       $ 1.59       $ 1.72   

Weighted Average Shares Outstanding

     20,753,334         20,753,334         20,753,334   

Pro Forma Data (unaudited):

                          

Income before provision for income taxes

   $ 16,268       $ 35,539       $ 39,427   

Pro forma provision for income taxes(1)

     6,257         13,611         15,810   
    


  


  


Pro forma net income

   $ 10,011       $ 21,928       $ 23,617   
    


  


  


Pro forma earnings per share, basic and diluted

   $ 0.48       $ 1.06       $ 1.14   

Average common shares outstanding, basic and diluted

     20,753,334         20,753,334         20,753,334   

Pro Forma As Adjusted Data (unaudited):

                          

Pro forma as adjusted earnings per common share(2)

                          

Basic

                     $ 0.80   

Diluted

                     $ 0.80   

Weighted Average Shares Outstanding

                          

Basic

                       30,666,667   

Diluted

                       30,966,667   

Other Data:

                          

Adjusted EBITDA(3)

   $ 26,064       $ 42,749       $ 48,150   

Cash flow from operations

   $ 16,892       $ 34,387       $ 44,537   

Capital expenditures

   $ 1,655       $ 2,661       $ 8,559   

Cash dividends paid(4)

   $ 71       $ 21,316       $ 22,790   

Employees at end of period

     1,504         1,528         1,721   

Facilities managed at end of period

     27         29         37   

 

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     As of December 31, 2011

 
     Actual

     Pro  Forma(5)

     Pro Forma
as Adjusted(6)


 
     (unaudited, in thousands)  

Balance Sheet Data:

                          

Cash and cash equivalents

   $ 4,633       $ 633       $ 39,432   

Total assets.

     74,633         70,663         108,060   

Total debt

     83,061         85,061         39,082   

Dividend Payable

     27,000         27,000         0   

(1)   Since January 1, 2007, we have been treated as an S-corporation for U.S. federal income tax purposes. As a result of our S-corporation status, our income since January 1, 2007 has not been subject to U.S. federal income taxes or state income taxes in those states where S-corporation status is recognized. In general, the corporate income or loss of an S-corporation is allocated to its stockholders for inclusion in their personal federal income tax returns and state income tax returns in those states where S-corporation status is recognized. The provision for income taxes in 2009, 2010 and 2011 reflects the amount of entity-level income taxes in those jurisdictions where S-corporation status is not recognized. In connection with this offering, our S-corporation status will be terminated and we will become subject to additional entity-level income taxes that will be reflected in our financial statements. Also, we will reestablish deferred tax accounts eliminated in 2007. As of December 31, 2011, such action, which has been contemplated in the pro forma provision for each of the periods presented, would have resulted in an estimated $3.0 million increase in our provision for income taxes. Pro forma provision for income taxes reflects combined federal, state and local income taxes, as if we had been treated as a C-corporation, using blended statutory federal, state and local income tax rates of 38.5%, 38.3% and 40.1% in 2009, 2010 and 2011 respectively. These tax rates reflect the sum of the federal statutory rate and a blended state rate based on our calculation of income apportioned to each state for each period.

 

(2)   Pro forma as adjusted earnings per common share for the year ended December 31, 2011 are provided to show the pro forma effect on net income, assuming (i) the termination of our S-corporation status in connection with this offering, (ii) the retirement of debt due to our April 21, 2011 debt refinancing, and (iii) the use of a portion of the net proceeds of this offering to repay outstanding indebtedness, as if all events had occurred on January 1, 2011. Pro forma as adjusted data is computed by dividing pro forma as adjusted net income by the number of shares outstanding after this offering. Such outstanding share amounts include 9,913,333 shares to be issued in connection with this offering and, on a diluted basis, 195,000 shares of restricted stock and 105,000 stock options to be issued immediately subsequent to effectiveness of this offering under our Long-Term Incentive Plan. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Pro Forma as Adjusted Earnings per Common Share” and “Compensation Discussion and Analysis — Long Term Incentive Plan.”

 

(3)   We present Adjusted EBITDA as a supplemental measure of our performance. We define Adjusted EBITDA as net income plus (i) interest expense, net, (ii) provision for income taxes and (iii) depreciation and amortization, or EBITDA, adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance, including facility closing costs, a change in selected vacation policies, suspended capital market activity and legal settlement. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

 

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Set forth below is a reconciliation of net income, the most comparable GAAP measure, to EBITDA and Adjusted EBITDA for each of the periods indicated:

 

     Year Ended December 31,

 
     2009

    2010

    2011

 
     (in thousands)  

Net income

   $ 14,929      $ 32,965      $ 35,633   

Provision for income taxes

     1,339        2,574        3,794   

Interest expense, net

     1,354        1,514        2,215   

Depreciation and amortization

     6,952        6,543        6,094   
    


 


 


EBITDA

     24,574        43,596        47,736   

Facility closing costs(a)

     2,590        (847     414   

Change in vacation policy(b)

     (1,100     —          —     
    


 


 


Adjusted EBITDA

   $ 26,064      $ 42,749      $ 48,150   
    


 


 


 

 

  (a)   Represents costs incurred as a result of our elections to close and exit selected operations, including, in subsequent years, adjustments to such costs to reflect final settlements or updated assumptions. Closing costs include facility lease costs (net of anticipated sublease revenues or similar offsets), employee severance payments, termination payments to contracted vendors, and other similar expenses. In 2008 and 2009, we closed five value-added services operations due to the unprecedented contraction in production capacity by our major automotive customers. In December 2011, seven months after launching five new freight consolidation centers in Europe to support a Tier I automotive supplier’s regional supply chain, we decided to close and exit these operations. Our decision followed lower-than-anticipated volumes and our customer’s decision to substantially alter their overall approach to freight transportation.

 

  (b)   Represents a benefit received as a result of changing the roll-over period effective for salaried employees from their anniversary date to a uniform, year-end date.

 

We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

 

Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:

 

   

Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

   

Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

 

   

Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

 

   

other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

 

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Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.

 

(4)   Includes cash dividends previously paid, and thus does not include the $27.0 million dividend payable or the related $25.0 million dividend distribution promissory note that are intended to be paid from the proceeds of this offering. Also includes state withholding taxes paid on behalf of our shareholders and treated as a distribution.

 

(5)   Pro forma balance sheet data as of December 31, 2011 are determined by giving effect to further distributions of S-corporation earnings to our current stockholders prior to the completion of our initial public offering and assumed pro forma borrowing of $2.0 million pursuant to our $40 million revolving credit facility to fund such distributions. Specifically, we paid dividend distributions aggregating to $6.0 million on January 4, 2012, January 30, 2012 and February 8, 2012. This does not include the issuance of $28.0 million of S-corporation dividend distribution promissory notes to our existing shareholders.

 

(6)   Pro forma as adjusted balance sheet data as of December 31, 2011 are determined by giving effect to (a) the issuance of 9,913,333 shares of common stock offered by us (at an assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover of this prospectus), (b) the cash payment of the $27.0 million dividend payable to CenTra, which was our sole shareholder on the record date for such dividend, (c) the payment of the related $25.0 million dividend distribution promissory note, (d) the issuance of $28.0 million of S-corporation dividend distribution promissory notes to our existing shareholders on April 23, 2012, (e) the repayment of $47.0 million of our indebtedness and (f) an estimated $3.0 million non-cash charge to record a deferred tax liability that will result from the termination of the Company’s S-corporation status. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Spin-Off from Related Party and ‘Subchapter S’ Election.”

 

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RISK FACTORS

 

The value of your investment will be subject to the significant risks inherent in our business. You should carefully consider the risks and uncertainties described below and other information included in this prospectus before purchasing our common stock. If any of the events described below occur, our business and financial results could be seriously harmed. The trading price of our common stock could decline as a result of any of these risks, and you may lose all or part of your investment.

 

Risks Relating to Our Business

 

Our revenue is highly dependent on North American automotive industry production volume, and may be negatively affected by future downturns in North American automobile production.

 

A substantial portion of our customers are concentrated in the North American automotive industry. For the fiscal year ended December 31, 2011, 79.2% of our revenue was derived from customers in the North American automotive industry. Our business and growth largely depend on continued demand for our services from customers in this industry.

 

The global economic crisis that began in 2008 resulted in delayed and reduced purchases of automobiles. According to CSM Worldwide, light vehicle production in North America during 2009 decreased by 32% and 43% as compared to 2008 and 2007, respectively. As a result of plant closings and the general downturn in North American automobile production, the revenue we derive from customers in the North American automotive industry decreased from $276.8 million for the year ended December 31, 2007, to $151.5 million for the year ended December 31, 2009, a decline of more than 45.3%. Throughout the period 2008 to 2009, we experienced significant variability in our revenues from automotive industry customers, as General Motors and Chrysler restructured through bankruptcies, and other North American manufacturers re-scaled their operations to adjust to changing market demands.

 

These unprecedented conditions negatively impacted our revenues in 2008 and 2009. Any future downturns in North American automobile production may similarly affect our revenues in future periods.

 

Any decrease in demand for outsourced services in the industries we serve could reduce our revenue and seriously harm our business.

 

Our growth strategy is partially based on the assumption that the trend towards outsourcing logistics services will continue despite potentially adverse economic trends affecting our automotive and other customers. Declines in sales volumes in the industries we serve, particularly the automotive industry, may lead to a declining demand for logistics services.

 

Production volumes in the automotive industry are sensitive to consumer demand as well as employee and labor relations. Declines in sales volumes, or the expectation of declines, for the industry or for any of our individual customers could result in production cutbacks and unplanned plant shutdowns. Likewise, potential customers may see a risk, based on labor relations issues or other factors, in relying on third-party logistics service providers or may define these activities as their own core competencies and may seek means to deploy excess labor or other resources, and hence may prefer to perform logistics operations themselves. We therefore cannot assure you that the market for logistics services will not decline or will grow as we expect.

 

Other developments may also lead to a decline in the demand for our services in our targeted industries. For example, consolidation in these industries or acquisitions, particularly involving our customers, may decrease the potential number of buyers of our services. Similarly, the relocation or expansion of automotive or other production operations in locations where we do not have an established presence, or where our competitive position is not as strong, may adversely affect our business, even if production increases worldwide, if we are not

 

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able to effectively service these industries in such locations. Any significant reduction in or the elimination of the use of the services we provide within any of these industries would result in reduced revenue and harm our business.

 

Many of our customers experience rapid changes in their prospects, substantial price competition and pressure on their profitability. Although such pressures can encourage outsourcing as a cost-reduction measure, they may also result in increasing pressure on us from our automotive and other customers to lower our prices, which could negatively affect our business, results of operations, financial condition and cash flows.

 

We rely on subcontractors or suppliers to perform their contractual obligations.

 

Some of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services we must provide to our customers. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of their work or to customer concerns about a subcontractor. Failure by our subcontractors to perform the agreed-upon services or to provide on a timely basis the agreed-upon supplies may materially and adversely impact our ability to perform our obligations. A delay in our ability to obtain components and equipment parts from our suppliers may affect our ability to meet our customers’ needs and may have an adverse effect upon our profitability.

 

We derive a significant portion of our revenue from a few major customers, and the loss of any one or more of them as customers, or a reduction in their operations, could have a material adverse effect on our business.

 

A significant portion of our revenue is generated from a limited number of major customers. Approximately 26.5%, 24.9% and 12.3% of our revenue for the fiscal year ended December 31, 2011, was attributable to affiliates of Ford, General Motors and Chrysler, respectively, who together accounted for approximately 63.7% of our revenue for such period. Our contracts with our customers generally contain cancellation clauses, and there can be no assurance that these customers will continue to utilize our services or that they will continue at the same levels. Further, there can be no assurance that these customers will not be further affected by a future downturn in automotive demand, which would result in a reduction in their operations and corresponding need for our services. Moreover, our customers may individually lose market share, apart from trends in the automotive industry generally. In recent years, General Motors, Chrysler and Ford have lost market share in the United States. If our major customers lose U.S. market share they may have less need for our services. A reduction in or termination of our services by one or more of our major customers could have a material adverse effect on our business and results of operations.

 

Customer manufacturing plant closures could have a material effect on our performance.

 

We derive a substantial portion of our revenue from the operation and management of our operating facilities, which are often located adjacent to a customer’s manufacturing plant and are directly integrated into the customer’s production line process. We may experience significant revenue loss and shut-down costs, including costs related to early termination of leases, causing our business to suffer if our customers closed their plants or significantly modified their capacity or supply chains at a plant that we service.

 

In 2008 and 2009, we discontinued and closed operations at five locations in response to our customers closing their related manufacturing plants and recorded aggregate net shut-down charges of $4.8 million as a result of those closings. In December 2011, seven months after launching five new freight consolidation centers in Europe for the European subsidiary of a Tier I automotive supplier, we discontinued and closed the centers and recorded net shut-down charges of $0.9 million as a result of these closings. Our action was the result of lower-than-anticipated volumes through our customer’s European supply chain and the subsequent decision by our customer’s European subsidiary to substantially alter their overall approach to freight transportation. Although we do not currently operate any facilities linked to other announced plant closures, there can be no assurance that we will not be impacted by any future announcements of plant closures.

 

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Competition and consolidation in the market for third-party logistics services may harm our business.

 

The third-party logistics industry is intensely competitive, and our business may suffer if we are unable to address pricing pressures and other competitive factors that may adversely affect our revenue and costs relative to our competitors. We face competition from a number of global companies, some of which have greater financial and marketing resources. In the industry sectors and regions in which we are active, we also face competition from certain niche and local logistics providers, some of which have a significant market presence in their respective sectors or regional niche markets. If we cannot successfully compete with our competitors, this could result in reduced revenue and reduced margins, both of which could have a material adverse effect on our operating cash flows and results of operations.

 

In recent years, the third-party logistics market has seen a growing market presence of larger logistics companies. Many logistics companies are attempting to expand their operations through the acquisition of contract logistics providers and other transportation service providers. We have a focused strategy in selected industry sectors and regions where we believe we have competitive advantages and therefore a defensible market position. If we cannot maintain or gain sufficient market presence or are unable to differentiate ourselves from our competitors in our selected industry sectors, or regions, or if our strategy fails to achieve its intended results, we may not be able to compete successfully against other companies with global operations or niche-market competitors.

 

Other competitive factors that could adversely impact our operations and profitability include the following:

 

   

the relative degree of leverage and cost of capital among third-party logistics suppliers can be a significant competitive factor, and any increase in either our debt or equity cost of capital as a result of increased borrowing, stock price volatility or our ability to raise capital in support of future growth or acquisitions could have a significant impact on our competitive position;

 

   

some companies hire lead logistics providers to manage their logistics operations, and these lead logistics providers may hire logistics providers on a non-neutral basis which may reduce the number of business opportunities available to us; and

 

   

many customers periodically accept bids from multiple providers for their logistics service needs, and this process may result in the loss of some of our business to competitors and in price reductions.

 

Our profitability could be negatively impacted by downward pricing pressure from certain of our customers.

 

Given the nature of our services and the competitive environment in which we operate, our largest customers exert downward pricing pressure and often require modifications to our standard commercial terms. Due to their size and market concentration, some of our customers utilize competitive bidding procedures involving bids from a number of competitors or otherwise exert pressure on our prices and margins. Likewise, such customers’ increased bargaining power could have a negative effect on the non-monetary terms of our customer contracts, for example, in relation to the allocation of risk or the terms of payment. While we believe our ongoing cost reduction initiatives have helped mitigate the effect of price reduction pressures from our customers, there is no assurance that we will be able to maintain or improve our current levels of profitability.

 

Under most of our contractual arrangements with our customers, all or a portion of our pricing is based on certain assumptions regarding the scope of services, production volumes, operational efficiencies, the mix of fixed versus variable costs, productivity and other factors. If, as a result of subsequent changes in our customers’ business needs or market forces that are outside of our control, these assumptions prove to be invalid, we could have lower margins than anticipated or our contracts could prove unprofitable. Although certain of our contracts provide for renegotiation upon a material change, there is no assurance that we will be successful in obtaining the necessary price adjustments.

 

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If our customers are able to reduce their total cost structure regarding their employees that provide internal logistics and transportation services, our business and results of operations may be harmed.

 

A major driver for our customers to use third-party logistics providers instead of their own personnel is their inherent high cost of labor. Third-party logistics service providers such as ourselves are generally able to provide such services more efficiently than otherwise could be provided “in-house” primarily as a result of our lower and more flexible employee cost structure. Historically, this has been the case in the U.S. automotive industry. If, however, the U.S. automotive industry, which has received concessions from the United Auto Worker and other unions, or any other industry we serve, is able to renegotiate the terms of its labor contracts or otherwise reduce its total cost structure regarding its employees, or if it has to make concessions as a result of pressure from the unions with which it deals, we may not be able to provide our customers with an attractive alternative for their logistics needs and our business and results of operations may be harmed.

 

We face a variety of risks relating to our material handling services.

 

For certain value-added material handling services, we lease warehouses and distribution facilities on a long-term basis. In one situation, we also assumed employment arrangements from a customer. Such actions may require substantial investments in property, plant and equipment, personnel and management capacity. If we acquire or take over existing facilities of a customer or a competing provider, we may in some jurisdictions assume by operation of law all rights and obligations arising under the existing employment relationships between our customer or the competing provider and the employees employed at such facilities. This may result in additional costs and obligations to be incurred by us, such as wages and employee benefits, which may include severance or other employment-related obligations.

 

We commit facilities, labor and equipment on the basis of projections of future demand, and our projections may prove inaccurate as a result of changes to economic conditions or a decision by our customers to terminate or not to renew their contracts with us. We generally strive to minimize these risks for our dedicated warehouses and other assets by negotiating coterminous lease agreements, which have the same duration as that of the assets deployed to service the contract. Where we take assignment of existing employment relationships, we typically seek indemnities for employee service liabilities from the previous employer. Our revenue, cash flows and results of operations may be adversely affected if we are unable to secure terms coterminous with our customer commitments or be indemnified for employee service liabilities. This could result in an impairment of assets and adversely affect our cash flow.

 

Under some of our third-party logistics agreements, we have agreed to reduce our prices over time in accordance with anticipated cost savings and efficiency improvements. If we are compelled to perform our contractual obligations on unfavorable terms (including when such anticipated cost savings and improvements are not realized) our results of operations could be adversely affected.

 

Our customers may terminate contracts before completion or choose not to renew contracts, which could adversely affect our business and reduce our revenue.

 

The terms of our customer contracts, particularly for value-added services, often range up to five years. Many of our customer contracts may be terminated by our customers with or without cause, with one to six months’ notice and in most cases without significant penalty. The termination of a substantial percentage of these contracts could adversely affect our business and reduce our revenue. Contracts representing 38.0% of our revenue from continuing business in the fiscal year ended December 31, 2011, are subject to expiration on or before December 31, 2012. Failure to meet contractual or performance requirements could result in cancellation or non-renewal of a contract. In addition, a contract termination or significant reduction in work assigned to us by a major customer could cause us to experience a higher than expected number of unassigned employees or other underutilized resources, which would reduce our operating margin until we are able to reduce or reallocate our headcount or other overcapacity. We may not be able to replace any customer that elects to terminate or not renew its contract with us, which would adversely affect our business and revenues.

 

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Our business is highly dependent on dynamic information technology.

 

The provision and application of information technology is an important competitive factor in the logistics industry. Among other things, our information systems must frequently interact with those of our customers and transportation providers. Our future success will depend on our ability to employ logistics software that meets industry standards and customer demands. Although there are redundancy systems and procedures in place, the failure of the hardware or software that supports our information technology systems could significantly disrupt client workflows and cause economic losses for which we could be held liable and which would damage our reputation.

 

We expect customers to continue to demand more sophisticated and fully integrated information technology systems from their logistics providers, which are compatible with their own information technology environment. In addition, our competitors may have or develop information technology systems that permit them to be more cost effective and otherwise better situated to meet customer demands than we are able to develop. Larger competitors may be able to develop or license information technology systems more cost effectively than we can by spreading the cost across a larger customer base, and competitors with greater financial resources may be able to develop or purchase information technology systems that we cannot afford. If we fail to meet the demands of our customers or protect against disruptions of both our and our customers’ operations, we may lose customers, which could seriously harm our business and adversely affect our operating results and operating cash flow.

 

We license a variety of software that is used in our information technology system. As a result, the success and functionality of our information technology is dependent upon our ability to continue to license the software platforms upon which it is built. There can be no assurances that we will be able to maintain these licenses or replace the functionality provided by this software on commercially reasonable terms or at all. Additionally, while we are not aware of any infringement and we believe that we have all necessary licenses to implement our system, we could be subject to claims of infringement in the future. The failure to maintain these licenses or any significant delay in the replacement of, or interference in, our use of this software or any claims of infringement, even those without merit, could have a material adverse effect on our business, financial condition and results of operations.

 

A significant labor dispute involving us or one or more of our customers, or that could otherwise affect our operations, could reduce our revenues and harm our profitability.

 

A substantial number of our employees and of the employees of our largest customers are members of industrial trade unions and are employed under the terms of collective bargaining agreements. Each of our unionized facilities has a separate agreement with the union that represents the workers at only that facility. Labor disputes involving either us or our customers could affect our operations. For example, in February 2008, in connection with their contract renegotiation with American Axle, the UAW initiated a strike that lasted 84 days, significantly impacting General Motors. If the UAW and our customers are unable to negotiate new contracts and our customers’ plants experience slowdowns or closures as a result, our revenue and profitability could be negatively impacted. A labor dispute involving another supplier to our customers that results in a slowdown or closure of our customers’ plants to which we provide services could also have a material adverse effect on our business. Significant increases in labor costs as a result of the renegotiation of collective bargaining agreements could also be harmful to our business and our profitability. As of December 31, 2011, 826 of our 1,721 employees are subject to collective bargaining agreements, including 752 which are subject to contracts that expire in 2012. Additionally, we are currently negotiating a collective bargaining agreement that would cover an additional 69 of our employees.

 

In addition, strikes, work stoppages and slowdowns by our employees may affect our ability to meet our customers’ needs, and customers may do more business with competitors if they believe that such actions may adversely affect our ability to provide service. We may face permanent loss of customers if we are unable to provide uninterrupted service. The terms of future collective bargaining agreements also may affect our competitive position and results of operations.

 

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If we are unable to enter new business industries or segments successfully, our future growth prospects could suffer.

 

Our growth strategy requires us to enter into geographic or business markets in which we have little or no prior experience. In addition to the risks inherent in entering new markets or lines of business, our success in entering such new markets or businesses may be dependent on our ability to create new and appropriate business models. There can be no assurance that we will be able to develop successful business models that can adapt to new lines of businesses in which we have little or no experience.

 

Our operations in Canada and Mexico make us vulnerable to risks associated with doing business in foreign countries.

 

As a result of our existing operations in Canada and Mexico, an increasing portion of our revenue and expenses are expected to be denominated in currencies other than U.S. dollars. International operations are subject to certain risks inherent in doing business abroad, including:

 

   

exposure to local economic and political conditions;

 

   

foreign exchange rate fluctuations and currency controls;

 

   

withholding and other taxes on remittances and other payments by subsidiaries;

 

   

investment restrictions or requirements; and

 

   

export and import restrictions.

 

Expanding our business in Canada and Mexico, and developing our business relationships with manufacturers in such jurisdictions are important elements of our strategy. As a result, our exposure to the risks described above may be greater in the future. The likelihood of such risks and their potential effect on us may vary from country to country and are unpredictable. However, any such occurrences could be harmful to our business and our profitability, thereby resulting in a decline in the value of our common stock.

 

We may not be able to execute our acquisition strategy successfully, which could cause our business and future growth prospects to suffer.

 

One component of our growth strategy is to pursue strategic acquisitions of third-party providers of logistics services, freight brokers and related transportation companies that meet our acquisition criteria. However, this is a new strategy and we have not successfully completed acquisitions in the past, and suitable acquisition candidates may not be available on terms and conditions we find acceptable. In pursuing acquisitions, we compete with other companies, many of which have greater financial resources than we do. If we are unable to secure sufficient funding for potential acquisitions, we may not be able to complete strategic acquisitions that we otherwise find desirable. Further, if we succeed in consummating strategic acquisitions, our business, financial condition and results of operations may be negatively affected because:

 

   

the acquired businesses may not achieve anticipated revenue, earnings or cash flows;

 

   

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

 

   

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

 

   

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

 

   

we may experience difficulties operating in markets in which we have had little or no direct experience;

 

   

we may lose the customers, suppliers, other commercial partners, key employees and owner-operators of the acquired company;

 

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we may finance future acquisitions by issuing common stock for some or all of the purchase price, which could dilute the ownership interests of our shareholders; or

 

   

we may incur additional debt related to future acquisitions.

 

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

 

We are highly dependent upon the services of our employees. We do not maintain key-man life insurance on any of our executive officers. The loss of the services of any of our executive officers could adversely affect our operations and future profitability. We also need to continue to develop and retain a core group of managers if we are to realize our goal of expanding our operations and continuing our growth. The market for qualified employees can be highly competitive, and we cannot assure you that we will be able to attract and retain the services of qualified executives, managers or other employees.

 

A claim in excess of our insurance limits could adversely affect our financial condition.

 

Except in certain cases in connection with specific customer requirements, we self-insure for potential auto and general liability claims in excess of $1.0 million, as well as all motor cargo liability and material handling claims. One or more significant claims, our failure to reserve adequately for such claims, and/or the cost of maintaining our insurance could adversely affect our financial condition and results of operations in the future.

 

We maintain insurance with a licensed insurance carrier related party against the first $1.0 million of liability for individual auto liability and general liability claims. Unless higher loss limits are required in connection with particular contracts, we self-insure for all amounts over $1.0 million related to auto and general liability claims. In addition, we self-insure for the risk of motor cargo liability claims from our trucking operations and material handling claims for certain of our warehouse operations. In addition, we are responsible for all of the legal expenses related to all claims, or the portion of claims, that we self-insure. We do establish financial reserves for anticipated uninsured losses and these reserves are periodically evaluated and adjusted to reflect our experience.

 

A portion of our total operating revenue is generated from truckload operations, and vehicle accidents in such business may result in property damage or significant bodily injury or wrongful death to claimants. Accordingly, we maintain, and expect to continue to maintain, financial reserves for open claims that could exceed the $1.0 million policy limits, as well as estimated liability for open motor cargo liability and material handling claims. If we experience claims that are not covered by our insurance or that exceed our insurance limits or reserves, or if we experience claims for which coverage is not provided, it would increase the volatility of our earnings and adversely affect our financial condition and results of operations.

 

A June 2006 automobile accident involving one of our subsidiaries resulted in multiple fatalities and injuries, and the filing of federal and state lawsuits. The federal lawsuits for multiple plaintiffs have been settled, and we have paid approximately $8.2 million as our share of those settlements. In the first quarter of 2011, the one remaining state court case for the one remaining plaintiff was settled. Pursuant to a December 2010 agreement between the Company and CenTra, we paid approximately $1.4 million as our share of the settlement cost, which was equal to the amount of reserve we had established for our estimated loss in this case.

 

As a result of increased premiums, we expect our insurance and claims expense to increase over historical levels even if we do not experience an increase in the number of accident claims. Insurance carriers have significantly raised premiums for many businesses, including logistics services companies. If this continues, the cost of maintaining our insurance would increase. In addition, if we decide to increase our purchased insurance limits in the future, our costs would be expected to increase.

 

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Owner-operators provide the equipment for a substantial portion of our transportation services to our customers, and reductions in the pool of available driver candidates could limit our growth.

 

A substantial portion of the transportation services that we provide as part of our logistics services are carried out by owner-operators who are generally responsible for paying for their own equipment, fuel and other operating costs. In addition, our owner-operators provide a substantial portion of the tractors used in our business. The following factors recently have combined to create a difficult operating environment for owner-operators:

 

   

high fuel prices, which are only partially offset by fuel surcharges to customers;

 

   

increases in the prices of new tractors;

 

   

a tightening of financing sources available to owner-operators for the acquisition of equipment;

 

   

increased maintenance expense due to aging equipment; and

 

   

increases in insurance costs.

 

In recent years, these factors have caused many owner-operators to join company-owned fleets or to exit the industry entirely. As a result of a smaller available pool of qualified owner-operators, the already strong competition among transportation service providers for their services has intensified. Due to the difficult operating environment and intense competition, turnover among owner-operators in the transportation industry is high. For the twelve months ended December 31, 2011, our owner-operator turnover rate was approximately 56.1%. Additionally, our agreements with our owner-operators are terminable by either party upon short notice and without penalty. Consequently, we regularly need to recruit qualified owner-operators to replace those who have left our fleet. If we are unable to retain our existing owner-operators or recruit new owner-operators, we may have to operate with fewer trucks and may have difficulty meeting customer demands, all of which would adversely affect our growth and profitability.

 

In the event that the current operating environment for owner-operators worsens, we may be required to adjust our owner-operator compensation package or, alternatively, to acquire more of our own revenue equipment and seat it with employee drivers in order to maintain or increase the size of our fleet. The adoption of either of these measures could materially and adversely affect our financial condition and results of operations. If we are required to increase the compensation of owner-operators, our results of operations would be adversely affected to the extent increased expenses are not recouped under our contracts with our customers. If we elect to purchase more of our own tractors and hire additional employee drivers, our capital expenditures would increase, we would incur additional employee benefits costs and depreciation, interest, and/or equipment rental expenses and our financial return on our assets would decline.

 

A determination by regulators that owner-operators are employees, rather than independent contractors, could expose us to various liabilities and additional costs.

 

Tax and other regulatory authorities have sometimes sought to assert that independent contractors in the transportation service industry, such as our owner-operators, are employees rather than independent contractors. There can be no assurance that these interpretations and tax laws that consider these persons independent contractors will not change or that these authorities will not successfully assert this position. If our owner-operators are determined to be our employees, that determination could materially increase our exposure under a variety of federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, as well as our potential liability for employee benefits. In addition, such changes may be applied retroactively, and if so, we may be required to pay additional amounts to compensate for prior periods. Any of the above increased costs would adversely affect our business and operating results.

 

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Difficulty in attracting and retaining drivers could affect our profitability and our ability to grow.

 

The trucking and transportation industries periodically experience difficulty in attracting and recruiting qualified drivers, including owner-operators, resulting in intense competition and increased wages for drivers. We have, from time to time, experienced under-utilization and increased expenses due to a shortage of qualified drivers and turnover of owner-operators. If we are unable to continue to attract drivers or contract with owner-operators, we could be required to increase our driver compensation package or under-utilize our vehicles, which could adversely affect our profitability and prospects for future growth.

 

Our business is subject to general economic and business factors that are largely out of our control, any of which could adversely affect our operating results.

 

Our business is dependent upon a number of general economic and business factors that may adversely affect our results of operations. Many of these are beyond our control, including fuel prices, new equipment prices and used equipment values, interest rates, taxes, tolls, license and registration fees and changes in regulatory requirements, all of which could increase our costs, particularly in the industry sectors and regions in which we operate.

 

We also are affected by recessionary economic cycles and downturns in customers’ business cycles, particularly in the industries where we have a significant concentration of customers, such as the automotive industry. Economic conditions may adversely affect our customers, their need for our services or their ability to pay for our services. Adverse changes in any of these factors could adversely affect our business and results of operations.

 

As demonstrated in 2008 and 2009, deterioration in the United States and world economies could exacerbate the difficulties experienced by our customers and suppliers in obtaining financing, which, in turn, could materially and adversely impact our business, financial condition, results of operations and cash flows.

 

Lending institutions may suffer losses due to their lending and other financial relationships, especially if the global economy weakens and borrowers become increasingly financially unstable. Longer-term disruptions in the credit markets could further adversely affect our customers by making it increasingly difficult for them to obtain financing for their businesses. In particular, our automotive industry customers, who typically have related finance companies that provide financing to their dealers and customers, depend on securitization markets that experienced severe disruptions during the global economic crisis of 2008-2009 and may face future disruptions. If capital is not available to our customers, or if its cost is prohibitively high, their businesses would be negatively impacted, which could result in their restructuring or even reorganization/liquidation under applicable bankruptcy laws. Any such negative impact, in turn, could materially and negatively affect our revenues and results.

 

Financial difficulties experienced by any major customer could have a material adverse impact on us if the customer were unable to pay for the services we provide or we experienced a loss of, or material reduction in, business from the customer. As a result of those difficulties, we could experience lost revenues, significant write-offs of accounts receivable, and significant impairment charges.

 

The profitability of our transportation services may be adversely affected by increased diesel fuel and energy prices.

 

Diesel fuel prices fluctuate greatly, and prices for diesel fuel are subject to economic, political, and other market factors beyond our control. Fuel prices increased substantially in 2011 compared with the prices prevailing in 2010, resulting in an increase of our average diesel fuel price from a weekly low of $2.71 per gallon during 2010, to a weekly high of $4.09 per gallon during 2011. We require significant quantities of diesel fuel and are exposed to the price risk associated with variations in the market price for such product. To address fluctuations in fuel prices, we seek to impose fuel surcharges on our customers and where applicable, pass a

 

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portion of these surcharges through to our owner-operators. These arrangements may not fully protect us or our owner-operators from fuel price increases. Because a significant portion of our revenue is earned from providing transportation services, an increase in diesel fuel prices (to the extent that it is not recovered from the customer through surcharges) could adversely affect our earnings.

 

Automotive industry product recalls or isolated product liability claims may negatively impact our business, financial condition, results of operations and cash flows.

 

Recalls may result in decreased production levels due to (i) the manufacturer focusing its efforts on addressing the problems underlying the recall, as opposed to generating new sales volume, and (ii) consumers’ electing not to purchase automobiles manufactured by the company initiating the recall, or by automotive companies in general, while such recalls persist. Any reductions in the production volumes of our customers could have a material adverse impact on our business, financial condition, results of operations and cash flows.

 

We provide sub-assembly services for certain of our customers in the United States and Mexico. In the ordinary course of operations, we manage charge-backs for non-conforming goods or service failure claims. To the extent that vehicle recalls or isolated product liability claims are caused by or involve components we have sub-assembled for our customers, we may be subject to risk of loss or other damage claims in connection with such sub-assembly services. We are not involved in the design, development or specification of any components. Our customers purchase all components and also specify sub-assembly processes and related equipment. We do warrant that items assembled by us will be fit and sufficient for the particular purpose intended by our customer and will, in particular, achieve specific testing, assembly and data capture criteria established by our customer for the sub-assembly process, based on detailed interim and final testing. If we do not expressly modify or exclude language appearing in the general terms and conditions attached to our major customers’ purchase orders, such losses or claims could have a material adverse impact on our business, financial condition, results of operations and cash flows.

 

Our operations are subject to environmental laws that may be costly to comply with, and the violation of such laws could result in substantial fines or penalties.

 

The nature of our business subjects us to environmental risks, including the costs of complying, or of failing to comply, with environmental laws and regulations. For example, most of our facilities are located in industrial areas that are prone to historical contamination, and some have bulk fuel storage units that pose spillage or seepage risks. We sometimes handle and transport hazardous materials for our customers and thus must comply with the laws regulating those activities. In connection with these operations, we may experience spills or releases of hazardous materials into the environment. Further, there could be historical contamination at sites for which we are liable. If we are involved in a spill or other accident, or if we are found to have violated applicable laws or regulations, we could be subject to substantial fines or penalties and to criminal and civil liability. We may have to spend significant sums to clean up releases of hazardous materials; investigate and remediate contamination caused by historical operations; and make improvements to our environmental and safety monitoring, assessment and training systems. Those expenditures could have an adverse effect on our financial position and operating cash flow. In addition, compliance with current and future environmental laws and regulations, such as those relating to carbon emissions and the effects of global warming, can be expected to have a significant impact on our transportation services and could adversely affect our business and results of operations.

 

Our business may be harmed by terrorist attacks, future war or anti-terrorism measures.

 

In the aftermath of the terrorist attacks of September 11, 2001, federal, state and municipal authorities have implemented and continue to follow various security measures, including checkpoints and travel restrictions on large trucks. Our international operations in Canada and Mexico may be affected significantly if there are any disruptions or closures of border traffic due to security measures. Such measures may have costs associated with them, which, in connection with the transportation services we provide, we or our owner-operators could be forced to bear. In addition, war or risk of war also may have an adverse effect on the economy. A decline in

 

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

 

Our business may be disrupted by natural disasters causing supply chain disruptions.

 

Natural disasters such as earthquakes, tsunamis, hurricanes, tornadoes, floods or other adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations or the operations of our customers and could damage or destroy infrastructure necessary to transport products as part of the supply chain. These events could make it difficult or impossible for us to provide logistics and transportation services; disrupt or prevent our ability to perform functions at the corporate level; and/or otherwise impede our ability to continue business operations in a continuous manner consistent with the level and extent of business activities prior to the occurrence of the unexpected event, which could adversely affect our business and results of operations.

 

We are dependent on access to transportation networks.

 

We do not maintain all of our own transportation networks, and we rely on other third-party transportation service providers for some of our logistics services. Access to competitive transportation networks is important to logistics companies such as ourselves. We cannot assure you that we will always be able to ensure access to preferred third-party networks or that these networks will continue to meet our needs and allow us to remain competitive, in particular as compared with our large competitors with their own affiliated networks. If we are unable to ensure sufficient access to the most competitive domestic and international networks on a long-term basis, this could have a material adverse effect on our business and net sales, and the related operating results and operating cash flows.

 

In addition to our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more indebtedness. Such leverage, if significant, could create substantial risks.

 

We may, either directly or through our subsidiaries, incur substantial additional indebtedness in the future. Although the agreements governing our debt instruments contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. If we incur additional debt above our current level, the risks associated with our current leverage would increase.

 

To service our indebtedness, we will require sufficient cash. Our ability to generate cash depends on many factors beyond our control.

 

Our ability to make payments on our indebtedness and to fund our operations will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

 

If we cannot service our debt, we will have to take actions such as reducing or delaying capital investments, selling assets, restructuring or refinancing our debt or seeking additional equity capital. We may not be able to affect any of these alternatives on commercially reasonable terms, or at all. The implementation of these alternatives may adversely impact our business, financial condition and operating results.

 

Risks Relating to Our Association with CenTra and Other Related Parties

 

We currently use related party entities for certain administrative functions, and our ability to operate our business may suffer if we choose to develop our own infrastructure.

 

Before December 31, 2006, we were a wholly-owned subsidiary of CenTra. We continue to rely on CenTra to provide certain tax, human resources, legal and other administrative services. Substantially all of our insurance

 

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coverage and our health and retirement employee benefit programs are also managed by a company controlled by the stockholders of CenTra. At the time of our separation from CenTra, we entered into a services agreement with CenTra, under which CenTra agreed to continue to provide these administrative services to us and our subsidiaries. See “Certain Relationships and Related Transactions — Services Agreement” for a description of these services. These services may not be provided at the same level as when we and our subsidiaries were wholly-owned subsidiaries of CenTra or when we and CenTra were under common ownership prior to this filing, and we may not be able to obtain the same benefits that we received prior to the separation or prior to this offering. Our services agreement with CenTra provides that the agreement will remain in effect until terminated by either party by giving 90 days prior notice. Although we have no current plans to terminate the agreement or substantially modify the services provided by CenTra, and are not aware of any such plans to do so by CenTra, should our agreement with CenTra terminate for any reason, we may not be able to replace these services at all or at comparable rates and on comparable terms.

 

We may be liable for certain U.S. federal and state tax obligations associated with the spin-off of our shares by CenTra.

 

On December 31, 2006, CenTra distributed all of our shares to Matthew T. Moroun and a trust controlled by Manuel J. Moroun, which distribution we refer to as the spin-off. In connection with the spin-off, we entered into a tax separation agreement with CenTra, in which we and CenTra agreed to indemnify one another for certain taxes and similar obligations that the other party could incur under certain circumstances. In general, we are responsible for our taxable periods ending on or after the date of the spin-off. If we are required to make any payments under our indemnity obligations, it could have a material impact on our financial position and results of operations.

 

Before completing the spin-off, CenTra obtained a private letter ruling from the IRS that, subject to certain customary limitations, the spin-off would qualify as a tax-free distribution for which no gain or loss will be recognized by CenTra or its stockholders for federal income tax purposes under Section 355 and related provisions of the Internal Revenue Code. Consistent with the IRS’s practices, the IRS did not review any information pertaining to, and made no determination concerning, the business purpose requirement, the non-device requirement and whether the spin-off was part of a plan pursuant to which one or more person would acquire a fifty percent or greater interest in CenTra or us (a “Section 355(e) Plan”). Generally, a taxpayer may rely on a letter ruling received from the IRS, and the IRS will not revoke or modify a letter ruling except in limited circumstances. On September 14, 2007, the IRS, CenTra and we entered into a tax closing agreement in which the IRS agreed that the spin-off qualified as a tax-free distribution to CenTra and its stockholders, generally subject only to the IRS reserving its right to assert that the spin-off was part of a Section 355(e) Plan based on the facts and circumstances at the time of an initial public offering of our stock. While the effect of the private letter ruling and the tax closing agreement are to significantly reduce the possibility that the IRS will take a contrary position in the future, we cannot assure you that the IRS will not do so or, if it does, that the IRS’s position would not be sustained. Under the tax separation agreement, CenTra is generally responsible for taxes resulting directly from the spin-off, if the spin-off does not qualify as a tax-free distribution, as well as for taxes relating to itself and its subsidiaries (other than us) for taxable periods ending on or before the date of the spin-off. If CenTra becomes liable for such tax obligations and is not able to satisfy them, under the Code, we, as a former subsidiary of CenTra at the time the tax obligation arose, may become obligated to make such payments on CenTra’s behalf. If we are required to make any payments resulting from such tax obligations, it would have a negative impact on our financial position and results of operations.

 

Any disputes that arise between us and CenTra and other related parties with respect to our past and ongoing relationships could harm our business operations.

 

Disputes may arise between CenTra or other related parties and us in a number of areas relating to our ongoing relationships. We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party. The agreements we have entered into

 

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with CenTra and other related parties may be amended upon agreement between the parties. While we are controlled by members of the Moroun family, who also control CenTra and other related parties, we may agree to amendments to these agreements that may be less favorable to us than the current terms of the agreements. For example, many of our facility leases with related parties are on a month-to-month basis, without specified future rental amounts. If such facility leases are terminated, we might not be able to replace them on comparable terms and may experience an interruption of services.

 

Some of our directors may have conflicts of interest because of their ownership of CenTra stock and positions with CenTra.

 

Matthew T. Moroun, the Chairman of our board of directors, and Manuel J. Moroun, another of our directors, own all of the outstanding stock of CenTra and are the Vice-Chairman and Chairman, and President and Chief Executive Officer, respectively, of CenTra. Ownership of CenTra stock by our directors after this offering and the presence of executive officers or directors of CenTra on our board of directors could create, or appear to create, potential conflicts of interest and other issues with respect to their fiduciary duties to us when our directors and officers are faced with decisions that could have different implications for CenTra than for us.

 

Risk Relating to S-corporation to C-corporation Conversion

 

Prior to this offering, we were treated as an S-corporation under Subchapter S of the Internal Revenue Code, and claims of taxing authorities related to our prior status as an S-corporation could harm us.

 

In connection with this offering, our S-corporation status will be terminated and we will be treated as a C-corporation under Subchapter C of the Internal Revenue Code, which is applicable to most corporations and treats the corporation as an entity that is separate and distinct from its stockholders. If the unaudited, open tax years in which we were an S-corporation are audited by the Internal Revenue Service, and we are determined not to have qualified for, or to have violated, our S-corporation status, we will be obligated to pay back taxes, interest and penalties, and we do not have the right to reclaim tax distributions we have made to our stockholders during the periods. These amounts could include taxes on all of our taxable income while we were an S-corporation. Any such claims could result in additional costs to us and could have a material adverse effect on our results of operations and financial condition.

 

Risks Relating to the Offering and Ownership of Our Common Stock

 

Our common stock has no prior trading history, and we cannot assure you that our stock price will not decline after this offering.

 

Previously, there has not been any public market for our common stock, and an active public market for our common stock may not develop or be sustained after this offering. The initial public offering price for the shares will be determined by negotiations with us and the representative of the underwriters and may not be indicative of the prices that will prevail in the trading market. The market price of our common stock could fluctuate significantly, in which case you may not be able to resell your shares at or above the initial public offering price. Fluctuations may occur in response to the risk factors listed in this prospectus and for many other reasons, including:

 

   

our financial performance or the performance of our competitors and similar companies;

 

   

the public’s reaction to our press releases, other public announcements and filings with the Securities and Exchange Commission (SEC);

 

   

changes in estimates of our performance or recommendations by securities analysts;

 

   

failure to meet financial projections for each fiscal quarter;

 

   

the impact of new federal or state regulations;

 

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changes in accounting standards, policies, guidance, interpretations or principles;

 

   

the introduction of new services by us or our competitors;

 

   

the arrival or departure of key personnel;

 

   

acquisitions, strategic alliances or joint ventures involving us or our competitors;

 

   

technological innovations or other trends in our industry;

 

   

news affecting our customers, including Ford, General Motors and Chrysler;

 

   

regulatory or labor conditions applicable to us, our industry or the industries we serve;

 

   

market conditions in our industry, the industries we serve, the financial markets and the economy as a whole;

 

   

changes in our capital structure; and

 

   

sales of our common stock by us, our controlling shareholders or members of our management team.

 

In addition, the stock market historically has experienced significant price and volume fluctuations. These fluctuations are often unrelated to the operating performance of a particular company. These broad market fluctuations may cause declines in the market price of our common stock. When the market price of a company’s common stock drops significantly, shareholders often institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs, including settlement costs or awards for legal damages, and could divert the time and attention of our management and other resources.

 

Because Matthew T. Moroun and Manuel J. Moroun will continue to hold a controlling interest in us, the influence of our public shareholders over significant corporate actions will be limited and you may be unable to realize a gain on your investment in our shares of common stock.

 

After this offering, it is expected that Matthew T. Moroun, the Chairman of our board of directors, and trusts controlled by Manuel J. Moroun and Matthew T. Moroun, will together own approximately 63.0% of our outstanding common stock or 57.5% of our outstanding common stock if the underwriters exercise their option to purchase additional shares from us in full. Because of the Morouns’ level of ownership, we have elected to be treated as a controlled company in accordance with the rules of the NASDAQ Stock Market. Accordingly, we are not required to comply with NASDAQ Stock Market rules which would otherwise require a majority of our board to be comprised of independent directors and require our board to have a compensation committee and a nominating and corporate governance committee comprised of independent directors. As a result, after this offering the Moroun family will continue to have the power to:

 

   

control all matters submitted to our shareholders;

 

   

elect our directors;

 

   

adopt, extend or remove any anti-takeover provisions that are available to us; and

 

   

exercise control over our business, policies and affairs.

 

This concentration of ownership could limit the price that some investors might be willing to pay in the future for shares of our common stock, and our ability to engage in significant transactions, such as a merger, acquisition or liquidation, will require the consent of the Moroun family. Conflicts of interest could arise between us and the Moroun family, and any conflict of interest may be resolved in a manner that does not favor us.

 

The Moroun family may continue to retain control of us for the foreseeable future and may decide not to enter into a transaction in which you would receive consideration for your common shares that is much higher than the cost to you or the then-current market price of those shares. In addition, the Moroun family could elect to sell a controlling interest in us to a third-party and you may not be able to participate in such transaction or, if

 

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you are able to participate in such a transaction, you may receive less than the then current fair market value or the price you paid for your shares. Any decision regarding their ownership of us that the Moroun family may make at some future time will be in their absolute discretion.

 

Additional sales of our common shares by the Moroun family, or issuances by us in connection with future acquisitions or otherwise, or the exercise of outstanding stock options could cause the price of our common stock to decline or may dilute your ownership in us.

 

If the Moroun family sells a substantial number of shares of our common stock in the future, the market price of our common stock could decline. A perception among investors that these sales may occur could produce the same effect. After this offering, the Moroun family will have rights, subject to specified conditions, to require us to include shares of common stock owned by them in registration statements that we may file. By exercising their registration rights and selling a large number of shares of common stock, the Moroun family could cause the price of our common stock to decline. Furthermore, if we were to include shares of common stock held by the Moroun family in a registration statement initiated by us, those additional shares could impair our ability to raise needed capital by depressing the price at which we could sell our common stock. See “Shares Eligible for Future Sale” for a more detailed description of the common shares that will be available for future sales upon completion of this offering.

 

One component of our business strategy is to make acquisitions. In the event of any future acquisitions, we could issue additional shares of common stock, which would have the effect of diluting your percentage ownership of our common stock and could cause the price of our common stock to decline.

 

Our articles of incorporation and bylaws will have, and under Michigan law are subject to, provisions that could delay, deter or prevent a change of control.

 

Our articles of incorporation and bylaws will contain provisions that might enable our management to resist a proposed takeover of our company. These provisions could discourage, delay or prevent a change of control of our company or an acquisition of our company at a price that our shareholders may find attractive. These provisions also may discourage proxy contests and make it more difficult for our shareholders to elect directors and take other corporate actions. The existence of these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:

 

   

a requirement that special meetings of our shareholders may be called only by our board of directors, the Chairman of our board of directors, our President or the holders of a majority of our outstanding common stock;

 

   

advance notice requirements for shareholder proposals and nominations; and

 

   

the authority of our board to issue, without shareholder approval, preferred stock with such terms as the board may determine, including in connection with our implementation of any shareholders rights plan, or “poison pill.”

 

In addition, certain provisions of Michigan law that apply to us could discourage, delay or prevent a change of control or acquisition of our company.

 

For additional information regarding these provisions, you should read the information under the heading “Description of Capital Stock.”

 

You will suffer immediate and substantial dilution because the net tangible book value of stock purchased in the offering will be substantially lower than the initial public offering price.

 

The net tangible book value per share of our common stock, adjusted to reflect the net proceeds we receive from this offering, will be substantially below the initial public offering price. You will therefore incur immediate and substantial dilution of $13.79 per share at an initial public offering price of $15.00 per share. In

 

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addition, immediately subsequent to effectiveness of this offering, we will grant options to acquire shares of our common stock and shares of restricted stock, which will result in further dilution. As a result, if we are liquidated, you may not receive the full amount of your investment. See “Dilution.”

 

We have broad discretion in how we use a significant portion of our net proceeds from this offering, and we may not use these proceeds in a manner desired by our public shareholders.

 

Of our net proceeds from this offering, $82.0 million will be used to repay our $30 million senior secured term loan, to pay an outstanding $27.0 million cash dividend payable to CenTra, our sole shareholder on December 29, 2006, the record date for that dividend, and to pay a related $25.0 million dividend distribution promissory note that was initially issued to CenTra, plus accrued but unpaid interest on the promissory note. We also intend to use a portion of our net proceeds to pay off the outstanding balance and to terminate our Fifth Third Bank Equipment Financing Facility. As of December 31, 2011, indebtedness in connection with this facility was $3.0 million. We also intend to use a portion of our net proceeds to pay off the outstanding balance on our $40 million revolving credit facility, which we obtained in combination with the senior secured term loan and a $25 million equipment credit facility pursuant to a Revolving Credit and Term Loan Agreement executed on April 21, 2011. As of December 31, 2011, indebtedness in connection with the revolving credit facility was $14.0 million. We may also use additional net proceeds to pay down the outstanding balance on our $25 million equipment credit facility, which was $11.1 million as of December 31, 2011. The balance of our net proceeds will be used for working capital and general corporate purposes, which might include strategic acquisitions that complement our business model. We do not currently have a specific plan with respect to the use of the balance of our net proceeds from this offering, and we have not committed these proceeds to any particular purpose. Accordingly, our management will have broad discretion with respect to the use of this portion of our net proceeds and investors will be relying on the judgment of our management regarding the application of these proceeds. Our management could spend these proceeds in ways which our public shareholders may not desire or that do not yield a favorable return. You will not have the opportunity, as part of your investment in our common stock, to influence the manner in which this portion of our net proceeds of the offering are used. We plan to use these proceeds for working capital and other general corporate purposes, and may also elect to pay down balances on our revolving credit facilities. We also may use a portion of these proceeds to acquire complementary businesses, as acquisitions are an integral part of our strategic growth plans. Any investment may not yield a favorable return. Our financial performance may differ from our current expectations or our business needs may change as our business evolves. As a result, a substantial portion of the proceeds we receive in the offering may be used in a manner significantly different from our current expectations.

 

Our common stock may have a low trading volume and limited liquidity, resulting from a lack of analyst coverage and institutional interest.

 

We are a relatively small company. Our common stock may receive limited attention from market analysts. Lack of up-to-date analyst coverage may make it difficult for potential investors to fully understand our operations and business fundamentals, which may limit our trading volume. Such limited liquidity may impede the development of institutional interest in our common stock, and could limit the value of our common stock. Additionally, low trading volumes and lack of analyst coverage may limit your ability to resell your shares at or above the initial public offering price.

 

Our ability to pay regular dividends on our common stock is subject to the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, capital requirements, any covenants included in our credit facilities any legal or contractual restrictions on the payment of dividends and other factors the board of directors deem relevant.

 

Following completion of this offering, we intend to declare cash dividends on our common stock as described in “Dividend Policy.” However, the payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, on our financial condition, results of operations, capital

 

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requirements, any covenants included in our credit facilities any legal or contractual restrictions on the payment of dividends and other factors the board of directors deem relevant. As a consequence of these limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our common stock. Accordingly, you may have to sell some or all of your common stock after price appreciation in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell your common stock and you may lose the entire amount of the investment. Additionally, any change in the level of our dividends or the suspension of the payment thereof could adversely affect the market price of our common stock.

 

As a public company, we will be required to meet periodic reporting requirements under SEC rules and regulations. Complying with federal securities laws as a public company is expensive and we will incur significant time and expense enhancing, documenting, testing and certifying our internal control over financial reporting.

 

SEC rules require that, as a publicly-traded company following completion of this offering, we file periodic reports containing our financial statements within a specified time following the completion of quarterly and annual periods. Prior to this offering, we have not been required to comply with SEC requirements to have our financial statements completed and reviewed or audited within a specified time and, as such, we may experience difficulty in meeting the SEC’s reporting requirements. Any failure by us to file our periodic reports with the SEC in a timely manner could harm our reputation and reduce the trading price of our common stock.

 

As a public company we will incur significant legal, accounting, insurance and other expenses. The Sarbanes-Oxley Act of 2002, as well as compliance with other SEC and NASDAQ Stock Market rules, will increase our legal and financial compliance costs and make some activities more time-consuming and costly. We cannot predict or estimate with precision the amount of additional costs we may incur or the timing of such costs.

 

Furthermore, after we become a public company, SEC rules require that our chief executive officer and chief financial officer periodically certify the existence and effectiveness of our internal control over financial reporting.

 

Currently, we are an emerging growth company, and, therefore, do not have to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for up to five years, and the earliest possible date we may have to comply is December 31, 2013. Beginning with our Annual Report on Form 10-K for our fiscal year ending December 31, 2013, if we are no longer considered an emerging growth company, our independent registered public accounting firm will be required to comply with these Section 404 requirements. This process generally requires significant documentation of policies, procedures and systems, review of that documentation by our internal accounting staff and our outside auditors and testing of our internal control over financial reporting by our internal accounting staff and our outside independent registered public accounting firm. Documentation and testing of our internal controls will involve considerable time and expense, may strain our internal resources and have an adverse impact on our operating costs. For example, in anticipation of becoming a public company, we expect to hire an external reporting manager and we have adopted policies regarding internal controls over financial reporting. We also expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, which we will obtain before the completion of this offering, and we may be required to accept lower policy limits and coverage or incur substantially higher costs to obtain the desired coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

 

Any deficiencies in our financial reporting or internal controls could adversely affect our business and the trading price of our common stock.

 

As a public company, we may, during the course of our testing of our internal control over financial reporting, identify deficiencies that we would have to rectify to satisfy the SEC rules for certification of our internal control over financial reporting. As a consequence, we may have to disclose in periodic reports we file

 

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with the SEC significant deficiencies or material weaknesses in our system of internal controls. The existence of a material weakness would preclude management from concluding that our internal control over financial reporting is effective, and would preclude our independent auditors from issuing an unqualified opinion that our internal control over financial reporting is effective. In addition, disclosures of this type in our SEC reports could cause investors to lose confidence in our financial reporting and may negatively affect the trading price of our common stock. Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our disclosure controls and procedures or internal control over financial reporting they may negatively impact our business, results of operations and reputation.

 

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FORWARD-LOOKING STATEMENTS

 

Some of the statements and assumptions in “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus are forward-looking statements. These statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those in the forward-looking statements. In some cases you can identify forward-looking statements by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “plan,” “intend,” “may,” “should,” “will” and “would” or other similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other “forward-looking” information.

 

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The factors listed in the section captioned “Risk Factors,” as well as any other cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this prospectus could have an adverse effect on our business, results of operations and financial position.

 

Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.

 

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USE OF PROCEEDS

 

We estimate that our net proceeds from this offering, after deducting underwriting discounts and commissions and estimated expenses will be approximately $138.4 million, assuming an initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover of this prospectus.

 

We intend to use $82.0 million of our net proceeds to repay our $30 million senior secured term loan, to pay an outstanding $27.0 million cash dividend payable to CenTra, our sole shareholder on December 29, 2006, the record date for that dividend, and to pay a related $25.0 million dividend distribution promissory note that was initially issued to CenTra, plus accrued but unpaid interest on the promissory note. The interest rate on the promissory note, which matures on December 31, 2013, is 1.64%; the note is currently held by DIBC Investments, Inc. We also intend to use a portion of our net proceeds to repay the outstanding balance and to terminate our Fifth Third Bank Equipment Financing Facility. As of December 31, 2011, indebtedness in connection with this facility was $3.0 million. We also intend to use a portion of our net proceeds to repay the outstanding balance on our $40 million revolving credit facility, which we obtained in combination with the senior secured term loan and a $25 million equipment credit facility pursuant to a Revolving Credit and Term Loan Agreement executed on April 21, 2011. As of December 31, 2011, indebtedness in connection with the revolving credit facility was $14.0 million. We may also use additional net proceeds to pay down the outstanding balance on our $25 million equipment credit facility, which was $11.1 million as of December 31, 2011. The proceeds of the revolving credit facility, the senior secured term loan and the equipment credit facility, all originated on April 21, 2011, were used to refinance existing indebtedness and to make a $31 million payment on the dividend payable. The balance of our net proceeds will be used for working capital and general corporate purposes, which might include strategic acquisitions that complement our business model. However, we currently have no specific acquisition plans. We will not receive any of the proceeds from the sale of the shares to be offered by the selling shareholder.

 

A $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover of this prospectus, would increase or decrease the net proceeds to us from this offering by approximately $9.3 million, assuming the number of shares offered by us, as shown on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We will have significant discretion in the use of the portion of the net proceeds we receive from this offering that will not be used to pay the dividend payable or the other indebtedness described above. Investors will be relying on the judgment of our management regarding the application of these net proceeds. In addition, any investments, capital expenditures, cash acquisitions or other application of these proceeds may not produce the anticipated results.

 

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DIVIDEND POLICY

 

Following this offering, we intend to pay quarterly cash dividends. We expect that our first dividend will be paid in the fourth quarter of 2012 and will be $0.038 per share of our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, any covenants included in our credit facilities, any legal or contractual restrictions on the payment of dividends and other factors the board of directors deems relevant.

 

On December 29, 2006, our board of directors declared a $93.0 million special cash dividend payable to CenTra, Inc., our sole shareholder at the time. The special dividend was approved in anticipation of the spin-off of LINC that was completed on December 31, 2006. Subsequently, on December 31, 2008, we reduced our dividend payable to $68.0 million by issuing a $25.0 million dividend distribution promissory note initially issued to CenTra. The $68.0 million dividend payable was further reduced by $10.0 million on December 22, 2010 after a payment made to CenTra, resulting in a balance of $58.0 million as of December 31, 2010. In connection with our April 21, 2011 refinancing, the dividend payable was further reduced by $31.0 million. The note currently bears interest at a fixed rate of 1.64% per annum and is due on December 31, 2013. Payment of the $27.0 million dividend payable is also due on or before December 31, 2013. We intend to pay both the $27.0 million dividend payable and the $25.0 million dividend distribution promissory note immediately following this offering with a portion of our net proceeds.

 

On December 31, 2006, CenTra distributed all of our shares to Matthew T. Moroun and a trust controlled by Manuel J. Moroun. We later made an election to be treated as an S-corporation within the meaning of Section 1361 of the Internal Revenue Code for U.S. federal income tax purposes, effective December 31, 2006. As a result of that election, our shareholders are taxed directly for our taxable income. No dividends were paid in 2009. During 2010, we paid six cash dividends aggregating $21.2 million to Matthew T. Moroun and a trust controlled by Manuel J. Moroun, our shareholders on the record dates for those dividends. During 2011 we paid six cash dividends aggregating $22.5 million to our owners. In addition to these dividend payments, we directly paid state withholding taxes of approximately $71,000; $116,000 and $290,000 in 2009, 2010 and 2011 respectively, on behalf of our shareholders. On January 4, 2012, January 30, 2012 and February 8, 2012, we declared and paid additional dividends totaling $6.0 million.

 

Before completing this offering, we intend to terminate our S-corporation status. Accordingly, we have paid to shareholders, Matthew T. Moroun and a trust controlled by Manuel J. Moroun, and expect to continue to pay dividends to our shareholders, Matthew T. Moroun and trusts controlled by Manuel J. Moroun and Matthew T. Moroun, equal to our taxable income for the period from January 1, 2012 to the termination date of our S-corporation status, plus taxable income for any prior years that has not previously been distributed. On April 23, 2012 we distributed an additional $28.0 million to our shareholders resulting from termination of our S-corporation status. This final distribution was in the form of a promissory note to each of our current shareholders and was equal to our estimated taxable income for periods prior to the termination date of our S-corporation status, less any dividends previously distributed. The promissory notes will be satisfied by payment of the lesser of its principal amount or the final determination of the applicable taxable income within 90 days after completion of this offering.

 

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CAPITALIZATION

 

The following table sets forth our cash and capitalization as of December 31, 2011:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect certain events occurring after December 31, 2011; and

 

   

on a pro forma as-adjusted basis to reflect: (1) the issuance and sale of 9,913,333 shares of common stock by us in this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover of this prospectus, and our receipt of the net proceeds from this offering after deducting estimated underwriting discounts and estimated expenses payable by us, (2) the 20,753.334-for-1 split of our shares of common stock, (3) the repayment of our $30.0 million senior secured term loan, (4) payment of a $27.0 million cash dividend payable and a related $25.0 million dividend distribution promissory note initially issued to CenTra, which was our sole shareholder on the record date for that dividend, (5) the repayment of our Fifth Third Bank Equipment Financing Facility, which totaled $3.0 million as of December 31, 2011, (6) the payment out of our net proceeds from this offering of outstanding revolving credit facility advances, which totaled $14.0 million at December 31, 2011, and (7) the execution of promissory notes to each of our current shareholders proportional to their ownership for an aggregate of $28.0 million.

 

You should read this table together with the sections of this prospectus entitled “Selected Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes.

 

     As of December 31, 2011

 
     Actual

    Pro
Forma(1)


    Pro Forma
as Adjusted(2)(3)(4)


 
     (in thousands)  

Cash

   $ 4,633      $ 633      $ 39,432   
    


 


 


Total debt:

                        

Fifth Third Bank equipment financing facility

     2,979        2,979        —     

Syndicated revolving credit facility

     14,000        16,000        —     

Syndicated equipment credit facility

     11,082        11,082        11,082   

Syndicated term loan

     30,000        30,000        —     

Dividend distribution promissory note

     25,000        25,000        —     

S-corporation dividend distribution promissory notes

     —          —          28,000   
    


 


 


Total debt

     83,061        85,061        39,082   

Dividend payable

     27,000        27,000        —     

Shareholders’ equity:

                        

Common stock, no par value per share; 50,000 shares authorized;

                        

1,000 issued and outstanding, actual and pro forma; and 50,000,000 shares authorized, 30,666,667 shares issued and outstanding, as adjusted

                        

Additional paid-in capital

                   $ 37,557   

Accumulated deficit

     (66,819     (72,819     —     

Accumulated other comprehensive income

     (446     (446     (446
    


 


 


Total shareholders’ equity (deficit)

     (67,265     (73,265     37,111   
    


 


 


Total capitalization

   $ 42,796      $ 38,796      $ 76,193   
    


 


 



(1)  

Pro forma balance sheet data as of December 31, 2011 are determined by giving effect to further distributions of S-corporation earnings to our current stockholders prior to the completion of our initial public offering and assumed pro forma borrowing of $2.0 million pursuant to our $40 million revolving

 

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credit facility to fund such distributions. Specifically, we paid dividend distributions totaling $6.0 million on January 4, 2012, January 30, 2012 and February 8, 2012.

 

(2)   A $1.00 increase or decrease in the assumed initial public offering price of $15.00, the midpoint of the range set forth on the front cover of this prospectus, would increase or decrease as-adjusted cash, total shareholders’ equity (deficit) and total capitalization by $9.3 million, assuming the number of shares offered by us, as shown on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and estimated net offering expenses payable by us. The as-adjusted information discussed above is illustrative only and will vary based on the actual initial public offering price and other terms of this offering.

 

(3)   Does not reflect our March 14, 2012 loan to DIBC Holdings, Inc. totaling $5.0 million or its subsequent, required repayment upon completion of our initial public offering.

 

(4)   On April 23, 2012, the Company issued to its shareholders, Matthew T. Moroun and a trust controlled by Manuel J. Moroun, promissory notes for an aggregate amount of $28.0 million. The purpose of these promissory notes is to distribute the estimated taxable income for the Company’s S-corporation periods prior to the termination date of the Company’s S-corporation status, less any dividends previously distributed. The notes bear an interest rate of 1.64% per annum until the date of maturity or default and thereafter at the maximum rate allowable under Michigan law. All principal and interest are due 10 days after the final amount of the Company’s Accumulated Adjustments Account (AAA) is determined. This final determination must occur within 90 days after the date of termination of the Company’s S-corporation status. If the Company does not revoke its S-corporation status on or before August 31, 2012, these notes shall be void. The principal due under each of these promissory notes is subject to adjustment based on the final determination of the AAA amount. Issuance of the $28 million S-corporation distribution promissory notes is reflected as a reduction of shareholder’s equity.

 

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DILUTION

 

If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after the completion of the offering.

 

Our pro forma as adjusted net tangible book value as of December 31, 2011 was approximately ($101.3) million, or $(4.88) per share. Pro forma as adjusted net tangible book value per share represents total book value of the Company’s tangible assets at December 31, 2011, less the effects of (i) an aggregate of $6.0 million of further cash distributions since December 31, 2011 made to the Company’s current shareholders prior to the completion of the initial public offering, (ii) assumed pro forma borrowing of $2.0 million since December 31, 2011 and (iii) in connection with this offering, issuance to our current shareholders of an aggregate of $28.0 million of accumulated adjustments account distribution promissory notes and termination of our S-corporation status, less total liabilities at December 31, 2011, divided by the pro forma outstanding number of shares of common stock at December 31, 2011 after giving effect to the 20,753.334-to-1 stock split. After giving effect to grants of 39,000 immediately vested shares of restricted stock under our Long-Term Incentive Plan, the sale of 9,913,333 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover of this prospectus, and after deducting the estimated underwriting discounts and estimated offering expenses that we expect to pay, our pro forma as adjusted net tangible book value as of December 31, 2011, would have been $37.1 million, or $1.21 per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of approximately $6.09 to our existing shareholders and immediate dilution in net tangible book value per share of $13.79 to new investors who purchase shares in this offering. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per common share

          $ 15.00   

Pro forma as adjusted net tangible book value per common share as of December 31, 2011

  $ (4.88        

Increase per common share attributable to new investors

    6.09           
   


       

Pro forma as adjusted net tangible book value per common share after this offering

            1.21   
           


Dilution per common share to purchasers of common shares in this offering

          $ 13.79   
           


 

A $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover of this prospectus, would increase or decrease pro forma net tangible book value after this offering by $9.32 million and dilution per share to new investors by $0.30, assuming the number of shares offered by us, as shown on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and estimated offering expenses that we expect to pay.

 

The following table summarizes, on the pro forma basis described above, as of December 31, 2011, and assuming a public offering price of $15.00 per share, the difference between our existing shareholders and new investors with respect to the number of shares of common stock issued by us, the total consideration paid to us and the average price per share paid.

 

     Shares Purchased

    Total Consideration

    Average Price
Per Share

 
     Number

    Percent

    Amount

       Percent

   
    

(in thousands)

         

(in thousands)

                

Existing shareholders and LTIP participants

     19,372 (1)      63.1        —             —             

New investors

     11,333        36.9      $ 169,995           100.0    $ 15.00   
    


 


 


    


       

Total

     30,705        100.0   $ 169,995           100.0         
    


 


 


    


       

(1)   

Includes 39,000 shares of restricted stock to be issued immediately subsequent to effectiveness of the offering pursuant to the Long-Term Incentive Plan and that will be vested upon issuance.

 

A $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover of this prospectus, would increase or decrease total consideration paid by new investors and total consideration paid by all shareholders by $11.3 million, assuming the number of shares offered by us, as shown on the cover of this prospectus, remains the same.

 

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Sales by the selling shareholder in this offering will cause the number of shares held by existing shareholders to be reduced to 19,333,334 shares, or 63.0% of the total number of shares of our common stock outstanding after this offering or 17,633,334 shares, or 57.5% of the total number of shares of our common stock outstanding after this offering if the underwriters exercise their over-allotment option in full.

 

Except as otherwise indicated, the number of shares shown to be outstanding after this offering is based on 20,753,334 shares outstanding as of December 31, 2011, and includes 39,000 shares of restricted common stock to be issued immediately subsequent to effectiveness of this offering pursuant to the Long-Term Incentive Plan and that will be vested upon issuance, and excludes the following:

 

   

156,000 shares of restricted common stock to be issued immediately subsequent to effectiveness of this offering pursuant to the Long-Term Incentive Plan and that will vest at a later date;

 

   

105,000 shares of common stock issuable upon exercise of options to be granted immediately subsequent to effectiveness of this offering pursuant to the Long-Term Incentive Plan, at an exercise price equal to the initial public offering price; and

 

   

200,000 additional shares of common stock available for issuance under the Long-Term Incentive Plan.

 

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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

 

LINC Logistics Company was incorporated on March 11, 2002 for the purpose of holding all the shares of our operating subsidiaries. Prior to December 31, 2006, we conducted our operations through a group of transportation-related companies, all of which were owned by CenTra, a private company wholly-owned by Matthew T. Moroun and a trust controlled by Manuel J. Moroun. On December 31, 2006, CenTra completed a corporate reorganization through which certain operating subsidiaries became wholly-owned subsidiaries of LINC. Additionally, on December 31, 2006, CenTra distributed all of our shares held by it to its stockholders, Matthew T. Moroun and a trust controlled by Manuel J. Moroun.

 

The following table sets forth our selected consolidated financial and operating data as of and for the periods presented, as well as certain pro forma information that reflects our anticipated conversion from an S-corporation to a C-corporation in connection with this offering. Our fiscal year ends on December 31 of each year. Our first, second and third fiscal quarters end on the thirteenth, twenty-sixth and thirty-ninth Saturday, respectively, of each year. The selected historical financial information at December 31, 2010 and 2011 and for the three-year period ended December 31, 2011 have been derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The selected historical financial information at December 31, 2007, 2008 and 2009 and for the two years in the period ended December 31, 2008 have been derived from our audited consolidated financial statements not included in this prospectus. The selected historical financial and operating data presented below should be read in conjunction with the information included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. The following financial and operating data may not be indicative of our future performance and does not reflect what our financial position and results of operations would have been if we had operated as a single stand-alone entity during all of the periods presented.

 

    Year Ended December 31,

 
    2007

    2008

    2009

    2010

    2011

 
                               
    (in thousands, except share and per share amounts)  

Statements of Income Data:

                                       

Revenue

  $ 299,195      $ 247,815      $ 177,938      $ 245,785      $ 290,929   

Operating expenses:

                                       

Personnel and related benefits

    130,561        107,189        72,625        94,701        116,164   

Purchased transportation and equipment rent

    47,032        36,421        26,626        49,986        53,200   

Occupancy expense

    21,164        25,619        19,897        13,745        16,145   

Operating expenses (exclusive of items shown separately)

    44,372        44,314        26,364        33,684        47,152   

Depreciation and amortization

    6,664        7,432        6,952        6,543        6,094   

Selling, general and administrative expense

    11,913        12,438        7,852        10,073        10,532   
   


 


 


 


 


Total operating expenses

    261,706        233,413        160,316        208,732        249,287   
   


 


 


 


 


Operating income

    37,489        14,402        17,622        37,053        41,642   

Other income (expense):

                                       

Interest expense

    (3,426     (2,443     (1,470     (1,578     (2,218

Interest income

    12        372        116        64        3   
   


 


 


 


 


Total other income (expense)

    (3,414     (2,071     (1,354     (1,514     (2,215
   


 


 


 


 


Income before provision for income taxes

    34,075        12,331        16,268        35,539        39,427   

Provision for income taxes

    1,361        1,412        1,339        2,574        3,794   
   


 


 


 


 


Net income

  $ 32,714      $ 10,919      $ 14,929      $ 32,965      $ 35,633   
   


 


 


 


 


Earnings per share, basic and diluted

  $ 1.58      $ 0.53      $ 0.72      $ 1.59      $ 1.72   

Weighted average shares outstanding

    20,753,334        20,753,334        20,753,334        20,753,334        20,753,334   

 

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    Year Ended December 31,

 
    2007

    2008

    2009

    2010

    2011

 
    (in thousands, except share and per share
amounts)
 

Pro Forma Data (unaudited):

                                       

Income before provision for income taxes

  $ 34,075      $ 12,331      $ 16,268      $ 35,539      $ 39,427   

Pro forma provision for income taxes(1)

    13,230        4,407        6,257        13,611        15,810   
   


 


 


 


 


Pro forma net income

  $ 20,845      $ 7,924      $ 10,011      $ 21,928      $ 23,617   
   


 


 


 


 


Pro forma earnings per share basic and diluted

  $ 1.00      $ 0.38      $ 0.48      $ 1.06      $ 1.14   

Balance Sheet Data (at end of period):

                                       

Cash and cash equivalents

  $ 422      $ 4,517      $ 1,203      $ 3,512      $ 4,633   

Total assets

    97,086        80,470        70,757        68,798        74,663   

Total debt

    68,381        85,861        66,240        63,454        83,061   

Other Data:

                                       

Adjusted EBITDA(2)

  $ 45,953      $ 30,194      $ 26,064      $ 42,749      $ 48,150   

Cash flow from operations

  $ 42,992      $ 19,145      $ 16,892      $ 34,387      $ 44,537   

Capital expenditures

  $ 11,110      $ 2,726      $ 1,655      $ 2,661      $ 8,559   

Cash dividends paid(3)

  $ 68,006      $ 5,690      $ 71      $ 21,316      $ 22,790   

Employees at end of period

    2,776        1,904        1,504        1,528        1,721   

Facilities managed at end of period

    26        24        27        29        37   

(1)   Since January 1, 2007, we have been treated as an S-corporation for U.S. federal income tax purposes. For the year ended 2006, we were treated as a C-corporation for income tax purposes. As a result of our S-corporation status, our income since January 1, 2007 has not been subject to U.S. federal income taxes or state income taxes in those states where S-corporation status is recognized. In general, the corporate income or loss of an S-corporation is allocated to its stockholders for inclusion in their personal federal income tax returns and state income tax returns in those states where S-corporation status is recognized. The provision for income taxes in 2007, 2008, 2009, 2010 and 2011 reflects the amount of entity-level income taxes in those jurisdictions where S-corporation status is not recognized. For the year ended December 31, 2007, as a result of our S-corporation election, our provision for income taxes includes the realization of a U.S. deferred tax expense of $2.5 million resulting from the elimination of a U.S. net deferred tax asset. In connection with this offering, our S-corporation status will be terminated and we will become subject to additional entity-level income taxes that will be reflected in our financial statements. Also, we will reestablish deferred tax accounts eliminated in 2007. As of December 31, 2011, such action, which has been contemplated in the pro forma provision for each of the periods presented, would have resulted in an estimated $3.0 million increase in our provision for income taxes. Pro forma provision for income taxes reflects combined federal, state and local income taxes, as if we had been treated as a C-corporation, using blended statutory federal, state and local income tax rates of 38.8%, 35.7%, 38.5%, 38.3% and 40.1% in 2007, 2008, 2009, 2010 and 2011, respectively. These tax rates reflect the sum of the federal statutory rate and a blended state rate based on our calculation of income apportioned to each state for each period.

 

(2)   See “Summary—Summary Consolidated Financial and Operating Data” for the definition of Adjusted EBITDA, why we present it and material limitations on its usefulness. The table below sets forth a reconciliation of net income to Adjusted EBITDA.

 

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     Year Ended December 31,

 
     2007

     2008

     2009

    2010

    2011

 
                                  

Net income

   $ 32,714       $ 10,919       $ 14,929      $ 32,965      $ 35,633   

Provision for income taxes

     1,361         1,412         1,339        2,574        3,794   

Interest expense, net

     3,414         2,071         1,354        1,514        2,215   

Depreciation and amortization

     6,664         7,432         6,952        6,543        6,094   
    


  


  


 


 


EBITDA

     44,153         21,834         24,574        43,596        47,736   

Facility closing costs(a)

     —          3,023        2,590        (847     414   

Change in vacation policy(b)

     —          —          (1,100 )     —          —    

Suspended capital market activity(c)

     —          575        —          —         —    

Legal settlement(d)

     1,800         4,762         —          —         —    
    


  


  


 


 


Adjusted EBITDA

   $ 45,953       $ 30,194       $ 26,064      $ 42,749      $ 48,150   
    


  


  


 


 



  (a)   Represents costs incurred as a result of our elections to close and exit selected operations, including, in subsequent years, adjustments to such costs to reflect final settlements or updated assumptions. Closing costs include facility lease costs (net of anticipated sublease revenues or similar offsets), employee severance payments, termination payments to contracted vendors, and other similar expenses. In 2008 and 2009, we closed five value-added services operations due to the unprecedented contraction in production capacity by our major automotive customers. In December 2011, seven months after launching five new freight consolidation centers in Europe to support a Tier I automotive supplier’s regional supply chain, we decided to close and exit these operations. Our decision followed lower-than anticipated volumes and our customer’s decision to substantially alter their overall approach to freight transportation.

 

  (b)   Represents a benefit received as a result of changing the roll-over period effective for salaried employees from their anniversary date to a uniform, year-end date.

 

  (c)   Represents expenses incurred as a result of our initial preparations for an IPO in 2007. These expenses were initially capitalized and included in our consolidated balance sheet as of December 31, 2007 as prepaid expenses and other current assets. When the IPO effort was postponed due to a decline in the automotive sector, deterioration in economic conditions and the significant downturn in the public equity markets, the costs were then taken as a charge to income for the year ended December 31, 2008. Similar expenses incurred in connection with our recent IPO efforts totaling $1.4 million are included in prepaid expenses and other current assets in our consolidated balance sheet as of December 31, 2011.

 

  (d)   Represents expenses accrued in connection with the prospective determination of probable loss amounts in connection with a multi-fatality traffic accident that was likely to exceed insurance limits and which we believe is not reflective of ordinary operations.

 

(3)   Includes cash dividends previously paid, and thus does not include the $27.0 million dividend payable or the related $25.0 million dividend distribution promissory note that are intended to be paid from the proceeds of this offering. Also includes state withholding taxes paid on behalf of our shareholders and treated as a distribution.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion in conjunction with “Selected Consolidated Financial and Operating Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of the factors we describe under “Risk Factors” and elsewhere in this prospectus.

 

Overview

 

We are a leading provider of custom-developed third-party logistics solutions that allow our customers and clients to reduce costs and manage their global supply chains more efficiently. We believe many of our services are essential to the successful operations of our customers’ production processes. We offer a comprehensive suite of supply chain logistics services, including value-added, transportation and specialized services. Our value-added logistics services include material handling and consolidation, sequencing and sub-assembling, kitting and repacking, and returnable container management. Our transportation services include dedicated truckload, shuttle operations and yard management. These value-added services and transportation services are complemented by the delivery of specialized services, including air and ocean freight forwarding, expedited ground transportation and final-mile delivery.

 

We operate, manage or provide transportation services at 43 logistics locations in the United States, Canada and Mexico. Thirteen facilities are located inside customer plants or distribution operations; the other facilities are generally located close to our customers’ plants to optimize the efficiency of their component supply chains and production processes. Our facilities and services are often directly integrated into the production processes of our customers and represent a critical piece of their supply chains. Our proprietary information technology platform is integrated with our customers’ and their vendors’ information technology networks, allowing real-time end-to-end supply chain visibility. As a result of our close integration with our customers, most of our value-added services are contracted for the duration of our customers’ production programs, which typically last three to five years.

 

Historically, our largest end-market has been the automotive segment, where we maintain strong, long-term relationships with our customers. In recent years, we have successfully expanded our business outside of the automotive sector, where we have leveraged the processes, technology and experience we developed serving the automotive industry to deliver similar high value logistics services. Target sectors include industrial products, aerospace, medical equipment and technology. Our business and the number of customers in these sectors have expanded significantly over the past three years. Revenues from customers outside of the automotive sector increased from $22.4 million in 2007 to $60.4 million in the year ended December 31, 2011.

 

We operate in the United States, the Canadian province of Ontario and San Luis Potosí, Mexico. Our services are delivered through several subsidiaries, which operate under brand names that include Logistics Insight Corporation, Pro Logistics, LINC Ontario, Ltd., Mohican Transport (a division of LINC Ontario, Ltd.), On Demand Transport, Inc., OTR Logistics, Inc., CTX, Inc., and Central Global Express, Inc.

 

As of December 31, 2011, we had 1,721 employees, including 826 employees subject to collective bargaining agreements of which 752 are subject to contracts that expire in 2012. At December 31, 2011 and through the date of this prospectus, in connection with recently awarded business, we are negotiating a collective bargaining agreement that would cover an additional 69 of our employees. We have maintained positive relations with our employees under the guidance of a management team with extensive experience in effective labor relations and have never experienced a work stoppage at any unionized facility. We also engaged contract staffing vendors to supply an average of 1,320 additional personnel on a full-time-equivalent basis during the

 

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year ended December 31, 2011. Our transportation services are provided through a network of both union and non-union employee drivers, owner-operators, contract drivers, and third-party transportation companies. Our use of owner-operators, third-party providers and contract staffing vendors allows us to maintain both a highly flexible cost structure and a scalable business operation, while reducing investment requirements. These benefits are passed on to our customers in the form of cost savings and increased operating efficiency, while enhancing our cash generation and the returns on our invested capital and assets.

 

Executive Overview of Financial Performance

 

In 2011, our revenues from the delivery of logistics services totaled $290.9 million, reflecting an 18.4% increase from the prior year. Operating income in 2011 was $41.6 million, or $4.5 million higher than 2010 operating income of $37.1 million, due to a combination of increased business volume and operating efficiency. The increase in demand for our services on a year-over-year basis was primarily the result of increased demand for our services from newer industrial customers and continuing growth in automotive industry production volumes, which suffered an historic decline beginning in late 2008, stabilized in the third quarter of 2009, and subsequently began increasing.

 

We have expanded our service offerings to customers in other industrial markets and have added new operations supporting domestic automotive manufacturers and their Tier I suppliers. This includes our early 2011 launches of two U.S. consolidation centers for Wal-Mart, which represents a new strategic initiative for us. Additionally, we are, for the first time, providing value-added services inside a General Motors plant in Michigan that is producing a new subcompact passenger car. We expect our sales and earnings to improve in 2012 due to growth in the overall 3PL market, anticipated increases in North American automotive production, and the inclusion in our financial results of our new operations’ performance.

 

Our senior debt at December 31, 2011 was $58.1 million, a $19.6 million increase from $38.5 million at December 31, 2010 and a $16.9 million increase from December 31, 2009, when $41.2 million of senior debt was outstanding. The increase reflects our April 2011 debt refinancing, which we undertook to refinance a substantial portion of outstanding secured debt, to increase funding availability for prospective future investments, and to pay $31.0 million of the $58.0 million outstanding dividend payable due to CenTra, our former parent, in connection with our December 31, 2006 spin-off. Our business model creates a flexible operating structure that emphasizes variable costs and seeks to mitigate exposure to fixed costs through contractual terms. As a result, we generated positive operating income for each quarter throughout the automotive industry downturn in 2009 and through October 1, 2011, allowing significant repayments of outstanding borrowings prior to our April 2011 debt refinancing and significant dividend distributions to our owners.

 

Factors Affecting Our Revenues

 

We generate substantially all of our revenue through fees charged to customers for the customized logistics services we provide. Our agreements with customers typically follow one of two patterns: contractual or transactional. Contractual agreements for the delivery of value-added services or transportation services on an exclusive basis generated 88.4% and 92.2% of total revenues for the years ended December 31, 2010, and December 31, 2011, respectively. Transactional agreements comprise the balance of our revenues and are associated with individual freight shipments coordinated by our specialized services operations. The pricing structure of value-added services contracts, which often are three to five years in duration, compensate for the physical resources and labor that support material handling, sequencing, sub-assembly and various other value-added processes, including both variable-cost and fixed-price components. Transportation services revenue is primarily derived from fees charged based on miles driven to complete dedicated, closed-loop routes, but may also include billing for fuel surcharges, loading and unloading activities, container management and other related services. Fees charged to customers by our specialized services operations are based on the specific means of forwarding or delivering freight on a shipment-by-shipment basis.

 

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We recognize revenue on a gross basis at the time that persuasive evidence of an arrangement with our customer exists and once services have been rendered, sales price is fixed and determinable, and collectability is reasonably assured. In the case of value-added services, our strategy is to structure customer contracts so that, to the greatest extent possible, operating costs that are more fixed in nature are recovered regardless of the level of our customers’ operating volumes. Pricing of transportation services and specialized services is subject to a more competitive operating environment, and as such, we strive to bundle service delivery and provide customized solutions to maximize the return on our investment in these services.

 

Our business and our revenue trends are substantially driven by the level of demand for outsourced logistics services generally as well as by the strength of the North American automotive industry. In recent years, we have targeted and developed customers in other industry sectors. As a result, broader macroeconomic factors have increased in importance. Major factors that affect our revenues include changes in manufacturing supply chain requirements, production levels in specific industries, pricing trends due to levels of competition and resource costs in logistics and transportation, and economic market conditions.

 

Our value-added services and transportation services in particular have a high level of penetration and integration into supply chains of the U.S. automotive industry. During the latter half of 2008 and throughout 2009, the automotive industry experienced a significant contraction, ultimately resulting in the government-sponsored reorganizations of two of our three largest customers, General Motors and Chrysler. In response to both a decline in consumer demand and the tightening of access to financial markets, OEMs reduced production volumes, which adversely impacted the demand for our logistics services. In response to the general economic crisis, the U.S. government implemented tax incentives and pursued other similar measures to spur demand for automobiles in 2009. These steps coupled with increasing consumer confidence and modest economic growth have triggered a strong rebound in demand for our logistics services.

 

In December 2011, seven months after launching five new freight consolidation centers in Europe for the European subsidiary of a Tier I automotive supplier, we discontinued and closed the centers. Our action was the result of lower-than-anticipated volumes through our customer’s European supply chain and the subsequent decision by our customer’s European subsidiary to substantially alter their overall approach to freight transportation.

 

Factors Affecting Our Expenses

 

Personnel and related benefits.    Personnel and related benefits costs are the largest component of our cost structure and increase or decrease proportionately with the expansion, addition or closing of operating facilities. Personnel and related benefits include the salaries, wages and fringe benefits of our employees, as well as costs related to contract labor utilized in operating activities. As of December 31, 2011, approximately 48.0% of our employees were subject to collective bargaining agreements of which 91.0% are subject to contracts that expire in 2012. At December 31, 2011 and through the date of this prospectus, in connection with recently awarded business, we are negotiating a collective bargaining agreement that would cover an additional 4.0% of our employees. Any changes in union agreements will affect our personnel and related benefits cost. The operations in the United States and Canada that are subject to collective bargaining agreements have separate, individualized agreements with several different unions that represent employees in these operations. While there are some facilities with multiple unions, each collective bargaining agreement with each union covers a single facility for that union. Such agreements have expiration dates that are generally independent of other collective bargaining agreements and include economics and operating terms tailored to the specific operational requirements of a customer. Our operation in San Luis Potosí, Mexico provides competitive compensation within the Mexican statutory framework for managerial and supervisory personnel.

 

Purchased transportation and equipment rental.    Purchased transportation and equipment rental reflects amounts paid to transportation owner-operators or other third-party equipment providers to haul freight and, to the extent required to deliver certain logistics services, the cost of equipment leased under short-term contracts from

 

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third parties. The expense also includes the amount of fuel surcharges that we receive from our customers and pass through to our owner-operators. Our strategy is to maintain a highly flexible business model that employs a cost structure that is mostly variable in nature. As a result, our purchased transportation and equipment rental expense is directly related to the production volumes of our customers and their transportation requirements. We meet these requirements by contracting with owner-operators and renting equipment under short-term contracts. We recognize purchased transportation expenses as services are provided over the rental period.

 

Occupancy expense.    Occupancy expense includes all costs related to the lease and tenancy of operating facilities, except utilities, unless such costs are otherwise covered by our customers. Although occupancy expense is generally related to fluctuations in overall customer demand, our contracting and pricing strategies help mitigate the cost impact of changing production volumes. To minimize potential exposure to inactive or underutilized facilities that are dedicated to a single customer, we strive where possible to enter into lease agreements that are coterminous with individual customer contracts, and we seek contract pricing terms that recover fixed occupancy costs, regardless of production volume. However, to align our operations with the significant decline in North American automotive production of 2008-2009, we responded to our largest customers’ restructuring plans by closing certain value-added operations. Occupancy expense includes certain lease termination and related occupancy costs that were accelerated for accounting purposes into the fiscal year in which such a decision was implemented.

 

Operating expense (exclusive of items shown separately).    These expenses include items such as fuel, maintenance, insurance, communication, utilities, and other general operating expenses, including gains or losses on sale or disposal of assets. Because we maintain a flexible business model, our operating expenses (exclusive of items shown separately) generally relate to fluctuations in customer demand and the related impact on our operating capacity. We recognize these expenses as they are incurred. Our transportation services depend on the availability and pricing of diesel fuel. We experienced significant increases in average fuel prices during 2011 as compared to prior year 2010. Although we often include fuel surcharges in our billing to customers to offset increases in fuel costs, other operating costs have been, and may continue to be, impacted by fluctuating fuel prices.

 

Depreciation and amortization.    Depreciation and amortization expense is attributable to the depreciation of purchased tractors, trailers, operating equipment and computer equipment. The expense is computed using the straight-line method over the estimated useful lives of the assets. The cost of tires, tractor engines or batteries that are purchased as part of newly-acquired tractors, trailers or similar equipment are capitalized as part of the cost of the equipment. We also capitalize and subsequently depreciate certain costs associated with vehicle repairs and maintenance that materially extend the life or increase the value of a vehicle or pool of vehicles. We capitalize software costs in accordance with generally accepted accounting principles and amortize such costs using the straight-line method over three years.

 

Selling, general and administrative expense.    Selling, general and administrative expense includes the salaries, wages and benefits of sales and administrative personnel, related support costs, taxes (other than income and property taxes), adjustments due to foreign currency transactions, bad debt expense, and other general expenses. These expenses are generally not directly related to levels of operating activity and may contain non-recurring or one-time expenses related to general business operations. We recognize selling, general and administrative expense when it is incurred.

 

We are a private company and are not currently required to prepare or file periodic and other reports with the SEC or to comply with federal securities laws applicable to public companies, including the Sarbanes-Oxley Act of 2002. Following this offering, we expect to implement additional corporate governance and communication practices with respect to disclosure controls, internal controls over financial reporting, and other reporting obligations. Compliance will require significant time and resources from management and is expected to increase our legal, insurance and accounting costs.

 

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Results of Operations

 

The following table sets forth items derived from our consolidated statements of income for the years ended December 31, 2009, 2010 and 2011, presented as a percentage of revenue:

 

     Year Ended December 31,

 
       2009  

      2010  

      2011  

 
                    

Statements of Income Data:

                        

Revenue

     100.0     100.0     100.0

Operating expenses:

                        

Personnel and related benefits

     40.8        38.5        39.9   

Purchased transportation and equipment rent

     15.0        20.3        18.3   

Occupancy expense

     11.2        5.6        5.6   

Operating expenses (exclusive of items shown separately)

     14.8        13.7        16.2   

Depreciation and amortization

     3.9        2.7        2.1   

Selling, general and administrative expense

     4.4        4.1        3.6   
    


 


 


Total operating expenses (expense)

     90.1        84.9        85.7   
    


 


 


Operating income

     9.9        15.1        14.3   

Other income (expense):

                        

Interest expense

     (0.8     (0.6     (0.8

Interest income

     0.1        —          —     
    


 


 


Total other income (expense)

     (0.7     (0.6     (0.8
    


 


 


Income before provision for income taxes

     9.2        14.5        13.5   

Provision for income taxes

     0.8        1.0        1.3   
    


 


 


Net income

     8.4     13.5     12.2
    


 


 


 

Fiscal Year Ended December 31, 2011 Compared to Fiscal Year Ended December 31, 2010

 

Revenue.    Revenue increased $45.1 million, or 18.4%, to $290.9 million for the fiscal year ended December 31, 2011, compared to $245.8 million for the fiscal year ended December 31, 2010. This included increases of $30.3 million and $20.8 million in value-added services and transportation services, respectively, and a $5.9 million decline in specialized services. Revenue trends compared to the fiscal year ended December 31, 2010 partially reflect increasing demand for value-added services and transportation services from our existing customers due to higher production volumes compared to the prior year. Approximately $14.2 million of the $45.1 million increase in revenue is due to such volume-related demand when compared to 2010. We also recognized incremental revenue totaling approximately $26.2 million from new programs launched for both existing and new customers. These new programs include a value-added services operation launched inside a General Motors assembly plant, two consolidation centers launched for Wal-Mart Stores in April 2011, and additional services delivered to two other automotive OEMs, two of our industrial customers, and to a Tier I automotive supplier in the United States and Europe. In December 2011, after lower-than-anticipated volume in the first six months of operation, we discontinued freight consolidation centers supporting the same Tier I supplier’s European supply chain, which had accounted for $1.1 million of revenue from new programs in 2011, $3.1 million in operating expenses (including $0.1 million of depreciation and amortization), and $0.9 million in closing costs. The $20.8 million increase in revenue from transportation services also reflects higher fuel surcharge revenue resulting from higher average diesel fuel prices. The combination of higher fuel prices and increased volumes resulted in a $8.2 million increase in fuel surcharge revenue for the fiscal year ended December 31, 2011, compared to the fiscal year ended December 31, 2010. Revenue increases from existing operations, from new business, and from incrementally higher fuel surcharges were partially offset by an aggregate $3.5 million reduction in revenue from other operations. The reduction is primarily the result of the absence of an aggregate $1.2 million in revenue generated by non-recurring services provided to a retail customer on a short-term basis in the fiscal year ended December 31, 2010 and also by one of our value-added services operations that operated two shifts during a substantial portion of the fiscal year ended December 31, 2010, compared to a one-shift operation during the same period in 2011.

 

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Personnel and related benefits.    Personnel and related benefits expenses increased $21.5 million, or 22.7%, to $116.1 million for the fiscal year ended December 31, 2011, compared to $94.7 million for the fiscal year ended December 31, 2010. Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements and, therefore, increased with the level of demand for our logistics services. Approximately $14.6 million of the $21.4 million increase is due to increased expenditures for contract labor or substantially similar contract services, primarily to support newer operations and customers. Such costs increased to 35.3% of total personnel and related benefits for the fiscal year ended December 31, 2011, compared to 27.9% of such costs for the fiscal year ended December 31, 2010. Personnel and related benefits expense also includes approximately $0.2 million in contract labor and other labor-related charges incurred upon our decision to close our short-lived European operation. As a percentage of revenue, personnel and related benefits expenses increased slightly, to 39.9% for the fiscal year ended December 31, 2011, compared to 38.5% in the comparable prior-year period. The percentage is derived on an aggregate basis from both existing and new programs, and from operating locations at various stages in their lifecycles. Individual operations may be impacted by additional production shifts or by overtime at selected operations. While generalizations about the impact of personnel and related benefits costs as a percentage of total revenue are difficult, we manage compensation and staffing levels, including the use of contract labor, to maintain target economics based on near-term projections of demand for our services.

 

Purchased transportation and equipment rentals.    Purchased transportation and equipment rental costs increased $3.2 million, a 6.4% increase, to $53.2 million for the fiscal year ended December 31, 2011, compared to $50.0 million for the fiscal year ended December 31, 2010. Trends in these expenses are generally correlated with changes in demand for transportation services and specialized services, which increased 11.6%, to $143.1 million in aggregate revenue for the fiscal year ended December 31, 2011, compared to $128.2 million for the fiscal year ended December 31, 2010. The increase includes approximately $2.6 million in payments to transportation owner-operators and agents due to contractual fuel-price stabilization payments. The increase was offset by a $4.6 million reduction in purchased transportation costs due to reduced demand for our specialized services. As a percentage of revenue, purchased transportation and equipment rentals decreased to 18.3% of revenue for the fiscal year ended December 31, 2011, compared to 20.3% for the fiscal year ended December 31, 2010. The decline is due to a combination of increased usage of company drivers and contract labor, rather than owner-operators, and to a reduction of lower-margin specialized services.

 

Occupancy expense.    Occupancy expense increased by $2.4 million to $16.1 million for the fiscal year ended December 31, 2011, compared to $13.7 million for the fiscal year ended December 31, 2010. The 17.5% increase reflects the aggregate net impact of various changes in the number of operating locations, lease-based facility rents, adjustments in charges related to our reserve for plant closing costs, and in related charges, including property taxes. In particular, operations included in the financial results for the fiscal year ended December 31, 2011 reflect new real estate leases for facilities located in California, Indiana, Tennessee and Texas; in Ontario, Canada; and at two warehouse facilities in Germany. Cost increases related to these new leases were partially offset by the expiration of an existing lease for our operation in Southern California, which we relocated. Occupancy expense also includes $0.3 million in closing costs prompted by the early termination of two German real estate contracts, following our December 2011 decision to terminate these leases and close three other small freight consolidation operations in Europe.

 

Operating expenses (exclusive of items shown separately).    Operating expenses (exclusive of items shown separately) increased by $13.5 million, or 40.0%, to $47.2 million for the fiscal year ended December 31, 2011, compared to $33.7 million for the fiscal year ended December 31, 2010. One element of the increase in variable operating expenses was higher demand for transportation services, which increased 20.8% and triggered higher tractor maintenance and fuel costs. Maintenance costs increased $2.2 million, or 41.2% to $7.5 million for the fiscal year ended December 31, 2011. Additionally, diesel prices rose 28.4%, from an average of $2.96 per gallon in the fiscal year ended December 31, 2010 to $3.80 per gallon for the fiscal year ended December 31, 2011.

 

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Although partially recovered in our fuel surcharges to customers, the total cost of diesel fuel used in transportation activities increased $5.9 million, or 46.4%, for the fiscal year ended December 31, 2011, compared to the fiscal year ended December 31, 2010. Operating expense (exclusive of items shown separately) also includes $0.4 million in costs associated with our December 2011 decision to close freight consolidation operations in Europe. Additional elements of the increase in operating expenses (exclusive of items shown separately) include an increase in known or anticipated customer claims due to inventory or freight damage, higher forklift battery replacement charges, and repair to a facility prior to lease expiration.

 

Depreciation and amortization.    Depreciation and amortization expense decreased by $0.5 million, or 7.0%, to $6.1 million for the fiscal year ended December 31, 2011, compared to $6.5 million for the fiscal year ended December 31, 2010. The modest decline is the result of reduced annual capital investments in the three years ended December 31, 2010. In recent years, we utilized excess capacity in our existing fleet of tractors and trailers to defer capital expenditures for new transportation equipment. To maximize return on invested capital, we also launched value-added services inside certain customers’ existing facilities, deployed more leased equipment, and benefited from favorable equipment pricing, including in the used equipment market. Lower depreciation and amortization expense also reflects the disposal of depreciable assets with net book value of approximately $0.3 million in the fiscal year ended December 31, 2011 and the exclusion of certain assets from depreciation and amortization expense upon full depreciation of their carrying value. Depreciation and amortization in the most recent fiscal year ended December 31, 2011 does not fully reflect recent investments in transportation equipment and in our value-added services operations during the fiscal year. Such capital expenditures totaled $8.6 million, a $5.9 million increase compared to the fiscal year ended December 31, 2010.

 

Selling, general and administrative expense.    Selling, general and administrative expense increased $0.5 million, or 4.6%, to $10.5 million for the fiscal year ended December 31, 2011, compared to $10.1 million for the fiscal year ended December 31, 2010. As a percentage of revenue, these expenses declined to 3.6% of revenue for the fiscal year ended December 31, 2011, compared to 4.1% for the fiscal year ended December 31, 2010. There were no significant changes in employee headcount included in this expense item for the fiscal year ended December 31, 2011, compared to the one-year earlier period. Minor fluctuations in other expense categories reflect our efforts to maintain stable overhead expenditures while expanding the business.

 

Other income (expense), net.    Other income (expense), net, was $(2.2) million for the fiscal year ended December 31, 2011 compared to $(1.5) million for the fiscal year ended December 31, 2010, primarily due to a $0.6 million increase in interest expense. Throughout 2011, the core interest rates that establish the baseline for our interest expense have remained at historic lows. On April 21, 2011, we refinanced a substantial portion of our outstanding senior debt, increasing total interest-bearing debt outstanding. At December 31, 2011, total outstanding indebtedness, including all senior secured borrowing and our subordinated $25.0 million dividend distribution promissory note, was $83.1 million. This compares to senior secured and subordinated borrowing totaling $63.5 million at December 31, 2010. The terms of our new Revolving Credit and Term Loan Agreement are more fully described below in “Borrowing Arrangements.”

 

Provision for income taxes.    On March 14, 2007, we filed an election under Section 1361 of the Internal Revenue Code on behalf of ourselves and our subsidiaries to be treated as a “Subchapter S corporation” for federal income tax purposes. Effective beginning January 1, 2007, we have no federal income tax liabilities or state and local tax liabilities in many jurisdictions. Our provision for income taxes in certain state and foreign jurisdictions that are not impacted by our S-corporation status increased 47.4%, to $3.8 million for the fiscal year ended December 31, 2011, compared to $2.6 million for the fiscal year ended December 31, 2010. Our effective rate for the aggregate of such taxes increased to 9.6% for the fiscal year ended December 31, 2011, compared to 7.2% for the fiscal year ended December 31, 2010. The increase in the effective rate is primarily due to adjustments to prior-year tax provisions, increases in domestic income tax rates, and increases in levels of operating activity in higher tax jurisdictions. A prospective decline in the aggregate foreign effective rate resulting from operating losses incurred while launching our European operation during the fiscal year ended December 31, 2011 was offset by a valuation allowance established when we decided to close this operation in December 2011.

 

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Fiscal Year Ended December 31, 2010 Compared to Fiscal Year Ended December 31, 2009

 

Revenue.    Revenue increased $67.8 million, or 38.1%, to $245.8 million in 2010, compared to $177.9 million in 2009. This included increases of $18.6 million, $38.3 million and $11.0 million in value-added services, transportation services, and specialized services, respectively. A substantial portion of the increase, totaling approximately $37.5 million, reflects the rebound in automotive production and the related demand for logistics services at existing operations as well as transportation routes we experienced from our traditional automotive customers. Results in 2010 benefited from a favorable comparison to 2009, when major domestic automotive manufacturers reduced and then suspended production for several additional weeks following the bankruptcies and subsequent reorganizations of Chrysler and General Motors in May and June 2009, respectively. The increase in demand from existing customers more than offset an $11.9 million decline due to terminated operations that we closed prior to 2010 resulting from industry restructuring and $5.9 million in other terminated contracts.

 

Revenue trends in 2010 compared to 2009 benefited from the introduction of new operations and the launch of new Tier I automotive suppliers and customers in new target industries. Compared to one year earlier, we recognized an incremental increase in revenues of $48.2 million in 2010 due to the launch of new operations. The increase includes, among other factors, $13.3 million from value-added services delivered on-site at three assembly and distribution facilities operated by a new industrial customer, $9.8 million in new services and dedicated routes added to the cross-dock operation we manage for Ford, $5.4 million in expedited air charters to support the launch of a European OEM’s assembly facility in Mexico, $3.5 million from a Tier I automotive supplier to which we provide multi-point dedicated transportation and logistics, and $3.1 million derived from new services to General Motors’ aftermarket organization and to its operations in San Luis Potosí, Mexico.

 

Personnel and related benefits.    Personnel and related benefits expenses increased $22.1 million, or 30.4%, to $94.7 million in 2010, compared to $72.6 million for 2009. Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements, which are dependent on the level of demand for our logistics services. Direct wage costs increased approximately $5.4 million due to increased demand for services, prompting additional overtime payments, and the addition of new operations for existing and new automotive industry customers. Additionally, expenditures for contract labor comprised $13.2 million of the increase in personnel and related benefits, reflecting increased usage of flexible resources to support our asset-light business model. Finally, the year-over-year change in employment costs increased $3.3 million due to the lack of short-term, non-recurring mandatory and voluntary work reduction programs implemented in 2009. Expressed as a percentage of revenue, personnel and related benefits expenses declined to 38.5% of revenues for 2010, compared to 40.8% in the comparable prior-year period. The improvement in variable personnel costs in 2010 is primarily due to improved labor efficiency on significantly higher revenues from existing and new customers. We also obtained favorable labor cost changes in selected collective bargaining agreements, maintaining or reducing labor costs in selected operations.

 

Purchased transportation and equipment rentals.    Purchased transportation and equipment rental costs increased $23.4 million, an 87.7% increase, to $50.0 million for 2010, compared to $26.6 million for 2009. As a percentage of revenue, such costs increased to 20.3% for 2010, compared to 15.0% for 2009. This increase is the result of several factors, including tighter transportation industry capacity in 2010, which increased prices paid to owner-operators and equipment providers, increasing our purchased transportation costs. Additionally, the relative cost of purchased transportation and equipment rentals increased by approximately $5.5 million in 2010 due to a short-term shift in our specialized services revenues to a customer with heavy demand for air charters, resulting in higher purchased transportation costs as a percentage of revenue. Our specialized services business also launched a new brokerage service in 2010, resulting in a $3.8 million increase in purchased transportation costs. Finally, in connection with new automotive business as well as new business with a Tier I automotive supplier, we utilized third-party transportation providers more extensively than in the past, which accounts for over $5.9 million of the aggregate increase in purchased transportation costs.

 

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Occupancy expense.    Occupancy expense decreased by $6.2 million to $13.7 million for 2010, compared to $19.9 million for 2009. The 30.9% decline reflects changes in facility rent and related charges including property taxes. The overall decline in occupancy expense for 2010 compared with 2009 reflects, among other things, the accounting impact of our decisions to close certain operations that supported General Motors, resulting in the removal of costs totaling approximately $6.5 million from operating results after January 1, 2010. In addition, a substantial portion of our 2010 revenue increase was derived from services delivered at either customer-provided facilities or at existing locations. While the change in occupancy expense includes a $0.4 million increase related to new customer operations, this was more than offset by the $0.7 million impact of other real estate leases that expired in 2009.

 

Operating expenses (other).    Operating expenses (other) increased by $7.3 million, or 27.8%, to $33.7 million for 2010, compared to $26.4 million for 2009. Although partially recovered in our fuel surcharges to customers, the total cost of diesel fuel used in our transportation services operations increased $4.5 million, or 35.1%, in 2010 compared to 2009. The average price of diesel fuel purchased increased from $2.43 per gallon in 2009 to $2.96 per gallon in 2010, a 21.8% increase. Other increases in operating expenses (other) due to increased activity levels included a $2.0 million increase in equipment maintenance costs and a $0.4 million increase in equipment rentals in connection with value-added services operations launched for a new industrial customer. Excluding gains on the sale of property and equipment, operating expenses (other) expressed as a percentage of revenue declined to 13.8% of revenues for 2010, compared to 14.9% the prior year.

 

Depreciation and amortization.    Depreciation and amortization expense decreased by $0.4 million, or 5.9%, to $6.5 million for 2010, compared to $7.0 million for 2009. The decline reflects the reassessment and reduction of depreciation and amortization expense in connection with certain assets at the expiration of their original assumed useful life, which is partially offset by incremental depreciation resulting from capital expenditures in 2010, which totaled $2.7 million. Until recently, we have been able to utilize excess capacity in our existing fleet of tractors and trailers to defer new capital expenditures. In addition, we also increased the utilization of owner operators to provide transportation services, increased our usage of leased equipment, and benefited from favorable equipment pricing, particularly for used equipment. These actions have restrained capital spending.

 

Selling, general and administrative expense.    Selling, general and administrative expense increased $2.2 million, or 28.3%, to $10.1 million for 2010, compared to $7.9 million for 2009. The increase is partially due to charges to bonus expense related to our executive short-term incentive compensation plan and to other bonus accruals. Minor fluctuations in other expense categories reflect our efforts to maintain stable overhead expenditures while expanding the business. The increase in expense in 2010 compared with the prior year also reflects adjustments to vacation policies and the implementation of a series of short-term programs in early 2009 to respond to distressed market conditions, including mandatory layoffs, voluntary time off, and staff reductions.

 

Other income (expense), net.    Other income (expense), net, which is comprised primarily of interest expense, increased to $(1.5) million for 2010 compared to $(1.4) million for 2009. Throughout the year, the core interest rates that establish the baseline for our interest expense remained at historically low levels. Total borrowing outstanding at December 31, 2010, including our subordinated $25.0 million dividend distribution promissory note, were $63.5 million, which compares to $66.2 million at December 31, 2009. On April 21, 2011, however, we refinanced a substantial portion of our outstanding senior debt. The terms of a new Revolving Credit and Term Loan Agreement are more fully described below in “Borrowing Arrangements.”

 

Provision for income taxes.    On March 14, 2007, we filed an election under Section 1361 of the Internal Revenue Code on behalf of ourselves and our subsidiaries to be treated as a “Subchapter S corporation” for federal income tax purposes. Effective beginning January 1, 2007, we have no federal income tax liabilities or state and local tax liabilities in most jurisdictions. Due to the increase in our taxable income, our provision for income taxes in certain state and foreign jurisdictions that are not impacted by our S-corporation status increased 92.2%, to $2.6 million for fiscal year 2010, compared to $1.3 million for fiscal year 2009.

 

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Liquidity and Capital Resources

 

Historically, we funded our growth through a combination of internally-generated funds and, to support the equipment requirements needed to provide transportation services, through secured equipment financing. Today, our primary sources of liquidity are funds generated by operations and availability under our $40 million revolving credit facility and our $25 million equipment credit facility. Additionally, our revolving credit facility and equipment credit facility both include an accordion feature that would allow us to increase aggregate availability up to $25 million on the terms and conditions included in our Revolving Credit and Term Loan Agreement, which we executed on April 21, 2011.

 

We believe that the cash generated from operations, together with the borrowing availability under our revolving credit facility and equipment credit facility, will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. Our expectation is based on the assumption that our largest customers will continue to pay invoiced amounts within customary terms. We were in compliance with all financial covenants under applicable credit agreements for the period ended December 31, 2011. See “Borrowing Arrangements” below.

 

Cash Flows.

 

     Year Ended December 31,

 
         2009    

        2010    

        2011    

 
     (in thousands)  

Cash flows from operating activities:

                        

Net income

   $ 14,929      $ 32,965      $ 35,633   

Depreciation, amortization and other

     7,027        6,499        5,709   

Changes in working capital

     (5,064     (5,077     3,195   
    


 


 


Net cash provided by operating activities

     16,892        34,387        44,537   

Cash flows from investing activities:

                        

Capital expenditures

     (1,655     (2,661     (8,559

Proceeds from disposal of property and equipment

     598        195        213   

Notes receivable from CenTra

     500        4,500          
    


 


 


Net cash (used for) provided by investing activities

     (557     2,034        (8,346

Cash flows from financing activities:

                        

Proceeds from borrowing

     47,759        16,815        75,247   

Payments of debt

     (67,379     (19,601     (55,640

Payments of dividend payable

            (10,000     (31,000

Dividends paid and shareholder distribution

     (71     (21,316     (22,790

Capitalized financing costs

                   (929
    


 


 


Net cash used for financing activities

     (19,691     (34,102     (35,112

Effect of exchange rate changes on cash and cash equivalents

     42        (10     42   
    


 


 


Cash and cash equivalents:

                        

Net (decrease) increase

     (3,314     2,309        1,121   

Beginning of period

     4,517        1,203        3,512   
    


 


 


End of period

   $ 1,203      $ 3,512      $ 4,633   
    


 


 


 

At December 31, 2011, we had cash and demand deposits of $4.6 million compared to $1.2 million and $3.5 million at December 31, 2009 and 2010, respectively. Historically, our policy has been to reduce borrowings under our revolving credit facilities with cash deposits that exceeded short term liquidity requirements. Excess proceeds from the proposed offering will be held in cash and cash equivalents. To the extent such proceeds exceed outstanding borrowings, they will be invested, to the extent authorized by our board, in appropriate short-term investments.

 

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Operating activities.     Net cash provided by operating activities increased $10.1 million, to $44.5 million for the fiscal year ended December 31, 2011, compared to $34.4 million in the same period in 2010. Net cash generated for the fiscal year ended December 31, 2011 was primarily comprised of net income of $35.6 million, which reflects non-cash depreciation, amortization, loss on disposal of property and equipment, and a change in deferred income taxes totaling $5.7 million, net. In December 2011, we discontinued value-added services that supported a Tier I automotive supplier’s European supply chain and closed the related operations. We recognize exit costs associated with operations that close or are identified for closure as an accrued liability. Such charges include lease termination costs, net of the fair value of prospective sublease income, employee termination charges, asset impairment charges, and other exit-related costs. Net cash provided by operations in fiscal year 2011 reflects the impact on net income of costs totaling $0.9 million to close our operations in Europe, net cash transactions totaling $1.1 million prompted by closing costs incurred in prior years, and related non-cash adjustments to previous closing cost charges. Net cash provided by operating activities also reflects an aggregate increase in net working capital totaling $3.2 million in the fiscal year ended December 31, 2011. During the fiscal year, we made net cash payments totaling $0.5 million in connection with operations we closed in the current and prior reporting periods. Affiliate transactions reduced net cash used for operating activities by $0.9 million in the fiscal year ended December 31, 2011. Accounts payable to affiliates, primarily due to the timing of payments near December 31, 2010, was a $1.0 million net use of funds in 2011, while accounts receivable from affiliates increased slightly.

 

Net cash provided by operating activities increased $17.5 million, to $34.4 million for the year ended December 31, 2010, compared to $16.9 million in 2009. Net cash generated for the fiscal year 2010 was primarily comprised of net income of $33.0 million, which reflects non-cash depreciation, amortization, gain on disposal of property and equipment, and a change in deferred income taxes totaling $6.5 million, net. Cash used during the period funded an aggregate increase in net working capital of $5.1 million to support increased demand for our services. During 2010, we made cash payments totaling $2.1 million in connection with operations we closed in prior reporting periods. Net working capital associated with affiliate transactions resulted in net cash provided by operating activities of $3.3 million. Accounts receivable from affiliates declined $2.2 million in 2010, primarily as the result of lower demand for our maintenance and fuel services. Accounts payable to affiliates was a $2.7 million net use of funds in 2010, primarily due to the timing of payments near December 31, 2009. Net cash provided by operations in 2010 reflects the impact of certain adjustments to liabilities reflected in our consolidated balance sheet that relate to accruals taken in prior years to close selected operations.

 

Net cash provided by operating activities decreased $2.3 million, to $16.9 million for 2009, compared to $19.1 million for the fiscal year 2008. Net cash generated for the fiscal year 2009 was primarily comprised of net income of $14.9 million, which reflects non-cash depreciation, amortization, gain on disposal of property and equipment, and a change in deferred income taxes totaling $7.0 million. Cash used during the period funded an aggregate increase in net working capital totaling $5.0 million. Despite the Federal government-sponsored bankruptcy court reorganizations of our second and third largest customers, we successfully collected substantially all accounts receivable from these customers in 2009, including the collection of aggregate “pre-petition” invoices totaling $5.8 million.

 

To align our operations with North American automotive market conditions and the consolidation of excess automotive assembly capacity in late 2008 and 2009, we responded to our largest customers’ restructuring plans by permanently closing selected operations. These actions followed decisions by two of our three largest automotive customers to discontinue assembly operations co-located with certain customer-dedicated facilities that provided value-added services. Net cash provided by operations in fiscal year 2009 reflects the impact on net income of $2.6 million of charges for closing costs, offset by cash payments totaling $3.2 million in connection with 2009 and prior year accrued liabilities.

 

Our major customers are domestic automotive manufacturers and other large industrial companies. As such, a substantial portion of our accounts receivable are processed in accordance with our customers’ regular payment terms and processes. We expect to collect substantially all of our receivables due from our principal customers, subject only to ordinary course adjustments due to service claims or billing errors. Therefore, we maintain only modest reserves for potential losses.

 

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Investing activities.     Our asset-light business model and variable-cost based operating structure allow us to scale operations in response to changing business conditions, while generating strong cash flows and maintaining acceptable returns on investment. Our operating facilities are either leased or we provide our services in facilities supplied by our customers. Our tractor and trailer fleet is substantially comprised of standardized equipment, maximizing our ability to redeploy these assets as requirements change. We also utilize owner-operators of transportation fleets to supply approximately 32.5% of the tractors used over the road for our transportation services and specialized services operations as of December 31, 2011. In addition, our specialized services utilize over 495 owner-operators and third-party providers to support our freight expediting, forwarding and delivery services. We believe our highly scalable operating platform will continue to support our growth with comparatively modest capital expenditure requirements when evaluated against other trucking industry peers.

 

Net cash used for investing activities was $8.3 million for the fiscal year ended December 31, 2011, primarily as the result of capital expenditures for transportation equipment and investments in support of new value-added service operations in the United States, Mexico and Europe. To support the planned launch of Summer 2012 enhancements to our value-added services operations in Mexico, including modifications to existing equipment in connection with a contract extension, we capitalized approximately $1.2 million in the fiscal year ended December 31, 2011 for new equipment. Specifically, we made partial payments due upon achievement by equipment vendors of defined milestones in the design, manufacture, delivery and installation of the equipment. As of December 31, 2011, such partial payments totaled $0.9 million. Accrued liabilities as of December 31, 2011 also include $0.3 million due to these vendors after December 31, 2011.

 

Capital expenditures to support operations totaled $1.7 million in 2009 and $2.7 million in 2010. The contraction in overall demand for transportation services in the automotive industry during 2008 and 2009 allowed us to manage the utilization of our tractor and trailer fleet, extending the longevity of these assets and deferring the need for investments in new equipment. Likewise, following an $8.5 million investment in our Mexican operation prior to its launch in June 2008, our investment in new value-added services operations had been restrained, in part because several operations we launched in 2009 and 2010 are delivered at customer-provided locations. In 2010, capital expenditures totaling $2.7 million were partially offset by proceeds from sales of equipment totaling $0.2 million. Additionally, our former owner, CenTra, paid off the remaining $4.5 million balance on an aggregate $6.0 million promissory note we had advanced in 2007. The note accrued interest at 3.5% per annum. In 2012 and thereafter, expenditures to support new business awards may significantly exceed expenditures in each year since 2008, which had been restrained due to lower demand for services and extended utilization of existing equipment.

 

Our asset-light business model depends somewhat on the customized solutions we implement for specific customers. As a result, our capital expenditures will depend on specific new contract awards and the overall age and condition of our transportation equipment. We expect that our cash flow from operations and available borrowing capacity will be sufficient to meet known and projected capital commitments for at least the next twelve months.

 

Financing activities.     Net cash used for financing activities increase by $1.0 million for the fiscal year ended December 31, 2011, to $35.1 million, from $34.1 million for the fiscal year ended December 31, 2010. Net changes in borrowing and debt for the fiscal year ended December 31, 2011 reflect changes in our debt structure following our April 2011 debt refinancing, which allowed us to repay a substantial portion of outstanding secured debt and also to pay $31.0 million of the $58.0 million outstanding dividend payable to CenTra, our former parent. In connection with our April 2011 debt refinancing, we incurred and paid bank fees and related expenses totaling $0.9 million.

 

For the year ended December 31, 2010, net cash used for financing activities totaled $34.1 million. In particular, net borrowings pursuant to our revolving credit facilities increased $6.9 million, largely due to the $10.0 million reduction of our dividend payable to CenTra in December 2010, upon receipt of consents from Comerica Bank and Fifth Third Bank. In 2010, we made scheduled and additional principal repayments totaling $9.7 million on outstanding secured equipment financing and amortizing term loans.

 

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For the year ended December 31, 2009, net cash used for financing activities totaled $19.7 million. This included principal repayments totaling $6.6 million on outstanding secured equipment financing. On May 19, 2009, one of our principal operating subsidiaries, Logistics Insight Corporation, executed a Restated Business Loan Agreement with Fifth Third Bank. The agreement refinanced an existing revolving credit facility that had been in place since December 18, 2006. The amended and restated agreement provided a $6.0 million, two-year revolving credit facility and a $9.0 million amortizing term loan. Net revolving debt declined $22.0 million from December 31, 2008 to December 31, 2009, primarily as the result of net cash provided by operating activities, restraint in investing activities, and the suspension of dividend distributions.

 

Net cash used for financing activities for the fiscal year ended December 31, 2011 reflects dividends totaling $22.8 million, including related distributions to fund withholding obligations in certain states. Similarly, we declared and paid dividends and related state tax withholding obligations aggregating to $0.1 million and $21.3 million in the fiscal years ended December 31, 2009 and 2010, respectively. Since December 31, 2011, we declared and paid additional dividends totaling $6.0 million.

 

Key Ownership Events

 

Spin-Off from Related Party

 

Before December 31, 2006, we operated a group of related businesses known as the “Logistics Group of CenTra, Inc.,” which was collectively owned by CenTra, Inc. CenTra is a private holding company wholly-owned by Matthew T. Moroun and a trust controlled by Manuel J. Moroun.

 

On December 31, 2006, CenTra completed a corporate reorganization through which all entities included in our consolidated financial statements as of and for the year ended December 31, 2006 came under our direct ownership and control. On December 29, 2006, our board of directors declared a special dividend of $93.0 million to CenTra, our sole shareholder of record on that date, payable in cash upon completion of an initial public offering of our stock. On December 31, 2006, we also distributed to CenTra a net receivable totaling $33.4 million that was owed to us by CenTra or certain of its wholly-owned subsidiaries. The net receivable had arisen in the ordinary course of business in connection with CenTra’s centralized approach to treasury and cash management. Immediately following the net receivable distribution, CenTra distributed all of our shares to its shareholders, Matthew T. Moroun and a trust controlled by Manuel J. Moroun, in a spin-off transaction. Effective on December 31, 2008, we issued a $25.0 million dividend distribution promissory note to CenTra, partially offsetting the outstanding payment obligations pursuant to the $93.0 million dividend payable. The $68.0 million dividend payable was further reduced by $10.0 million on December 22, 2010 after a payment made to CenTra, resulting in a balance of $58.0 million as of December 31, 2010. In connection with our April 20, 2011 refinancing, the dividend payable was further reduced by $31.0 million, resulting in a balance of $27.0 million on April 21, 2011. We plan to satisfy the remaining $27.0 million cash dividend payable and $25.0 million dividend distribution promissory note with a portion of the net proceeds from this offering.

 

Subchapter “S” Election

 

On March 14, 2007, LINC filed an election under Section 1361 of the Internal Revenue Code on behalf of itself and its subsidiaries to be treated as an “S corporation” for federal income tax purposes, effective January 1, 2007. In connection with the election, we have paid dividends to our shareholders, Matthew T. Moroun and a trust controlled by Manuel J. Moroun, equal to substantially all of our taxable income and reportable on their individual income tax returns. Between December 31, 2006 and December 31, 2011, we declared and paid cash dividends totaling $117.3 million to our shareholders and paid approximately $0.6 million in state withholding taxes on behalf of our shareholders. On January 4, 2012, January 30, 2012 and February 8, 2012, we declared and paid additional dividends totaling $6.0 million in the aggregate.

 

Before completing this offering, we intend to terminate our S-corporation status, and we will be liable for all federal and state income taxes on items of income attributable to subsequent tax periods, including the “short”

 

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tax period covering the remainder of the calendar year following our “Subchapter S” terminating event. Furthermore, effective on the date of the termination of the “Subchapter S” election, we will become a taxable entity again and will reestablish deferred tax accounts eliminated in 2007. As of December 31, 2011, such action would have resulted in an estimated $ 3.0 million increase in our provision for income taxes and a corresponding decrease in our net income.

 

Stock Split

 

On April 23, 2012 we approved a 20,753.334-for-1 stock split in the form of a stock dividend, which will be effective upon effectiveness of this offering. Our financial statements, related notes, and other financial data contained in this prospectus have been adjusted to give retroactive effect to the stock split for all periods presented.

 

Non-Cash Equity Awards

 

On August 19, 2010, the board of directors and the shareholders adopted a Long-Term Incentive Plan, which will be administered by the Compensation and Stock Option Committee. Immediately subsequent to effectiveness of the offering, executive and senior management will receive restricted stock grants totaling 195,000 shares of common stock with 20% being fully vested at the time of grant and the remaining shares vesting in increments of 20% per year for the next four years. In addition, executive and senior management will receive stock options for 105,000 shares of common stock. Both restricted stock grants and stock options provide for a right of first refusal to us should a vested grant or option stock owner seek to sell vested shares. Restricted stock grants are not transferable prior to vesting. The exercise price of the options will be the initial public offering price per share. The options, which will expire ten years after their award, will vest 20% at the time of grant and thereafter in increments of 20% per year over the next four years.

 

The cost of our restricted stock grants and stock options is a compensation expense. Such expense is measured at fair value and recognized over the vesting period of the underlying awards. Assuming an initial public offering price of $15.00 per share of common stock, the midpoint of the range set forth on the cover of this prospectus, we calculate a total cost of the restricted stock grants of $2.9 million. Approximately $0.6 million in compensation expense due to restricted stock will be recognized in the period in which our offering occurs. We estimate a total fair value of the stock options of approximately $0.1 million, which we will recognize over vesting of the option grants. Our estimate is derived using the Binomial and Black-Scholes-Merton option pricing model.

 

Pro Forma Impact of Recent Shareholder Distributions and Offering

 

Our shareholders, Matthew T. Moroun, the Chairman of our board of directors, and trusts controlled by Manuel J. Moroun and Matthew T. Moroun together owned 100% of our outstanding common stock as of December 31, 2011. Following the completion of this offering, we expect that they will maintain a controlling interest of approximately 63.0% of our outstanding common stock or 57.5% if the underwriters exercise overallotment option in full.

 

The following pro forma as adjusted consolidated balance sheet is presented to show the pro forma impact of the following transactions on our current assets, debt, dividend payable to CenTra, and stockholders’ equity (deficit), as if each of the following transactions had occurred on December 31, 2011: (i) aggregate $6.0 million distributions to our current shareholders that occurred after December 31, 2011, (ii) in connection with this offering, issuance to our current shareholders of an aggregate of $28.0 million of accumulated adjustments account distribution promissory notes and termination of our S-corporation status, and (iii) application of the net proceeds from this offering to pay down outstanding senior indebtedness to lenders totaling $47.0 million and obligations to related parties totaling $52.0 million. These transactions are more fully described in the notes which follow the pro forma as adjusted consolidated balance sheet. Pro forma as adjusted information is based upon our historical consolidated financial statements included elsewhere in this prospectus. The pro forma data reflects the net proceeds of this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the front cover of this prospectus.

 

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The pro forma as adjusted consolidated balance sheet is included for informational purposes only and does not purport to represent what our financial position would actually have been had the transactions referenced above occurred on the date indicated. In addition, the pro forma adjustments described herein are based on available information and upon assumptions that our management believes are reasonable. The pro forma financial data also do not purport to represent and may not be indicative of our financial position at any future date.

 

The pro forma as adjusted consolidated balance sheet should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Selected Consolidated Financial and Operating Data,” “Certain Relationships and Related Transactions” and our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus.

 

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LINC Logistics Company

Pro Forma As Adjusted Consolidated Balance Sheet

As of December 31, 2011

 

     (Unaudited)

 
     Actual

    Shareholder
Distributions


    Offering
Adjustments


    Pro
Forma as
Adjusted


 
     (amounts in thousands, except share amounts)  

ASSETS

                                

Current assets:

                                

Cash

   $ 4,633      $ (6,000 )(a)    $ 38,799  (c)      39,432   
               2,000  (b)                 

Accounts receivable, net

     38,593        –          –          38,593   

Accounts receivable - Affiliates

     196        –          –          196   

Prepaid expenses and other current assets

     6,700        –          (1,402 )(d)      5,298   

Deferred income taxes, net

     140        –          –          140   
    


 


 


 


Total current assets

     50,262        (4,000     37,397        83,659   

Property and equipment, net

     24,215        –          –          24,215   

Deferred and other assets

                                

Deferred income taxes

     12                        12   

Other assets

     174        –          –          174   
    


 


 


 


Total assets

   $ 74,663      $ (4,000   $ 37,397        108,060   
    


 


 


 


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

                                

Current liabilities:

                                

Current portion of long-term debt

   $ 16,385      $ –        $ (2,979 )(e)      30,077   
                       (11,329 )(f)         
                       28,000  (g)         

Accounts payable

     9,433        –          –          9,433   

Accounts payable - Affiliates

     3,676        –          –          3,676   

Accrued liabilities

     15,625        –          –          15,625   
    


 


 


 


Total current liabilities

     45,119        –          13,692        58,811   

Long-term debt

     66,676        2,000 (b)      (18,671 )(f)      9,005   
                       (16,000 )(h)         
                       (25,000 )(i)         

Deferred compensation and other

     3,133        –          –          3,133   

Dividend payable

     27,000                (27,000 )(j)      –     

Deferred income taxes, net

     –          –          –          –     
    


 


 


 


Total liabilities

     141,928        2,000        (72,979     70,949   

Stockholders’ Equity (Deficit)

                                

Common stock, no par value; 50,000,000 shares authorized; 1,000 shares issued and outstanding, actual; and 50,000,000 shares authorized, 20,753,334 shares issued and outstanding, as adjusted

     –          –          –          –     

Additional paid in Capital

     –          –          138,376  (k)      37,557   
                       (72,819 ) (l)         
                       (28,000 )(g)         

Accumulated deficit

     (66,819     (6,000 )(a)      72,819  (l)      –     

Accumulated other comprehensive income (loss)

     (446     –          –          (446
    


 


 


 


Total stockholders’ equity (deficit)

     (67,265     (6,000     110,376        37,111   
    


 


 


 


Total liabilities and stockholders’ equity (deficit)

   $ 74,663      $ (4,000 )    $ 37,397      $ 108,060   
    


 


 


 


 

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(a)   Reflects S-corporation aggregate shareholder distributions of $6.0 million on January 4, 2012, January 30, 2012 and February 8, 2012.
(b)   Assumes incremental borrowing of $2.0 million, pursuant to our $40.0 million revolving credit facility, on a pro forma basis as of December 31, 2011 to fund shareholder distributions subsequent to that date.
(c)   Reflects net change in cash from offering proceeds.
(d)   Reflects the charge to stockholders’ equity (deficit) related to expenses incurred in connection with this offering prior to December 31, 2011.
(e)   Reflects payoff of $3.0 million of Fifth Third Bank equipment financing facility.
(f)   Reflects payoff of $30.0 million term loan from offering proceeds.
(g)   Reflects $28.0 million of shareholder accumulated adjustments account distribution promissory notes.
(h)   Reflects payoff of $2.0 million incremental borrowing pursuant to item (b) above and payoff of $14.0 million balance on $40.0 million balance on $40.0 million revolving credit facility from offering proceeds.
(i)   Reflects payoff of $25.0 million dividend promissory note from offering proceeds.
(j)   Reflects payoff of $27.0 million dividend payable from offering proceeds.
(k)   Reflects gross offering proceeds of $148.7 million less estimated underwriting discounts, commissions and expenses of $8.9 million, net of estimated underwriter reimbursement of expenses, and the $1.4 million charge to stockholders’ equity (deficit) related to expenses incurred in connection with this offering prior to December 31, 2011.
(l)   Reflects reclassification of the total accumulated deficit to paid in capital for termination of the S-Corporation election.

 

Borrowing Arrangements

 

April 2011 Debt Refinancing and Paydown of Dividend Payable

 

On April 21, 2011, we executed a Revolving Credit and Term Loan Agreement with a syndicate of banks to refinance a substantial portion of outstanding secured debt and to pay a portion of our outstanding dividend payable to CenTra, our former parent. The syndicated senior secured loan package includes a $40 million revolving credit facility, a $25 million equipment credit facility, and a $30 million senior secured term loan. The loan agreement incorporates an “accordion feature” that permits a future increase in the credit facility of up to $25 million. Comerica Bank acted as lead arranger for the agreement and is the administrative agent.

 

Pursuant to the new credit facilities, we immediately borrowed an aggregate $61.0 million, including a $19.9 million revolver advance, an $11.1 million advance pursuant to the equipment credit facility, and the entire $30 million senior secured term loan. We paid $31.0 million of the $58.0 million dividend payable due to CenTra at April 21, 2011. Funds were also used to repay outstanding advances totaling $23.0 million and to terminate our existing Comerica Bank Secured Revolving Credit Facility. Proceeds from the refinancing were also used to repay $3.8 million outstanding pursuant to our Fifth Third Bank Term Loan, which was then terminated. Our Fifth Third Bank Revolving Credit Facility, which had no outstanding borrowings at April 21, 2011, was also terminated. We also repaid $2.3 million of the $8.1 million principal outstanding on our Fifth Third Bank Equipment Financing Facility at April 21, 2011, plus accrued interest.

 

$40 Million Revolving Credit Facility

 

The revolving credit facility is available to refinance existing indebtedness and to finance working capital through April 21, 2014, unless the facility is subsequently extended in one-year increments in accordance with provisions of the revolving credit and term loan agreement. Two interest rate options are applicable to advances borrowed pursuant to the facility: Eurodollar-based advances and base rate advances. Eurodollar-based advances bear interest at 30, 60 or 90-day LIBOR rates plus an applicable margin, which varies from 1.25% to 2.25% based on our ratio of total debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”). At closing, the applicable margin for Eurodollar-based advances is 1.75% and our $14.0 million revolver advance bears an all-in rate of 1.96% based on 30-day LIBOR. As an alternative, base rate advances bear interest at a base rate, as defined, plus an applicable margin, which also varies based on our ratio of total debt to EBITDA in a range from 0.25% to 1.25%. The base rate is the greater of the prime rate announced by Comerica Bank, the federal funds effective rate plus 1.0%, or the daily adjusting LIBOR rate plus 1.0%. The applicable margin that

 

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would have been applicable to any base rate advances at closing is 0.75%. At December 31, 2011, interest accrued at 2.04% based on 30-day LIBOR.

 

To support daily borrowing and other operating requirements, the revolving credit facility contains a $6 million swing line sub-facility, which is provided by Comerica Bank, and a $2.0 million letter of credit sub-facility. Swing line advances incur interest at either the base rate plus the applicable margin or, alternatively, at a quoted rate offered by Comerica Bank in its sole discretion.

 

The revolving credit facility is subject to a facility fee, which is payable quarterly in arrears, of either 0.25% or 0.5%, depending on our ratio of total debt to EBITDA. Other than in connection with Eurodollar-based advances or quoted rate advances that are paid off and terminated prior to an applicable interest period, there are no premiums or penalties resulting from prepayment. Borrowings outstanding at any time under the revolving credit facility are limited to the value of eligible accounts receivable of our principal operating subsidiaries, pursuant to a monthly borrowing base certificate.

 

$25 Million Equipment Credit Facility

 

The equipment credit facility is available to refinance existing indebtedness and to finance capital expenditures including in connection with acquisitions. We may obtain advances until April 21, 2014, unless this date is subsequently extended in one-year increments in accordance with provisions of the revolving credit and term loan agreement. Commencing on each anniversary date of the facility, equipment credit advances made during the prior year are repaid quarterly based on four-year, straight line amortization. The overall facility maturity date is April 21, 2016, unless the facility is subsequently extended in one-year increments pursuant to the agreement.

 

The two interest rate options that apply to revolving credit facility advances, including their associated applicable margins, also apply to equipment credit facility advances. Likewise, a facility fee of either 0.25% or 0.5% is payable quarterly in arrears based on the $25.0 million aggregate commitment as of April 21, 2011, which is subject to increase if we choose to exercise all or a portion of the loan agreement’s “accordion feature.” At December 31, 2011, interest accrued at 2.04% based on 30-day LIBOR.

 

$30 Million Senior Secured Term Loan

 

Proceeds of the term loan were advanced on April 21, 2011 and used to fund initial distributions described in the revolving credit and term loan agreement. The outstanding principal balance is due on April 21, 2016, to the extent not already reduced by mandatory or optional prepayments. Prior to the maturity date, mandatory prepayments are required, subject to certain exceptions, from net cash proceeds derived from an IPO, from issuance of additional subordinated debt, from any other issuance of equity, from excess cash flow recapture, as defined, from asset sale proceeds not reinvested in the business, and from insurance and condemnation proceeds. With respect to any equity issuance other than in connection with an IPO, the prepayment is limited to 50% of net cash proceeds. Excess cash flow is calculated for each year, beginning with the year ending December 31, 2011, based on net income as adjusted for such year and further adjusted for changes in working capital, capital expenditures, and for scheduled, mandatory and optional payments of funded debt. Mandatory prepayment of the term loan equal to 50% of calculated excess cash flow is due June 30 of the year following calculation.

 

Prepayments of the term loan, whether mandatory or optional, are subject to a pre-payment premium. The premium rate applied to any principal prepayment is 1.0% prior to December 31, 2011, 0.5% in fiscal year 2012, and zero thereafter. No re-advances or re-borrowings are allowed following any principal reductions of the term loan.

 

Two interest rate options are applicable to term loan indebtedness: Eurodollar-based advances and base rate advances. Eurodollar-based advances bear interest at 30, 60 or 90-day LIBOR rates plus an applicable margin.

 

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Prior to December 31, 2011, the applicable margin for Eurodollar-based advances varies from 2.75% to 3.50%, based on our ratio of total debt to EBITDA. At closing, the applicable margin for our term loan Eurodollar-based advance is 3.0%, resulting in an all-in per annum rate of 3.2%. At December 31, 2011, interest accrued at 3.29% based on 30-day LIBOR. Beginning December 31, 2011, the applicable margin for Eurodollar-based advances, again based on our total debt to EBITDA ratio, varies from 5.75% to 6.50%, Alternatively, we may convert Eurodollar-based advances to base rate advances, which bear interest at a defined base rate plus an applicable margin. Prior to December 31, 2011, the applicable margin for base rate advances varies in a range from 1.75% to 2.50% based on our total debt to EBITDA ratio. Beginning December 31, 2011, the applicable margin for base rate advances, again based on our ratio of total debt to EBITDA, varies from 4.75% to 5.50%.

 

Interest on the unpaid principal of each Eurodollar-based advance of the term loan is payable on the last day of the applicable Eurodollar interest period. Interest on the unpaid principal of all term loan base rate advances is payable quarterly in arrears commencing on July 1, 2011, and on the first day of each October, January, April and July thereafter.

 

As security for all indebtedness pursuant to the syndicated Revolving Credit and Term Loan Agreement, we granted to Comerica Bank, as agent, a continuing lien on and security interest in substantially all tangible and intangible property of LINC and our significant domestic operating subsidiaries, in assets acquired in the future with advances from the credit facility, and in the stock or other ownership interests of our significant domestic subsidiaries and international subsidiaries, the latter limited to a 65% interest. Collateral property includes our trade accounts receivable; property and equipment with a net book value of $19.4 million at December 31, 2011, a substantial portion of which relates to LINC’s Mexican operations; and other assets with a carrying value of $1.0 million. We also executed a mortgage on our corporate headquarters, which was acquired in 2007 for $1.2 million. The collateral excludes certain tractors and trailers that are subject to liens securing a single note that remains outstanding after April 21, 2011 in connection with our Fifth Third Bank Equipment Financing Facility, which was amended on that date.

 

Concurrent with execution of the Revolving Credit and Term Loan Agreement, the February 9, 2009 subordination agreement among Comerica Bank, LINC, and CenTra in connection with our dividend distribution promissory note was terminated. In its place, a new debt subordination agreement was entered into among Comerica Bank, as agent, LINC, and DIBC Investments, Inc., an affiliate and successor through assignment to ownership of our dividend distribution promissory note.

 

The Revolving Credit and Term Loan Agreement contains annual, quarterly and ad hoc financial reporting requirements and various other restrictive covenants. Financial covenants are calculated and reported quarterly on a trailing four-quarter basis. Specifically, LINC may not exceed a maximum senior debt to EBITDA ratio, as defined, of 2.5:1 and a maximum total debt to EBITDA ratio, as defined, of 3.0:1. We must also maintain a fixed charge coverage ratio after net distributions, as defined, of not less than 1:1 and a fixed charge coverage ratio before net distributions of not less than 1.25:1. Net distributions include any dividends, similar payments or other distribution of assets for the benefit of our owners, including any repayments after April 21, 2011 of our accrued dividend payable to CenTra or our $25 million dividend distribution promissory note. Other restrictive covenants include: a requirement to give notice to the bank of certain transactions; limitations on investments, acquisitions and transactions with affiliates; limitations on additional indebtedness; an obligation to pay all insurance, taxes, levies and assessments promptly; and an obligation to give notice to Comerica of any litigation proceedings or other event that might have a material adverse effect. Customary non-monetary defaults in any covenants are subject to short-term cure periods.

 

The agreement permits us to designate any subsidiary, other than existing subsidiaries and any future guarantor subsidiary, as an “unrestricted” subsidiary. All other subsidiaries are, by definition, restricted subsidiaries and subject to all obligations, covenants and limitations of the agreement. The results of operations and any debt of any unrestricted subsidiaries are disregarded in the calculation of financial covenants. Additionally, transactions completed by any unrestricted subsidiaries are generally not subject to the limitations

 

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and other restrictive covenants applicable to restricted subsidiaries. Finally, any distributions by us within five days of a distribution by an unrestricted subsidiary to us are not subject to limitations on restricted payments.

 

In connection with the terminations of the Fifth Third Bank Revolving Credit Facility and Term Loan, and also the repayment of notes totaling $2.3 million, we amended the Fifth Third Bank Equipment Financing Facility. Various cross-default, cross-collateralization and security arrangements that existed previously were terminated. Likewise, the subordination agreement entered into on May 19, 2009 among Fifth Third Bank, LINC, and our former parent, CenTra, Inc., was terminated.

 

Comerica Bank Secured Revolving Credit Facility.    A portion of proceeds from our bank refinancing on April 21, 2011 was used to repay the outstanding indebtedness under our existing Comerica Bank Secured Revolving Credit Facility, which we then terminated. This facility had originated as a revolving credit facility on March 29, 2007 and was subsequently amended and restated on February 18, 2010. The credit facility was paid in full and terminated on April 21, 2011.

 

Fifth Third Bank Revolving Credit Facility and Term Loan.    A portion of proceeds from our bank refinancing on April 21, 2011 was used to repay the outstanding indebtedness under our Fifth Third Bank Revolving Credit Facility and Term Loan, which we then terminated. On December 18, 2006, we entered into the Fifth Third Bank Business Loan consisting of a $15.0 million revolving credit facility. The revolving credit facility was amended and restated on May 19, 2009 to refinance $9.0 million of then-outstanding revolver advances with an amortizing term loan. The credit facility was paid in full and terminated on April 21, 2011.

 

Fifth Third Bank Equipment Financing Facility.    In connection with the termination of our Fifth Third Bank Revolving Credit Facility and Term Loan, we amended our Fifth Third Bank Equipment Financing Facility after repaying selected equipment financing notes totaling $2.3 million. At the conclusion of the April 21, 2011 refinancing of our senior bank debt, one equipment financing note issued by a subsidiary of Logistics Insight Corporation remained outstanding to Fifth Third Bank. The outstanding principal balance of this note was $5.8 million as of April 21, 2011, and was secured by transportation equipment with a net book value of $5.1 million. Remaining principal payments are due in equal monthly payments, and one final balloon payment is due December 1, 2012. The note bears interest at a variable, per annum rate equal to the sum of 30-day LIBOR plus 1.35%. At December 31, 2011, interest accrued at 1.65% based on 30-day LIBOR. The outstanding principal balance was $3.0 million as of December 31, 2011, and was secured by transportation equipment with a net book value of $3.8 million.

 

GE Capital Equipment Financing Facility.    On December 20, 2004, LGSI Equipment of Wyoming, Inc., a subsidiary of Logistics Insight Corporation, executed an equipment financing facility with General Electric Capital Corporation to finance the acquisition of trailers used in its operations. A promissory note bears interest at a variable, per annum rate equal to the sum of 30-day LIBOR plus 2.17%. At December 31, 2010, the aggregate principal outstanding pursuant to the facility totaled approximately $0.1 million. On March 28, 2011, the note was paid off in full.

 

Dividend Distribution Promissory Note.    On December 31, 2008, LINC issued a $25.0 million dividend distribution promissory note to our former parent, CenTra. The promissory note was issued in connection with extending the payment maturity and to reduce the outstanding payment obligation pursuant to the $93.0 million dividend payable that was declared to CenTra on December 26, 2006, prior to our spin-off transaction on December 31, 2006. Principal on the promissory note is due December 31, 2013. Interest is compounded semi-annually at 1.64%. All accrued interest is due and payable semi-annually on each June 30 and December 31, subject to limitations in our credit facilities and ancillary documents. Excluding the dividend distribution promissory note, the net dividend payable of $68.0 million as of December 31, 2008 was further reduced by $10.0 million following a payment made to CenTra on December 22, 2010, resulting in a balance of $58.0 million as of December 31, 2010. In connection with the April 21, 2011 refinancing of our senior bank debt, the dividend payable was further reduced by $31.0 million to $27.0 million on that date.

 

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Contractual Obligations and Off-Balance Sheet Arrangements

 

The following summarizes our future contractual obligations as of December 31, 2011, and the effect such obligations would be expected to have on our liquidity and cash flow in future periods:

 

     Total

     Payment Due By Period

 
      Less Than
1 Year


     1-3 Years

     3-5 Years

     More Than
5 Years


 
     (in thousands)  

Debt

                                            

Syndicated credit facility

                                            

$40 million revolving credit facility

   $ 14,000       $ —         $ 14,000       $ —         $ —     

$25 million equipment credit facility

     11,082         2,077         8,313         692         —     

$30 million term loan

     30,000         11,329         —           18,671         —     

Fifth Third equipment financing facility

     2,979         2,979         —           —           —     

Dividend Distribution Promissory Note

     25,000         —           25,000         —           —     
    


  


  


  


  


Total debt(1)

     83,061         16,385         47,313         19,363         —     

Operating lease obligations(2)

     25,446         11,723         10,753         1,822         1,148   
    


  


  


  


  


Total

   $ 108,507       $ 28,108       $ 58,066       $ 21,185       $ 1,148   
    


  


  


  


  



(1)   This table does not include $14.3 million of indebtedness incurred in the year ended December 31, 2011, which was subsequently repaid within the period.

 

(2)   Certain operating lease obligations in a currency other than the U.S. dollar will be affected by the exchange rate in effect at the time each cash payment is made.

 

In addition to the above contractual obligations, we are subject to various legal proceedings and other operational contingencies, the outcomes of which are subject to significant uncertainty. We accrue for estimated losses if it is probable that an asset has been impaired or a liability has been incurred, if the amount of the loss can be reasonably estimated, and if such loss exceeds available insurance limits. We use judgment to evaluate whether a loss contingency arising from litigation should be disclosed or recorded. The outcome of legal proceedings is inherently uncertain. Accordingly, if the outcomes of legal proceedings are different than is anticipated by us, we may have to record an incremental charge when known facts and circumstances change or in the period the matter is finally resolved. Such charge may negatively impact our results of operations and financial position for the period.

 

We do not have any relationship with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

 

Pro Forma as Adjusted Earnings per Common Share

 

Pro forma as adjusted earnings per common share for the year ended December 31, 2011 is presented to show the pro forma effect on net income, assuming (i) the termination of our S-corporation status in connection with this offering, (ii) the retirement of debt due to our April 21, 2011 debt refinancing, and (iii) the use of a portion of the net proceeds of this offering to repay outstanding indebtedness, as if these events and transactions had occurred on January 1, 2011. As more fully described in the previous section captioned “Borrowing Arrangements,” our April 21, 2011 debt refinancing provided a syndicated senior loan package that includes a three-year, $40 million revolving credit facility, a five-year, $25 million equipment credit facility with quarterly principal repayments, and a five-year, $30 million senior secured term loan with mandatory prepayments triggered by certain events, including in connection with an IPO or resulting from excess cash flow, as defined.

 

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Pursuant to the total $95 million senior loan package, we borrowed an aggregate $61.0 million on April 21, 2011, using the net proceeds to pay $31.0 million of the $58.0 million dividend payable to CenTra as of that date and to pay off and terminate a substantial portion of outstanding prior indebtedness. Pro forma as adjusted earnings per common share reflects the use of a portion of the net proceeds of this offering, on a pro forma basis for the year ended December 31, 2011, to eliminate interest expense incurred on the following interest-bearing debt: (i) indebtedness prior to the April 21, 2011 refinancing; (ii) our $25 million dividend distribution promissory note; (iii) our Fifth Third Bank equipment financing facility, which had $3.0 million outstanding at December 31, 2011; (iv) our $40 million revolving credit facility, which had $14.0 million outstanding at December 31, 2011; and (v) our $30 million senior secured term loan.

 

LINC Logistics Company

Pro Forma As Adjusted Earnings Per Share

 

     Year Ended
December 31, 2011

    Pro Forma
Adjustments

    Pro forma as adjusted
December 31, 2011

 
                 (unaudited)  

Consolidated Statements of Income:

                        

Revenue

   $ 290,929              $ 290,929   

Operating expenses

                        

Personnel and related benefits

     116,164                116,164   

Purchased transportation and equipment rent

     53,200                53,200   

Occupancy expense

    
16,145
  
           
16,145
  

Operating expenses (exclusive of items shown separately)

     47,152                47,152   

Depreciation and amortization

     6,094                6,094   

Selling, general and administrative expense

     10,532                10,532   
    


         


Total operating expenses

     249,287                249,287   
    


         


Operating Income

     41,642                41,642   
    


         


Other income (expense):

                        

Interest expense

    
(2,218

  $ 2,218 (1)        
               (459 )(2)      (459

Interest income

     3                3   
    


 


 


Total other income (expense)

     (2,215     1,759        (456
    


 


 


Income before provision for income taxes

     39,427        1,759        41,186   

Provision for income taxes

     3,794        12,720 (3)      16,514   
    


 


 


Net income

   $ 35,633      $ (10,961   $ 24,672   
    


 


 


Pro forma as adjusted earnings per common share(4)

                        

Basic

                   $ 0.80   

Diluted

                   $ 0.80   

Weighted average shares outstanding

                        

Basic

                     30,666,667   

Diluted

                     30,966,667   

(1)   Excluded interest expense reflects the amount of interest expense that we incurred on debt outstanding during each period presented, including amortization of debt issuance costs reflected in our Consolidated Statements of Income. Specifically, we assume the following are fully repaid with no outstanding indebtedness at any time from January 1, 2011 through December 31, 2011: Comerica Bank secured revolving credit facility, Fifth Third Bank $9 million term loan, Fifth Third Bank equipment financing facility, GE Capital equipment financing facility, $40 million revolving credit facility, $30 million term loan, and our $25 million dividend distribution promissory note.

 

(2)  

Pro forma interest expense assumes that our only debt balance outstanding, on a pro forma basis beginning as of January 1, 2011, is the $11.1 million we actually borrowed pursuant to our $25 million equipment

 

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credit facility on April 21, 2011. No subsequent principal payments are assumed, as principal amortization is not scheduled to begin before April 1, 2012. However, as noted in the section of this prospectus entitled “Use of Proceeds,” we may use additional net proceeds of this offering to pay down this indebtedness. Amounts shown are calculated based on the aggregate of monthly interest amounts, which are themselves based on 30-day LIBOR plus 1.75%, the applicable margin for Euro-dollar based advances. From January 1, 2011 through December 31, 2011, interest would have accrued at rates between 1.94% and 2.03% on a pro forma basis. Pro forma interest expense also includes amortization on a pro forma basis of capitalized financing costs totaling $0.2 million in 2011.

 

 

(3)   Pro forma provision for income taxes is based on pro forma effective tax rates of 40.1% in 2011. Such rates reflect combined federal, state and local income taxes, assuming we had been treated as a C-corporation during the periods presented for U.S. federal income tax purposes.

 

(4)   Pro forma as adjusted earnings per common share is computed by dividing pro forma as adjusted net income by the number of shares outstanding after this offering.

 

Seasonality

 

We do not believe our results of operations are subject to substantial seasonal trends, other than as a result of the number of holidays in a given fiscal quarter. Our North American automotive customers traditionally shut down vehicle production for one or more weeks in July and for one week during December. Following the economic and automotive industry contraction of 2008-2009, these modest seasonal differences were disrupted by the extended shutdowns in automotive production that occurred in December 2008, and intermittently from January 2009 through July 2009.

 

Critical Accounting Policies and Estimates

 

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, operating revenues and operating expenses. By their nature, these judgments are subject to a degree of uncertainty.

 

Section 107 of the JOBS Act provides that an “emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

Critical accounting policies are those that are both (1) important to the portrayal of our financial condition and results of operations and (2) require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the possible future resolution of the uncertainties increase, those judgments become even more subjective and complex. Critical accounting policies include:

 

Revenue recognition.    We recognize revenue at the time (1) persuasive evidence of an arrangement with our customer exists, (2) services have been rendered, (3) sales price is fixed and determinable, and (4) collectability is reasonably assured. For service arrangements in general, we recognize revenue after the related services have been rendered. For transportation services, we recognize revenue at the time of delivery to the receiver’s location. Our customer contracts could involve multiple revenue-generating activities performed for the same customer. When several contracts are entered into with the same customer in a short period of time, we

 

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evaluate whether these contracts should be considered as a single, multiple element contract for revenue recognition purposes. Criteria we consider that may result in the aggregation of contracts include whether such contracts are actually entered into within a short period of time, whether services in multiple contracts are interrelated, or if the negotiation and terms of one contract show or include consideration for another contract or contracts. Our current contracts have not been required to be aggregated, as they are negotiated independently on a standalone basis, and pricing is established based on operation-specific requirements. Our customers typically choose their vendor and award business at the conclusion of a competitive bidding process for each service. As a result, although we evaluate customer purchase orders and agreements for multiple elements and aggregation of individual contracts into a multiple element arrangement, our current contracts do not meet the criteria required for multiple element contract accounting.

 

We report revenue on a gross basis, as we are the primary obligor and are responsible for providing the service requested by the customer. We have discretion in setting sales prices and, as a result, our earnings may vary. In addition, we have discretion to choose and negotiate terms with our suppliers, from among multiple suppliers for the services ordered by our customers. This includes truck owner-operators with whom we contract to deliver our transportation services.

 

Accounts receivable.    Trade accounts receivable are stated at the net invoiced amount, net of an allowance for doubtful accounts. They include unbilled amounts for services rendered in the respective period on open contracts but not yet billed to the customer until a future date, which typically occurs within one month. In order to reflect customer receivables at their estimated net realizable value, we record charges against revenue based upon current information. These charges generally arise from rate changes, errors, and revenue adjustments that may arise from contract disputes or differences in calculation methods employed by the customer as compared to LINC. LINC’s allowance for doubtful accounts was $0.7 million, and $0.3 million of December 31, 2010 and 2011. The allowance for doubtful accounts represents our best estimate at the reporting date of the amount of probable credit losses, based on an assessment of invoices that remain unpaid following normal customer payment periods, historical collection experience with individual customers, existing economic conditions, and any specific customer collection issues we have identified. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Accounts receivable from affiliates are shown separately and include trade receivables from the sale of services to affiliates.

 

Closing costs.    Our customers may discontinue or alter their business activity in a location earlier than anticipated, prompting us to exit a customer-dedicated facility. We recognize exit costs associated with operations that close or are identified for closure as an accrued liability. Such charges include lease termination costs, employee termination charges, asset impairment charges, and other exit-related costs associated with a plan approved by management. If we close an operating facility before its lease expires, costs to terminate a lease are recognized when an early termination provision is exercised, or we record a liability for non-cancellable lease obligations based on the fair value of remaining lease payments, reduced by management’s estimate of any existing or prospective sublease rentals which can be subject to update as either available facts or circumstances change. Employee termination costs are recognized in the period that the closure is communicated to affected employees and calculated based on known termination benefits. The recognition of exit and disposal charges requires us to make certain assumptions and estimates as to the amount and timing of such charges and their related fair values. Management reviews all assumptions and estimates for each quarterly reporting period. As a result, adjustments may be made for changes in estimates in the period in which the change becomes known.

 

Self-insured loss reserve.    We have established reserves for legal contingencies in accordance with generally accepted accounting principles. Accruals for potential losses primarily relate to auto liability, general liability, and cargo and equipment damage claims that may be in excess of insurance policy limits. A liability is recognized for the estimated cost of all self-insured claims, including an estimate of incurred but not reported claims, based on historical experience and for claims expected to exceed our insurance policy limits. We may also record accruals for personal injury and property damage to third parties, and for workers’ compensation claims if a claim exceeds our insurance coverage. A significant amount of judgment and use of estimates is

 

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required to quantify our ultimate exposure in these matters. The valuation of reserves for contingencies is reviewed by management on a quarterly basis at the operating and corporate levels, as applicable, to ensure that our reserves are appropriate. Reserve balances are adjusted to account for changes in circumstances for ongoing issues and the establishment of additional reserves for emerging issues. While management believes that the current level of reserves is adequate, future changes or the occurrence of unanticipated events could impact these determinations and result in material changes to our reserves.

 

Deferred income tax and related matters.    Since January 1, 2007, we have been treated as an S-corporation for U.S. federal income tax purposes. Although we are responsible to pay applicable state, local and foreign income taxes, U.S. federal income taxes have not been our direct payment obligation during this period. Deferred income taxes are the result of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our assumptions, judgments and estimates relative to our current provision for income taxes and the value of net deferred taxes consider current tax laws, our interpretation of these laws, predictions of future taxable income, and our potential exposure involving tax positions that could be challenged by tax authorities. As of January 1, 2007, we adopted new accounting and disclosure rules that relate to uncertainty in income taxes. We analyze filing positions annually in all of the jurisdictions where we are required to file income tax returns, including all open tax years in these jurisdictions. In 2007, 2008 and 2009, we concluded that certain income tax positions and deductions are more likely than not to be sustained by the relevant tax authority if subjected to audit. However, we have not recognized any increases in unrecognized tax benefits as a result of positions taken during any such period as there were no material changes. Actual performance, changes in tax laws in future years, and action by taxing authorities are among the factors that could render our current assumptions, judgments and estimates inaccurate, thus materially impacting our financial position and results of operations.

 

Effect of Recent Accounting Pronouncements

 

In October 2009, the FASB issued an Accounting Standards Update (“ASU”), “Revenue Recognition: Multiple-Deliverable Revenue Arrangements — a consensus of the Emerging Issues Task Force.” The update provides guidance for arrangements under which a vendor will perform multiple revenue-generating activities. Specifically, the guidance addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. This guidance was effective for the Company on January 1, 2011, but did not have a material effect on our consolidated financial statements.

 

In July 2010, FASB issued an ASU that requires enhanced future disclosures about the credit quality of a creditor’s financing receivables, including trade accounts receivable, and the adequacy of allowances for doubtful accounts. The amended guidance was applicable to LINC as of January 1, 2011, and did not have a significant effect on our consolidated financial statements.

 

In June 2011, FASB issued an ASU, “Presentation of Comprehensive Income.” The update provides guidance for a more consistent method of presenting non-owner transactions that affect an entity’s equity. The ASU is to be applied retrospectively upon adoption and is effective for interim and annual periods beginning after December 15, 2011 for public companies and December 15, 2012 for non-public companies. We have elected early adoption of the guidance and the change is reflected in our Consolidated Financial Statements.

 

In September 2011, FASB issued an ASU, “Disclosures about an Employer’s Participation in a Multiemployer Plan.” The update requires additional disclosures to help users of financial statements assess the potential future cash flow implications relating to participation in multi-employer pension plans. For the Company, the new disclosure requirements are effective for annual periods for fiscal years ending after December 15, 2011. Early adoption is permitted. An insignificant number of our international employees are entitled to Company-funded contributions to such a plan. The ASU did not have a material effect on our disclosures.

 

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Quantitative and Qualitative Disclosures About Market Risk

 

Interest rate risk.    Our principal exposure to interest rate risk relates to our revolving lines of credit, a term loan, and our equipment financing facilities, all of which incur interest at floating rates. As of December 31, 2011, we had total variable interest rate borrowings of $58.1 million. Assuming a 100 basis point increase in interest rates on our variable rate debt, interest expense would have increased approximately $0.5 million, $0.4 million, and $0.7 million for the years ended December 31, 2009, 2010 and 2011 respectively.

 

Concentrations of credit risk.    Cash and accounts receivable are financial instruments which potentially subject us to concentrations of credit risk. Our customers are concentrated in the automotive industry. We perform ongoing credit evaluations of our customers, and our history of incurring credit losses from customers has not been material. This includes our experience during the government-sponsored restructurings of General Motors and Chrysler, whereby we collected substantially all “pre-petition” amounts due to us within a few months of each company’s bankruptcy filing. Although we are directly affected by the economic well-being of our customers and the supply chains in which we operate, we do not believe significant credit risk exists at December 31, 2011. Consistent with industry practice, we generally do not require collateral to reduce credit risk.

 

Foreign exchange risk.    For the year ended December 31, 2011, 11.0% of our revenues were derived from services provided outside the United States, principally in Canada and Mexico. Exposure to market risk for changes in foreign currency exchange rates relates primarily to selling services and incurring costs in currencies other than the local currency and to the carrying value of net investments in foreign subsidiaries. As a result, we are exposed to foreign currency exchange rate risk due primarily due to translation of the accounts of our Canadian and, Mexican operations from their local currencies into U.S. dollars and also to the extent we engage in cross-border transactions. The majority of our exposure to fluctuations in the Canadian dollar and Mexican peso is naturally hedged, since a substantial portion of our revenues and operating costs are denominated in each country’s local currency. Historically, we have not entered into financial instruments for trading or speculative purposes. Short-term exposures to fluctuating foreign currency exchange rates are related primarily to intercompany transactions. The duration of these exposures is minimized by ongoing settlement of intercompany trading obligations.

 

The net investments in our Canadian and Mexican operations are exposed to foreign currency translation gains and losses, which are included as a component of accumulated other comprehensive income in our statement of stockholders’ equity. Adjustments from the translation of the net investment in these operations increased equity by approximately $0.1 million for the year ended December 31, 2010 and $0.3 million for 2011.

 

Fuel price risk.    Exposure to market risk for fluctuations in fuel prices relates to a small portion of our transportation service contracts for which the cost of fuel is integral to service delivery and the service contract does not have a mechanism to adjust for increases in fuel prices. Increases and decreases in the price of fuel are generally passed on to our customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs. We believe the exposure to fuel price fluctuations would not materially impact our results of operations, cash flows or financial position.

 

Fluctuations in fuel prices can affect our profitability by affecting our ability to retain or recruit owner-operators that are needed to support our transportation services. Owner-operators bear the costs of operating their tractors, including the cost of fuel. To address fluctuations in fuel prices, we seek to impose fuel surcharges on our customers and pass these surcharges on to our owner-operators. If costs for fuel escalate significantly, we could experience difficulty in attracting additional qualified owner-operators and retaining our current owner- operators. If we lose the services of a significant number of owner-operators or are unable to attract additional owner-operators, it could have a materially adverse effect on our financial condition and results of operations.

 

Inflation.    Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operational results, as inflationary increases in fuel and labor costs have generally been offset through fuel surcharges and productivity improvements.

 

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Unaudited Quarterly Results

 

The following table presents our operating results for each of the ten quarters ended December 31, 2011. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, all necessary adjustments, which consist only of normal and recurring adjustments, have been included to present fairly the unaudited quarterly results. This data should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus. These operating results may not be indicative of results to be expected for any future period.

 

    Fiscal Quarter Ended

 
    3-Oct-09

    31-Dec-09

    3-Apr-10

    3-Jul-10

    2-Oct-10

    31-Dec-10

    2-Apr-11

    2-Jul-11

    1-Oct-11

    31-Dec-11

 
          (in thousands, except share and per share amounts)  

Statements of Income Data:

                                                                               

Revenue

  $ 47,562      $ 50,825      $ 56,093      $ 63,843      $ 63,475      $ 62,374      $ 69,566      $ 73,571      $ 74,423      $ 73,369   

Operating expenses:

                                                                               

Personnel and related benefits

    18,568        19,971        23,255        24,733        23,597        23,116        26,750        28,239        30,402        30,773   

Purchased transportation
equipment rent

    7,379        9,960        10,289        12,176        13,958        13,563        13,213        13,678        13,856        12,453   

Occupancy expense

    5,503        4,353        3,122        3,903        3,077        3,643        3,453        3,949        3,867        4,876   

Operating expenses (exclusive of items shown separately)

    6,510        7,455        8,084        8,548        8,157        8,895        11,287        12,262        11,584        12,019   

Depreciation and amortization

    1,710        1,721        1,597        1,616        1,631        1,699        1,415        1,507        1,583        1,589   

Selling, general and administrative expense

    1,901        902        2,576        2,676        2,225        2,596        2,704        2,354        2,563        2,911   
   


 


 


 


 


 


 


 


 


 


Total operating expenses (expense)

    41,571        44,362        48,923        53,652        52,645        53,512        58,822        61,989        63,855        64,621   
   


 


 


 


 


 


 


 


 


 


Operating income

    5,991        6,463        7,170        10,191        10,830        8,862        10,744        11,582        10,568        8,748   

Other income (expense):

                                                                               

Interest expense

    (382     (331     (390     (422     (422     (344     (388     (622     (628     (580

Interest income

    36        33        34        29               1                      2        1   
   


 


 


 


 


 


 


 


 


 


Total other income (expense)

    (346     (298     (356     (393     (422     (343     (388     (622     (626     (579

Income before provision for income taxes

    5,645        6,165        6,814        9,798        10,408        8,519        10,356        10,960        9,942        8,169   

Provision for income taxes

    312        324        395        594        522        1,063        839        671        1,252        1,032   
   


 


 


 


 


 


 


 


 


 


Net income

  $ 5,333      $ 5,841      $ 6,419      $ 9,204      $ 9,886      $ 7,456      $ 9,517      $ 10,289      $ 8,690      $ 7,137   
   


 


 


 


 


 


 


 


 


 


Pro Forma Data (unaudited):

                                                                               

Income before provision for income taxes

  $ 5,645      $ 6,165      $ 6,814      $ 9,798      $ 10,408      $ 8,519      $ 10,356      $ 10,960      $ 9,942      $ 8,169   

Pro forma provision for income taxes(1)

    2,248        2,371        2,610        3,752        3,986        3,263        4,018        4,189        3,671        3,932   
   


 


 


 


 


 


 


 


 


 


Pro forma net income(1)

  $ 3,397      $ 3,794      $ 4,204      $ 6,046      $ 6,422      $ 5,256      $ 6,338      $ 6,771      $ 6,271      $ 4,237   
   


 


 


 


 


 


 


 


 


 


Pro forma earnings per share,

                                                                               

Basic and diluted

  $ 0.16      $ 0.18      $ 0.20      $ 0.29      $ 0.31      $ 0.25      $ 0.31      $ 0.33      $ 0.30      $ 0.20   

Weighted average shares outstanding

    20,753,334        20,753,334        20,753,334        20,753,334        20,753,334        20,753,334        20,753,334        20,753,334        20,753,334        20,753,334   

(1)   See Note 1 to “Summary Consolidated Financial and Operating Data.”

 

We believe that the results for certain of the periods reflected in the table above are not indicative of ordinary operations, as follows: (i) for each of the thirteen weeks ended October 3, 2009, December 31, 2009, April 3, 2010, July 3, 2010, October 2, 2010, April 2, 2011, July 2, 2011, October 1, 2011 and December 31, 2011, closing expenses or related adjustments were recognized in the amounts of $0.6 million, $0.1 million, $(0.4) million, $15,000, $(0.5) million, $0.1 million, $(38,000), $(0.6) million and $1.0 million respectively; and (ii) for the thirteen weeks ended December 31, 2009, selected operating expenses were reduced by a change in certain vacation policies totaling $1.1 million.

 

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INDUSTRY

 

Logistics Industry Overview

 

Logistics services involve the management and transportation of materials and inventory throughout the supply chain. The logistics industry is an integral part of the global economy. Global logistics costs in 2010 totaled $6.9 trillion, or 11.1% of global GDP, according to estimates by Armstrong & Associates.

 

As supply chains have become more complex, many companies have outsourced logistics functions to third-party logistics (3PL) providers. Global 3PL revenues in 2010 totaled $541.6 billion, according to Armstrong & Associates. Through outsourcing, companies can realize the following benefits: reduced supply chain costs, minimization of investment in non-core assets, increased operational flexibility, access to greater visibility in the supply chain and improved customer service. Increased globalization of trade, security and regulatory concerns, demand for greater supply chain integration and visibility, and ongoing competitive pressures to reduce costs and improve customer service will continue to drive outsourcing decisions.

 

3PL providers deliver a number of services such as transportation, warehousing, supply chain management, inbound and outbound freight management, customs brokerage and distribution. In addition, 3PLs can provide other value-added services, ranging from packing and labeling to sequencing and sub-assembly, to freight tracking and delivery, and ultimately, to fully embedded systems linked to customer enterprise resource planning (ERP) suites that facilitate supply chain management. These services are aimed at improving supply chain efficiency and visibility, and differentiate 3PLs from transportation companies and basic warehousing operations. The following table lists 3PL value-added activities and capabilities identified by Armstrong & Associates and denotes the breadth of services provided.

 

4PL/Lead Logistics Provider*

   Inventory/Vendor Management    Light Manufacturing/Assembly

Call Center Management

   Pool Distribution/Cross Docking    Radio Frequency and Barcoding

Food Grade/Temp Controlled*

   Installation/Removal    ISO Certification

Transportation Network Planning

   Carrier Contracting/Brokerage    Transportation & Event Management

Customs Brokerage

   Project Management    Consulting/Process Engineering

Just In Time and Kanban

   Kitting/Pick & Pack    Reverse Logistics

WMS Deployment*

   Small Package/Fulfillment*    Home Delivery

Order Management

   Transp. Execution/Freight Bill    Internet Supply Chain Visibility

Bulk Materials Handling

   Hazmat Handling     

Source: Armstrong & Associates

*   Service not currently performed by us.

 

Segmentation and Drivers of the U.S. 3PL Market

 

The U.S. 3PL market has expanded rapidly due to the demand for improved supply chain efficiency and the significant value proposition provided to companies by 3PL providers. Gross revenue for the U.S. 3PL market increased from $30.8 billion in 1996 to $127.3 billion in 2010 according to Armstrong & Associates, representing a compound annual growth rate of 10.7%. In 2011, Armstrong estimates that the market expanded by 10.9% reaching $141.2 billion. Growth in this sector is being driven primarily by the elongation and increasing complexity of supply chains and by the continued desire of manufacturers to focus on their core competencies, cost controls and production efficiencies.

 

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Growth of U.S. 3PL Market ($ billion)

 

LOGO

 

Source: Armstrong & Associates

 

The table below represents the segmentation of the U.S. 3PL market for 2010, according to Armstrong & Associates. As an integrated service provider, LINC offers services in the international and domestic transportation management, value-added warehouse/distribution and the dedicated contract carriage segments of the 3PL market.

 

U.S. 3PL Market (2010)


   Gross Revenue
($ billion)

     % of Total

 

International transportation management

   $ 45.7         35.9

Domestic transportation management

     36.8         28.9

Value-added warehousing and distribution

     31.4         24.6

Dedicated contract carriage

     10.4         8.2

Software

     3.0         2.4
    


  


Total

   $ 127.3         100.0
    


  


 

Source: Armstrong & Associates

 

Key Drivers of Market Growth

 

Growing demand for third-party logistics services is spurred by several key drivers, including:

 

   

Increased outsourcing.    For many companies, logistics is a critical component of their operations, but is not a core competency. As a result, companies continue to outsource their logistics needs to 3PL providers to access specialist skills, redeploy resources to core activities, and transform fixed costs into variable costs.

 

   

Increased globalization of trade.    Lower trade barriers, growing trade volumes, globalization of sourcing and relocation to low-cost countries, in combination with modern production and distribution techniques, have greatly increased the complexity of supply chains, boosting demand for outsourced logistics solutions.

 

   

Demand for greater supply chain integration and visibility.    Businesses are seeking the assistance of 3PL providers to offer real-time visibility over the full supply chain, which facilitates transaction processing and provides secure, real-time visibility and information. In response, 3PL providers have become more technologically sophisticated, process driven and solution-oriented in response to customer needs.

 

   

Competitive requirement to reduce costs and improve customer service.    Given limited pricing power in many industries, companies continue to focus on improving margins by increasing the efficiency of and reducing the cost of their supply chains. In addition, by providing real-time information regarding the status and location of goods in the supply chain, 3PL providers enable companies to improve customer service.

 

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Key Trends

 

Key trends influencing the logistics industry include:

 

   

Sector-based specialization.    The logistics industry has become increasingly specialized in recent years, with service providers focusing on a particular product type and service or other specialized needs of that industry. These specialized industry supply chain solutions generally command higher margins than standard logistics operations, especially when accompanied by value-added services.

 

   

Increasing demand for value-added services.    As more companies use third-party logistics services, they are seeking more value-added services to reduce costs and improve customer service. These include activities such as sequencing and sub-assembly, kitting, fulfillment, transportation management, assembly, cleaning and packaging.

 

   

Demand for integrated logistics services.    Clients are increasingly looking for an integrated logistics provider that can not only provide their own logistics services, but also work with other 3PL providers to design, build and run comprehensive supply chain solutions, addressing multiple logistics needs. A total supply chain management approach provides many advantages to clients, including providing a single point of contact for all aspects of the supply chain.

 

   

Advances in information technology.    Information technology is a critical differentiator in the logistics industry. A logistics provider’s IT platform needs to be able to serve operational needs as well as facilitate the development of complex and innovative logistics solutions to meet clients’ growing demand for sophisticated systems.

 

Automotive Industry Logistics

 

Automotive logistics involves the management of highly complex just-in-time supply systems where the delivery of components from a variety of sources based in different countries must be carefully coordinated, properly staged and appropriately handled to ensure a smooth manufacturing and assembly process. The automotive industry has developed into one of the largest users of outsourced logistics services. In 2007, the Automotive industry segment of the global Fortune 500 had total logistics costs of $112.9 billion and 3PL revenue of $42.3 billion, according to Armstrong & Associates. As illustrated in the following chart, the automotive industry accounted for 22.6% of total outsourced logistics revenues from global Fortune 500 companies in 2007.

 

3PL Revenues by Industry for Global Fortune 500 in 2007

 

LOGO

 

Source: Armstrong & Associates

 

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Outsourcing of logistics activities in the automotive industry has been driven by a number of factors, including: (i) globalization resulting in highly complex supply chains with broad geographic scope, (ii) significant competition resulting in manufacturers’ increasing need to reduce costs and increase operational flexibility, which is especially relevant for the U.S. OEMs that continue to face operating and financial challenges, (iii) increased importance of sophisticated manufacturing and supply chain management techniques such as just-in-time processes and in-line vehicle sequencing, which have enhanced the range of high value-added logistics services provided by 3PLs, and (iv) demand for greater supply chain integration and visibility by OEMs. By outsourcing logistics activities, OEMs have been able to reduce operating costs (including labor related costs), enhance flexibility and improve quality and customer service.

 

We believe outsourcing of automotive logistics services will continue to grow. Currently, commonly outsourced logistics activities include transportation, customs clearance, warehousing, shipment consolidation and freight forwarding. We believe that OEMs will increasingly seek outsourced solutions for additional value-added logistics activities such as sub-assembly, sequencing, packaging, consolidation and deconsolidation and line-side inventory functions, creating attractive growth opportunities for 3PLs, such as LINC, with specialized capabilities and expertise in automotive supply chains.

 

North American Automotive OEM Industry

 

In 2010, the automotive OEM industry produced a strong recovery from a downturn that began in 2008 and continued throughout 2009. According to JD Power and Associates, North American light-vehicle automotive sales rebounded in 2010 to 13.9 million units after declining to 12.6 million units in 2009, from 15.9 million units in 2008 and 18.9 million units in 2007. Strong growth in sales levels has continued throughout 2011 as JD Power and Associates reported North American light-vehicle automotive sales reached 15.2 million units for the year.

 

The economic downturn has driven a significant structure change in the auto industry. Automotive OEMs have taken numerous restructuring actions to reduce fixed operating costs and increase the variability of cost structures in order to enhance their financial flexibility in the event of future market downturns. In order to adapt their product portfolios to meet customer demands, OEMs have made significant research and development investments in fuel-efficient and environment-friendly vehicles, which we believe sets the stage for growth over the next decade.

 

We expect automotive sales will continue to grow through 2012 and 2013. Along with improvements in general economic conditions and consumer confidence, the industry will continue to benefit from an improved demand environment driven in part by the advent of new vehicle segments, such as fuel-hybrids. According to JD Power and Associates, North American light-vehicle sales are expected to increase to 16.4 million units in 2012 and to 18.0 million units in 2013. However, there is no guarantee that such growth will actually occur.

 

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BUSINESS

 

Overview

 

We are a leading provider of custom-developed third-party logistics solutions that allow our customers and clients to reduce costs and manage their global supply chains more efficiently. We believe many of our services are essential to the successful operations of our customers’ production processes. We offer a comprehensive suite of supply chain logistics services, including value-added, transportation and specialized services. Our value-added services include material handling and consolidation, sequencing and sub-assembling, kitting and repacking, and returnable container management. We also provide a broad range of transportation services, such as dedicated truckload, shuttle operations and yard management. Our specialized services include air and ocean freight forwarding, expedited ground transportation and final-mile delivery. We believe the breadth of our service offerings provides us with a competitive advantage.

 

We operate, manage or provide transportation services at 43 logistics locations in the United States, Canada and Mexico. Thirteen facilities are located inside customer plants; the other facilities are gene