XNAS:QLTY Quality Distribution Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended June 30, 2012

or

 

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

For the transition period from              to             

Commission File Number: 000-24180

 

 

Quality Distribution, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Florida   59-3239073

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

4041 Park Oaks Boulevard, Suite 200, Tampa, FL   33610
(Address of Principal Executive Offices)   (Zip Code)

813-630-5826

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

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

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

As of August 3, 2012, the registrant had 27,782,315 shares of Common Stock, no par value, outstanding.

 

 

 


Table of Contents

QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

CONTENTS

 

PART I—FINANCIAL INFORMATION

     1   

ITEM 1—FINANCIAL STATEMENTS (Unaudited)

     1   

Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2012 and 2011

     1   

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June  30, 2012 and 2011

     2   

Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011

     3   

Consolidated Statements of Shareholders’ Deficit for the Six Months Ended June  30, 2012 and 2011

     4   

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011

     5   

Notes to Consolidated Financial Statements

     6   

ITEM  2—Management’s Discussion and Analysis of Financial Condition and Results of Operations

     33   

ITEM 3—Quantitative and Qualitative Disclosures About Market Risk

     60   

ITEM 4—Controls and Procedures

     61   

PART II—OTHER INFORMATION

     61   

ITEM 1—Legal Proceedings

     61   

ITEM 1A—Risk Factors

     61   

ITEM 2—Unregistered Sales of Equity Securities and Use of Proceeds

     63   

ITEM 3—Defaults Upon Senior Securities

     63   

ITEM 4—Mine Safety Disclosures

     63   

ITEM 5—Other Information

     63   

ITEM 6—Exhibits

     64   

Signatures

     65   

 


Table of Contents

QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

PART I—FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS

Consolidated Statements of Operations

Unaudited (In 000’s, Except Per Share Amounts)

 

     Three months ended
June 30,
    Six months ended
June 30,
 
     2012     2011     2012     2011  

OPERATING REVENUES:

        

Transportation

   $ 150,519      $ 129,397      $ 283,725      $ 254,078   

Service revenue

     30,034        27,642        58,019        54,380   

Fuel surcharge

     32,180        32,954        62,904        59,445   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     212,733        189,993        404,648        367,903   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

Purchased transportation

     142,309        133,692        274,186        258,414   

Compensation

     18,516        15,515        35,147        30,398   

Fuel, supplies and maintenance

     18,445        11,665        32,911        23,442   

Depreciation and amortization

     4,622        3,378        8,413        6,870   

Selling and administrative

     10,089        4,886        16,599        10,035   

Insurance costs

     4,139        3,540        7,358        8,225   

Taxes and licenses

     624        652        1,372        1,099   

Communication and utilities

     907        657        1,744        1,459   

Gain on disposal of property and equipment

     (362     (410     (364     (650

Restructuring credit

     —          (521     —          (521
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     199,289        173,054        377,366        338,771   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     13,444        16,939        27,282        29,132   

Interest expense

     7,180        7,311        14,369        15,122   

Interest income

     (229     (178     (408     (317

Write-off of debt issuance costs

     —          —          —          1,786   

Other expense (income)

     72        29        (164     (7
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     6,421        9,777        13,485        12,548   

(Benefit from) provision for income taxes

     (22,383     731        (22,019     780   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 28,804      $ 9,046      $ 35,504      $ 11,768   
  

 

 

   

 

 

   

 

 

   

 

 

 

PER SHARE DATA:

        

Net income per common share

        

Basic

   $ 1.07      $ 0.39      $ 1.38      $ 0.52   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 1.04      $ 0.37      $ 1.34      $ 0.49   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares

        

Basic

     26,804        23,253        25,675        22,723   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     27,600        24,581        26,516        24,024   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1


Table of Contents

QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited (In 000’s)

 

     Three months ended
June 30,
     Six months ended
June 30,
 
     2012      2011      2012      2011  

Net income

   $ 28,804       $ 9,046       $ 35,504       $ 11,768   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income, net of tax:

           

Amortization of prior service costs and losses

     388         318         776         636   

Foreign currency translation adjustment

     45         7         6         (43
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income, net of tax

     433         325         782         593   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income

   $ 29,237       $ 9,371       $ 36,286       $ 12,361   
  

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2


Table of Contents

QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

Unaudited (In 000’s)

 

     June 30,
2012
    December 31,
2011
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 4,129      $ 4,053   

Accounts receivable, net

     116,481        90,567   

Prepaid expenses

     10,962        7,849   

Deferred tax asset

     7,491        4,048   

Other current assets

     7,323        3,858   
  

 

 

   

 

 

 

Total current assets

     146,386        110,375   

Property and equipment, net

     163,264        125,892   

Goodwill

     82,047        31,344   

Intangibles, net

     35,031        18,471   

Non-current deferred tax asset

     15,286        —     

Other assets

     12,483        16,313   
  

 

 

   

 

 

 

Total assets

   $ 454,497      $ 302,395   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

    

Current liabilities:

    

Current maturities of indebtedness

   $ 2,537      $ 4,139   

Current maturities of capital lease obligations

     5,250        5,261   

Accounts payable

     12,327        7,571   

Independent affiliates and independent owner-operators payable

     17,358        9,795   

Accrued expenses

     36,141        25,327   

Environmental liabilities

     4,201        3,878   

Accrued loss and damage claims

     7,888        8,614   
  

 

 

   

 

 

 

Total current liabilities

     85,702        64,585   

Long-term indebtedness, less current maturities

     356,194        293,823   

Capital lease obligations, less current maturities

     2,327        3,840   

Environmental liabilities

     5,156        6,222   

Accrued loss and damage claims

     8,931        9,768   

Other non-current liabilities

     25,937        30,342   
  

 

 

   

 

 

 

Total liabilities

     484, 247        408,580   
  

 

 

   

 

 

 

Commitments and contingencies—Note 13

    

SHAREHOLDERS’ DEFICIT

    

Common stock, no par value; 49,000 shares authorized; 28,048 issued and 27,776 outstanding at June 30, 2012 and 24,207 issued and 23,940 outstanding at December 31, 2011

     435,396        393,859   

Treasury stock, 272 shares at June 30, 2012 and 267 shares at December 31, 2011

     (1,944     (1,878

Accumulated deficit

     (243,039     (278,543

Stock recapitalization

     (189,589     (189,589

Accumulated other comprehensive loss

     (30,599     (31,381

Stock purchase warrants

     25        1,347   
  

 

 

   

 

 

 

Total shareholders’ deficit

     (29,750     (106,185
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

   $ 454,497      $ 302,395   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Deficit

For the Six Months Ended June 30, 2012 and 2011

Unaudited (In 000’s)

 

     Shares of
Common
Stock
     Shares of
Treasury
Stock
    Common
Stock
     Treasury
Stock
    Accumulated
Deficit
    Stock
Recapitalization
    Accumulated
Other
Comprehensive
Loss
    Stock Purchase
Warrants
    Total
Shareholders’
Deficit
 

Balance, December 31, 2010

     21,678         (220   $ 371,288       $ (1,593   $ (301,974   $ (189,589   $ (26,194   $ 1,683      $ (146,379

Net income

     —           —          —           —          11,768        —          —          —          11,768   

Issuance of restricted stock

     83         —          —           —          —          —          —          —          —     

Forfeiture of restricted stock

     —           (18     —           —          —          —          —          —          —     

Amortization of restricted stock

     —           —          562         —          —          —          —          —          562   

Amortization of stock options

     —           —          896         —          —          —          —          —          896   

Stock option exercises

     307         (1     1,618         (13 )     —          —          —          —          1,605   

Proceeds from equity offering, net of transaction costs

     2,000         —          17,599         —          —          —          —          —          17,599   

Satisfaction of stock subscription receivable

     —           (4     —           —          —          —          —          —          —     

Amortization of prior service costs and losses (pension plans), net of tax

     —           —          —           —          —          —          636        —          636   

Foreign currency translation adjustment, net of tax

     —           —          —           —          —          —          (43     —          (43
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011

     24,068         (243   $ 391,963       $ (1,606   $ (290,206   $ (189,589   $ (25,601   $ 1,683      $ (113,356
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

     24,207         (267   $ 393,859       $ (1,878   $ (278,543   $ (189,589   $ (31,381   $ 1,347      $ (106,185

Net income

     —           —          —           —          35,504        —          —          —          35,504   

Issuance of restricted stock

     163         —          —           —          —          —          —          —          —     

Forfeiture of restricted stock

     —           (5     —           (66     —          —          —          —          (66

Amortization of restricted stock

     —           —          658         —          —          —          —          —          658   

Amortization of stock options

     —           —          860         —          —          —          —          —          860   

Stock warrant exercises

     346         —          1,322         —          —          —          —          (1,322     —     

Stock option exercises

     47         —          254         —          —          —          —          —          254   

Proceeds from equity offering, net of transaction costs

     2,500         —          30,523         —          —          —          —          —          30,523   

Issuance of stock for acquisitions

     785         —          7,920         —          —          —          —          —          7,920   

Amortization of prior service costs and losses (pension plans), net of tax

     —           —          —           —          —          —          776        —          776   

Foreign currency translation adjustment, net of tax

     —           —          —           —          —          —          6        —          6   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

     28,048         (272   $ 435,396       $ (1,944   $ (243,039   $ (189,589   $ (30,599   $ 25      $ (29,750
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Unaudited (In 000’s)

 

     Six Months Ended
June 30,
 
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 35,504      $ 11,768   

Adjustments to reconcile to net cash and cash equivalents provided by (used in) operating activities:

    

Depreciation and amortization

     8,413        6,870   

Bad debt recoveries

     (24     (118

Gain on disposal of property and equipment

     (364     (650

PIK interest on Senior Subordinated Notes

     —          187   

Write-off of deferred financing costs

     —          328   

Write-off of original bond issuance costs

     —          1,458   

Stock-based compensation

     1,518        1,458   

Amortization of deferred financing costs

     1,055        1,095   

Amortization of bond discount

     108        220   

Noncontrolling interest dividends

     —          38   

Release of deferred tax asset valuation allowance

     (22,777     —     

Changes in assets and liabilities:

    

Accounts and other receivables

     (25,884     (14,540

Prepaid expenses

     610        1,408   

Other assets

     (3,103     1,527   

Accounts payable

     3,316        406   

Accrued expenses

     263        (3,301

Environmental liabilities

     (743     (1,398

Accrued loss and damage claims

     (1,562     2,195   

Independent affiliates and independent owner-operators payable

     7,563        3,390   

Other liabilities

     373        (126

Current income taxes

     (872     187   
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,394        12,402   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (17,913     (9,336

Greensville purchase price adjustment

     (66     —     

Acquisition of Trojan

     (8,657     —     

Acquisition of Bice and RM

     (52,176     —     

Proceeds from sales of property and equipment

     6,959        6,279   
  

 

 

   

 

 

 

Net cash used in investing activities

     (71,853     (3,057
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Principal payments on long-term debt

     (2,472     (30,379

Principal payments on capital lease obligations

     (2,005     (2,545

Proceeds from revolver

     126,800        60,000   

Payments on revolver

     (85,300     (53,000

Payments on acquisition notes

     (428     (405

Deferred financing costs

     (277     (607

Change in book overdraft

     1,440        149   

Noncontrolling interest dividends

     —          (38

Redemption of noncontrolling interest

     —          (1,833

Proceeds from equity offering, net of transaction costs

     30,523        17,599   

Proceeds from exercise of stock options

     254        1,605   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     68,535        (9,454
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     —          (1
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     76        (110

Cash and cash equivalents, beginning of period

     4,053        1,753   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 4,129      $ 1,643   
  

 

 

   

 

 

 

Supplemental Disclosure of Cash Flow Information

    

Cash paid during the period for:

    

Interest

   $ 13,066      $ 13,657   
  

 

 

   

 

 

 

Income Taxes

     1,212        631   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

Quality Distribution, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

In this quarterly report, unless the context otherwise requires or indicates, (i) the terms the “Company,” “our Company,” “Quality Distribution,” “QDI,” “we,” “us” and “our” refer to Quality Distribution, Inc. and its consolidated subsidiaries and their predecessors, (ii) the terms “Quality Distribution, LLC” and “QD LLC” refer to our 100% owned subsidiary, Quality Distribution, LLC, a Delaware limited liability company, and its consolidated subsidiaries and their predecessors, (iii) the term “QD Capital” refers to our 100% owned subsidiary, QD Capital Corporation, a Delaware corporation, (iv) the term “QCI” refers to our 100% owned subsidiary, Quality Carriers, Inc., an Illinois corporation, (v) the term “Boasso” refers collectively to our 100% owned subsidiary, Boasso America Corporation, a Louisiana corporation, and Boasso’s 100% owned subsidiary, Greensville Transport Company (“Greensville”), a Virginia corporation, (vi) the term “QCER” refers collectively to our 100% owned subsidiaries, QC Energy Resources, Inc., a Delaware corporation, QC Energy Resources, LLC, a Delaware limited liability company and QC Environmental Services, Inc. a North Dakota corporation, and (vii) the term “CLC” refers to our 100% owned subsidiary, Chemical Leaman Corporation, a Pennsylvania corporation.

We are engaged primarily in transportation of bulk chemicals in North America. We are the largest provider of intermodal ISO tank container and depot services in North America through Boasso. In 2011, we entered the unconventional oil and gas frac shale energy markets, providing logistics services to these markets through QCER. We conduct a significant portion of our business through a network of independent affiliates and independent owner-operators. Independent affiliates are companies which enter into various term contracts with the Company. Independent affiliates are responsible for paying for their own power equipment (including debt service), fuel and other operating costs. Most of the independent affiliates lease trailers from us. Independent owner-operators are independent contractors who, through a contract with us, supply one or more tractors and drivers for our and our affiliates’ use. Contracts with independent owner-operators may be terminated by either party on short notice. We charge independent affiliates and third parties for the use of tractors and trailers as necessary in the form of rent. In exchange for the services rendered, independent affiliates and independent owner-operators are normally paid a percentage of the revenues collected on each load hauled.

Our accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and notes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair statement of consolidated financial position, results of operations and cash flows have been included. The year ended December 31, 2011 consolidated balance sheet data was derived from our audited financial statements, but does not include all the disclosures required by GAAP. For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2011, including the consolidated financial statements and accompanying notes.

Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for any future period.

Reclassification

Certain prior period amounts have been reclassified amongst business segments to conform to the current year presentation.

 

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Table of Contents

New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued amended guidance on fair value measurement. This guidance clarifies how to measure fair value and is largely consistent with existing fair value measurement principles. It also expands existing disclosure requirements for fair value measurements. This amendment is effective for fiscal years beginning after January 1, 2012. The adoption of this standard to expand our footnote disclosures in the consolidated financial statements did not have a material impact on our consolidated financial statements.

In June 2011, FASB updated its guidance on comprehensive income. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. This amendment will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. The adoption of this amended guidance did not have a material impact on the Company’s consolidated financial statements.

In September 2011, the FASB issued additional amendments to the guidance on goodwill testing for impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This amendment is effective for fiscal years beginning after December 15, 2011, with early adoption permitted in limited circumstances. The adoption of this amendment did not have a material impact on the Company’s financial position, results of operations or cash flows.

In September 2011, the FASB issued amended guidance that requires employers to provide additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. The additional quantitative and qualitative disclosures will provide users with more detailed information about an employer’s involvement in multiemployer pension plans. The new disclosure requirements are required for fiscal years ending after December 15, 2011. The adoption of this standard to expand our footnote disclosures in the consolidated financial statements did not have a material impact on our consolidated financial statements.

In December 2011, the FASB issued additional guidance on comprehensive income. This accounting update defers changes that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

Acquisitions and Dispositions

Wylie Bice Trucking, LLC and RM Resources, LLC

On June 1, 2012, we acquired certain operating assets of Wylie Bice Trucking, LLC (“Bice”) and the operating assets and rights of RM Resources, LLC (“RM”) for $81.4 million aggregate consideration. Headquartered in Killdeer, ND, Bice is a leading provider of transportation services to the unconventional oil and gas frac shale industry within the Bakken shale region, primarily hauling fresh water, flowback and production water, and oil for numerous energy customers. The flowback and production water Bice hauls is primarily disposed of utilizing five salt water injection wells we purchased from RM. In accordance with the asset purchase agreement, RM must deliver a sixth disposal well within six months after the closing date of the acquisition. On a combined basis, for its most recent fiscal year ended December 31, 2011, Bice and RM had revenues of approximately $106.0 million. The results of Bice and RM have been included in our results since the date of acquisition, and are included in our energy logistics segment.

These transactions were structured as asset acquisitions with aggregate consideration paid to the sellers as follows: (i) $52.2 million in cash; (ii) $21.3 million in 5-year subordinated seller notes bearing interest at a 5.00% fixed rate; and (iii) $7.9 million in unregistered restricted shares of Quality common stock. Up to an additional $19.0 million may be payable in cash one year after the closing date, contingent upon the collective businesses meeting certain future operating and financial performance criteria. Our preliminary estimate of this contingent consideration is $6.8 million. We have performed a preliminary allocation of the purchase price. Estimates of useful lives and estimated fair values of tangible and amortizable intangible assets will be finalized after we review all available data including, but not limited to, appraisals and internal assessments. The purchase price of the combined acquisitions has initially been allocated to the assets acquired according to their estimated fair values at the time of the acquisitions as follows:

 

(In thousands)    Bice & RM
Combined
 

Equipment

   $ 25,251   

Non-compete agreements

     400   

Tradename

     700   

Customer-related intangibles

     12,320   

Contingent consideration

     (6,800

Goodwill

     49,524   
  

 

 

 
   $ 81,395   
  

 

 

 

 

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The non-compete agreements will be amortized over an estimated six year useful life on a straight-line basis. The customer-related intangible assets relate to acquired customer relationships, and will be amortized over an estimated ten year useful life on a straight-line basis. The tradename will be amortized over an estimated two year useful life on a straight-line basis. Goodwill has been recorded because the consideration paid exceeds the fair value of the assets acquired. The goodwill acquired in these acquisitions is tax deductible.

Unaudited Pro forma Results. Businesses acquired are included in our consolidated results from the date of each acquisition. Unaudited pro forma results displayed below only represent the Bice and RM acquisitions, as our other acquisitions in 2012 and 2011 did not meet the threshold for pro forma reporting. The following unaudited pro forma consolidated results are presented to show our results, on a pro forma basis, as if the 2012 acquisition of Bice and RM had been completed as of January 1, 2011:

Unaudited pro forma consolidated results

 

     Three months ended June 30,      Six months ended June 30,  
     2012      2011      2012      2011  

Operating revenues

   $ 229,255       $ 211,709       $ 452,685       $ 397,643   

Net income

     29,054         9,774         37,932         12,970   

Income per common share–basic

   $ 1.08       $ 0.42       $ 1.48       $ 0.57   

Income per common share–diluted

   $ 1.05       $ 0.40       $ 1.43       $ 0.54   

Trojan Vacuum Services

On April 1, 2012, we acquired certain operating assets of Trojan Vacuum Services (“Trojan”). The purchase price was $8.7 million, paid in cash, with potential additional consideration of $1.0 million, to be paid in cash, subject to Trojan achieving certain future operating and financial performance criteria. Trojan is headquartered in Pleasanton, TX and provides transportation service to the unconventional oil and gas frac shale industry within the Eagle Ford shale region, primarily hauling flowback and production water for various energy customers. For its fiscal year ended December 31, 2011, Trojan had revenues of approximately $13.5 million. The results of the Trojan acquisition are included in our energy logistics segment.

Greensville Transport Services, Inc.

On November 1, 2011, Boasso acquired all of the outstanding stock of Greensville. The purchase price was $8.6 million, paid in cash, with an additional $0.5 million to be paid in cash, subject to Greensville meeting certain future operating performance criteria. An additional $0.5 million was paid in cash for a 338(h)(10) tax election and a working capital adjustment. Greensville is headquartered in Chesapeake, Virginia and is a leading provider of ISO tank container and depot services with access to ports in Virginia, Maryland and South Carolina. The results of the Greensville acquisition are included in our intermodal segment.

2. Variable Interest Entities

At June 30, 2012, we have a variable interest in two variable interest entities (“VIEs”), for which we are not the primary beneficiary. We have concluded, based on our qualitative consideration of our contracts with the VIEs, the operating structure of the VIEs and our role with the VIEs, that we do not have the power to direct the activities that most significantly impact their economic performance. Therefore, we are not required to consolidate the operations of these VIEs.

One VIE is an independent affiliate that is directly engaged in the dry bulk business through the management of three trucking terminals in the North East region of the U.S. As such, this business is highly seasonal. We are involved with the VIE as a non-controlling interest. Our maximum exposure to loss as a result of our involvement with this unconsolidated VIE is limited to our recorded loans receivable which aggregated approximately $2.2 million at June 30, 2012. These loans are secured by a second-priority lien on certain assets of the VIE.

 

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Due to severe winter weather in the fourth quarter of 2010, we recorded a $0.5 million reserve against our $2.8 million of loans receivable from this VIE during the first quarter of 2011. This reserve was reversed during the fourth quarter of 2011 based on an assessment of the VIE’s improved business performance and the Company’s improved collateral position.

The other VIE was an independent affiliate that was directly engaged in both the chemical and energy logistics businesses through the management of nine trucking terminals located throughout the U.S. and one energy terminal in the Northeast region of the U.S. This VIE has exited the transportation industry except for ownership of certain assets. We were involved with the VIE as a non-controlling interest. Our maximum exposure to loss as a result of our involvement with this unconsolidated VIE is limited to our recorded loans receivable which aggregated approximately $3.2 million at June 30, 2012. These loans are secured by a pledge of equity interests in a related party of the independent affiliate.

In light of financial and operational difficulties of this independent affiliate and the potential negative impact those difficulties could have had on us and our customers, we recently entered into contractual arrangements with this independent affiliate to terminate our affiliate relationship in a manner allowing a smooth transition of the servicing of those customers back to us and to certain other independent affiliates. As part of those contractual arrangements, we provided certain loans to a related party of the independent affiliate to permit an orderly transition of the business and acquired the right to purchase the operating assets of the independent affiliate. Outstanding loans associated with this prior independent affiliate were approximately $6.4 million at August 3, 2012, of which $6.0 million is secured by a combination of (1) a pledge of equity interests in a related party of the independent affiliate and (2) interests in certain real estate owned by a related party of the independent affiliate.

 

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3. Fair Value of Financial Instruments

The three-level valuation hierarchy for fair value measurements is based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs create the following fair value hierarchy:

 

   

Level 1—Quoted prices for identical instruments in active markets;

 

   

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose significant inputs are observable; and

 

   

Level 3—Instruments whose significant inputs are unobservable.

Following is a description of the valuation methodologies we used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Fair Value Measurements on a Nonrecurring Basis

The fair value of our long-term indebtedness is based on level 2 quoted market prices. As of June 30, 2012, the carrying value and fair value are as follows (in thousands):

 

     Carrying
Value
     Fair Value  

9.875% Second-Priority Senior Secured Notes due 2018 (“2018 Notes”)

   $ 225,000       $ 248,063   
  

 

 

    

 

 

 

Our asset-based loan facility (the “ABL Facility”) is variable rate debt and approximates fair value.

The carrying amounts reported in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturities of these financial instruments.

4. Goodwill and Intangible Assets

Goodwill

Under the FASB guidance, goodwill and intangible assets are subject to an annual impairment test as well as impairment assessments of certain triggering events. We evaluate goodwill for impairment by determining the fair value based on criteria in the FASB guidance for each reporting unit, our energy logistics segment and our intermodal segment. These reporting units contain goodwill and other identifiable intangible assets as a result of previous business acquisitions. Our annual impairment test is performed during the second quarter with a measurement date of June 30th. The methodology applied in the analysis performed at June 30, 2012 was consistent with the methodology applied in prior years, but was based on updated assumptions, as appropriate. As a result of our analysis, we concluded no impairment had occurred as of June 30, 2012.

Under the FASB guidance, the process of evaluating the potential impairment of goodwill involves a two-step process and requires significant judgment at many points during the analysis. In the first step, we determine whether there is an indication of impairment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If, based on the first step, we determine that there is an indication of goodwill impairment, we assess the impairment in step two in accordance with the FASB guidance.

In the first step, we determine the fair value for each reporting unit using a combination of two valuation approaches: the market approach and the income approach. The market approach uses a guideline company methodology which is based upon a comparison of us to similar publicly-traded companies within our industry. We derive a market value of invested capital or business enterprise value for each comparable company by multiplying the price per share of common stock of the publicly traded companies by their total common shares outstanding and adding each company’s current level of debt. We calculate a business enterprise multiple based on revenue and earnings from each company, then apply those multiples to each reporting unit’s revenue and earnings to conclude a reporting unit business enterprise value. Assumptions regarding the selection of comparable companies are made based on, among other factors, capital structure, operating environment and industry. As the comparable companies were typically larger and more diversified than our reporting units, multiples were adjusted prior to application to our reporting units’ revenues and earnings to reflect differences in margins, long-term growth prospects and market capitalization.

The income approach uses a discounted debt-free cash flow analysis to measure fair value by estimating the present value of future economic benefits. To perform the discounted debt-free cash flow analysis, we develop a pro forma analysis of each reporting unit to estimate future available debt-free cash flow and discount estimated debt-free cash flow by an estimated industry weighted average cost of capital based on the same comparable companies used in the market approach. Per the FASB guidance, the

 

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weighted average cost of capital is based on inputs (e.g., capital structure, risk, etc.) from a market participant’s perspective and not necessarily from the reporting unit’s or QDI’s perspective. Future cash flow is projected based on assumptions for our economic growth, industry expansion, future operations and the discount rate, all of which require significant judgments by management.

Goodwill within our intermodal and energy logistics segments and the related changes were as follows (in thousands):

 

     December 31,
2011
     Additions      June 30,
2012
 

Intermodal (1)

   $ 31,344       $ 66       $ 31,410   

Energy Logistics (2)

     —           50,637         50,637   
  

 

 

    

 

 

    

 

 

 

Total

   $ 31,344       $ 50,703       $ 82,047   
  

 

 

    

 

 

    

 

 

 

 

(1) Additions represent a purchase price adjustment for the Greensville acquisition.
(2) Of the total additions of $50.6 million, $1.1 million relate to the Trojan acquisition and $49.5 million related to the Bice and RM acquisitions.

Intangible Assets

Intangible assets at June 30, 2012 are as follows (in thousands):

 

     Gross
value
     Additions      Accumulated
amortization
    Net book
value
     Average
lives
(in years)
 

Tradename—Intermodal

   $ 7,400       $ —         $ —        $ 7,400         Indefinite   

Tradename—Energy Logistics

     —           800         (42     758         2   

Customer relationships

     14,260         15,330         (4,772     24,818         10-12   

Non-compete agreements

     3,221         440         (2,701     960         3-6   

Service agreement

     —           1,120         (25     1,095         11   
  

 

 

    

 

 

    

 

 

   

 

 

    
   $ 24,881       $ 17,690       $ (7,540   $ 35,031      
  

 

 

    

 

 

    

 

 

   

 

 

    

Of the total intangibles of approximately $35.0 million at June 30, 2012, approximately $17.4 million was allocated to our energy logistics segment, $17.2 million was allocated to our intermodal segment and approximately $0.4 million was allocated to our chemical logistics segment.

Amortization expense for the three months ended June 30, 2012 and 2011 was $0.7 million and $0.3 million, respectively. Amortization expense for the six months ended June 30, 2012 and 2011 was $1.1 million and $0.7 million, respectively. Estimated future amortization expense for intangible assets is as follows (in thousands):

 

2012 remaining

   $ 1,871   

2013

     3,524   

2014

     3,081   

2015

     2,922   

2016

     2,918   

2017 and after

     13,315   
  

 

 

 

Total

   $ 27,631   
  

 

 

 

5. Income Per Share

A reconciliation of the numerators and denominators of the basic and diluted income per share computations is as follows (in thousands, except per share amounts):

 

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     Three months ended  
     June 30, 2012      June 30, 2011  
     Net income
(numerator)
     Shares
(denominator)
     Per-share
amount
     Net income
(numerator)
     Shares
(denominator)
     Per-share
amount
 

Basic income available to common shareholders:

   $ 28,804         26,804       $ 1.07       $ 9,046         23,253       $ 0.39   

Effect of dilutive securities:

                 

Stock options

     —           629         —           —           666         —     

Unvested restricted stock

     —           158         —           —           220         —     

Stock warrants

     —           9         —           —           442         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income available to common shareholders:

   $ 28,804         27,600       $ 1.04       $ 9,046         24,581       $ 0.37   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Six months ended  
     June 30, 2012      June 30, 2011  
     Net income
(numerator)
     Shares
(denominator)
     Per-share
amount
     Net income
(numerator)
     Shares
(denominator)
     Per-share
amount
 

Basic income available to common shareholders:

   $ 35,504         25,675       $ 1.38       $ 11,768         22,723       $ 0.52   

Effect of dilutive securities:

                 

Stock options

     —           655         —           —           636         —     

Unvested restricted stock

     —           169         —           —           223         —     

Stock warrants

     —           17         —           —           442         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income available to common shareholders:

   $ 35,504         26,516       $ 1.34       $ 11,768         24,024       $ 0.49   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following securities were not included in the calculation of diluted earnings per share because such inclusion would be anti-dilutive (in thousands):

 

     Three months ended
June 30,
     Six months ended
June 30,
 
     2012      2011      2012      2011  

Stock options

     1,690         1,580         1,665         1,610   

Unvested restricted shares and stock units

     252         248         241         246   

6. Stock-Based Compensation

As of June 30, 2012, we maintain one active stock-based incentive plan, the Quality Distribution, Inc. 2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”), under which stock options, restricted shares, stock units and other types of equity and cash incentive awards may be granted to employees, non-employee directors and service providers. The 2012 Equity Incentive Plan became effective May 30, 2012 upon receipt of shareholder approval and expires May 30, 2022. There are 2,000,000 shares of common stock reserved for issuance under this plan. We maintain two other stock-based incentive plans under which stock options, restricted shares, and stock units have been granted to employees, non-employee directors, consultants and advisors but under which no additional awards may be made after May 30, 2012.

We recognize expense for stock-based compensation based upon estimated grant date fair value. We apply the Black-Scholes valuation model in determining the fair value of share-based payments to employees. The resulting compensation expense is recognized over the requisite service period, which is generally the awards’ vesting term. Compensation expense is recognized only for those awards expected to vest, with forfeitures estimated based on our historical experience and future expectations. All stock-based compensation expense is classified within “Compensation” in the Consolidated Statements of Operations. None of the stock-based compensation was capitalized during the first six months of 2012.

The fair value of options granted during the first six months of 2012 was based upon the Black-Scholes option-pricing model. The expected term of the options represents the estimated period of time until exercise, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. For 2012, expected stock price volatility is based on the historical volatility of our common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with an equivalent remaining term. The Company has not paid dividends in the past and does not currently plan to pay any dividends in the foreseeable future. The Black-Scholes model was used with the following weighted average assumptions:

 

     Six months ended
June 30,
 
     2012     2011  

Risk free rate

     0.9     2.0

Expected life

     5 years        5 years   

Volatility

     77.5     78.0

Expected dividend

     nil        nil   

The following table summarizes stock options, restricted shares and stock units granted (in thousands) during the six months ended June 30:

 

     2012      2011  
     Options
Issued
     Restricted
Shares and
Stock Units

Issued
     Options
Issued
     Restricted
Shares
Issued
 

March 31st

     163         153         223         83   

June 30th

     3         13         —           —     

The following table summarizes stock-based compensation expense (in thousands):

 

     Three months ended
June 30,
     Six months ended
June 30,
 
     2012      2011      2012      2011  

Stock options

   $ 469       $ 458       $ 860       $ 896   

Restricted shares and stock units

     376         276         658         562   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 845       $ 734       $ 1,518       $ 1,458   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table summarizes unrecognized stock-based compensation and the weighted average period over which such stock-based compensation is expected to be recognized as of June 30, 2012 (in thousands):

 

            Remaining
years
 

Stock options

   $ 2,736         2.6   

Restricted shares and stock units

     2,353         2.3   
  

 

 

    
   $ 5,089      
  

 

 

    

These amounts do not include the cost of any additional awards that may be granted in future periods nor any changes in our forfeiture rate. Stock options for 46,954 shares were exercised during the six months ended June 30, 2012.

7. Employee Benefit Plans

We maintain two noncontributory defined benefit plans resulting from a prior acquisition that cover vested salaried participants and retirees (“CLC Plan”) and certain other vested participants and retirees under a collective bargaining agreement (“TTWU Plan”). Retirement benefits for employees covered by the CLC Plan are based on years of service and compensation levels. The monthly benefit for employees under the TTWU Plan is based on years of service multiplied by a monthly benefit factor. Pension costs are funded in accordance with the provisions of the applicable law. Both pension plans have been frozen since prior to January 1, 1998. There have been no new participants and no future accruals of benefits from the time the plans were frozen.

We use a December 31st measurement date for both of our plans.

The components of estimated net periodic pension cost are as follows (in thousands):

 

     Three months ended
June 30,
    Six months ended
June 30,
 
     2012     2011     2012     2011  

Service cost

   $ 44      $ 44      $ 88      $ 88   

Interest cost

     542        605        1,084        1,210   

Amortization of prior service cost

     23        23        47        47   

Amortization of loss

     365        294        729        588   

Expected return on plan assets

     (565     (574     (1,131     (1,149
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 409      $ 392      $ 817      $ 784   
  

 

 

   

 

 

   

 

 

   

 

 

 

We contributed $1.4 million to our pension plans during the six months ended June 30, 2012. We expect to contribute an additional $2.7 million during the remainder of 2012.

Multi-employer pension plans

At June 30, 2012, we contributed to three separate multi-employer pension plans for employees under collective bargaining agreements. These agreements cover approximately 2.5% of our total workforce, including our independent affiliates’ employees and independent owner-operators providing service to us. These multi-employer pension plans provide defined benefits to retired participants. We do not directly or indirectly manage any of these multi-employer pension plans. Trustees, half of whom are appointed by the International Brotherhood of Teamsters (the “Teamsters”) and half of whom various contributing employers appoint, manage the trusts covering these plans. Our collective bargaining agreements with the Teamsters determine the amounts of our ongoing contributions to these plans.

 

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In conjunction with our prior restructuring efforts, during the quarter ended September 30, 2010, we notified the trustees of three other pension plans of our intention to withdraw from those plans. Our withdrawal notifications were originally estimated to result in an aggregate withdrawal liability of approximately $2.0 million and we recorded a restructuring charge for this full amount in the third quarter of 2010. During the first nine months of 2011, we made aggregate payments of approximately $1.5 million to fully discharge the liabilities under those three pension plans and recorded a restructuring credit of $0.5 million in the second quarter of 2011.

We do not currently intend to withdraw from the remaining three multi-employer pension plans or take any actions that would subject us to payment of contingent obligations upon withdrawal from such plans. Based on information provided to us from the trustees of these plans, we estimate our portion of the contingent liability in the case of a full withdrawal or termination from these plans to be approximately $62.2 million, of which $57.9 million relates to the Central States Southeast and Southwest Areas Pension Plan.

These defined benefit plans cover substantially all of our union employees not covered under the TTWU Plan. The actuarial present value of accumulated plan benefits and net assets available for benefits to employees under these multi-employer plans is not readily available.

8. Restructuring

We account for restructuring costs associated with one-time termination benefits, costs associated with lease and contract terminations and other related exit activities in accordance with FASB’s guidance. We previously made estimates of the costs to be incurred as part of a restructuring plan developed during 2008 and concluded at the end of 2010, which resulted in charges during 2008, 2009 and 2010 primarily related to our chemical logistics segment. At June 30, 2012, $2.4 million was accrued related to the restructuring charges which are expected to be paid through 2017.

In the six months ended June 30, 2012, we had the following activity in our restructuring accruals (in thousands):

 

     Balance at
December 31,
2011
     Additions      Payments     Reductions      Balance at
June 30,
2012
 

Restructuring costs

   $ 2,782       $ —         $ (361   $ —         $ 2,421   

9. Segment Reporting

Reportable Segments

In connection with our entry into the unconventional oil and gas frac shale energy market in 2011, a new segment for financial reporting purposes was identified during the fourth quarter of 2011 in order to better distinguish logistics services to the energy markets from logistics services to the chemical markets based upon how these businesses are managed. Our previous logistics segment was renamed Chemical Logistics.

We have three reportable business segments for financial reporting purposes that are distinguished primarily on the basis of services offered:

 

   

Chemical Logistics, which consists of the transportation of bulk chemicals primarily through our network of 28 independent affiliates, and equipment rental income;

 

   

Energy Logistics, which consists primarily of the transportation of fresh water, disposal water, proppant sand and crude oil for the unconventional oil and gas frac shale energy markets, primarily through company-operated terminals; and

 

   

Intermodal, which consists solely of Boasso’s intermodal ISO tank container transportation and depot services business supporting the international movement of bulk liquids.

Segment operating income reported in our segment tables excludes amounts such as depreciation and amortization, gains and losses on disposal of property and equipment and restructuring costs. Although these amounts are excluded from the business segment results, they are included in our reported consolidated statements of operations. Most corporate and shared services overhead costs, including acquisitions costs, are included in our chemical logistics segment. We have not provided specific asset information by segment, as it is not regularly provided to our chief operating decision maker for review.

 

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Summarized segment data and a reconciliation to income before income taxes follow (in thousands):

 

     Three Months Ended June 30, 2012  
     Chemical
Logistics
    Energy
Logistics
     Intermodal     Total  

Operating Revenues:

         

Transportation

   $ 107,935      $ 24,929       $ 17,655      $ 150,519   

Service revenue

     16,977        1,247         11,810        30,034   

Fuel surcharge

     27,378        325         4,477        32,180   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating revenues

     152,290        26,501         33,942        212,733   
  

 

 

   

 

 

    

 

 

   

 

 

 

Segment operating income

     8,544        3,914         5,246        17,704   

Depreciation and amortization

     2,746        1,017         859        4,622   

Other income

     (362     —           —          (362
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating income

     6,160        2,897         4,387        13,444   
  

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense

     5,562        105         1,513        7,180   

Interest income

     (229     —           —          (229

Other (income) expense

     (184     —           256        72   
  

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes

   $ 1,011      $ 2,792       $ 2,618      $ 6,421   
  

 

 

   

 

 

    

 

 

   

 

 

 
     Three Months Ended June 30, 2011  
     Chemical
Logistics
    Energy
Logistics
     Intermodal     Total  

Operating Revenues:

         

Transportation

   $ 112,318      $ 1,992       $ 15,087      $ 129,397   

Service revenue

     17,078        77        10,487        27,642   

Fuel surcharge

     29,013        —           3,941        32,954   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating revenues

     158,409        2,069        29,515        189,993   
  

 

 

   

 

 

    

 

 

   

 

 

 

Segment operating income

     14,333        318         4,735        19,386   

Depreciation and amortization

     2,537        41         800        3,378   

Other (income) expense

     (954     —           23        (931
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating income

     12,750        277         3,912        16,939   
  

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense

     5,796        —           1,515        7,311   

Interest income

     (178     —           —          (178

Other (income) expense

     (240     —           269        29   
  

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes

   $ 7,372      $ 277       $ 2,128      $ 9,777   
  

 

 

   

 

 

    

 

 

   

 

 

 
     Six Months Ended June 30, 2012  
     Chemical
Logistics
    Energy
Logistics
     Intermodal     Total  

Operating Revenues:

         

Transportation

   $ 213,582      $ 34,978       $ 35,165      $ 283,725   

Service revenue

     32,893        2,131         22,995        58,019   

Fuel surcharge

     53,692        326         8,886        62,904   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating revenues

     300,167        37,435         67,046        404,648   
  

 

 

   

 

 

    

 

 

   

 

 

 

Segment operating income

     19,976        4,996         10,359        35,331   

Depreciation and amortization

     5,434        1,264         1,715        8,413   

Other (income) expense

     (344     22         (42     (364
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating income

     14,886        3,710         8,686        27,282   
  

 

 

   

 

 

    

 

 

   

 

 

 

Interest expense

     11,235        114         3,020        14,369   

Interest income

     (408     —           —          (408

Other (income) expense

     (680     —           516        (164
  

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes

   $ 4,739      $ 3,596       $ 5,150      $ 13,485   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     Six Months Ended June 30, 2011  
     Chemical
Logistics
    Energy
Logistics
     Intermodal      Total  

Operating Revenues:

          

Transportation

   $ 222,930      $ 1,992       $ 29,156       $ 254,078   

Service revenue

     33,586        77        20,717         54,380   

Fuel surcharge

     52,652           6,793         59,445   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total operating revenues

     309,168        2,069        56,666         367,903   
  

 

 

   

 

 

    

 

 

    

 

 

 

Segment operating income

     25,115        318        9,398         34,831   

Depreciation and amortization

     5,232        41        1,597         6,870   

Other (income) expense

     (1,201     —           30         (1,171
  

 

 

   

 

 

    

 

 

    

 

 

 

Operating income

     21,084        277        7,771         29,132   
  

 

 

   

 

 

    

 

 

    

 

 

 

Interest expense

     12,091        —           3,031         15,122   

Interest income

     (317     —           —           (317

Other expense

     1,263        —           516         1,779   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income before income taxes

   $ 8,047      $ 277      $ 4,224       $ 12,548   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

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Geographic Segments

Our operations are located primarily in the United States, Canada and Mexico. Inter-area sales are not significant to the total revenue of any geographic area. Information about our operations in different geographic areas for the three and six months ended June 30, 2012 and 2011 is as follows (in thousands):

 

     Three months ended June 30, 2012  
     U. S.      International      Consolidated  

Total operating revenues

   $ 202,474       $ 10,259       $ 212,733   

Operating income

     11,716         1,728         13,444   
     Three months ended June 30, 2011  
     U. S.      International      Consolidated  

Total operating revenues

   $ 177,472       $ 12,521       $ 189,993   

Operating income

     14,860         2,079         16,939   
     Six months ended June 30, 2012  
     U. S.      International      Consolidated  

Total operating revenues

   $ 384,048       $ 20,600       $ 404,648   

Operating income

     23,786         3,496         27,282   
     Six months ended June 30, 2011  
     U. S.      International      Consolidated  

Total operating revenues

   $ 344,104       $ 23,799       $ 367,903   

Operating income

     25,203         3,929         29,132   
     As of June 30, 2012  
     U. S.      International      Consolidated  

Long-term identifiable assets (1)

   $ 157,121       $ 6,143       $ 163,264   
     As of June 30, 2011  
     U. S.      International      Consolidated  

Long-term identifiable assets (1)

   $ 104,220       $ 7,009       $ 111,229   
     As of December 31, 2011  
     U. S.      International      Consolidated  

Long-term identifiable assets (1)

   $ 119,879       $ 6,013       $ 125,892   

 

(1) Includes property and equipment.

10. Income Taxes

At December 31, 2011, we had approximately $1.6 million of total gross unrecognized tax benefits. Of this total, $1.2 million (net of federal benefit on state tax issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.

Included in the balance of total gross unrecognized tax benefits at December 31, 2011 was $0.6 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months due to expiration of the applicable statute of limitations.

For the three months ended June 30, 2012, the net change to our total gross unrecognized tax benefit was $0.2 million. The net change consisted of a cash payment related to an audit settlement and an increase related to an uncertain tax position for one of our foreign jurisdictions. Our total gross unrecognized tax benefit at June 30, 2012 was $1.8 million. This represents the total of our unrecognized tax benefits (not including interest and penalties).

 

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Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. We had $0.5 million (net of federal tax benefit) accrued for interest and $0.2 million accrued for penalties at December 31, 2011. The total amount accrued for interest and penalties at June 30, 2012 was $0.7 million.

We are subject to the income tax jurisdictions of the U.S., Canada and Mexico, as well as income tax of multiple state jurisdictions. We believe we are no longer subject to U.S. federal income tax examinations for years before 2007, to international examinations for years before 2007 and, with few exceptions, to state examinations before 2007.

The effective tax rates for the three months ended June 30, 2012 and 2011 were a tax benefit of greater than 100% and a tax provision of 7.5%, respectively. The effective tax rates for the six months ended June 30, 2012 and 2011 were a tax benefit of greater than 100% and a tax provision of 6.2%, respectively. These effective tax rates were impacted by a $22.8 million tax benefit resulting from a valuation allowance release and the previously recorded 100% valuation allowance, respectively.

During the second quarter of 2012, we recorded tax benefit of $22.8 million related to a valuation allowance release as a result of our consistent cumulative income position, improved operating results, and recent expansion of our energy business through acquisition. Our assessment of the recoverability of the deferred tax assets primarily relied on the positive evidence related to our cumulative income position as of June 30, 2012. We have determined that it is more likely than not that expected future taxable income will be sufficient to utilize substantially all of our U.S. federal and state net deferred tax assets. We will continue to maintain a valuation allowance against our net deferred tax asset related to foreign tax credits. Changes in deferred tax assets and valuation allowance are reflected in the provision for income taxes line in our consolidated statements of operations.

11. Redeemable Noncontrolling Interest

On March 3, 2011, we redeemed 100% of the 302 outstanding shares of Series C preferred stock of CLC which were held by two shareholders who were not affiliated with us. These shareholders received the maximum aggregate redemption value (which was equivalent to par value) of $1.8 million, plus accrued and unpaid preferred dividends through the redemption date.

12. Common Stock Offering

On March 13, 2012, we sold 2.5 million shares of our common stock in an underwritten public offering, at a gross price of $13.00 per share, and received net proceeds, after underwriting fees and expenses, of approximately $30.5 million. Certain affiliates of Apollo Management, L.P. also sold 3.2 million shares in the offering.

On February 9, 2011, we sold 2.0 million shares of our common stock in an underwritten public offering, at a gross price of $9.50 per share, and received net proceeds, after underwriting fees and expenses, of approximately $17.6 million. Certain affiliates of Apollo Management, L.P. also sold 2.6 million shares in the offering.

13. Commitments and Contingencies

Environmental Matters

It is our policy to comply with all applicable environmental, safety and health laws. We also are committed to the principles of Responsible Care®, an international chemical industry initiative to enhance the industry’s responsible management of chemicals. We have obtained independent certification that our management system is in place and functions according to professional standards and we continue to evaluate and continuously improve our Responsible Care® Management System performance. Our current activities involve the handling, transportation and storage of bulk chemicals, both liquid and dry, many of which are classified as hazardous materials or hazardous substances. In addition, our former tank wash business (which was sold in 2009) involved the generation, storage, discharge and disposal of wastes that may have contained hazardous substances. As such, we and others who operate in our industry are subject to environmental, health and safety laws and regulation by U.S. federal, state and local agencies as well as foreign governmental authorities. Environmental laws and regulations are complex, and address emissions to the air, discharge onto land or water, and the generation, handling, storage, transportation, treatment and disposal of waste materials. These laws change frequently and generally require us to obtain and maintain various licenses and permits. Environmental laws have tended to become more stringent over time, and most provide for substantial fines and potential criminal sanctions for violations. Some of these laws and regulations are subject to varying and conflicting interpretations. Under certain of these laws, we could also be subject to allegations of liability for the activities of our independent affiliates or independent owner-operators.

 

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We are potentially subject to strict, joint and several liability for investigating and rectifying the consequences of spills and other releases of such substances. From time to time, we have incurred remedial costs and regulatory penalties with respect to chemical or wastewater spills and releases at our facilities and on the road, and, notwithstanding the existence of our environmental management program, we cannot: (1) assure that such obligations will not be incurred in the future, (2) predict with certainty the extent of future liabilities and costs under environmental, health, and safety laws, or (3) assure that such liabilities will not result in a material adverse effect on our business, financial condition, operating results or cash flow. We have established reserves for remediation expenses at known contamination sites when it is probable that such efforts will be required of us and the related expenses can be reasonably estimated. We have also incurred in the past, and expect to incur in the future, expenditures related to environmental compliance; however, we do not anticipate that compliance with existing environmental laws will have a material adverse effect on our earnings or competitive position.

Environmental Reserves

Our policy is to accrue remediation expenses when it is probable that such efforts will be required and the related expenses can be reasonably estimated. Estimates of costs for future environmental compliance and remediation may be impacted by such factors as changes in environmental laws and regulatory requirements, the availability and application of technology, the identification of currently unknown potential remediation sites and the allocation of costs among the potentially responsible parties under the applicable statutes. Our reserves for environmental compliance and remediation are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. As of June 30, 2012 and December 31, 2011, we had reserves in the amount of $9.4 million and $10.1 million, respectively, for all environmental matters, of which the most significant are discussed below.

The balances presented include both current and long-term environmental reserves. We expect the estimated environmental reserves to be paid over the next five years. Additions to the environmental reserves are classified in our Consolidated Statements of Operations within the “Selling and administrative” category.

Property Contamination Liabilities

We have been named as (or are alleged to be) a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”) and similar state laws at approximately 25 sites. At 17 of the 25 sites, we are one of many parties with alleged liability and are negotiating with Federal, State or private parties on the scope of our obligations, if any. At 1 of the 17 sites, we will be participating in the initial study to determine site remediation objectives. Since our overall liability cannot be estimated at this time, we have set reserves for only the initial remedial investigation phase. At 2 of the 17 sites, we have explicitly denied any liability and since there has been no subsequent demand for payment we have not established a reserve for these matters. We have estimated all future expenditures for these 17 multi-party environmental matters to be paid over the next five years to be in the range of $2.1 million to $3.8 million. As of June 30, 2012, we have reserved $2.1 million.

At 8 of the 25 sites, we are the only responsible party and are in the process of conducting investigations and/or remediation projects. Five of these projects relate to operations conducted by CLC and its subsidiaries prior to our acquisition of CLC in 1998. These five sites are: (1) Bridgeport, New Jersey; (2) William Dick, Pennsylvania; (3) Tonawanda, New York; (4) Scary Creek, West Virginia; and (5) Charleston, West Virginia. The remaining three sites relate to investigations and potential remediation that were triggered by the New Jersey Industrial Site Recovery Act (“ISRA”), which requires such investigations and remediation following the sale of industrial facilities. Each of these sites is discussed in more detail below. We have estimated future expenditures over the next five years for these eight properties to be in the range of $7.3 million to $16.7 million. As of June 30, 2012, we have reserved $7.3 million.

 

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Bridgeport, New Jersey

QDI is required under the terms of three federal consent decrees to perform remediation work at this operating truck terminal and tank wash site. CLC entered into consent orders with the U.S. Environmental Protection Agency (“USEPA”) in 1991 to treat groundwater, in 1998 to remove contamination in the wetlands, and in 2010 to assess and remediate contaminated soils at the site.

The groundwater treatment remedy negotiated with USEPA required us to construct a treatment facility for in-place treatment of groundwater contamination and a local discharge which was completed in early 2007. After various start-up issues, the treatment facility began initial operations in June 2010. The plant experienced issues with the treatment of vapor phase emissions and operation was suspended in July 2010. After a re-design process, the plant resumed operations in July 2011 and is now in the operations and maintenance phase. The plant appears to be performing in accordance with its design criteria and meeting permit requirements. Wetlands contamination has been remediated with localized restoration completed. Monitoring of the restored wetlands is required by USEPA to continue in 2012. In regard to contaminated soils, USEPA finalized the feasibility study and issued a record of decision in 2009 for the limited areas that show contamination and warrant additional investigation or work. We entered into a consent order with USEPA in 2010 to perform the remediation work, which will consist of in-place thermal treatment. Additional site investigation work had been required by USEPA prior to the start of the engineering design effort. We have estimated aggregate expenditures for the Bridgeport location over the next five years to be in the range of $4.6 million to $8.5 million. As of June 30, 2012, we have reserved $4.6 million.

William Dick, Pennsylvania

CLC entered into a consent order with the Pennsylvania Department of Environmental Protection and USEPA in 1995 to provide a replacement water supply to area residents, treat contaminated groundwater, and perform remediation of contaminated soils at this former wastewater disposal site. The replacement water supply is complete. We completed construction of a groundwater treatment facility with local discharge in 2007 and the treatment facility began operations in 2010. Although initial soil treatment was completed in 2007, test results indicated that soil clean-up objectives were not fully achieved. Accordingly, negotiations are on-going with USEPA over further soil remediation that may be needed at the site. We have estimated aggregate expenditures for the William Dick location over the next five years to be in the range of $0.9 million to $3.4 million. As of June 30, 2012, we have reserved $0.9 million.

Other Properties

Tonawanda, New York: CLC entered into a consent order with the New York Department of Environmental Conservation (“NYSDEC”) in 1999 obligating it to perform soil and groundwater remediation at this former truck terminal and tank wash site. We have completed a remedial investigation and a feasibility study. The state issued a record of decision in 2006. The remedial design work plan was completed and submitted to the agency in the fourth quarter of 2011. The remedial action phase is expected to begin later in 2012, pending approval from the NYSDEC.

Scary Creek, West Virginia: CLC received a cleanup notice from the state environmental authority in 1994. The state and we have agreed that remediation can be conducted under the state’s voluntary clean-up program (instead of the state superfund enforcement program). We are currently completing the originally planned remedial investigation and the additional site investigation work.

Charleston, West Virginia: CLC completed its remediation plan for a former drum disposal area in 1995 at this truck terminal and tank wash site under the terms of a state hazardous waste permit. Supplemental groundwater monitoring was also required and completed. In 2012, we entered into the state’s voluntary clean-up program which will require us to perform additional sampling to close the site. We have estimated aggregate future expenditures over the next five years for Tonawanda, Scary Creek, ISRA New Jersey and Charleston to be in the range of $1.8 million to $4.8 million. As of June 30, 2012, we have reserved $1.8 million.

 

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ISRA New Jersey Facilities: We are obliged to conduct investigations and remediation at three current or former New Jersey tank wash and terminal sites pursuant to the state’s ISRA, which requires such remediation following the sale of facilities after 1983. Two of the sites are in the process of remedial investigation with projections set in contemplation of limited soil remediation expense for contaminated areas.

One site has completed the investigation phase and a final report was submitted to New Jersey Department of Environmental Protection. In accordance with the report findings and with the concurrence of the NJDEP, remedial efforts included limited soil excavation at the site, deed recordation, placement of clean fill and the designation of a Classification Exception Area (“CEA”) for the groundwater. No further field remediation work is expected and this site has entered a long term monitoring phase.

Other Legal Matters

We are from time to time involved in routine litigation incidental to the conduct of our business. We believe that no such routine litigation currently pending against us, if adversely determined, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

14. Guarantor Subsidiaries

At and during the six months ended June 30, 2012, there were outstanding 2018 Notes that were issued by our subsidiaries, QD LLC and QD Capital. The payment obligations of QD LLC and QD Capital under the 2018 Notes are guaranteed by QDI and by all of its domestic subsidiaries other than immaterial subsidiaries as further described below.

The 2018 Notes are the senior obligations of our subsidiaries, QD LLC and QD Capital, and are secured by a subordinated, second-priority lien on assets that secure our ABL Facility through a collateral agreement that is separate from the indenture under which these notes were issued. Pursuant to an intercreditor agreement, the liens on the collateral securing the 2018 Notes rank junior in right of payment to the ABL Facility and obligations under certain hedging agreements and cash management obligations and certain other first-lien obligations. Decisions regarding the maintenance and release of the collateral secured by the collateral agreement are made by the lenders under our ABL Facility and neither the indenture trustee nor the holders of the 2018 Notes have control of decisions regarding the release of the collateral.

The 2018 Notes are also on a second-priority senior secured basis, jointly and severally, by QDI, subsidiary guarantors, and certain of our future U.S. restricted subsidiaries. The guarantees of the subsidiary guarantors are full and unconditional subject to customary release provisions for sales of a subsidiary in compliance with other provisions of the indenture for the 2018 Notes (the “Notes Indenture”) or foreclosures of a pledge of the equity interests of the subsidiary, the right to designate a subsidiary as unrestricted under the terms of the Notes Indenture, the discharge of the 2018 Notes or the defeasance of the Notes Indenture. The guarantee of QDI is full and unconditional.

The subsidiary guarantors of all of the 2018 Notes are all of our direct and indirect domestic subsidiaries other than immaterial subsidiaries. No non-domestic subsidiaries are guarantor subsidiaries. QD Capital has no material assets or operations. QD LLC, all of the subsidiary guarantors and QD Capital are 100% owned by QDI. The subsidiary guarantors are 100% owned subsidiaries of QD LLC. QD LLC conducts substantially all of its business through and derives virtually all of its income from its subsidiaries. Therefore, its ability to make required principal and interest payments with respect to its indebtedness depends on the earnings of subsidiaries and its ability to receive funds from its subsidiaries through dividend and other payments.

 

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QDI has no significant restrictions on its ability to receive funds from its subsidiaries. The ABL Facility and the indenture governing our 2018 Notes contain certain limitations on QD LLC’s ability to make distributions to QDI. We do not consider these restrictions to be significant, because QDI is a holding company with no significant operations or assets, other than ownership of 100% of QD LLC’s membership units. QD LLC’s direct and indirect wholly owned subsidiaries are generally permitted to make distributions to QD LLC, which is the principal obligor under the ABL Facility and the 2018 Notes. We do not believe that additional financial or narrative information about QDI, QD LLC, QD Capital or the subsidiary guarantors would be material to evaluating the guarantees.

The following condensed consolidating financial information for QDI, QD LLC, and QD Capital, which has no assets or operations, non-guarantor subsidiaries and combined guarantor subsidiaries presents:

 

   

Condensed consolidating balance sheets at June 30, 2012 and December 31, 2011 and condensed consolidating statements of operations for the three and six month periods ended June 30, 2012 and 2011, and the condensed consolidating statements of cash flows for each of the six-month periods ended June 30, 2012 and 2011.

 

   

Elimination entries necessary to consolidate the parent company and all its subsidiaries.

 

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QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

Condensed Consolidating Statements of Operations

Three Months Ended June 30, 2012

Unaudited—(In 000’s)

 

     QDI      QD LLC &
QD Capital
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenues:

             

Transportation

   $ —         $ —        $ 150,519      $ —        $ —        $ 150,519   

Service revenue

     —          —         29,936        98        —         30,034   

Fuel surcharge

     —          —         32,180        —         —         32,180   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     —          —         212,635        98        —         212,733  

Operating expenses:

             

Purchased transportation

     —          —         142,309        —         —         142,309   

Compensation

     —          —         18,516        —         —         18,516   

Fuel, supplies and maintenance

     —          —         18,445        —         —         18,445   

Depreciation and amortization

     —          —         4,622        —         —         4,622   

Selling and administrative

     —          11        10,066        12        —         10,089   

Insurance costs

     —          —         4,139        —         —         4,139   

Taxes and licenses

     —          —         624        —         —         624   

Communication and utilities

     —          —         907        —         —         907   

Gain on disposal of property and equipment

     —          —         (362     —         —         (362
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     —          (11     13,369        86        —         13,444   

Interest expense (income), non-related party, net

     —          6,876        78        (3     —         6,951   

Interest (income) expense, related party, net

     —          (6,876     6,980        (104     —         —     

Other expense

     —          —         56        16        —         72   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     —          (11     6,255        177        —         6,421   

(Benefit from) provision for income taxes

     —          —         (22,420 )     37        —         (22,383

Equity in earnings of subsidiaries

     28,804         28,815        —         —         (57,619 )     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     28,804         28,804        28,675        140        (57,619     28,804   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     433         433        388        45        (866     433   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 29,237       $ 29,237      $ 29,063      $ 185      $ (58,485   $ 29,237   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

Condensed Consolidating Statements of Operations

Three Months Ended June 30, 2011

Unaudited—(In 000’s)

 

     QDI     QD LLC &
QD Capital
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenues:

            

Transportation

   $ —        $ —        $ 129,397      $ —        $ —        $ 129,397   

Service revenue

     —          —          27,510        132        —          27,642   

Fuel surcharge

     —          —          32,954        —          —          32,954   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     —          —          189,861        132        —          189,993   

Operating expenses:

            

Purchased transportation

     —          —          133,692        —          —          133,692   

Compensation

     —          —          15,515        —          —          15,515   

Fuel, supplies and maintenance

     —          —          11,665        —          —          11,665   

Depreciation and amortization

     —          —          3,378        —          —          3,378   

Selling and administrative

     —          41        4,827        18        —          4,886   

Insurance costs

     —          —          3,534        6        —          3,540   

Taxes and licenses

     —          —          652        —          —          652   

Communication and utilities

     —          —          657        —          —          657   

Gain on disposal of property and equipment

     —          —          (410     —          —          (410

Restructuring credit

     —          —          (521     —          —          (521
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     —          (41     16,872        108        —          16,939   

Interest (income) expense, non-related party, net

     (1     6,915        221        (2     —          7,133   

Interest (income) expense, related party, net

     —          (6,915     7,017        (102     —          —     

Other expense

     —          —          20        9        —          29   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     1        (41     9,614        203        —          9,777   

Provision for income taxes

     —          —          700        31        —          731   

Equity in earnings of subsidiaries

     9,045        9,086        —          —          (18,131     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     9,046        9,045        8,914        172        (18,131     9,046   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income , net of tax

     325        325        318        7        (650     325   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 9,371      $ 9,370      $ 9,232      $ 179      $ (18,781   $ 9,371   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

Condensed Consolidating Statements of Operations

Six Months Ended June 30, 2012

Unaudited—(In 000’s)

 

     QDI      QD LLC &
QD Capital
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenues:

             

Transportation

   $ —         $ —        $ 283,725      $ —        $ —        $ 283,725   

Service revenue

     —          —         57,817        202        —         58,019   

Fuel surcharge

     —          —         62,904        —          —         62,904   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     —          —         404,446        202        —          404,648   

Operating expenses:

             

Purchased transportation

     —          —         274,186        —         —         274,186   

Compensation

     —          —         35,147        —         —         35,147   

Fuel, supplies and maintenance

     —          —         32,911        —         —         32,911   

Depreciation and amortization

     —          —         8,413        —         —         8,413   

Selling and administrative

     —           17        16,554        28        —          16,599   

Insurance costs

     —          —         7,358        —         —         7,358   

Taxes and licenses

     —          —         1,372        —         —         1,372   

Communication and utilities

     —          —         1,744        —         —         1,744   

Gain on disposal of property and equipment

     —          —         (364     —         —         (364
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     —          (17     27,125        174        —         27,282   

Interest expense (income), non-related party, net

     —          13,727        240        (6     —         13,961   

Interest (income) expense, related party, net

     —          (13,727     13,935        (208     —         —     

Other (income) expense

     —          —          (173     9        —         (164
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     —          (17 )     13,123        379        —         13,485   

(Benefit from) provision for income taxes

     —          —         (22,090     71        —         (22,019

Equity in earnings of subsidiaries

     35,504         35,521        —         —         (71,025     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     35,504         35,504        35,213        308        (71,025     35,504   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     782         782        776        6        (1,564     782   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 36,286       $ 36,286      $ 35,989      $ 314      $ (72,589   $ 36,286   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

Condensed Consolidating Statements of Operations

Six Months Ended June 30, 2011

Unaudited—(In 000’s)

 

     QDI     QD LLC &
QD Capital
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating revenues:

            

Transportation

   $ —        $ —        $ 254,078      $ —        $ —        $ 254,078   

Service revenue

     —          —          54,114        266        —          54,380   

Fuel surcharge

     —          —          59,445        —          —          59,445   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     —          —          367,637        266        —          367,903   

Operating expenses:

            

Purchased transportation

     —          —          258,414        —          —          258,414   

Compensation

     —          —          30,398        —          —          30,398   

Fuel, supplies and maintenance

     —          —          23,442        —          —          23,442   

Depreciation and amortization

     —          —          6,870        —          —          6,870   

Selling and administrative

     —          53        9,944        38          10,035   

Insurance costs

     —          —          8,214        11        —          8,225   

Taxes and licenses

     —          —          1,099        —          —          1,099   

Communication and utilities

     —          —          1,459        —          —          1,459   

Gain on disposal of property and equipment

     —          —          (650     —          —          (650

Restructuring credit

     —          —          (521     —          —          (521
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     —          (53     28,968        217        —          29,132   

Interest (income) expense, non-related party, net

     (15     14,277        546        (3     —          14,805   

Interest (income) expense, related party, net

     —          (14,277     14,481        (204     —          —     

Write-off of debt issuance costs

     —          1,786        —          —          —          1,786   

Other expense (income)

     —          2        32        (41     —          (7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     15        (1,841     13,909        465        —          12,548   

Provision for (benefit from) income taxes

     —          —          929        (149     —          780   

Equity in earnings of subsidiaries

     11,753        13,594        —          —          (25,347     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 11,768      $ 11,753      $ 12,980      $ 614      $ (25,347   $ 11,768   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     593        593        636        (43     (1,186     593   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 12,361      $ 12,346      $ 13,616      $ 571      $ (26,533   $ 12,361   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

June 30, 2012

Unaudited—(In 000’s)

 

     QDI     QD LLC and
QD Capital
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

ASSETS

            

Current assets:

            

Cash and cash equivalents

   $ —        $ —        $ 3,566      $ 563      $ —        $ 4,129   

Accounts receivable, net

     —          —          116,435        46        —          116,481   

Prepaid expenses

     —          6        10,956        —          —          10,962   

Deferred tax asset

     —          —          7,491        —          —          7,491   

Other

     (33     —          7,365        (9     —          7,323   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     (33     6        145,813        600        —          146,386   

Property and equipment, net

     —          —          163,264        —          —          163,264   

Goodwill

     —          —          82,047        —          —          82,047   

Intangibles, net

     —          —          35,031        —          —          35,031   

Non-current deferred tax asset, net

     —          —          15,286        —          —          15,286   

Investment in subsidiaries

     (103,064     418,060        27,531        —          (342,527     —     

Other assets

     —          9,877        2,606        —          —          12,483   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ (103,097   $ 427,943      $ 471,578      $ 600      $ (342,527   $ 454,497   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY

            

Current liabilities:

            

Current maturities of indebtedness

   $ —        $ —        $ 2,537      $ —        $ —        $ 2,537   

Current maturities of capital lease obligations

     —          —          5,250        —          —          5,250   

Accounts payable

     —          —          12,336        (9     —          12,327   

Intercompany

     (72,340     196,176        (89,177     (7,128     (27,531     —     

Independent affiliates and independent owner-operators payable

     —          —          17,358        —          —          17,358   

Accrued expenses

     —          4,204        31,927        10        —          36,141   

Environmental liabilities

     —          —          4,201        —          —          4,201   

Accrued loss and damage claims

     —          —          7,888        —          —          7,888   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     (72,340     200,380        (7,680     (7,127     (27,531     85,702   

Long-term indebtedness, less current maturities

     —          330,627        25,567        —          —          356,194   

Capital lease obligations, less current maturities

     —          —          2,327        —          —          2,327   

Environmental liabilities

     —          —          5,156        —          —          5,156   

Accrued loss and damage claims

     —          —          8,931        —          —          8,931   

Other non-current liabilities

     (1,007     —          26,902        42        —          25,937   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     (73,347     531,007        61,203        (7,085     (27,531     484,247   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ (deficit) equity:

            

Common stock

     435,396        354,963        399,323        4,833        (759,119     435,396   

Treasury stock

     (1,944     —          —          —          —          (1,944

Accumulated (deficit) retained earnings

     (243,039     (238,336     40,151        3,935        194,250        (243,039

Stock recapitalization

     (189,589     (189,589     —          (55     189,644        (189,589

Accumulated other comprehensive loss

     (30,599     (30,127     (29,099     (1,028     60,254        (30,599

Stock purchase warrants

     25        25        —          —          (25     25   
  

 

 

   

 

 

   

&nb