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 March 31, 2014
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
(Registrants 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 May 5, 2014, the registrant had 27,400,558 shares of Common Stock, no par value, outstanding.
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
CONTENTS
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Unaudited (In 000s, Except Per Share Amounts)
Three months ended March 31, |
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2014 | 2013 | |||||||
OPERATING REVENUES: |
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Transportation |
$ | 170,556 | $ | 163,994 | ||||
Service revenue |
32,187 | 33,454 | ||||||
Fuel surcharge |
31,744 | 31,974 | ||||||
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Total operating revenues |
234,487 | 229,422 | ||||||
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OPERATING EXPENSES: |
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Purchased transportation |
157,619 | 142,872 | ||||||
Compensation |
21,255 | 26,470 | ||||||
Fuel, supplies and maintenance |
23,130 | 27,129 | ||||||
Depreciation and amortization |
5,495 | 6,693 | ||||||
Selling and administrative |
7,258 | 7,479 | ||||||
Insurance costs |
6,271 | 4,497 | ||||||
Taxes and licenses |
936 | 832 | ||||||
Communication and utilities |
932 | 1,095 | ||||||
Gain on disposal of property and equipment |
(511 | ) | (3,089 | ) | ||||
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Total operating expenses |
222,385 | 213,978 | ||||||
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Operating income |
12,102 | 15,444 | ||||||
Interest expense |
7,364 | 7,723 | ||||||
Interest income |
(124 | ) | (211 | ) | ||||
Other expense (income) |
157 | (6,972 | ) | |||||
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Income before income taxes |
4,705 | 14,904 | ||||||
Provision for income taxes |
1,632 | 5,760 | ||||||
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Net income |
$ | 3,073 | $ | 9,144 | ||||
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PER SHARE DATA: |
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Net income per common share |
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Basic |
$ | 0.11 | $ | 0.34 | ||||
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Diluted |
$ | 0.11 | $ | 0.34 | ||||
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Weighted-average number of shares |
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Basic |
27,090 | 26,625 | ||||||
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Diluted |
27,970 | 27,134 | ||||||
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The accompanying notes are an integral part of these consolidated financial statements.
1
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Unaudited (In 000s)
Three months ended March 31, |
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2014 | 2013 | |||||||
Net income |
$ | 3,073 | $ | 9,144 | ||||
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Other comprehensive income: |
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Amortization of prior service costs and losses |
316 | 386 | ||||||
Foreign currency translation adjustment |
57 | 35 | ||||||
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Total other comprehensive income |
373 | 421 | ||||||
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Comprehensive income |
$ | 3,446 | $ | 9,565 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
2
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Unaudited (In 000s)
March 31, 2014 |
December 31, 2013 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 1,864 | $ | 1,957 | ||||
Accounts receivable, net |
138,453 | 120,932 | ||||||
Prepaid expenses |
15,424 | 13,401 | ||||||
Deferred tax asset, net |
22,220 | 20,709 | ||||||
Other current assets |
10,554 | 9,919 | ||||||
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Total current assets |
188,515 | 166,918 | ||||||
Property and equipment, net |
165,964 | 170,114 | ||||||
Assets held-for-sale |
3,379 | 1,129 | ||||||
Goodwill |
32,955 | 32,955 | ||||||
Intangibles, net |
15,792 | 16,149 | ||||||
Non-current deferred tax asset, net |
28,255 | 31,401 | ||||||
Other assets |
8,290 | 8,583 | ||||||
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Total assets |
$ | 443,150 | $ | 427,249 | ||||
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LIABILITIES AND SHAREHOLDERS DEFICIT |
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Current liabilities: |
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Current maturities of indebtedness |
$ | 2,069 | $ | 8,692 | ||||
Current maturities of capital lease obligations |
678 | 1,888 | ||||||
Accounts payable |
12,143 | 10,248 | ||||||
Independent affiliates and independent owner-operators payable |
20,850 | 14,398 | ||||||
Accrued expenses |
33,831 | 30,580 | ||||||
Environmental liabilities |
3,449 | 3,818 | ||||||
Accrued loss and damage claims |
9,541 | 8,532 | ||||||
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Total current liabilities |
82,561 | 78,156 | ||||||
Long-term indebtedness, less current maturities |
379,529 | 369,730 | ||||||
Capital lease obligations, less current maturities |
407 | 2,995 | ||||||
Environmental liabilities |
4,479 | 4,479 | ||||||
Accrued loss and damage claims |
11,263 | 10,747 | ||||||
Other non-current liabilities |
16,158 | 17,393 | ||||||
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Total liabilities |
494,397 | 483,500 | ||||||
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Commitments and contingenciesNote 14 |
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SHAREHOLDERS DEFICIT |
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Common stock, no par value; 49,000 shares authorized; 29,009 issued and 27,401 outstanding at March 31, 2014 and 28,779 issued and 27,203 outstanding at December 31, 2013 |
443,882 | 441,877 | ||||||
Treasury stock, 1,608 shares at March 31, 2014 and 1,576 shares at December 31, 2013 |
(11,004 | ) | (10,557 | ) | ||||
Accumulated deficit |
(267,432 | ) | (270,505 | ) | ||||
Stock recapitalization |
(189,589 | ) | (189,589 | ) | ||||
Accumulated other comprehensive loss |
(27,104 | ) | (27,477 | ) | ||||
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Total shareholders deficit |
(51,247 | ) | (56,251 | ) | ||||
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Total liabilities and shareholders deficit |
$ | 443,150 | $ | 427,249 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
3
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders Deficit
For the Three Months Ended March 30, 2014 and 2013
Unaudited (In 000s)
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 |
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Balance, December 31, 2012 |
28,102 | (879 | ) | $ | 437,192 | $ | (5,849 | ) | $ | (228,467 | ) | $ | (189,589 | ) | $ | (31,752 | ) | $ | 25 | $ | (18,440 | ) | ||||||||||||||
Net income |
| | | | 9,144 | | | | 9,144 | |||||||||||||||||||||||||||
Issuance of restricted stock |
242 | | | | | | | | | |||||||||||||||||||||||||||
Forfeiture of restricted stock |
| | | (4 | ) | | | | | (4 | ) | |||||||||||||||||||||||||
Amortization of restricted stock |
| | 481 | | | | | | 481 | |||||||||||||||||||||||||||
Amortization of stock options |
| | 526 | | | | | | 526 | |||||||||||||||||||||||||||
Stock option exercises |
67 | | 181 | | | | | | 181 | |||||||||||||||||||||||||||
Purchases of treasury stock |
| (483 | ) | | (3,428 | ) | | | | | (3,428 | ) | ||||||||||||||||||||||||
Amortization of prior service costs and losses (pension plans), net of tax |
| | | | | | 386 | | 386 | |||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax |
| | | | | | 35 | | 35 | |||||||||||||||||||||||||||
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Balance, March 31, 2013 |
28,411 | (1,362 | ) | $ | 438,380 | $ | (9,281 | ) | $ | (219,323 | ) | $ | (189,589 | ) | $ | (31,331 | ) | $ | 25 | $ | (11,119 | ) | ||||||||||||||
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Balance, December 31, 2013 |
28,779 | (1,576 | ) | $ | 441,877 | $ | (10,557 | ) | $ | (270,505 | ) | $ | (189,589 | ) | $ | (27,477 | ) | $ | | $ | (56,251 | ) | ||||||||||||||
Net income |
| | | | 3,073 | | | | 3,073 | |||||||||||||||||||||||||||
Issuance of restricted stock |
19 | | | | | | | | | |||||||||||||||||||||||||||
Forfeiture of restricted stock |
| (32 | ) | | (447 | ) | | | | | (447 | ) | ||||||||||||||||||||||||
Amortization of restricted stock |
| | 390 | | | | | | 390 | |||||||||||||||||||||||||||
Amortization of stock options |
| | 281 | | | | | | 281 | |||||||||||||||||||||||||||
Stock option exercises |
211 | | 1,334 | | | | | | 1,334 | |||||||||||||||||||||||||||
Amortization of prior service costs and losses (pension plans), net of tax |
| | | | | | 316 | | 316 | |||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax |
| | | | | | 57 | | 57 | |||||||||||||||||||||||||||
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Balance, March 31, 2014 |
29,009 | (1,608 | ) | $ | 443,882 | $ | (11,004 | ) | $ | (267,432 | ) | $ | (189,589 | ) | $ | (27,104 | ) | $ | | $ | (51,247 | ) | ||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
4
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Unaudited (In 000s)
Three Months Ended March 31, |
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2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 3,073 | $ | 9,144 | ||||
Adjustments to reconcile to net cash and cash equivalents provided by operating activities: |
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Deferred income tax expense |
1,635 | 5,330 | ||||||
Depreciation and amortization |
5,495 | 6,693 | ||||||
Bad debt recoveries |
(104 | ) | (106 | ) | ||||
Gain on disposal of property and equipment |
(511 | ) | (3,089 | ) | ||||
Stock-based compensation |
671 | 1,007 | ||||||
Amortization of deferred financing costs |
592 | 558 | ||||||
Amortization of bond discount |
49 | 54 | ||||||
Contingent consideration adjustment |
| (7,050 | ) | |||||
Changes in assets and liabilities: |
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Accounts and other receivables |
(16,323 | ) | (10,456 | ) | ||||
Prepaid expenses |
(2,023 | ) | (1,021 | ) | ||||
Other assets |
(1,400 | ) | (251 | ) | ||||
Accounts payable |
(207 | ) | 1,143 | |||||
Independent affiliates and independent owner-operators payable |
6,452 | 2,302 | ||||||
Accrued expenses |
3,320 | 4,783 | ||||||
Environmental liabilities |
(369 | ) | (540 | ) | ||||
Accrued loss and damage claims |
1,527 | (182 | ) | |||||
Other liabilities |
(493 | ) | (116 | ) | ||||
Current income taxes |
24 | 416 | ||||||
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Net cash and cash equivalents provided by operating activities |
1,408 | 8,619 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital expenditures |
(10,456 | ) | (7,413 | ) | ||||
Trojan purchase price adjustment |
| (857 | ) | |||||
Proceeds from sales of property and equipment |
2,846 | 8,789 | ||||||
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Net cash and cash equivalents (used in) provided by investing activities |
(7,610 | ) | 519 | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Principal payments on long-term debt |
(1,074 | ) | (1,206 | ) | ||||
Principal payments on capital lease obligations |
(249 | ) | (648 | ) | ||||
Proceeds from revolver |
68,800 | 46,700 | ||||||
Payments on revolver |
(64,600 | ) | (54,600 | ) | ||||
Payments on acquisition notes |
(200 | ) | (421 | ) | ||||
Deferred financing costs |
(4 | ) | (21 | ) | ||||
Change in book overdraft |
2,102 | 2,802 | ||||||
Purchases of treasury stock |
| (3,428 | ) | |||||
Proceeds from exercise of stock options |
1,334 | 181 | ||||||
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Net cash and cash equivalents provided by (used in) financing activities |
6,109 | (10,641 | ) | |||||
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Net decrease in cash and cash equivalents |
(93 | ) | (1,503 | ) | ||||
Cash and cash equivalents, beginning of period |
1,957 | 2,704 | ||||||
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Cash and cash equivalents, end of period |
$ | 1,864 | $ | 1,201 | ||||
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Supplemental Disclosure of Cash Flow Information |
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Cash paid (received) during the period for: |
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Interest |
$ | 1,592 | $ | 1,725 | ||||
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Income Taxes |
62 | (43 | ) | |||||
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The accompanying notes are an integral part of these consolidated financial statements.
5
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 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 wholly-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 wholly-owned subsidiary, QD Capital Corporation, a Delaware corporation, (iv) the term QCI refers to our wholly-owned subsidiary, Quality Carriers, Inc., an Illinois corporation, (v) the term Boasso refers to our wholly-owned subsidiary, Boasso America Corporation, a Louisiana corporation, (vi) the term QCER refers collectively to our wholly-owned subsidiary, QC Energy Resources, Inc., a Delaware corporation, and its wholly-owned subsidiaries, QC Energy Logistics, LLC, a Delaware limited liability company, QC Energy Resources, LLC, a Delaware limited liability company, QC Energy Resources Northwest, LLC, a Delaware limited liability company, and QC Energy Resources Texas, LLC, a Delaware limited liability company, as well as our wholly-owned subsidiary, QC Environmental Services, Inc., a North Dakota corporation, and (vii) the term CLC refers to our wholly-owned subsidiary, Chemical Leaman Corporation, a Pennsylvania corporation.
We operate the largest chemical bulk tank truck network in North America through QCI. We are the largest provider of intermodal ISO tank container and depot services in North America through Boasso. We provide logistics services to the unconventional oil and gas industry 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 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 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, 2013 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, 2013, including the consolidated financial statements and accompanying notes.
Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for any future period.
New Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (FASB) issued an accounting pronouncement related to income taxes. Under this standard, entities are required to recognize that an unrecognized tax benefit be presented in the consolidated financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward except as follows: To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the consolidated financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this pronouncement did not have a material effect on our consolidated financial statements.
6
Acquisitions and Dispositions
During 2013 and the first three months of 2014, we did not complete any acquisitions or dispositions of businesses or independent affiliates.
2. Variable Interest Entities
At March 31 2014 and December 31, 2013, we have a variable interest in one variable interest entity (VIE), for which we are not the primary beneficiary. We have concluded, based on our qualitative consideration of our contracts with the VIE, the operating structure of the VIE and our role with the VIE, 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 this VIE.
This VIE is an independent affiliate that is directly engaged in the dry bulk and chemical transportation business through the management of trucking terminals in the North East region of the U.S. We are involved with this 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 $3.1 million and $3.2 million at March 31, 2014 and December 31, 2013, respectively. These loans are secured by a second-priority lien on certain assets of the VIE.
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 1Quoted prices for identical instruments in active markets; |
| Level 2Quoted 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 3Instruments 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 March 31, 2014, 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) |
$ | 202,500 | $ | 220,978 | ||||
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The fair value of the revolving credit facility and term loan under our asset-based loan facility (the ABL Facility), which is variable rate debt, is estimated using a coupon rate on borrowings with similar maturities, current remaining average life to maturity, borrower credit quality, and current market conditions and approximates fair value. The fair value of the 2018 Notes is estimated using various techniques including recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, fundamental data relating to the issuer, and credit default swap spreads adjusted for any basis difference between cash and derivative instruments.
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.
We used a third-party appraisal for the fair value of our intangible assets. Refer to Note 4. Goodwill and Intangible Assets.
7
4. Goodwill and Intangible Assets
Goodwill
We performed our annual impairment test in the second quarter of 2013 for all reporting units. For our chemical logistics reporting unit, we qualitatively assessed whether it was more likely than not that the respective fair value of this reporting unit was less than the carrying amount, including goodwill. We considered various qualitative factors, including macroeconomic conditions, relevant industry and market trends, cost factors, overall financial performance, other entity-specific events and events affecting the reporting unit that could indicate a potential change in the fair value of our reporting unit or the composition of its carrying values. We also considered the specific future outlook for the reporting unit based on our most recent forecasts. We determined that an impairment in our chemical logistics reporting unit was not likely and thus we were not required to perform a quantitative analysis. For the intermodal and energy logistics reporting units, we proceeded directly to the two-step quantitative impairment test. For the intermodal reporting unit, the calculated fair value substantially exceeded its carrying value. For the energy logistics reporting unit, the calculated fair value showed that the reporting units fair value was less than its carrying amount, indicating a potential impairment. Based on the second step of the quantitative impairment test, we concluded that the implied fair value of goodwill for the energy logistics reporting unit was less than its carrying amount, resulting in an impairment of goodwill of approximately $55.2 million recorded in the three months ending June 30, 2013. The remaining goodwill of the energy logistics reporting unit after the second quarter of 2013 impairment was approximately $17.6 million.
In the fourth quarter of fiscal 2013, we identified triggering events in our energy logistics reporting unit, which were the combination of the continued challenging market conditions, the recent financial performance, and decreases in the projected results as compared to prior periods, requiring an interim impairment test of goodwill. The decrease in recent financial performance and projected results was mainly due to poor performance and increased reorganizational costs. For the energy logistics reporting unit, the calculated fair value using the income approach and market approach, showed that the reporting units fair value was less than its carrying amount, indicating a potential impairment. Based on the second step of the impairment test, we concluded that the implied fair value of goodwill for the energy logistics reporting unit was less than its carrying amount, resulting in an impairment of goodwill of approximately $17.6 million in the three months ending December 31, 2013. There is no remaining goodwill for the energy logistics reporting unit after the fourth quarter 2013 impairment charge. We continue to evaluate indicators of impairment quarterly in accordance with FASB guidance. There were no indicators that a triggering event in our intermodal or chemical logistics reporting units had occurred as of the quarter ending March 31, 2014.
Goodwill within the intermodal and chemical logistics segments is as follows (in thousands):
March 31, 2014 |
December 31, 2013 |
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Intermodal |
$ | 31,410 | $ | 31,410 | ||||
Chemical Logistics |
1,545 | 1,545 | ||||||
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Total |
$ | 32,955 | $ | 32,955 | ||||
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Intangible Assets
In 2013, our intangible assets included non-compete agreements, a service agreement, customer relationships and tradenames. We performed our annual impairment test in the second quarter of fiscal 2013 for the indefinite-lived intangible assets related to tradenames in the intermodal reporting unit and the energy logistics reporting unit. For the intermodal tradename of approximately $7.4 million as of June 30, 2013, the calculated fair value using the relief-from-royalty method of the income approach substantially exceeded its carrying value. During the second quarter of 2013, we recorded an impairment charge of approximately $0.5 million related to the definite-lived tradenames for the energy logistics reporting unit. This valuation was based on the discontinued use of the tradenames and lack of marketability, and resulted in a fully impaired tradename in the second quarter of 2013.
Similar to goodwill, in the fourth quarter of fiscal 2013, we identified the combination of the continued challenging market conditions, the recent financial performance, and decreases in the projected results as compared to prior periods as triggering events requiring an impairment test of the customer relationships and the service agreement related to our energy logistics reporting unit. For the energy logistics reporting unit, the calculated fair value using the income approach showed that the fair value of the customer relationships was substantially less than their carrying amount, indicating an impairment of approximately $17.1 million. The customer relationships and service agreement were fully impaired as a result of the fourth quarter of 2013 impairment test. We continue to evaluate indicators of impairment quarterly in accordance with FASB guidance. There were no indicators that a triggering event in any of our intermodal or energy logistics reporting units had occurred as of the quarter ended March 31, 2014.
8
Intangible assets at March 31, 2014 are as follows (in thousands):
Gross Book Value |
Accumulated Amortization |
Net Book Value |
Average Lives (in years) | |||||||||||
TradenameIntermodal |
$ | 7,400 | $ | | $ | 7,400 | Indefinite | |||||||
Customer relationshipsIntermodal |
14,260 | (6,673 | ) | 7,587 | 10-12 | |||||||||
Non-compete agreementsIntermodal and Energy Logistics |
1,620 | (815 | ) | 805 | 3-6 | |||||||||
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$ | 23,280 | $ | (7,488 | ) | $ | 15,792 | ||||||||
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Of the net book value of intangibles of approximately $15.8 million at March 31, 2014, $15.1 million was allocated to our intermodal segment and approximately $0.7 million was allocated to our energy logistics segment.
Intangible assets at December 31, 2013 are as follows (in thousands):
Gross Book Value January 1, 2013 |
2013 Additions(1) |
Impairment | Accumulated Amortization |
Net Book Value December 31, 2013 |
Average Lives (in years) | |||||||||||||||||
TradenameIntermodal |
$ | 7,400 | $ | | $ | | $ | | $ | 7,400 | Indefinite | |||||||||||
TradenameEnergy Logistics |
1,100 | | (521 | ) | (579 | ) | | | ||||||||||||||
Customer relationships (1) |
33,410 | 1,000 | (17,065 | ) | (9,462 | ) | 7,883 | 10-12 | ||||||||||||||
Non-compete agreements |
4,311 | | | (3,445 | ) | 866 | 3-6 | |||||||||||||||
Service agreement |
1,120 | | (942 | ) | (178 | ) | | | ||||||||||||||
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$ | 47,341 | $ | 1,000 | $ | (18,528 | ) | $ | (13,664 | ) | $ | 16,149 | |||||||||||
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(1) | Additions related to the on-boarding of a new independent affiliate. |
Of the net book value of intangibles of approximately $16.1 million at December 31, 2013, $15.3 million was allocated to our intermodal segment and $0.8 million was allocated to our energy logistics segment.
Amortization expense for the three months ended March 31, 2014 and 2013 was $0.4 million and $1.1 million, respectively. Estimated amortization expense for intangible assets is as follows (in thousands):
2014 remaining |
$ | 1,063 | ||
2015 |
1,418 | |||
2016 |
1,413 | |||
2017 |
1,338 | |||
2018 |
1,218 | |||
2019 and thereafter |
1,942 | |||
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Total |
$ | 8,392 | ||
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5. Long-term Indebtedness
Term Loan Facility
On June 14, 2013, our ABL Facility was amended to provide for a new $17.5 million senior secured term loan facility (Term Loan) which was fully funded on July 15, 2013. Borrowings under the Term Loan bear interest at a margin equal to 2.50% for base rate borrowings and 3.50% for LIBOR borrowings, with a potential step-down of 0.25% after 18 months if a senior secured leverage ratio is met. Obligations under the Term Loan mature on the earlier of June 14, 2016 or the date on which the ABL Facility terminates. Beginning no earlier than the 12-month anniversary of the Term Loan and no later than the 24-month anniversary of the Term Loan, we will be subject to mandatory repayment of the principal amount of the Term Loan in equal quarterly payments for the remainder of the maturity period. Borrowing availability under our ABL Facility was expanded to include additional eligible accounts receivable
9
and tractor and trailer equipment in conjunction with the new borrowing. We may voluntarily repay the outstanding amount under the Term Loan at any time without premium or penalty, other than customary breakage costs with respect to the LIBOR loans. As of March 31, 2014 and December 31, 2013, the balance of the Term Loan was $17.5 million. The interest rate on borrowings under the Term Loan at March 31, 2014 and December 31, 2013 was 3.7%.
We recorded $0.6 million in debt issuance costs relating to the Term Loan and are amortizing these costs over the term of the Term Loan.
July 2013 Notes Redemption
On July 15, 2013, we redeemed a portion of our 9.875% Second-Priority Senior Secured Notes due 2018 (2018 Notes) in the aggregate principal amount of $22.5 million. The redemption price for these 2018 Notes equaled 100% of the aggregate principal amount of $22.5 million, plus accrued but unpaid interest up to the redemption date, plus a 3.0% premium of $0.7 million. The redemption was funded with proceeds from the Term Loan together with borrowings under our ABL Facility. As of March 31, 2014, the balance of the 2018 Notes was $202.5 million. In the third quarter of 2013, $0.5 million of unamortized debt issuance costs related to this redemption were written off.
10
6. Income Per Share
A reconciliation of the numerators and denominators of the basic and diluted income per share computations follows (in thousands, except per share amounts):
Three months ended | ||||||||||||||||||||||||
March 31, 2014 | March 31, 2013 | |||||||||||||||||||||||
Net income (numerator) |
Shares (denominator) |
Per-share amount |
Net income (numerator) |
Shares (denominator) |
Per-share amount |
|||||||||||||||||||
Basic income available to common shareholders: |
$ | 3,073 | 27,090 | $ | 0.11 | $ | 9,144 | 26,625 | $ | 0.34 | ||||||||||||||
Effect of dilutive securities: |
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Stock options |
| 580 | | | 409 | | ||||||||||||||||||
Unvested restricted stock |
| 122 | | | 91 | | ||||||||||||||||||
Unvested restricted stock units |
| 178 | | | | | ||||||||||||||||||
Stock warrants |
| | | | 9 | | ||||||||||||||||||
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Diluted income available to common shareholders: |
$ | 3,073 | 27,970 | $ | 0.11 | $ | 9,144 | 27,134 | $ | 0.34 | ||||||||||||||
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The following securities were not included in the calculation of diluted income per share because such inclusion would be anti-dilutive (in thousands):
Three months ended March 31, |
||||||||
2014 | 2013 | |||||||
Stock options |
1,267 | 2,106 | ||||||
Unvested restricted stock |
101 | 394 | ||||||
Unvested restricted stock units |
388 | |
7. Stock-Based Compensation
On March 7, 2014, the Compensation Committee of the Board of Directors granted executives and certain employees 566,168 restricted stock units (RSUs) under our 2012 Equity Incentive Plan. Of these 566,168 RSUs, 375,584 RSUs are performance based and 190,584 are time-based RSUs. The performance RSUs are based on the achievement of multi-year financial objectives established by the Compensation Committee for a performance period from January 1, 2014 through December 31, 2016. The number of shares that may be earned from the performance RSUs is based upon a target number of shares, subject to minimum and maximum numbers of shares and certain performance criteria, with shares earned for performance between the minimum performance level and the maximum performance level calculated based on a linear interpolation. The time-based RSUs vest ratably on each anniversary of the grant date over a three-year period ending March 7, 2017.
Restricted stock and RSUs are measured at fair value at the time of issuance. Expense for restricted stock and time-based RSUs is recognized based on fair value on a straight-line basis over the vesting period. Expense for performance RSUs is recognized on a straight-line basis over the vesting period in an amount based upon our estimation of the probability that such fair value will be realized when performance criteria are satisfied.
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 vesting term of two to four years. 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.
11
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 March 31, 2014 (in thousands):
Remaining years |
||||||||
Restricted stock units |
$ | 6,577 | 2.8 | |||||
Stock options |
1,696 | 2.2 | ||||||
Restricted stock |
1,574 | 2.3 | ||||||
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$ | 9,847 | |||||||
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These amounts do not include the cost of any additional awards, options or RSUs that may be granted in future periods or any changes in our forfeiture rate.
8. Employee Benefit Plans
We maintain two noncontributory defined benefit plans resulting from a prior acquisition that cover certain vested salaried participants and retirees (CLC Plan) and certain other vested participants and retirees under an expired 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 are 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 net periodic pension cost are estimated as follows (in thousands):
Three months ended March 31, |
||||||||
2014 | 2013 | |||||||
Service cost |
$ | 42 | $ | 41 | ||||
Interest cost |
503 | 463 | ||||||
Amortization of prior service cost |
24 | 24 | ||||||
Amortization of loss |
292 | 362 | ||||||
Expected return on plan assets |
(642 | ) | (583 | ) | ||||
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Net periodic pension cost |
$ | 219 | $ | 307 | ||||
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We contributed $0.6 million to our pension plans during the three months ended March 31, 2014. We expect to contribute an additional $2.9 million during the remainder of 2014.
Multi-employer pension plans
At March 31, 2014, we contributed to three separate multi-employer pension plans for employees under collective bargaining agreements. These agreements cover approximately 2.8% 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.
We do not currently intend to withdraw from the 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 $85.6 million, of which $79.8 million relates to the Central States Southeast and Southwest Areas Pension Plan.
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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.
9. Accumulated Other Comprehensive Loss
The components and changes to accumulated other comprehensive loss as of March 31 are as follows (in thousands):
2014 | 2013 | |||||||
Foreign currency translation: |
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Beginning balance |
$ | (1,061 | ) | $ | (1,180 | ) | ||
Net gain on foreign currency translation |
57 | 35 | ||||||
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Ending balance |
$ | (1,004 | ) | $ | (1,145 | ) | ||
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Pension benefits: |
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Beginning balance |
$ | (26,416 | ) | $ | (30,572 | ) | ||
Amortization of prior service cost (1) |
24 | 24 | ||||||
Amortization of gain (1) |
292 | 362 | ||||||
Ending balance |
$ | (26,100 | ) | $ | (30,186 | ) | ||
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Total Accumulated Other Comprehensive Loss ending balance |
$ | (27,104 | ) | $ | (31,331 | ) | ||
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(1) | Prior service cost and actuarial gain are included as part of the Companys net periodic benefit cost. Refer to Note 8. |
Reclasses out of Accumulated Other Comprehensive Loss were nominal.
10. 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 FASBs 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. The restructuring plan consisted of various actions including termination of approximately 380 non-driver positions and the consolidation, closure or affiliation of underperforming company-operated terminals, our withdrawal from three multi-employer pension plans and costs associated with the consolidation of our corporate headquarters, and resulted in charges during 2008, 2009 and 2010, primarily related to our chemical logistics segment. As of March 31, 2014, we have approximately $1.5 million of restructuring charges included in accrued expenses on the Consolidated Balance Sheet which are expected to be paid through 2017.
In the three months ended March 31, 2014, we had the following activity in our restructuring accrual (in thousands):
Balance at December 31, 2013 |
Payments | Balance at March 31, 2014 |
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Restructuring costs |
$ | 1,582 | $ | (135 | ) | $ | 1,447 | |||||
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11. Segment Reporting
Reportable Segments
The Company has three reportable business segments for financial reporting purposes that are distinguished primarily on the basis of services offered. Historically, the Company included certain shared services and corporate expenses within its Chemical Logistics segment. As of March 31, 2014, the Company has allocated these items to Shared Services. The allocation represents a change in our segment measure as opposed to a change in operating or reportable segments. Shared Services consists of corporate and shared services overhead costs, including information technology, driver recruiting, accounting, stock-based compensation, pension, environmental and other corporate headquarters costs. Segment results for the 2013 quarterly periods were reclassified to conform to the current year presentation. Our segments are delineated as follows:
| Chemical Logistics, which consists of the transportation of bulk chemicals primarily through our network that includes company-operated terminals and terminals operated by 27 independent affiliates, and equipment rental income; |
| Energy Logistics, which consists primarily of the transportation of fresh water, disposal water and crude oil for the unconventional oil and gas (UCO&G) market, through our network of company-operated terminals and terminals operated by 3 independent affiliates, and equipment rental income; |
13
| Intermodal, which consists of Boassos intermodal ISO tank container transportation and depot services business primarily supporting the international movement of bulk liquids; and |
Segment operating income reported in our segment tables excludes amounts such as depreciation and amortization, gains and losses on disposal of property and equipment, restructuring costs and impairment charges. Although these amounts are excluded from the reportable business segment operating income results, they are included in our reported Consolidated Statements of Operations. We have not provided specific asset information by segment, as it is not regularly provided to our chief operating decision maker for review.
Summarized segment data and a reconciliation to income before income taxes follow (in thousands):
Three Months Ended March 31, 2014 | ||||||||||||||||||||
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services | Total | ||||||||||||||||
Operating Revenues: |
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Transportation |
$ | 114,623 | $ | 36,979 | $ | 18,954 | $ | | $ | 170,556 | ||||||||||
Service revenue |
17,143 | 1,946 | 12,974 | 124 | 32,187 | |||||||||||||||
Fuel surcharge |
27,052 | | 4,692 | | 31,744 | |||||||||||||||
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Total operating revenues |
158,818 | 38,925 | 36,620 | 124 | 234,487 | |||||||||||||||
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Segment operating income (loss) |
18,629 | 2,736 | 6,072 | (10,351 | ) | 17,086 | ||||||||||||||
Depreciation and amortization |
2,447 | 2,133 | 818 | 97 | 5,495 | |||||||||||||||
Other (income) expense |
(948 | ) | 437 | | | (511 | ) | |||||||||||||
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Operating income (loss) |
17,130 | 166 | 5,254 | (10,448 | ) | 12,102 | ||||||||||||||
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Interest expense |
1,688 | 4,150 | 1,513 | 13 | 7,364 | |||||||||||||||
Interest income |
(118 | ) | (6 | ) | | | (124 | ) | ||||||||||||
Other expense, net |
157 | | | | 157 | |||||||||||||||
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Income (loss) before income taxes |
$ | 15,403 | $ | (3,978 | ) | $ | 3,741 | $ | (10,461 | ) | $ | 4,705 | ||||||||
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Three Months Ended March 31, 2013 | ||||||||||||||||||||
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services | Total | ||||||||||||||||
Operating Revenues: |
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Transportation |
$ | 109,068 | $ | 36,930 | $ | 17,996 | $ | | $ | 163,994 | ||||||||||
Service revenue |
16,374 | 3,921 | 13,140 | 19 | 33,454 | |||||||||||||||
Fuel surcharge |
27,262 | 233 | 4,479 | | 31,974 | |||||||||||||||
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Total operating revenues |
152,704 | 41,084 | 35,615 | 19 | 229,422 | |||||||||||||||
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Segment operating income (loss) |
20,411 | 2,714 | 6,668 | (10,745 | ) | 19,048 | ||||||||||||||
Depreciation and amortization |
2,762 | 3,001 | 808 | 122 | 6,693 | |||||||||||||||
Other (income) expense |
(883 | ) | 220 | | (2,426 | ) | (3,089 | ) | ||||||||||||
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Operating income (loss) |
18,532 | (507 | ) | 5,860 | (8,441 | ) | 15,444 | |||||||||||||
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Interest expense |
2,280 | 3,912 | 1,507 | 24 | 7,723 | |||||||||||||||
Interest income |
(211 | ) | | | | (211 | ) | |||||||||||||
Other income, net |
(172 | ) | (6,800 | ) | | | (6,972 | ) | ||||||||||||
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Income (loss) before income taxes |
$ | 16,635 | $ | 2,381 | $ | 4,353 | $ | (8,465 | ) | $ | 14,904 | |||||||||
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14
12. Income Taxes
At December 31, 2013, we had approximately $2.5 million of total gross unrecognized tax benefits. Of this total, $1.3 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, 2013 was $0.1 million related to tax positions for which it was 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 March 31, 2014, the net change to our total gross unrecognized tax benefit was a decrease of less than $0.1 million. Our total gross unrecognized tax benefit at March 31, 2014 was $2.4 million. This represents the total of our unrecognized tax benefits (not including interest and penalties).
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, 2013. The total amount accrued for interest and penalties at March 31, 2014 was $0.7 million.
We are subject to income tax in the U.S., Canada, and Mexico, as well as in multiple state jurisdictions. We believe we are no longer subject to U.S. federal income tax examinations for the years before 2007, to international examinations for years before 2008 and, with few exceptions, to state examinations before 2008.
The effective tax rates for the three months ended March 31, 2014 and 2013 were 34.7% and 38.6%, respectively. The effective tax rate for the three months ended March 31, 2014 differed from our statutory rate primarily due to the impact of a favorable state tax adjustment. The effective tax rate for the three months ended March 31, 2013 differed from our statutory rate primarily due to the impact of a favorable audit settlement.
13. Share Repurchase Program
On November 20, 2012, we announced a share repurchase program pursuant to which our Board of Directors authorized the repurchase of up to $15.0 million of our common stock in an open-ended repurchase program (the Repurchase Program). The Repurchase Program does not have an expiration date. Stock has been, and may in the future be, purchased pursuant to the Repurchase Program, from time to time, in the open market or through private transactions, subject to market conditions. Subject to applicable laws, repurchases under the Repurchase Program may be made at such times and in such amounts as we deem appropriate and may be made pursuant to Rule 10b5-1. We are not obligated to purchase any shares under the Repurchase Program and it can be discontinued at any time that we feel additional purchases are not warranted. As of March 31, 2014, we have repurchased approximately 1.2 million shares valued at $8.1 million under the Repurchase Program, with the authority to repurchase an additional $6.9 million of shares.
14. 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 industrys responsible management of chemicals. We have obtained independent certification that our chemical logistics 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, wastewater from oil and gas wells and crude oil, which in many cases are classified as hazardous materials or hazardous substances. The energy logistics business operates disposal wells for non-conventional oil drilling wastewater. In addition, our former tank wash business (which was sold in 2009) and the remaining limited tank wash activities we continue to conduct, involve the generation, storage, discharge and disposal of wastes that may contain 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
15
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.
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.
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. It is difficult to quantify with certainty the potential financial impact of actions regarding expenditures for environmental matters, particularly remediation, and future capital expenditures for environmental control equipment. Nevertheless, based upon the information currently available, we believe that our ultimate liability arising from such environmental matters, taking into account the reserves described below, should not be material to our business or financial condition. As of March 31, 2014 and December 31, 2013, we had reserves in the amount of approximately $7.9 million and $8.3 million, respectively, for all environmental matters, of which the most significant are presented and discussed below.
Number of Sites | Reserves (in millions) | |||||||||||||||
March 31, 2014 |
December 31, 2013 |
March 31, 2014 |
December 31, 2013 |
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Multi-party sites |
17 | 17 | $ | 1.4 | $ | 2.1 | ||||||||||
Sole party major sites: |
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Bridgeport, New Jersey |
1 | 1 | 3.9 | 3.6 | ||||||||||||
William Dick, Pennsylvania |
1 | 1 | 0.7 | 0.7 | ||||||||||||
Other Properties |
7 | 7 | 1.9 | 1.9 | ||||||||||||
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Total |
26 | 26 | $ | 7.9 | $ | 8.3 | ||||||||||
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The following descriptions of environmental matters include estimates for future expenditures that we believe are probable and are reasonably estimable. The estimate of the range of reasonably possible costs is less certain than the estimates upon which the reserves are based, and the estimated high ends of the ranges do not represent our maximum theoretical liability.
Changes to the environmental reserves are reflected 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 26 sites at March 31, 2014.
Multi-Party Sites
At 17 of the 26 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 are 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
16
matters. At 4 of the 17 sites, we have received notices about our potential liability; however, we do not have enough information upon which to estimate our potential liability at this time, and as a result we have not established a reserve for these matters. At 10 of the 17 sites, 2 are in settlement discussion phases, 4 are in long-term operation and maintenance, and 4 are in various stages of remedial investigation or remedial investigation action work. We have estimated all future expenditures for these 17 multi-party environmental matters to be in the range of $1.4 million to $3.8 million. As of March 31, 2014, we have reserved $1.4 million.
Sole Party Major Sites
At 9 of the 26 sites, we are alleged to be the only responsible party and are in the process of conducting investigations and/or remediation projects. Six of these projects relate to operations conducted by CLC and its subsidiaries prior to our acquisition of CLC in 1998. These six sites are: (1) Bridgeport, New Jersey; (2) William Dick, Pennsylvania; (3) Tonawanda, New York; (4) Scary Creek, West Virginia; (5) Charleston, West Virginia; and (6) East Rutherford, New Jersey. 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 6 CLC sites is discussed in more detail below. We have estimated future expenditures for these 9 properties to be in the range of $6.5 million to $16.7 million. As of March 31, 2014, we have reserved $6.5 million.
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 long-term operations in July 2011 and is in the operations and maintenance phase. The plant appears to be performing in accordance with its design criteria and meeting permit requirements. Based on the second annual groundwater report, contamination does not appear to be completely delineated and a limited number of additional monitoring wells are expected to be installed. Wetlands contamination has been remediated with localized restoration completed. Monitoring of the restored wetlands is required by USEPA and is on-going. USEPA has requested additional monitoring through 2017. 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. In late 2012, USEPA concluded that our additional required site investigation work for delineation purposes was complete. We have finished the preliminary engineering design phase for the thermal treatment of contaminated soils, submitted responses to EPA comments on the 95% design report, which included limited groundwater extraction with treatment through the existing plant, and submitted the draft of the 100% design report to USEPA for their review. Comments from USEPA on the 100% design report have been received and a response is being prepared. We have estimated aggregate expenditures for the Bridgeport location to be in the range of $3.9 million to $8.5 million. As of March 31, 2014, we have reserved $3.9 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 in both shallow and deep soil subzones. Soil piles generated from previous isolated discrete removal actions were subsequently treated on-site. During 2013, we received notification from USEPA that this work is now complete. The treated soil was used as backfill at the site. The fieldwork for further limited soil remediation consisting of targeted in-situ chemical treatment of the deep soil subzones at the site has been concluded, and no further remediation work in the deep soil subzones is expected. Negotiations with USEPA continue over remediation objectives for the final shallow soil subzone work. Limited soil sampling will be implemented before a final remedial work plan is approved for the shallow soil subzone. We have estimated aggregate expenditures for the William Dick location to be in the range of $0.7 million to $3.4 million. As of March 31, 2014, we have reserved $0.7 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. The state issued a record of decision in 2006. The remedial design work plan has been approved by the NYSDEC, and the remedial action phase is expected to begin during the second half of 2014.
17
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 states 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 states voluntary clean-up program which requires us to perform additional sampling to close the site. The sampling work phase that was negotiated with the State of West Virginia has been completed at the site, and a report was submitted to the West Virginia Department of Environmental Protection (WVDEP) in which we requested confirmation from the WVDEP that no additional sampling work will be necessary. Comments have been received and a response is being prepared.
East Rutherford, NJ: CLC completed its remediation including groundwater monitoring of a diesel fuel release at this former truck terminal property, which was subsequently sold but New Jersey Department of Environmental Protection (NJDEP) did not grant closure. Additional soil sampling and groundwater monitoring work will be necessary to close the site under the States licensed site remediation professional program.
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 states ISRA program, 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 NJDEP. 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 for the groundwater. No further field remediation work is expected, and this site has entered a long-term monitoring phase.
We have estimated aggregate future expenditures for Tonawanda, Scary Creek, Charleston, East Rutherford and ISRA New Jersey to be in the range of $1.9 million to $4.8 million. As of March 31, 2014, we have reserved $1.9 million.
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.
15. Guarantees
In conjunction with certain third-party financing vendors, we have established a lease purchase program to enable certain independent owner-operators and independent affiliates to lease tractors from those third-party vendors. As part of this program, we have agreed with those third-party vendors to guarantee certain lease payment obligations of participating independent owner-operators and independent affiliates in certain circumstances. The guarantees expire at various dates beginning in 2015 through 2020 and are for an average outstanding loan amount per tractor of approximately $0.1 million.
Our estimated aggregate maximum exposure under these lease guarantees was approximately $25.2 million as of March 31, 2014, which represents the total amount of the remaining lease payments on all outstanding guaranteed leases as of that date. However, upon a default, we are likely to take actions to reduce or recoup our expenditures, including purchasing the tractor and reselling it to recover all or a portion of the amounts paid, or facilitating an arrangement between the third-party vendor and another independent owner-operator to assume the lease. In addition, up to 50% of any realized losses related to independent owner-operators managed by independent affiliates could be recouped from those independent affiliates. Therefore, we believe our potential exposure is substantially less than $25.2 million. We did not incur any material levels of default under these leases during the three months ended March 31, 2014.
18
16. Guarantor Subsidiaries
At and during the three months ended March 31, 2014, 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, including the Term Loan, and obligations under certain hedging agreements, 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 guaranteed 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), 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.
QDI has no significant restrictions on its ability to receive funds from its subsidiaries. The ABL Facility, including the Term Loan, and the Notes Indenture contain certain limitations on QD LLCs 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 LLCs membership units. QD LLCs direct and indirect wholly-owned subsidiaries are generally permitted to make distributions to QD LLC, which is the principal obligor under the ABL Facility, the Term Loan 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 material assets or operations, non-guarantor subsidiaries and combined guarantor subsidiaries presents:
| Condensed consolidating balance sheets at March 31, 2014 and December 31, 2013 and condensed consolidating statements of operations for the three-month periods ended March 31, 2014 and 2013, respectively, and the condensed consolidating statements of cash flows for each of the three-month periods ended March 31, 2014 and 2013. |
| Elimination entries necessary to consolidate the parent company and all its subsidiaries. |
19
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Condensed Consolidating Statements of Operations
and Statements of Comprehensive Income (Loss)
Three Months Ended March 31, 2014
Unaudited(In 000s)
QDI | QD LLC and QD Capital |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Operating revenues: |
||||||||||||||||||||||||
Transportation |
$ | | $ | | $ | 170,556 | $ | | $ | | $ | 170,556 | ||||||||||||
Service revenue |
| | 32,172 | 15 | | 32,187 | ||||||||||||||||||
Fuel surcharge |
| | 31,744 | | | 31,744 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating revenues |
| | 234,472 | 15 | | 234,487 | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Purchased transportation |
| | 157,615 | 4 | | 157,619 | ||||||||||||||||||
Compensation |
| | 21,255 | | | 21,255 | ||||||||||||||||||
Fuel, supplies and maintenance |
| | 23,128 | 2 | | 23,130 | ||||||||||||||||||
Depreciation and amortization |
| | 5,495 | | | 5,495 | ||||||||||||||||||
Selling and administrative |
| 2 | 7,250 | 6 | | 7,258 | ||||||||||||||||||
Insurance costs |
| | 6,263 | 8 | | 6,271 | ||||||||||||||||||
Taxes and licenses |
| | 936 | | | 936 | ||||||||||||||||||
Communication and utilities |
| | 932 | | | 932 | ||||||||||||||||||
Gain on disposal of property and equipment |
| | (511 | ) | | | (511 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating (loss) income |
| (2 | ) | 12,109 | (5 | ) | | 12,102 | ||||||||||||||||
Interest expense, non-related party, net |
| 6,893 | 347 | | | 7,240 | ||||||||||||||||||
Interest (income) expense, related party, net |
| (6,893 | ) | 6,972 | (79 | ) | | | ||||||||||||||||
Other expense, net |
2 | | 95 | 60 | | 157 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income taxes |
(2 | ) | (2 | ) | 4,695 | 14 | | 4,705 | ||||||||||||||||
(Benefit from) provision for income taxes |
(118 | ) | | 1,825 | (75 | ) | | 1,632 | ||||||||||||||||
Equity in earnings of subsidiaries |
2,957 | 2,959 | | | (5,916 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 3,073 | $ | 2,957 | $ | 2,870 | $ | 89 | $ | (5,916 | ) | $ | 3,073 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive income, net of tax |
373 | 373 | 316 | 57 | (746 | ) | 373 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 3,446 | $ | 3,330 | $ | 3,186 | $ | 146 | $ | (6,662 | ) | $ | 3,446 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
20
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Condensed Consolidating Statements of Operations
and Statements of Comprehensive Income (Loss)
Three Months Ended March 31, 2013
Unaudited(In 000s)
QDI | QD LLC & QD Capital |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Operating revenues: |
||||||||||||||||||||||||
Transportation |
$ | | $ | | $ | 163,994 | $ | | $ | | $ | 163,994 | ||||||||||||
Service revenue |
| | 33,361 | 93 | | 33,454 | ||||||||||||||||||
Fuel surcharge |
| | 31,974 | | | 31,974 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating revenues |
| | 229,329 | 93 | | 229,422 | ||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Purchased transportation |
| | 142,872 | | | 142,872 | ||||||||||||||||||
Compensation |
| | 26,470 | | | 26,470 | ||||||||||||||||||
Fuel, supplies and maintenance |
| | 27,122 | 7 | | 27,129 | ||||||||||||||||||
Depreciation and amortization |
| | 6,693 | | | 6,693 | ||||||||||||||||||
Selling and administrative |
| 51 | 7,410 | 18 | | 7,479 | ||||||||||||||||||
Insurance costs |
| | 4,489 | 8 | | 4,497 | ||||||||||||||||||
Taxes and licenses |
| | 832 | | | 832 | ||||||||||||||||||
Communication and utilities |
| | 1,095 | | | 1,095 | ||||||||||||||||||
Gain on disposal of property and equipment |
| | (3,089 | ) | | | (3,089 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating (loss) income |
| (51 | ) | 15,435 | 60 | | 15,444 | |||||||||||||||||
Interest expense, non-related party, net |
| 7,404 | 108 | | | 7,512 | ||||||||||||||||||
Interest (income) expense, related party, net |
| (7,404 | ) | 7,506 | (102 | ) | | | ||||||||||||||||
Other (income) expense, net |
| | (7,018 | ) | 46 | | (6,972 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(Loss) income before income taxes |
| (51 | ) | 14,839 | 116 | | 14,904 | |||||||||||||||||
(Benefit from) provision for income taxes |
(14 | ) | | 5,748 | 26 | | 5,760 | |||||||||||||||||
Equity in earnings of subsidiaries |
9,130 | 9,181 | | | (18,311 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 9,144 | $ | 9,130 | $ | 9,091 | $ | 90 | $ | (18,311 | ) | $ | 9,144 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other comprehensive income, net of tax |
421 | 421 | 386 | 35 | (842 | ) | 421 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income |
$ | 9,565 | $ | 9,551 | $ | 9,477 | $ | 125 | $ | (19,153 | ) | $ | 9,565 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
21
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
March 31, 2014
Unaudited(In 000s)
(Continued)
QDI | QD LLC and QD Capital |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 1,764 | $ | 100 | $ | | $ | 1,864 | ||||||||||||
Accounts receivable, net |
| | 138,451 | 2 | | 138,453 | ||||||||||||||||||
Prepaid expenses |
| 33 | 15,377 | 14 | | 15,424 | ||||||||||||||||||
Deferred tax asset, net |
| | 22,220 | | | 22,220 | ||||||||||||||||||
Intercompany |
| | 421,020 | 94 | (421,114 | ) | | |||||||||||||||||
Other |
(18 | ) | | 10,614 | (42 | ) | | 10,554 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
(18 | ) | 33 | 609,446 | 168 | (421,114 | ) | 188,515 | ||||||||||||||||
Property and equipment, net |
| | 165,964 | | | 165,964 | ||||||||||||||||||
Assets held-for-sale |
| | 3,379 | | | 3,379 | ||||||||||||||||||
Goodwill |
| | 32,955 | | | 32,955 | ||||||||||||||||||
Intangibles, net |
| | 15,792 | | | 15,792 | ||||||||||||||||||
Non-current deferred tax asset, net |
(2,121 | ) | | 30,376 | | | 28,255 | |||||||||||||||||
Investment in subsidiaries |
(120,460 | ) | 391,576 | | | (271,116 | ) | | ||||||||||||||||
Intercompany |
147,053 | 208,328 | 364,058 | 12,392 | (731,831 | ) | | |||||||||||||||||
Other assets |
| 7,093 | 1,197 | | | 8,290 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 24,454 | $ | 607,030 | $ | 1,223,167 | $ | 12,560 | $ | (1,424,061 | ) | $ | 443,150 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND SHAREHOLDERS (DEFICIT) EQUITY |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Current maturities of indebtedness |
$ | | $ | | $ | 2,069 | $ | | $ | | $ | 2,069 | ||||||||||||
Current maturities of capital lease obligations |
| | 678 | | | 678 | ||||||||||||||||||
Accounts payable |
| | 12,143 | | | 12,143 | ||||||||||||||||||
Intercompany |
75,701 | | 345,413 | | (421,114 | ) | | |||||||||||||||||
Independent affiliates and independent owner-operators payable |
| | 20,850 | | | 20,850 | ||||||||||||||||||
Accrued expenses |
| 8,904 | 24,928 | (1 | ) | | 33,831 | |||||||||||||||||
Environmental liabilities |
| | 3,449 | | | 3,449 | ||||||||||||||||||
Accrued loss and damage claims |
| | 9,541 | | | 9,541 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
75,701 | 8,904 | 419,071 | (1 | ) | (421,114 | ) | 82,561 | ||||||||||||||||
Long-term indebtedness, less current maturities |
| 359,293 | 20,236 | | | 379,529 | ||||||||||||||||||
Capital lease obligations, less current maturities |
| | 407 | | | 407 | ||||||||||||||||||
Environmental liabilities |
| | 4,479 | | | 4,479 | ||||||||||||||||||
Accrued loss and damage claims |
| | 11,263 | | | 11,263 | ||||||||||||||||||
Intercompany |
| 359,293 | 367,773 | 4,765 | (731,831 | ) | | |||||||||||||||||
Other non-current liabilities |
| | 16,158 | | | 16,158 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
75,701 | 727,490 | 839,387 | 4,764 | (1,152,945 | ) | 494,397 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Shareholders (deficit) equity: |
||||||||||||||||||||||||
Common stock |
443,882 | 354,963 | 390,760 | 3,578 | (749,301 | ) | 443,882 | |||||||||||||||||
Treasury stock |
(11,004 | ) | | | | | (11,004 | ) | ||||||||||||||||
Accumulated (deficit) retained earnings |
(267,432 | ) | (259,202 | ) | 18,751 | 5,174 | 235,277 | (267,432 | ) | |||||||||||||||
Stock recapitalization |
(189,589 | ) | (189,589 | ) | | (55 | ) | 189,644 | (189,589 | ) | ||||||||||||||
Accumulated other comprehensive loss |
(27,104 | ) | (26,632 | ) | (25,731 | ) | (901 | ) | 53,264 | (27,104 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total shareholders (deficit) equity |
(51,247 | ) | (120,460 | ) | 383,780 | 7,796 | (271,116 | ) | (51,247 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and shareholders (deficit) equity |
$ | 24,454 | $ | 607,030 | $ | 1,223,167 | $ | 12,560 | $ | (1,424,061 | ) | $ | 443,150 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
22
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
December 31, 2013
Unaudited(In 000s)
QDI | QD LLC and QD Capital |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 1,876 | $ | 81 | $ | | $ | 1,957 | ||||||||||||
Accounts receivable, net |
| | 120,916 | 16 | | 120,932 | ||||||||||||||||||
Prepaid expenses |
| 58 | 13,321 | 22 | | 13,401 | ||||||||||||||||||
Deferred tax asset, net |
| | 20,709 | | | 20,709 | ||||||||||||||||||
Intercompany |
| | 410,521 | 109 | (410,630 | ) | | |||||||||||||||||
Other |
(18 | ) | | 10,084 | (147 | ) | | 9,919 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
(18 | ) | 58 | 577,427 | 81 | (410,630 | ) | 166,918 | ||||||||||||||||
Property and equipment, net |
| | 170,114 | | | 170,114 | ||||||||||||||||||
Assets-held-for-sale |
| | 1,129 | | | 1,129 | ||||||||||||||||||
Goodwill |
| | 32,955 | | | 32,955 | ||||||||||||||||||
Intangibles, net |
| | 16,149 | | | 16,149 | ||||||||||||||||||
Non-current deferred tax asset, net |
(2,239 | ) | | 33,640 | | | 31,401 | |||||||||||||||||
Investment in subsidiaries |
(123,790 | ) | 388,157 | | | (264,367 | ) | | ||||||||||||||||
Intercompany |
144,057 | 194,293 | 359,733 | 12,213 | (710,296 | ) | | |||||||||||||||||
Other assets |
| 7,681 | 902 | | | 8,583 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 18,010 | $ | 590,189 | $ | 1,192,049 | $ | 12,294 | $ | (1,385,293 | ) | $ | 427,249 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND SHAREHOLDERS (DEFICIT) EQUITY |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Current maturities of indebtedness |
$ | | $ | 5,833 | $ | 2,859 | $ | | $ | | $ | 8,692 | ||||||||||||
Current maturities of capital lease obligations |
| | 1,888 | | | 1,888 | ||||||||||||||||||
Accounts payable |
| | 10,248 | | | 10,248 | ||||||||||||||||||
Intercompany |
74,246 | | 336,384 | | (410,630 | ) | | |||||||||||||||||
Independent affiliates and independent owner-operators payable |
| | 14,398 | | | 14,398 | ||||||||||||||||||
Accrued expenses |
15 | 3,892 | 26,672 | 1 | | 30,580 | ||||||||||||||||||
Environmental liabilities |
| | 3,818 | | | 3,818 | ||||||||||||||||||
Accrued loss and damage claims |
| | 8,532 | | | 8,532 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
74,261 | 9,725 | 404,799 | 1 | (410,630 | ) | 78,156 | |||||||||||||||||
Long-term indebtedness, less current maturities |
| 349,210 | 20,520 | | | 369,730 | ||||||||||||||||||
Capital lease obligations, less current maturities |
| | 2,995 | | | 2,995 | ||||||||||||||||||
Environmental liabilities |
| | 4,479 | | | 4,479 | ||||||||||||||||||
Accrued loss and damage claims |
| | 10,747 | | | 10,747 | ||||||||||||||||||
Intercompany |
| 355,044 | 350,562 | 4,690 | (710,296 | ) | | |||||||||||||||||
Other non-current liabilities |
| | 17,353 | 40 | | 17,393 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
74,261 | 713,979 | 811,455 | 4,731 | (1,120,926 | ) | 483,500 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Shareholders (deficit) equity: |
||||||||||||||||||||||||
Common stock |
441,877 | 354,963 | 390,760 | 3,491 | (749,214 | ) | 441,877 | |||||||||||||||||
Treasury stock |
(10,557 | ) | | | | | (10,557 | ) | ||||||||||||||||
Accumulated (deficit) retained earnings |
(270,505 | ) | (262,159 | ) | 15,881 | 5,085 | 241,193 | (270,505 | ) | |||||||||||||||
Stock recapitalization |
(189,589 | ) | (189,589 | ) | | (55 | ) | 189,644 | (189,589 | ) | ||||||||||||||
Accumulated other comprehensive loss |
(27,477 | ) | (27,005 | ) | (26,047 | ) | (958 | ) | 54,010 | (27,477 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total shareholders (deficit) equity |
(56,251 | ) | (123,790 | ) | 380,594 | 7,563 | (264,367 | ) | (56,251 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and shareholders (deficit) equity |
$ | 18,010 | $ | 590,189 | $ | 1,192,049 | $ | 12,294 | $ | (1,385,293 | ) | $ | 427,249 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
23
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2014
Unaudited(In 000s)
QDI | QD LLC and QD Capital |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net income |
$ | 3,073 | $ | 2,957 | $ | 2,870 | $ | 89 | $ | (5,916 | ) | $ | 3,073 | |||||||||||
Adjustments for non-cash charges |
(2,168 | ) | (9,211 | ) | 13,369 | (79 | ) | 5,916 | 7,827 | |||||||||||||||
Net changes in assets and liabilities |
103 | 5,625 | (15,095 | ) | (125 | ) | | (9,492 | ) | |||||||||||||||
Intercompany activity |
(1,008 | ) | 629 | 245 | 134 | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by operating activities |
| | 1,389 | 19 | | 1,408 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Capital expenditures |
| | (10,456 | ) | | | (10,456 | ) | ||||||||||||||||
Proceeds from sales of property and equipment |
| | 2,846 | | | 2,846 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
| | (7,610 | ) | | | (7,610 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Principal payments on long-term debt and capital lease obligations |
| | (1,323 | ) | | | (1,323 | ) | ||||||||||||||||
Proceeds from revolver |
| 68,800 | | | | 68,800 | ||||||||||||||||||
Payments on revolver |
| (64,600 | ) | | | | (64,600 | ) | ||||||||||||||||
Deferred financing costs |
| (4 | ) | | | | (4 | ) | ||||||||||||||||
Proceeds from exercise of stock options |
1,334 | | | | | 1,334 | ||||||||||||||||||
Other |
| 1,902 | | | 1,902 | |||||||||||||||||||
Intercompany activity |
(1,334 | ) | (4,196 | ) | 5,530 | | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by financing activities |
| | 6,109 | | | 6,109 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net (decrease) increase in cash and cash equivalents |
| | (112 | ) | 19 | | (93 | ) | ||||||||||||||||
Cash and cash equivalents, beginning of period |
| | 1,876 | 81 | | 1,957 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | | $ | | $ | 1,764 | $ | 100 | $ | | $ | 1,864 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
24
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2013
Unaudited(In 000s)
QDI | QD LLC and QD Capital |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net income |
$ | 9,144 | $ | 9,130 | $ | 9,091 | $ | 90 | $ | (18,311 | ) | $ | 9,144 | |||||||||||
Adjustments for non-cash charges |
(8,133 | ) | (15,973 | ) | 9,294 | (102 | ) | 18,311 | 3,397 | |||||||||||||||
Net changes in assets and liabilities |
6 | 6,007 | (9,906 | ) | (29 | ) | | (3,922 | ) | |||||||||||||||
Intercompany activity |
(1,017 | ) | 836 | 176 | 5 | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
| | 8,655 | (36 | ) | | 8,619 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Capital expenditures |
| | (7,413 | ) | | | (7,413 | ) | ||||||||||||||||
Trojan purchase price adjustment |
| | (857 | ) | | | (857 | ) | ||||||||||||||||
Proceeds from sales of property and equipment |
| | 8,789 | | | 8,789 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by investing activities |
| | 519 | | | 519 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Principal payments on long-term debt and capital lease obligations |
| | (1,854 | ) | | | (1,854 | ) | ||||||||||||||||
Proceeds from revolver |
| 46,700 | | | | 46,700 | ||||||||||||||||||
Payments on revolver |
| (54,600 | ) | | | | (54,600 | ) | ||||||||||||||||
Deferred financing costs |
| (21 | ) | | | | (21 | ) | ||||||||||||||||
Proceeds from exercise of stock options |
181 | | | | | 181 | ||||||||||||||||||
Purchases of treasury stock |
(3,428 | ) | (3,428 | ) | ||||||||||||||||||||
Other |
| 2,381 | | | 2,381 | |||||||||||||||||||
Intercompany activity |
3,247 | 7,921 | (11,168 | ) | | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in financing activities |
| | (10,641 | ) | | | (10,641 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net decrease in cash and cash equivalents |
| | (1,467 | ) | (36 | ) | | (1,503 | ) | |||||||||||||||
Cash and cash equivalents, beginning of period |
| | 2,580 | 124 | | 2,704 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | | $ | | $ | 1,113 | $ | 88 | $ | | $ | 1,201 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
25
ITEM 2Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this report. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ from results discussed in the forward-looking statements, see Forward-Looking Statements and Certain Considerations contained elsewhere in this report.
OVERVIEW
We operate the largest chemical bulk tank truck network in North America and are also the largest provider of intermodal ISO tank container and depot services in North America. In 2011, we began providing logistics services to the UCO&G market. We operate an asset-light business model and service customers across North America through our network of 94 terminals servicing the chemical market, 14 terminals servicing the energy market and 9 ISO tank depot services terminals (intermodal) servicing the chemical and other bulk liquid markets.
Chemical Logistics
Through our subsidiary, QCI, we coordinate the transport of a broad range of chemical products and provide our customers with logistics and other value-added services. Through our North American network, we are a core carrier for most of the major companies engaged in chemical processing. We believe the diversity of our customer base, geography and end-markets provide a competitive advantage.
The bulk tank truck market in North America includes all products shipped by bulk tank truck carriers and consists mainly of liquid and dry bulk chemicals (including plastics) and bulk dry and liquid food-grade products. We estimate, based on industry sources, that the highly fragmented North American for-hire segment of the bulk tank transport market generated revenues of approximately $6.9 billion in 2012. We specifically operate in the for-hire chemical and food grade bulk transport market (which we estimate at $4.5 billion in 2012). We believe we have the leading market share (estimated at 13.0% in 2012) in this sector based on revenues. We believe managing a larger carrier network facilitates customer service and lane density, and provides a more favorable operating cost structure for us and our independent affiliates. In 2014, we announced the addition to our network of five terminals operated by independent affiliates. We believe that expanding our number of managed terminals, particularly in geographic areas in which there is no existing network terminal, may help us achieve some of the benefits we seek from managing a larger carrier network.
Chemical bulk tank truck industry growth is generally dependent on volume growth in the industrial chemical industry, the rate at which chemical companies outsource their transportation needs, the overall capacity of the rail system, and, in particular, the extent to which chemical companies make use of the rail system for their bulk chemical transportation needs. We also believe that North American chemical producers will gain a global competitive advantage and grow domestic production (thus shipments which we can service) through the use of low-cost energy sources, primarily natural gas and natural gas liquids.
26
The chemical bulk tank truck industry is characterized by high barriers to entry such as the time and cost required to develop the operational infrastructure necessary to handle sensitive chemical cargo, the financial and managerial resources required to recruit and train drivers, substantial and increasingly more stringent industry regulatory requirements, strong customer relationships and the significant capital investments required to build and maintain a fleet of specialized equipment and establish a network of terminals capable of servicing customers.
Our transportation revenue in the chemical logistics segment is principally a function of the volume of shipments by the bulk chemical industry, prices, the average number of miles driven per load, our market share and the allocation of shipments between tank truck transportation and other modes of transportation such as rail. Additionally, it is common practice in the bulk tank truck industry for customers to pay fuel surcharges.
Energy Logistics
Our energy logistics business operates through our subsidiary, QCER, services the UCO&G market through the transportation of crude oil, fresh water, flowback and produced brine water, and the disposal of flowback and produced brine water, as well as providing services ancillary to these activities.
As of March 31, 2014, we operate in the Bakken, Denver-Julesburg, Eagle Ford, Marcellus, Mississippian Limestone, Mowry, Niobrara, Permian, Powder River, Tuscaloosa Marine, Utica and Woodford shale regions in North America, all of which have experienced drilling for both oil and natural gas with the exception of Marcellus, which is solely natural gas. We continue to evaluate the potential for expansion into additional shale regions, either directly or through independent affiliates, which would provide additional diversification to our business. Our strategy to target multiple resource-rich shales helps to diversify our customer offerings, lessen the impact of swings in any one commodity and optimize equipment utilization. During 2013 and the first quarter of 2014, we affiliated certain company terminals and entered into new independent affiliate relationships as we implemented our planned affiliation of this business. At March 31, 2014, we managed approximately 1,300 units (tractors, trailers and service equipment) of energy equipment in this market and serve a diverse customer base including many of the national and regional exploration and production companies, as well as marketers of oil in this industry.
Our energy logistics business is primarily involved in fluid management and logistics in the upstream segment of the energy industry, through its services in connection with the establishment and servicing of production wells, and the midstream segment of the energy industry, in connection with the transportation of crude oil. We believe the market for services such as those provided by our energy logistics business was approximately $8.0 billion in 2012. The industry consists of providers that include independent national or regional trucking and logistics companies such as QCER, trucking and logistics companies owned by or dedicated to large oil and gas companies, and local providers focused on one or more particular shales. Energy logistics providers are impacted by the level of new drilling activity, which influences the transportation of fresh water and flowback water used and the provision of related services used in those activities, and the number of active and producing wells, which impacts the transportation of crude oil and produced water and the provision of related services used in those activities. The energy logistics market is also driven by market prices for oil and gas, which influence the production activities of our customers, the prices they are willing to pay for our services, and the shales in which they operate. We expect regulation of this industry to increase over time but believe that the scope of our operations and our experience with regulation in our chemical logistics business will facilitate our adaptation to new regulations and may provide us with an advantage over some of our competitors.
Intermodal
Our subsidiary, Boasso, provides intermodal ISO tank container transportation and depot services through terminals located in the eastern half of the United States. Boassos terminals are strategically positioned near major shipping ports along the Gulf and East Coasts, as well as inland ports in Chicago and Detroit. Boassos revenues are impacted by United States chemical import/export volume, in particular the number and volume of shipments through ports where Boasso has terminals, as well as their market share in those locations.
In addition to intermodal tank transportation services, Boasso provides tank cleaning, heating, testing, maintenance and storage services to customers. Boasso provides local and over-the-road trucking primarily within the proximity of the port cities where its depots are located. Chemical manufacturers have sought to efficiently transport their products on a global basis by utilizing ISO tank containers, and we believe the resulting demand for distributors that can offer a broad range of services within the supply chain will drive future growth in this sector. We believe that our intermodal business will benefit from these trends because of its market leadership, experience and track record.
27
The intermodal ISO tank container business generally provides services that facilitate the global movement of liquid and dry bulk chemicals, pharmaceuticals and food grade products. The proliferation of global import/export of bulk liquid chemicals has driven the movement of basic manufacturing out of the United States and has resulted in an increase in chemical plant infrastructure to service these off-shore industries. Driven by this globalization, the intermodal ISO tank container market is a growing sector of the overall liquid bulk chemical transportation sector. Demand for intermodal ISO tank containers is impacted by the aggregate volume of imports and exports of chemicals through United States ports. Demand is also impacted by the shift in modes of transportation, from drums to larger and more efficient ISO tank containers. Economic conditions and differences among the laws and currencies of foreign nations may also impact the volume of shipments. We operate in the global intermodal ISO tank container transportation and depot services market, which we believe was approximately a $1.0 to $1.5 billion market in 2012. Similar to our chemical logistics business, we believe our intermodal business will benefit from the low cost energy from the UCO&G market.
Our Networks
Our businesses have networks that consist of terminals owned or operated by independent affiliates and terminals owned or operated by us and a driver pool consisting of independent owner-operator drivers, independent affiliate-employed drivers and company-employed drivers. Independent affiliates are independent companies with which we contract to operate trucking terminals and provide transportation services exclusively on our behalf in defined markets. The independent affiliates generally provide the capital necessary to service their contracted business and are also responsible for most of the operating costs associated with servicing the contracted business. Due to several factors, including our ownership of the customer contracts and relationships, our provision of back-office support in areas such as claims, our direct relationship with independent owner-operators, the presence of non-compete agreements with the independent affiliates, and, in some cases, our ownership of the trailers utilized in the contracted business, our relationships with the independent affiliates tend to be long-term in nature, with minimal voluntary turnover. Independent owner-operators are generally individual drivers who own or lease their tractors and agree to provide transportation services to us under contract.
We believe our use of independent affiliates and independent owner-operators provides us with the following benefits:
| Locally owned and operated independent affiliate terminals can provide superior, tailored customer service. |
| Independent affiliates and independent owner-operators generally are paid a fixed, contractual percentage of revenue collected on each load they transport creating a variable cost structure that mitigates against cyclical downturns. |
| Reliance on independent affiliates and independent owner-operators creates an asset-light business model that generally reduces our capital investment. |
At present, our businesses rely upon independent affiliates and independent owner-operators to varying degrees. Our chemical logistics business operates primarily through independent affiliate terminals located throughout the continental United States and independent owner-operator drivers. Our intermodal business relies primarily on company terminals located near ports in the eastern half of the United States and independent owner-operator drivers. Our energy logistics business currently relies upon company terminals, which will affect the overall mix of our asset-light business, located near shale regions that have historically experienced frac shale drilling for natural gas and oil and independent owner-operator drivers; however, it also operates through independent affiliate terminals in certain shale regions. We expect to continue to add independent affiliates and independent owner-operators to our energy logistics business with the goal of reducing capital investment needs while improving return on invested capital.
Recent Significant Transactions
August 2013 Secondary Offering
On August 14, 2013, former shareholders including funds affiliated with Apollo Global Management, LLC, sold 4.7 million shares of our common stock in an underwritten public offering, at a gross price of $8.60 per share. We did not receive any proceeds from the sale of the shares by the selling shareholders in this offering. However, we incurred and paid approximately $0.5 million in underwriting fees and expenses associated with this offering.
July 2013 Notes Redemption
On July 15, 2013, we redeemed a portion of our 2018 Notes in the aggregate principal amount of $22.5 million. The redemption price for these 2018 Notes equaled 100% of the aggregate principal amount of $22.5 million, plus accrued but unpaid interest up to the redemption date, plus a 3.0% premium. The redemption was funded with proceeds from the Term Loan described below together with borrowings under our asset-based loan facility (ABL Facility).
28
June 2013 ABL Facility AmendmentTerm Loan Facility
On June 14, 2013, our ABL Facility was amended to provide for a new $17.5 million senior secured term loan facility which was fully funded on July 15, 2013 (the Term Loan). Borrowings under the Term Loan bear interest at a rate equal to an applicable margin plus, at our option, either a base rate or LIBOR. The applicable margin at March 31, 2014 was 2.50% for base rate borrowings and 3.50% for LIBOR borrowings, with a potential step-down of 0.25% after 18 months if a senior secured leverage ratio is met. Obligations under the Term Loan mature on the earlier of June 14, 2016 or the date on which the ABL Facility terminates.
May 2013 New Independent Affiliate
On May 1, 2013, we began affiliating our energy logistics trucking operations in the Marcellus and Utica shale regions by converting three company-operated terminals to affiliated operations. The affiliation was a new relationship with an independent operator who is based in the Williamsport, Pennsylvania area and operates an existing oilfield services company. In conjunction with this effort, the new independent affiliate purchased and leased certain transportation equipment to ensure sufficient capacity for the combined customer base and execute a smooth transition of the business. In the second quarter of 2013, we incurred charges of approximately $1.5 million related to this conversion, most of which were due to non-cash losses on equipment sales.
In October 2013, we transitioned our Utica shale operations in Ohio to this same independent affiliate. In December 2013 and February 2014, respectively, we transitioned our Woodford shale operations in Oklahoma and our Wyoming operation to this same independent affiliate.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We identified what we believe to be the more critical accounting policies that impact the financial statements, some of which are based on managements best estimates available at the time of preparation, in our Annual Report on Form 10-K for the year ended December 31, 2013. We have not made any material changes to those policies during the period covered by this Quarterly Report on Form 10-Q.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Summary of Significant Accounting PoliciesNew Accounting Pronouncements for discussion of recent accounting pronouncements and for additional discussion surrounding the adoption of accounting standards.
29
RESULTS OF OPERATIONS
The following table presents certain condensed consolidated financial information, as a percentage of revenue, for the three months ended March 31, 2014 and 2013:
Three months ended March 31, |
||||||||
2014 | 2013 | |||||||
OPERATING REVENUES: |
||||||||
Transportation |
72.8 | % | 71.5 | % | ||||
Service revenue |
13.7 | % | 14.6 | % | ||||
Fuel surcharge |
13.5 | % | 13.9 | % | ||||
|
|
|
|
|||||
Total operating revenues |
100.0 | % | 100.0 | % | ||||
|
|
|
|
|||||
OPERATING EXPENSES: |
||||||||
Purchased transportation |
67.2 | % | 62.3 | % | ||||
Compensation |
9.1 | % | 11.5 | % | ||||
Fuel, supplies and maintenance |
9.9 | % | 11.8 | % | ||||
Depreciation and amortization |
2.3 | % | 2.9 | % | ||||
Selling and administrative |
3.1 | % | 3.3 | % | ||||
Insurance costs |
2.7 | % | 2.0 | % | ||||
Taxes and licenses |
0.4 | % | 0.4 | % | ||||
Communication and utilities |
0.4 | % | 0.4 | % | ||||
Gain on disposal of property and equipment |
(0.2 | %) | (1.3 | %) | ||||
|
|
|
|
|||||
Total operating expenses |
94.9 | % | 93.3 | % | ||||
|
|
|
|
|||||
Operating income |
5.1 | % | 6.7 | % | ||||
|
|
|
|
|||||
Interest expense |
3.1 | % | 3.4 | % | ||||
Interest income |
(0.1 | %) | (0.1 | %) | ||||
Other expense (income) |
0.1 | % | (3.0 | %) | ||||
|
|
|
|
|||||
Income before income taxes |
2.0 | % | 6.4 | % | ||||
Provision for income taxes |
0.7 | % | 2.5 | % | ||||
|
|
|
|
|||||
Net income |
1.3 | % | 3.9 | % | ||||
|
|
|
|
The following table shows the number of terminals, drivers, tractors, trailers and energy logistics equipment that we manage (including independent affiliates and independent owner-operators) as of March 31:
2014 | 2013 | |||||||
Terminals (1) |
117 | 108 | ||||||
Drivers (2) |
3,346 | 3,299 | ||||||
Tractors |
2,939 | 2,821 | ||||||
Trailers (3) |
5,274 | 5,150 | ||||||
Energy logistics equipment (4) |
1,281 | 1,411 |
(1) | See the following table for terminals by segment. |
(2) | Includes approximately 670 drivers for the energy logistics business segment as of March 31, 2014 and 2013, respectively. |
(3) | Excludes approximately 1,600 and 1,500 chassis used in our intermodal business segment as of March 31, 2014 and 2013, respectively. |
(4) | Includes tractors, trailers and combination equipment. |
30
Our network terminals and facilities consisted of the following as of March 31:
2014 Terminals |
2013 Terminals |
|||||||
Chemical logistics independent affiliate trucking terminals |
90 | 80 | ||||||
Chemical logistics company-operated trucking terminals |
4 | 9 | ||||||
Energy logistics independent affiliate energy terminals |
12 | 2 | ||||||
Energy logistics company-operated energy terminals |
2 | 8 | ||||||
Intermodal container services terminals/depots |
9 | 9 | ||||||
|
|
|
|
|||||
Total |
117 | 108 | ||||||
|
|
|
|
Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013
For the quarter ended March 31 2014, total revenues were $234.5 million, an increase of $5.1 million, or 2.2%, compared to total revenues of $229.4 million for the same period in 2013. Transportation revenue increased by $6.6 million, or 4.0%, despite adverse weather conditions. This increase was primarily due to an increase of $5.6 million in our chemical logistics business resulting from increased prices and higher volumes which were due in part to the opening of new terminals during the first quarter of 2014. We had an increase of $1.0 million in our intermodal business due to stronger demand for ISO container shipments. Our energy logistics transportation revenue remained flat.
Service revenue decreased $1.3 million, or 3.8%. This decrease was primarily due to a reduction in our energy logistics business of $2.0 million primarily due to a reduction in disposal well revenue, partially offset by an increase in our chemical logistics services revenue of $0.8 million resulting from an increase in rental income. Our intermodal service revenue was relatively flat.
Fuel surcharge revenue decreased $0.2 million, or 0.7%, primarily due to a decrease in our chemical logistics business of $0.2 million and a decrease of $0.2 million in our energy logistics business partially offset by an increase in our intermodal business of $0.2 million. We have fuel surcharge programs in place with the majority of our chemical logistics and intermodal customers. Most of these programs typically involve a specified computation based on the changes in fuel prices. As a result, some of these programs have a short time lag between when fuel prices change and when this change is reflected in revenues. It is not meaningful to compare the amount of fuel surcharge revenue or the change in fuel surcharge revenue between reporting periods to fuel expense, or the change in fuel expense between periods, as a significant portion of fuel costs is included in purchased transportation.
Purchased transportation increased $14.7 million, or 10.3%, due primarily to an increase of $9.3 million in costs related to servicing our chemical logistics business. In addition, we had an increase of $4.1 million in costs related to servicing our energy logistics market and we had an increase of $1.3 million in costs related to servicing our intermodal business. Total purchased transportation as a percentage of transportation revenue and fuel surcharge revenue increased to 77.9% for the current quarter versus 72.9% for the prior-year quarter primarily due to conversions of company-operated terminals to independent affiliates in our energy logistics segment. Our independent affiliates generated 92.7% of our chemical logistics transportation revenue and fuel surcharge revenue for the three months ended March 31, 2014 compared to 87.5% for the comparable prior-year period. During the 2013 and the three months ended March 31, 2014, we generally paid our independent affiliates approximately 85% of chemical logistics transportation revenue and paid independent owner-operators approximately 65% of chemical logistics transportation revenue. Certain independent affiliates could earn an even greater percentage of chemical logistics transportation revenue during the 2014 period that is incremental to revenue generated in prior periods.
During the three months ended March 31, 2014 and 2013, company-operated terminals generated approximately 48% and 80%, respectively, of energy logistics revenue, and independent affiliate-operated terminals and third-party carriers generated approximately 52% and 20%, respectively. We typically pay these independent contractors between 70% and 95% of energy logistics transportation revenue depending on their type of association with the Company. We expect the percentage of energy logistics revenue generated by independent affiliates to trend higher in 2014 versus comparable 2013 periods due to the affiliations that occurred in 2013 and the contemplated affiliations for the remainder of 2014.
Compensation expense decreased $5.2 million, or 19.7%, due primarily to the affiliation of certain company-operated terminals in our energy logistics segment.
Fuel, supplies and maintenance decreased $4.0 million, or 14.7%, due primarily to a decrease in fuel costs of $2.5 million, a reduction in maintenance costs of $1.2 million and a reduction in wastewater disposal costs of $0.8 million, partially offset by an increase in equipment rent expense of $0.5 million.
31
Depreciation and amortization expense decreased $1.2 million, or 17.9%, primarily due to a decrease in amortization expense of $0.7 million for acquired intangibles that were impaired in 2013 and a decrease in depreciation of $0.5 million due to sales of unutilized revenue equipment.
Selling and administrative expenses decreased $0.2 million, or 3.0%, primarily due to a reduction in terminal costs.
Insurance costs increased $1.8 million, or 39.4%, due to an increase in the severity and volume of claims. As a percentage of revenue, insurance expense was within the Companys target range of 2% to 3% of total revenue.
For the quarter ended March 31, 2014, we recognized a gain on disposal of revenue equipment of $0.5 million. For the quarter ended March 31, 2013, we recognized a net gain on the disposition of property of $2.6 million and a net gain on disposal of revenue equipment of $0.5 million.
For the quarters ended March 31, 2014 and 2013, operating income was $12.1 million and $15.4 million, respectively.
Interest expense decreased $0.4 million, or 4.6%, in the quarter ended March 31, 2014, primarily due to the redemption of a portion of our 2018 Notes during the third quarter of 2013. We expect our interest expense for 2014 to continue to be lower than in 2013, provided that the rates of interest on our floating rate indebtedness do not increase substantially.
Other expense of $0.2 million in 2014 consisted primarily of foreign currency expense. Other income of $7.0 million in 2013 consisted primarily of adjustments to our liability for contingent consideration payments related to a 2012 acquisition.
The provision for income taxes was $1.6 million for the quarter ended March 31, 2014, compared to $5.8 million for the same period in 2013. The effective tax rates for the quarter ended March 31, 2014 and 2013 were 34.7% and 38.6%, respectively. The effective tax rate for the current quarter differed from our statutory rate primarily due to a favorable state tax adjustment. The effective tax rate for the same period in 2013 differed from our statutory rate primarily due to the impact of a favorable audit settlement.
For the quarter ended March 31, 2014, we had net income of $3.1 million compared to net income of $9.1 million for the same period in 2013 as a result of the above-mentioned items.
The Company has three reportable business segments for financial reporting purposes that are distinguished primarily on the basis of services offered. Historically, the Company included certain shared services and corporate expenses within its Chemical Logistics segment. As of March 31, 2014, the Company has allocated these items to Shared Services. The allocation represents a change in our segment measure as opposed to a change in operating or reportable segments. Shared Services consists of corporate and shared services overhead costs, including information technology, driver recruiting, accounting, stock-based compensation, pension, environmental and other corporate headquarters costs. Segment results for the 2013 quarterly periods were reclassified to conform to the current year presentation. Our segments are delineated as follows:
| Chemical Logistics, which consists of the transportation of bulk chemicals primarily through our network that includes company-operated terminals and terminals operated by 27 independent affiliates, and equipment rental income; |
| Energy Logistics, which consists primarily of the transportation of fresh water, disposal water and crude oil for the UCO&G market, through our network of company-operated terminals and terminals operated by 3 independent affiliates, and equipment rental income; |
| Intermodal, which consists of Boassos intermodal ISO tank container transportation and depot services business primarily supporting the international movement of bulk liquids; and |
Segment operating income reported in our segment tables excludes amounts such as depreciation and amortization, gains and losses on disposal of property and equipment, restructuring costs and impairment charges. Although these amounts are excluded from the business segment operating income results, they are included in our reported Consolidated Statements of Operations. We have not provided specific asset information by segment, as it is not regularly provided to our chief operating decision maker for review.
32
Summarized segment operating results are as follows (in thousands):
Three Months Ended March 31, 2014 | ||||||||||||||||||||
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services |
Total | ||||||||||||||||
Operating Revenues: |
||||||||||||||||||||
Transportation |
$ | 114,623 | $ | 36,979 | $ | 18,954 | $ | | $ | 170,556 | ||||||||||
Service revenue |
17,143 | 1,946 | 12,974 | 124 | 32,187 | |||||||||||||||
Fuel surcharge |
27,052 | | 4,692 | | 31,744 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating revenue |
158,818 | 38,925 | 36,620 | 124 | 234,487 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment revenue % of total revenue |
67.8 | % | 16.6 | % | 15.6 | % | 0.0 | % | 100.0 | % | ||||||||||
Segment operating income (loss) |
18,629 | 2,736 | 6,072 | (10,351 | ) | 17,086 | ||||||||||||||
Depreciation and amortization |
2,447 | 2,133 | 818 | 97 | 5,495 | |||||||||||||||
Other (income) expense |
(948 | ) | 437 | | | (511 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
$ | 17,130 | $ | 166 | $ | 5,254 | $ | (10,448 | ) | $ | 12,102 | |||||||||
|
|
|
|
|
|
|
|
|
|
33
Three Months Ended March 31, 2013 | ||||||||||||||||||||
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services |
Total | ||||||||||||||||
Operating Revenues: |
||||||||||||||||||||
Transportation |
$ | 109,068 | $ | 36,930 | $ | 17,996 | $ | | $ | 163,994 | ||||||||||
Service revenue |
16,374 | 3,921 | 13,140 | 19 | 33,454 | |||||||||||||||
Fuel surcharge |
27,262 | 233 | 4,479 | | 31,974 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating revenue |
152,704 | 41,084 | 35,615 | 19 | 229,422 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment revenue % of total revenue |
66.6 | % | 17.9 | % | 15.5 | % | 0.0 | % | 100.0 | % | ||||||||||
Segment operating income (loss) |
20,411 | 2,714 | 6,668 | (10,745 | ) | 19,048 | ||||||||||||||
Depreciation and amortization |
2,762 | 3,001 | 808 | 122 | 6,693 | |||||||||||||||
Other (income) expense |
(883 | ) | 220 | | (2,426 | ) | (3,089 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
$ | 18,532 | $ | (507 | ) | $ | 5,860 | $ | (8,441 | ) | $ | 15,444 | ||||||||
|
|
|
|
|
|
|
|
|
|
2014 vs 2013 |
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services |
Total | |||||||||||||||||||
Segment operating revenues |
$ | change | $ | 6,114 | $ | (2,159 | ) | $ | 1,005 | 105 | $ | 5,065 | ||||||||||||
% | change | 4.0 | % | (5.3 | )% | 2.8 | % | 552.6 | % | 2.2 | % | |||||||||||||
Segment operating revenues (excluding fuel surcharge) |
$ | change | $ | 6,324 | $ | (1,926 | ) | $ | 792 | 105 | $ | 5,295 | ||||||||||||
% | change | 5.0 | % | (4.7 | )% | 2.5 | % | 552.6 | % | 2.7 | % | |||||||||||||
Segment operating income (loss) |
$ | change | $ | (1,782 | ) | $ | 22 | $ | (596 | ) | 394 | $ | (1,962 | ) | ||||||||||
% | change | (8.7 | )% | 0.8 | % | (8.9 | )% | 3.7 | % | (10.3 | )% |
Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013
Operating revenue:
Chemical Logisticsrevenues increased $6.1 million, or 4.0%, for the quarter ended March 31, 2014 compared to the same period for 2013, primarily due to an increase in transportation revenue of $5.6 million, resulting from increased prices and higher volumes which were due in part to the opening of new terminals during the first quarter of 2014. Chemical logistics shipment demand continues to be strong. In addition, fuel surcharge revenue decreased $0.2 million and service revenue increased by $0.7 million due to increase in trailer rental revenue. The Company is aggressively broadening its driver recruiting efforts and adding trailer capacity to meet increasing requirements from customers.
Energy Logisticsrevenues decreased $2.2 million, or 5.3%, for the quarter ended March 31, 2014. Transportation revenues were flat due to reduced new drilling activity and adverse weather conditions in the Bakken shale region which were offset by increased volumes in the Eagle Ford shale region. Service revenues declined due to lower disposal well volumes.
Intermodalrevenues increased $1.0 million, or 2.8%, for the quarter ended March 31, 2014 compared to the same period in 2013, due to increases in transportation revenue offset by a slight reduction in depot service revenues. Demand for ISO container shipments continues to be favorable, which has resulted in increases in trucking volumes.
Segment operating income:
Chemical Logisticsoperating income decreased $1.8 million, or 8.7%, for the quarter ended March 31, 2014 compared to the same period in 2013 primarily due to positive contribution from higher revenues in the quarter offset by increased insurance expenses and the impact from adverse weather conditions.
34
Energy Logisticsoperating income increased less than $0.1 million, or 0.8%, for the quarter ended March 31, 2014 primarily due to higher profitability achieved in nearly all shale regions due to lower operating costs and better asset efficiency.
Intermodaloperating income decreased $0.6 million, or 8.9%, for the quarter ended March 31, 2014 compared to the same period in 2013, due primarily to adverse weather conditions which impacted the segments three largest terminals.
Shared Servicesnet expenses decreased $0.4 million, or 3.7%, for the quarter ended March 31, 2014 compared to the same period in 2013, due primarily to severance costs recorded in the prior-year period.
35
Three Months Ended March 31, 2013 | ||||||||||||||||||||
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services | Total | ||||||||||||||||
Operating Revenues: |
||||||||||||||||||||
Transportation |
$ | 109,068 | $ | 36,930 | $ | 17,996 | $ | | $ | 163,994 | ||||||||||
Service revenue |
16,374 | 3,921 | 13,140 | 19 | 33,454 | |||||||||||||||
Fuel surcharge |
27,262 | 233 | 4,479 | | 31,974 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating revenue |
152,704 | 41,084 | 35,615 | 19 | 229,422 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment revenue % of total revenue |
66.6 | % | 17.9 | % | 15.5 | % | 0.0 | % | 100.0 | % | ||||||||||
Segment operating income (loss) |
20,411 | 2,714 | 6,668 | (10,745 | ) | 19,048 | ||||||||||||||
Depreciation and amortization |
2,762 | 3,001 | 808 | 122 | 6,693 | |||||||||||||||
Other (income) expense |
(883 | ) | 220 | | (2,426 | ) | (3,089 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
$ | 18,532 | $ | (507 | ) | $ | 5,860 | $ | (8,441 | ) | $ | 15,444 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Three Months Ended June 30, 2013 | ||||||||||||||||||||
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services | Total | ||||||||||||||||
Operating Revenues: |
||||||||||||||||||||
Transportation |
$ | 113,206 | $ | 42,572 | $ | 18,869 | $ | | $ | 174,647 | ||||||||||
Service revenue |
16,629 | 2,500 | 13,283 | 293 | 32,705 | |||||||||||||||
Fuel surcharge |
27,189 | 40 | 4,715 | | 31,944 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating revenue |
157,024 | 45,112 | 36,867 | 293 | 239,296 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment revenue % of total revenue |
65.6 | % | 18.9 | % | 15.4 | % | 0.1 | % | 100.0 | % | ||||||||||
Segment operating income (loss) |
21,023 | 4,845 | 6,664 | (10,203 | ) | 22,329 | ||||||||||||||
Depreciation and amortization |
2,885 | 2,892 | 828 | 124 | 6,729 | |||||||||||||||
Impairment charge |
| 55,692 | | | 55,692 | |||||||||||||||
Other expense |
88 | 1,376 | 74 | 53 | 1,591 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
$ | 18,050 | $ | (55,115 | ) | $ | 5,762 | $ | (10,380 | ) | $ | (41,683 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Three Months Ended September 30, 2013 | ||||||||||||||||||||
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services | Total | ||||||||||||||||
Operating Revenues: |
||||||||||||||||||||
Transportation |
$ | 112,704 | $ | 40,819 | $ | 18,376 | $ | | $ | 171,899 | ||||||||||
Service revenue |
17,417 | 2,264 | 12,359 | 129 | 32,169 | |||||||||||||||
Fuel surcharge |
27,049 | | 4,554 | | 31,603 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating revenue |
157,170 | 43,083 | 35,289 | 129 | 235,671 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment revenue % of total revenue |
66.7 | % | 18.3 | % | 15.0 | % | | 100.0 | % | |||||||||||
Segment operating income (loss) |
19,892 | 2,432 | 5,417 | (10,820 | ) | 16,921 | ||||||||||||||
Depreciation and amortization |
2,743 | 2,603 | 854 | 118 | 6,318 | |||||||||||||||
Other (income) expense |
(2,602 | ) | 1,648 | (15 | ) | (45 | ) | (1,014 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
$ | 19,751 | $ | (1,819 | ) | $ | 4,578 | $ | (10,893 | ) | $ | 11,617 | ||||||||
|
|
|
|
|
|
|
|
|
|
36
Three Months Ended December 31, 2013 | ||||||||||||||||||||
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services | Total | ||||||||||||||||
Operating Revenues: |
||||||||||||||||||||
Transportation |
$ | 107,186 | $ | 40,293 | $ | 17,075 | $ | | $ | 164,554 | ||||||||||
Service revenue |
17,609 | 1,932 | 11,707 | 189 | 31,437 | |||||||||||||||
Fuel surcharge |
25,345 | | 4,085 | | 29,430 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating revenue |
150,140 | 42,225 | 32,867 | 189 | 225,421 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment revenue % of total revenue |
66.6 | % | 18.7 | % | 14.6 | % | 0.1 | % | 100.0 | % | ||||||||||
Segment operating income (loss) |
18,820 | 643 | 4,425 | (9,983 | ) | 13,905 | ||||||||||||||
Depreciation and amortization |
2,757 | 2,677 | 832 | 115 | 6,381 | |||||||||||||||
Impairment charge |
| 35,604 | | | 35,604 | |||||||||||||||
Other (income) expense |
(837 | ) | 1,565 | (220 | ) | (446 | ) | 62 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
$ | 16,900 | $ | (39,203 | ) | $ | 3,813 | $ | (9,652 | ) | $ | (28,142 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Year Ended December 31, 2013 | ||||||||||||||||||||
Chemical Logistics |
Energy Logistics |
Intermodal | Shared Services | Total | ||||||||||||||||
Operating Revenues: |
||||||||||||||||||||
Transportation |
$ | 442,164 | $ | 160,614 | $ | 72,316 | $ | | $ | 675,094 | ||||||||||
Service revenue |
68,029 | 10,617 | 50,489 | 630 | 129,765 | |||||||||||||||
Fuel surcharge |
106,845 | 273 | 17,833 | | 124,951 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating revenue |
617,038 | 171,504 | 140,638 | 630 | 929,810 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment revenue % of total revenue |
66.4 | % | 18.4 | % | 15.1 | % | 0.1 | % | 100.0 | % | ||||||||||
Segment operating income (loss) |
80,146 | 10,634 | 23,174 | (41,751 | ) | 72,203 | ||||||||||||||
Depreciation and amortization |
11,147 | 11,173 | 3,322 | 479 | 26,121 | |||||||||||||||
Impairment charge |
| 91,296 | | | 91,296 | |||||||||||||||
Other (income) expense |
(4,234 | ) | 4,809 | (161 | ) | (2,864 | ) | (2,450 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) |
$ | 73,233 | $ | (96,644 | ) | $ | 20,013 | $ | (39,366 | ) | $ | (42,764 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
Our primary cash needs consist of debt service, working capital and capital expenditures. Our working capital needs depend upon the timing of our collections from customers and payments to others, as well as our capital and
37
operating lease payment obligations. Our capital expenditures primarily relate to acquiring trailers, and at times tractors, to grow and maintain the chemical and energy logistics fleet. We reduce our capital expenditure requirements for our chemical logistics and energy logistics businesses by utilizing independent affiliates and independent owner-operators.
Independent affiliates and independent owner-operators typically supply their own tractors, which reduces our capital investment requirements. For the three months ending March 31, 2014, capital expenditures were $10.5 million and proceeds from sales of property and equipment were $2.8 million. We generally expect our sustaining capital expenditures, net of proceeds from property and equipment sales, to be approximately 1% to 2% of operating segment revenues annually. We expect net capital expenditures to range between $10.0 to $15.0 million for 2014. Some of our independent affiliates who are engaged with us in the chemical logistics or energy logistics markets may at times purchase some portion of this equipment from us. Actual amounts could differ materially because of operating needs, growth needs, regulatory changes, covenants in our debt arrangements, other expenses or other factors.
Debt service currently consists of required interest payments on the outstanding balance of our ABL Facility, our Term Loan and our outstanding 2018 Notes, as well as acquisition-related indebtedness. We have no major debt maturities prior to August 2016, when our ABL Facility matures. We may from time to time repurchase or redeem additional amounts of our outstanding debt or may repurchase outstanding shares of our common stock. Our Board of Directors has approved a share repurchase program for up to $15.0 million in shares of our common stock, of which $6.9 million remained available at March 31, 2014. Separately, we have long-term goals to reduce the outstanding amount of our indebtedness and reduce our interest expense. Any repurchases or redemptions would depend upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors we consider important. Future repurchases or redemptions may materially impact our liquidity, future tax liability and results of operations.
Our primary sources of liquidity for operations during the 2014 and 2013 periods have been cash flow from operations and borrowing availability under the ABL Facility. At March 31, 2014, we had $86.3 million of borrowing availability under the ABL Facility. Our ABL Facility was amended on June 14, 2013 to provide for a $17.5 million Term Loan, which was fully funded on July 15, 2013. Borrowing availability under our ABL Facility was expanded to include additional eligible accounts receivable and tractor and trailer equipment in conjunction with the new borrowing. Proceeds from the Term Loan, together with additional borrowings under our ABL Facility, were used to fund the redemption of $22.5 million in original principal amount of our 2018 Notes on July 15, 2013.
We believe that, based on current operations and anticipated growth, our cash flow from operations, together with other available sources of liquidity, will be sufficient to fund anticipated capital expenditures, operating expenses and our other anticipated liquidity needs for the next 12 months. Anticipated debt maturities in 2016, the acquisition of other businesses or other events that we do not foresee may require us to seek alternative financing, such as restructuring or refinancing our long-term debt, selling assets or operations or selling additional debt or equity securities. If these alternatives were not available in a timely manner or on satisfactory terms or were not permitted under any of our debt agreements and we default on our obligations, our debt could be accelerated and our assets might not be sufficient to repay in full all of our obligations.
Cash Flows
The following summarizes our cash flows for the three months ended March 31, 2014 and 2013 as reported in our consolidated statements of cash flows in the accompanying consolidated financial statements (in thousands):
Three months ended March 31, |
||||||||
2014 | 2013 | |||||||
Net cash and cash equivalents provided by operating activities |
$ | 1,408 | $ | 8,619 | ||||
Net cash and cash equivalents (used in) provided by investing activities |
(7,610 | ) | 519 | |||||
Net cash and cash equivalents provided by (used in) financing activities |
6,109 | (10,641 | ) | |||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(93 | ) | (1,503 | ) | ||||
Cash and cash equivalents at beginning of period |
1,957 | 2,704 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 1,864 | $ | 1,201 | ||||
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Net cash provided by operating activities was $1.4 million for the three-month period ended March 31, 2014, compared to $8.6 million provided by operating activities in the comparable 2013 period. The $7.2 million decrease in cash provided by operating activities was primarily due to higher receivables from increased sales in our chemical logistics business.
Net cash used in investing activities totaled $7.6 million for the three-month period ended March 31, 2014, compared to $0.5 million provided by investing activities in the comparable 2013 period. The $8.1 million difference was due primarily to a reduction in proceeds from sales of property and equipment of $5.9 million and increased capital expenditures of $3.0 million.
Net cash provided by financing activities was $6.1 million during the three-month period ended March 31, 2014, compared to $10.6 million used in financing activities in the comparable 2013 period. In the 2014 period, we utilized net borrowings of $4.2 million and proceeds from the exercise of stock options of $1.3 million to purchase revenue equipment and to pay down $1.5 million of other debt and capital lease obligations. In the 2013 period, cash flow from operations and property and equipment sales enabled us to pay down $7.9 million of our ABL Facility. Borrowings under our ABL Facility were utilized to fund share repurchases of $3.4 million and to pay down $2.3 million of other debt and capital lease obligations.
Off-Balance Sheet Arrangements
We guarantee total remaining lease payment obligations aggregating approximately $25.2 million as of March 31, 2014, of certain independent owner-operators and independent affiliates for their tractors to certain third-party vendors. The guarantees expire at various dates beginning in 2015 to 2020 and would require us to make lease payments in the event of a default by an independent owner-operator or independent affiliate. Further, upon a default, we are likely to take actions to reduce or recoup our expenditures, including purchasing the tractor and reselling it to recover all or a portion of the amounts paid, or facilitating an arrangement between the third-party vendor and another independent owner-operator to assume the lease. In addition, up to 50% of any realized losses related to independent owner-operators managed by independent affiliates could be recouped from those independent affiliates. We believe that the likelihood is remote that material payments will be required under these lease guarantees.
Contractual Obligations
The following is a schedule of our long-term contractual commitments, including the current portion of our long-term indebtedness at March 31, 2014 over the periods we expect them to be paid (in thousands):
Total | Remainder of 2014 |
Years 2015 & 2016 |
Years 2017 & 2018 |
Thereafter 2019 |
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Operating leases (1) |
$ | 88,032 | $ | 16,724 | $ | 42,819 | $ | 25,812 | $ | 2,677 | ||||||||||
Total indebtedness (2)(3) |
382,506 | 1,785 | 159,050 | 221,671 | | |||||||||||||||
Capital leases |
1,085 | 569 | 439 | 77 | | |||||||||||||||
Interest on indebtedness (4) |
106,089 | 19,557 | 49,454 | 37,078 | | |||||||||||||||
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Total contractual cash obligations (5)(6)(7)(8)(9) |
$ | 577,712 | $ | 38,635 | $ | 251,762 | $ | 284,638 | $ | 2,677 | ||||||||||
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(1) | These obligations represent the minimum rental commitments under all non-cancelable operating leases including the guaranteed residual values at the end of the leases. Commitments also include the operating lease for our corporate headquarters. |
We expect that some of our operating lease obligations for tractors and trailers will be partially offset by rental revenue from subleasing the tractors to independent affiliates and independent owner-operators and subleasing trailers to independent affiliates.
(2) | Includes aggregate unamortized discount of $0.9 million related to the 2018 Notes. |
(3) | Assumes repayment of the principal amount of the Term Loan in equal quarterly amounts beginning the second quarter of 2015. |
(4) | Amounts presented for interest payments assume that all long-term debt obligations outstanding as of March 31, 2014 will remain outstanding until maturity, and interest rates on variable-rate debt in effect as of March 31, 2014 will remain in effect until maturity. |
(5) | Excludes long-term pension obligations as we are unable to reasonably estimate the ultimate amount or timing of settlement of such obligations. As of March 31, 2014, obligations of $11.9 million were reflected in the Consolidated Balance Sheet. This amount represented our unfunded status of such plans, which is the difference between our projected benefit obligation and the fair value of plan assets, as of such date. See Note 8 of the Notes to Consolidated Financial Statements. |
(6) | Excludes liabilities associated with environmental matters as we are unable to reasonably estimate the ultimate amount or timing of settlement of such liabilities. Liabilities of $7.9 million, which represent our reserves for environmental compliance and remediation, were reflected in the Consolidated Balance Sheet as of March 31, 2014. See Note 14 of the Notes to Consolidated Financial Statements. |
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(7) | Excludes accrued loss and damage claims as we are unable to reasonably estimate the ultimate amount or timing of settlement of such claims. As of March 31, 2014, accrued loss and damage claims of $20.8 million, which represented the balance of our reserves for such liabilities, were reflected in the Consolidated Balance Sheet. |
(8) | Excludes liabilities associated with uncertain tax positions as we are unable to reasonably estimate the ultimate amount or timing of settlement of such positions. See Note 12 of the Notes to Consolidated Financial Statements. |
(9) | Excludes potential liabilities associated with our guarantees on leases aggregating approximately $25.2 million as of March 31, 2014 of certain independent owner-operators and independent affiliates because we are unable to reasonably estimate our probable exposure to loss. See Note 15 of the Notes to Consolidated Financial Statements. |
Long-term Debt
Long-term debt consisted of the following (in thousands):
March 31, 2014 |
December 31, 2013 |
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Capital lease obligations |
$ | 1,085 | $ | 4,883 | ||||
ABL Facility |
140,200 | 136,000 | ||||||
Term Loan |
17,500 | 17,500 | ||||||
9.875% Second-Priority Senior Secured Notes, due 2018 |
202,500 | 202,500 | ||||||
5% Subordinated Acquisition Notes |
19,170 | 19,170 | ||||||
Other Notes |
3,136 | 4,209 | ||||||
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Long-term debt, including current maturities |
383,591 | 384,262 | ||||||
Discount on Notes |
(908 | ) | (957 | ) | ||||
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382,683 | 383,305 | |||||||
Less current maturities of long-term debt (including capital lease obligations) |
(2,747 | ) | (10,580 | ) | ||||
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Long-term debt, less current maturities (including capital lease obligations) |
$ | 379,936 | $ | 372,725 | ||||
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Debt Retirement
The following is a schedule of our indebtedness at March 31, 2014 over the periods we are required to pay such indebtedness (in thousands):
Remainder of 2014 |
2015 | 2016 | 2017 | 2018 | Total | |||||||||||||||||||
Capital lease obligations |
$ | 569 | $ | 333 | $ | 106 | $ | 77 | $ | | $ | 1,085 | ||||||||||||
ABL Facility |
| | 140,200 | | | 140,200 | ||||||||||||||||||
Term Loan (1) |
| 10,500 | 7,000 | | | 17,500 | ||||||||||||||||||
9.875% Second-Priority Senior Secured Notes, due 2018 (2) |
| | | | 202,500 | 202,500 | ||||||||||||||||||
5% Subordinated Acquisition Notes |
| | | 19,170 | | 19,170 | ||||||||||||||||||
Other Notes |
1,785 | 1,084 | 267 | | | 3,136 | ||||||||||||||||||
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Total |
$ | 2,354 | $ | 11,917 | $ | 147,573 | $ | 19,247 | $ | 202,500 | $ | 383,591 | ||||||||||||
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(1) | Assumes repayment of the principal amount of the Term Loan in equal quarterly amounts beginning the second quarter of 2015. |
(2) | Amounts do not include the remaining unamortized original issue discount of $0.9 million related to the 2018 Notes. |
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The following is a schedule of our debt issuance costs (in thousands) as of March 31, 2014:
December 31, 2013 |
Additional Debt Issuance Costs |
2014 Amortization Expense |
March 31, 2014 |
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ABL Facility |
$ | 3,745 | $ | 4 | $ | (364 | ) | $ | 3,385 | |||||||
Term Loan |
490 | | (50 | ) | 440 | |||||||||||
9.875% Second-Priority Senior Secured Notes, due 2018 |
3,447 | | (178 | ) | 3,269 | |||||||||||
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Total |
$ | 7,682 | $ | 4 | $ | (592 | ) | $ | 7,094 | |||||||
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Amortization expense of deferred issuance costs was $0.6 million for each of the three months ending March 31, 2014 and 2013 and is included in interest expense. We are amortizing these costs over the term of the debt instruments.
The ABL Facility
Revolving Credit Facility
Our ABL Facility provides for a revolving credit facility with a maturity of August 19, 2016. On September 27, 2012, our maximum borrowing capacity under the facility was increased from $250.0 million to $350.0 million. Borrowing availability under our ABL Facility did not change as a result of this amendment. Changes in borrowing availability result from increases or decreases in assets securing the ABL Facility. The ABL Facility includes borrowing capacity of up to $150.0 million for letters of credit and up to $30.0 million for swingline borrowings on same-day notice. The ABL Facility is available for working capital needs and general corporate purposes, including permitted acquisitions. At March 31, 2014, we had $86.3 million of borrowing availability under the ABL Facility.
Borrowings under the revolving credit facility bear interest at a rate equal to an applicable margin plus, at our option, either a base rate or LIBOR. The applicable margin at March 31, 2014 was 1.00% for base rate borrowings and 2.00% for LIBOR borrowings. The applicable margin for borrowings will be reduced or increased based on aggregate borrowing base availability under the ABL Facility and may be further reduced in the event that our fixed charge coverage ratio as calculated under the ABL Facility exceeds a target level. The base rate is equal to the highest of the prime rate, the federal funds overnight rate plus 0.50% and 30-day LIBOR plus 1.00%. In addition to paying interest on outstanding principal under the ABL Facility, we are required to pay an unutilized commitment fee to the lenders quarterly at a rate ranging from 0.25% to 0.50%, depending on the average utilization of the ABL Facility. We also pay customary letter of credit fees quarterly. We may voluntarily repay outstanding borrowings under the revolving credit facility of the ABL Facility at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans. The interest rate on borrowings under the revolving credit facility at March 31, 2014 was 2.2%.
The borrowing base for the ABL Facility consists of eligible accounts receivable, inventory, tractor and trailer equipment, real property and certain other equipment.
We recorded $6.9 million in debt issuance costs relating to the ABL Facility. We are amortizing the debt issuance costs over the remaining term of the ABL Facility. The September 2012 amendment to our ABL Facility was treated as a modification under FASB guidance.
Term Loan Facility
On June 14, 2013, our ABL Facility was amended to provide for a new $17.5 million senior secured term loan facility which was fully funded on July 15, 2013. Borrowings under the Term Loan bear interest at a rate equal to an applicable margin plus, at our option, either a base rate or LIBOR. The applicable margin at March 31, 2014 was 2.50% for base rate borrowings and 3.50% for LIBOR borrowings , with a potential step-down of 0.25% after 18 months if a senior secured leverage ratio is met. Obligations under the Term Loan mature on the earlier of June 14, 2016 or the date on which the ABL Facility terminates. Beginning no earlier than the 12-month anniversary of the Term Loan and no later than the 24-month anniversary of the Term Loan, we will be subject to mandatory repayment of the principal amount of the Term Loan in equal quarterly payments for the remainder of the maturity period. Borrowing availability under our ABL Facility was expanded to include additional eligible accounts receivable and tractor and trailer equipment in conjunction with the new borrowing. We may voluntarily repay the outstanding amount under the Term Loan at any time without premium or penalty, other than customary breakage costs with respect to the LIBOR loans. The interest rate on borrowings under the Term Loan at March 31, 2014 was 3.7%.
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We recorded $0.6 million in debt issuance costs relating to the Term Loan. We are amortizing the debt issuance costs over the term of the Term Loan.
9.875% Second-Priority Senior Secured Notes Due 2018
On November 3, 2010, we issued $225.0 million aggregate principal amount of the 2018 Notes. With the proceeds of the issuance of the 2018 Notes, we repaid and redeemed certain of our previously outstanding notes and paid down a portion of our outstanding borrowings under the previous ABL Facility.
Interest on the 2018 Notes is payable at a rate of 9.875% per annum, semiannually on May 1 and November 1 of each year. The payment obligations of QD LLC and QD Capital under the 2018 Notes are guaranteed by QDI and by all of its 100%-owned domestic subsidiaries other than immaterial subsidiaries. The 2018 Notes are senior obligations of QD LLC and QD Capital and are secured by a second-priority lien on certain assets. 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.
The 2018 Notes mature on November 1, 2018. Prior to November 1, 2014, we may redeem the 2018 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2018 Notes redeemed, plus accrued and unpaid interest to the redemption date, plus an additional make-whole premium intended to capture the value of holding the 2018 Notes through November 1, 2014, but not less than 1%. During any twelve-month period prior to November 1, 2014, we may also redeem up to 10% of the original aggregate principal amount of the 2018 Notes at a redemption price of 103%, plus accrued and unpaid interest to the redemption date. On or after November 1, 2014, we may redeem the 2018 Notes, in whole or in part, at the following prices (expressed as a percentage of principal amount), plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period commencing on November 1 of the years set forth below:
Period |
Redemption Price |
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2014 |
104.938 | % | ||
2015 |
102.469 | % | ||
2016 and thereafter |
100.000 | % |
We recorded $6.0 million in debt issuance costs relating to the 2018 Notes, of which $5.8 million was related to the new issuance and $0.2 million of unamortized debt issuance costs related to our 10% Senior Notes due 2013 which are no longer outstanding. We are amortizing these costs over the term of the 2018 Notes.
On July 15, 2013, we redeemed a portion of the 2018 Notes in the aggregate principal amount of $22.5 million. The redemption price for these 2018 Notes equaled 100% of the aggregate principal amount of $22.5 million, plus accrued but unpaid interest up to the redemption date, plus a 3.0% premium of $0.7 million. In the third quarter of 2013, $0.5 million of unamortized debt issuance costs related to this redemption were written off.
5% Subordinated Acquisition Notes
We issued promissory notes in an aggregate principal amount of $21.3 million as part of the consideration for a 2012 acquisition (the Acquisition Notes). The Acquisition Notes bear interest at a fixed rate of 5.0% per annum and mature June 1, 2017. Payments of interest only are scheduled for the end of each calendar quarter with principal payable in full at maturity. The Acquisition Notes are unsecured and subordinated. The notes are non-negotiable and non-transferable and may be prepaid in whole or in part at any time without premium or penalty. On November 12, 2013, we made principal payments of $2.1 million. At March 31, 2014, the outstanding principal balance of the Acquisition Notes was $19.2 million.
Collateral, Guarantees and Covenants
The ABL Facility contains a fixed charge coverage ratio which only needs to be met if borrowing availability is less than a designated amount ranging from $20.0 million to $35.0 million, depending upon the size of our borrowing base. The ABL Facility contains a number of covenants that, among other things, restrict, subject to certain exceptions: (i) our ability to sell assets; (ii) incur additional indebtedness; (iii) prepay other indebtedness, including the 2018 Notes; (iv) pay dividends and distributions or repurchase QDIs capital stock; (v) create liens on assets; (vi) make investments; (vii) make certain acquisitions; (viii) engage in mergers or consolidations; (ix) engage in certain transactions with affiliates; (x) amend certain charter documents and material agreements governing subordinated indebtedness, including the 2018 Notes; (xi) change our business; and (xii) enter into agreements that restrict dividends from QD LLCs subsidiaries. The ABL Facility also contains certain customary affirmative covenants and events of default.
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The indenture governing the 2018 Notes contains covenants that restrict, subject to certain exceptions, our ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) pay dividends on or make other distributions in respect of QDIs common stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) create or permit to exist dividend and/or payment restrictions affecting restricted subsidiaries; (vi) create liens on certain assets to secure debt; (vii) consolidate, merge, sell or otherwise dispose of all or substantially all assets; (viii) enter into certain transactions with affiliates; and (ix) designate subsidiaries as unrestricted subsidiaries. The indenture also provides certain customary events of default, which, if any of them occurs, may result in the principal, interest and any other monetary obligations on the then outstanding 2018 Notes becoming payable immediately.
The payment obligations under the ABL Facility, including the Term Loan, are senior secured obligations of QD LLC and QD Capital and are secured by a first-priority lien on certain assets and guaranteed by QDI and by all of its domestic restricted subsidiaries other than immaterial subsidiaries. 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. The 2018 Notes, and the guarantees thereof, are senior obligations of QD LLC and QD Capital and are secured by a second-priority lien on certain assets. Pursuant to an intercreditor agreement, the liens on the collateral securing the 2018 Notes rank junior in right of payment to the ABL Facility, including the Term Loan, and obligations under certain hedging agreements, cash management obligations and certain other first-lien obligations. We were in compliance with the covenants under the ABL Facility, including the Term Loan and the 2018 Notes, at March 31, 2014.
Other Liabilities and Obligations
As of March 31, 2014, we had $25.9 million in outstanding letters of credit issued under the ABL Facility that may be drawn by third parties to satisfy some of the obligations described above and certain other obligations. We are required to provide letters of credit to our insurance administrator to support our claims paying capability. The letter of credit issued to our insurance administrator had a maximum draw amount of $22.0 million as of March 31, 2014. If we fail to meet certain terms of our agreement, the insurance administrator may draw down the entire letter of credit. The remaining $3.9 million of outstanding letters of credit as of March 31, 2014 relates to various other obligations.
Our obligations for environmental matters, accrued loss and damage claims and long-term pension obligations are considered within Contractual Obligations. Our obligations for certain lease guarantees are considered within Off-Balance Sheet Arrangements.
Other Issues
While uncertainties relating to environmental, labor and other regulatory matters exist within the trucking industry, management is not aware of any trends or events likely to have a material adverse effect on liquidity or the accompanying consolidated financial statements. Our credit ratings are affected by many factors, including our financial results, operating cash flows and total indebtedness.
The ABL Facility and the indentures governing the 2018 Notes contain certain limitations on QD LLCs 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 LLCs membership units. QD LLCs direct and indirect 100%-owned subsidiaries are generally permitted to make distributions to QD LLC, which is the principal obligor under the ABL Facility and the 2018 Notes.
FORWARD-LOOKING STATEMENTS AND CERTAIN CONSIDERATIONS
This report, along with other documents that are publicly disseminated by us, contains or might contain forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. All statements included in this report and in any subsequent filings made by us with the SEC, other than statements of historical fact, that address activities, events or developments that we or our management expect, believe or anticipate will or may occur in the future, are forward-looking statements. These statements represent our reasonable judgment on the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially. We claim the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Examples of forward-looking statements include: (i) projections of revenue, earnings, capital structure and other financial items, (ii) statements of our plans and objectives, (iii) statements of expected future economic performance, and (iv) assumptions underlying statements regarding us or our
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business. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as targets, bodes, believes, expects, estimates, may, will, should, could, seeks, plans, intends, anticipates or scheduled to or the negatives of those terms, or other variations of those terms or comparable language, or by discussions of strategy or other intentions.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that could cause our actual results to be materially different from the forward-looking statements include the following risks and other factors discussed under the Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2013 and in our Quarterly Reports on Form 10-Q. These factors include:
| the effect of local, national and international economic, credit, capital and labor market conditions on the economy in general, and on the particular industries in which we operate, including excess capacity in the industry, changes in fuel and insurance prices, interest rate fluctuations, and downturns in customers business cycles and shipping requirements; |
| our substantial leverage and our ability to make required payments and comply with restrictions contained in our debt arrangements or to otherwise generate sufficient cash from operations or borrowings under our ABL Facility to fund our liquidity needs; |
| competition and rate fluctuations, including fluctuations in prices and demand for transportation services as well as for commodities such as natural gas and oil; |
| our reliance on independent affiliates and independent owner-operators; |
| our potential liability related to our financial support obligations for third-party equipment leasing programs; |
| reclassification of our independent contractors, such as our independent owner-operators, as a result of legislative, judicial or regulatory changes or for any other reason; |
| a shift away from or slowdown in production in the shale regions in which we have energy logistics operations; |
| our liability as a self-insurer to the extent of our deductibles as well as changing conditions and pricing in the insurance marketplace; |
| increased unionization, which could increase our operating costs or constrain operating flexibility; |
| changes in or our inability to comply with governmental regulations and legislative changes affecting the transportation industry generally or in the particular segments in which we operate; |
| federal and state legislative and regulatory initiatives, which could result in increased costs and additional operating restrictions upon us or our UCO&G customers; |
| our ability to access and use our salt water disposal wells and other disposal sites and methods in our energy logistics business; |
| our ability to comply with current and future environmental regulations and the increasing costs relating to environmental compliance; |
| potential disruption at U.S. ports of entry; |
| diesel fuel prices and our ability to recover costs through fuel surcharges; |
| our ability to attract and retain qualified drivers; |
| terrorist attacks and the cost of complying with existing and future anti-terrorism security measures; |
| our dependence on senior management; |
| the potential loss of our ability to use net operating losses to offset future income; |
| potential future impairment charges; |
| our ability to successfully identify acquisition opportunities, consummate such acquisitions and successfully integrate acquired businesses, converted affiliates and new affiliates and achieve the anticipated benefits and synergies of acquisitions and conversions, the effects of the acquisitions and conversions on the acquired businesses existing relationships with customers, governmental entities, affiliates, owner-operators and employees, and the impact that acquisitions and conversions could have on our future financial results and business performance and other future conditions in the market and industry from the acquired businesses; |
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| our ability to execute plans to profitably operate in the transportation business and disposal well business within the energy logistics market; |
| our success in entering new markets; |
| adverse weather conditions; |
| disruptions of our information technology and communications systems; |
| changes in health insurance benefit regulations; |
| our liability for our proportionate share of unfunded vested benefit liabilities, particularly in the event of our withdrawal from any of our multi-employer pension plans; |
| the assumptions underlying our expectations of financial results in 2014; and |
| changes in planned or actual capital expenditures due to operating needs, changes in regulation, covenants in our debt arrangements and other expenses, including interest expenses. |
In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements. All forward-looking statements contained in this Quarterly Report on Form 10-Q are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we do not intend to update or otherwise revise the forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
ADDITIONAL INFORMATION AVAILABLE ON COMPANY WEBSITE
Our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports may be viewed or downloaded electronically or as paper copies from our website: www.qualitydistribution.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our recent press releases are also available to be viewed or downloaded electronically at www.qualitydistribution.com. We will also provide electronic or paper copies of our SEC filings free of charge on request. We regularly post or otherwise make available information on the Investor Relations section of our website that may be important to investors. Any information on or linked from our website is not incorporated by reference into this Quarterly Report on Form 10-Q.
ITEM 3Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risks from (i) interest rates due to our variable interest rate indebtedness, (ii) foreign currency fluctuations due to our international operations and (iii) increased commodity prices due to the diesel consumption necessary for our operations. During the three months ended March 31, 2014, we have not held derivative instruments or engaged in other hedging transactions to reduce our exposure to such risks.
Interest Rate Risk
We are exposed to the impact of interest rate changes through our variable-rate borrowings under the ABL Facility. With regard to the revolving credit facility of the ABL Facility, at QD LLCs option, the applicable margin for borrowings at March 31, 2014 was 1.00% with respect to base rate borrowings and 2.00% with respect to LIBOR borrowings. The applicable margin for such borrowings will be reduced or increased based on aggregate borrowing base availability under the ABL Facility and may be further reduced in the event that our fixed charge coverage ratio as calculated under the ABL Facility exceeds a target level. With respect to the Term Loan, the applicable margin for borrowings is 2.50% for base rate borrowings and 3.50% for LIBOR borrowings, with a potential step-down of 0.25% near the end of 2014 if a senior secured leverage ratio is met. The base rate under the ABL Facility is equal to the highest of the prime rate, the federal funds overnight rate plus 0.50% and 30-day LIBOR plus 1.00%.
Balance at March 31, 2014 ($ in 000s) |
Interest Rate at March 31, 2014 |
Effect of 1% Increase ($ in 000s) |
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ABL Facility |
$ | 140,200 | 2.2 | % | $ | 1,402 | ||||||
Term Loan |
17,500 | 3.7 | % | 175 | ||||||||
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Total |
$ | 157,700 | $ | 1,577 | ||||||||
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At March 31, 2014, a 1% increase in the current per annum interest rate would result in $1.6 million of additional interest expense during the next 12 months. The foregoing calculation assumes an instantaneous 1% increase in the rates under the ABL Facility and that the principal amount under both the revolving credit facility and the Term Loan is the amount outstanding as of March 31, 2014. The calculation therefore does not account for the differences in the market rates upon which the interest rates of our indebtedness are based, our option to elect the lowest of three different interest rates under our borrowings or other possible actions, such as prepayment, that we might take in response to any rate increase.
Foreign Currency Exchange Rate Risk
Operating in international markets involves exposure to the possibility of volatile movements in foreign exchange rates. The currencies in each of the countries in which we operate affect:
| the results of our international operations reported in United States dollars; and |
| the value of the net assets of our international operations reported in United States dollars. |
These exposures may impact future earnings or cash flows. Revenue from foreign locations (Canada and Mexico) represented approximately 4.2% of our consolidated revenue for the three months ended March 31, 2014 and 4.3% of our consolidated revenue for the three months ended March 31, 2013. The economic impact of foreign exchange rate movements is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to adjust our financing and operating strategies. Therefore, to isolate the effect of changes in currency does not accurately portray the effect of these other important economic factors. As foreign exchange rates change, translation of the income statements of our international subsidiaries into U.S. dollars affects year-over-year comparability of operating results. While we may hedge specific transaction risks, we generally do not hedge translation risks because we believe there is no long-term economic benefit in doing so.
Assets and liabilities for our Canadian operations are matched in the local currency, which reduces the need for dollar conversion. Our Mexican operations use the United States dollar as their functional currency. Any foreign currency impact on translating assets and liabilities into dollars is included as a component of shareholders deficit. Our revenue results for the three months ended March 31, 2014 were negatively impacted by $0.9 million in foreign currency movement, primarily due to the weakening of the Canadian dollar against the United States dollar.
Changes in foreign exchange rates that had the largest impact on translating our international operating profits for the first three months of 2014 related to the Canadian dollar versus the United States dollar. We estimate that a 1% adverse change in the Canadian dollar foreign exchange rate would have decreased our revenues by approximately $0.1 million for the three months ended March 31, 2014, assuming no changes other than the exchange rate itself. Our intercompany loans are subject to fluctuations in exchange rates primarily between the United States dollar and the Canadian dollar. Based on the outstanding balance of our intercompany loans at March 31, 2014, a change of 1% in the exchange rate for the Canadian dollar would cause a change in our foreign exchange result of less than $0.1 million.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, global politics and other market factors. Historically, we have been able to recover a majority of fuel price increases from our customers in the form of fuel surcharges. The price and availability of diesel fuel can be unpredictable as well as the extent to which fuel surcharges can be collected to offset such increases. In the three months ended March 31, 2014 and 2013, a majority of fuel costs were covered through fuel surcharges.
ITEM 4Controls and Procedures
Evaluation of disclosure controls and procedures
As required by Exchange Act Rules 13a-15(b) and 15d-15(b), management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on their evaluation, management concluded our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of March 31, 2014 to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and were effective as of March 31, 2014 to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
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Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Other than reported in Item 3Legal Proceedings of our Annual Report on Form 10-K for the year ended December 31, 2013, Note 21. Commitments and Contingencies to our audited consolidated financial statements contained in such Form 10-K and Note 14. Commitments and Contingencies to our unaudited consolidated financial statements included in this report, we are not currently a party to any material pending legal proceedings other than routine matters incidental to our business, and no material developments have occurred in any proceedings described in such Form 10-K.
You should carefully consider the factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013 included under Item 1A Risk Factors in addition to the other information set forth in this report. The risks described in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q are not the only risks facing our Company.
ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
The following table lists QDIs share repurchases and deemed share repurchases during the three-months ended March 31, 2014. On November 20, 2012, we announced a share repurchase program pursuant to which our Board of Directors authorized the repurchase of up to $15.0 million of our common stock in an open-ended repurchase program (the Repurchase Program). Stock has been, and may in the future be, purchased pursuant to the Repurchase Program, from time to time, in the open market or through private transactions, subject to market conditions. Subject to applicable laws, repurchases under the Repurchase Program may be made at such times and in such amounts as we deem appropriate and may be made pursuant to Rule 10b5-1. We are not obligated to purchase any shares under the Repurchase Program, and it can be discontinued at any time that we feel additional purchases are not warranted. As of March 31, 2014, we have repurchased approximately 1.2 million shares valued at $8.1 million under the Repurchase Program. No shares were repurchased under the Repurchase Program during the three months ended March 31, 2014. However, shares were surrendered during the period by employees in order to satisfy statutory tax withholding obligations in connection with the vesting of stock-based compensation awards. These surrendered shares are reflected as shares purchased in the table below.
Period | Total Number of Shares Purchased(2) |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Program |
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program (in thousands) (1) |
||||||||||||
January 2014 |
13,851 | $ | 13.83 | | $ | 6,900 | ||||||||||
February 2014 |
18,111 | $ | 13.87 | | $ | 6,900 | ||||||||||
March 2014 |
342 | $ | 12.38 | | $ | 6,900 | ||||||||||
|
|
|
|
|||||||||||||
Total |
32,304 | $ | 13.84 | | $ | 6,900 | ||||||||||
|
|
|
|
(1) | Represents the amount remaining in the Repurchase Program as of the end of the period noted. |
(2) | Represents shares that were surrendered during the three months ended March 31, 2014. |
ITEM 3Defaults Upon Senior Securities
None.
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ITEM 4Mine Safety Disclosures
Not applicable.
None.
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ITEM 6Exhibits |
Exhibit No. |
Description | |
10.1 | Employment Agreement dated March 21, 2012 between Boasso America Corporation and Scott D. Giroir. | |
10.2 | Modification to Terms of Employment for Scott D. Giroir dated March 27, 2014 between Quality Distribution, Inc. and Scott D. Giroir. | |
10.3 | Modification to Terms of Employment for Gary R. Enzor dated March 27, 2014 between Quality Distribution, Inc. and Gary R. Enzor. Incorporated herein by reference to Exhibit 10.1 to Quality Distribution, Inc.s Current Report on Form 8-K filed April 2, 2014. | |
10.4 | Modification to Terms of Employment for Joseph J. Troy dated March 27, 2014 between Quality Distribution, Inc. and Joseph J. Troy. Incorporated herein by reference to Exhibit 10.2 to Quality Distribution, Inc.s Current Report on Form 8-K filed April 2, 2014. | |
10.5 | Modification to Terms of Employment for Randall T. Strutz dated March 27, 2014 between Quality Distribution, Inc. and Randall T. Strutz. Incorporated herein by reference to Exhibit 10.3 to Quality Distribution, Inc.s Current Report on Form 8-K filed April 2, 2014. | |
10.6 | Modification to Terms of Employment for John T. Wilson dated March 27, 2014 between Quality Distribution, Inc. and John T. Wilson. Incorporated herein by reference to Exhibit 10.4 to Quality Distribution, Inc.s Current Report on Form 8-K filed April 2, 2014. | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | Interactive Data File |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
QUALITY DISTRIBUTION, INC. | ||||
May 9, 2014 | /S/ GARY R. ENZOR | |||
GARY R. ENZOR, | ||||
CHAIRMAN AND CHIEF EXECUTIVE OFFICER | ||||
(PRINCIPAL EXECUTIVE OFFICER) | ||||
May 9, 2014 | /S/ JOSEPH J. TROY | |||
JOSEPH J. TROY, | ||||
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) |
50
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this Agreement) dated as of the 21st day of March, 2012 between Boasso America Corporation, a Louisiana corporation (the Company), and Scott D. Giroir the (Employee).
The Employee and the Company wish to enter into an employment relationship on the terms and conditions set forth in this Agreement.
Accordingly, the Company and the Employee hereby agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment. The Company hereby agrees to continue to employ the Employee for the Term (as defined in Section 2), to render exclusive and full-time services to the Company, in the capacity of President of Boasso America Corporation, and to perform such other duties consistent with such position (including service as a director or officer of any affiliate of the Company if elected) as may be assigned by the Company and/or the Chief Executive Officer of the Company (Chief Executive Officer). It is agreed and understood that, if applicable, the Employee shall resign as an officer of the Company or any affiliate immediately upon termination of his employment hereunder for any reason
1.1.1 Duties and Authority. During the Term, the Employee shall serve as the President of Boasso America Corporation and shall have the normal duties, responsibilities, functions and authority of the position but subject to the power and authority of the Chief Executive Officer and/or the Board of Directors of the Company (the Board) to expand or limit such duties, responsibilities, functions and authority, consistent with the position of President, and to overrule the actions of employees and officers of the Company. During the Term, the Employee shall report to the Chief Executive Officer.
1.2 Acceptance. The Employee hereby accepts such employment and agrees to render the services described above. During the Term, and consistent with the above, the Employee agrees to serve the Company faithfully and to the best of the Employees ability, to devote the Employees entire business time, energy and skill to such employment, and to use the Employees best efforts, skill and ability to promote the Companys interests. It is understood that, during the Term, subject to any conflict-of-interest policies of the Company and Section 5.1, the Employee may (a) serve in any capacity with any civic, charitable, educational or professional organization provided that such service does not interfere with his duties hereunder, (b) make and manage investments of his choice, and (c) with the prior written consent of the Chief Executive Officer, serve on the board of directors of up to one for-profit organization provided that such board service does not interfere with his duties hereunder.
1.3 Location. The duties to be performed by the Employee hereunder shall be performed primarily at 100 Intermodal Dr., Chalmette, LA or any other reasonable southeastern Louisiana location specified by the Company, subject to reasonable travel requirements consistent with the nature of the Employees duties from time to time on behalf of the Company.
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1.4 Fiduciary Relationship. The Employee acknowledges and fully understands that, by entering into this Agreement, he undertakes a fiduciary relationship with the Company, and, as a fiduciary, has the obligation to use due care and act in the best interests of the Company at all times. Employee shall be candid in all reports and responses to inquiries and shall include in any report or response all information known or then available to the Employee, even if not specifically requested, which Employee reasonably believes is material, relevant and reasonably required for the understanding of the matter in question sufficient to inform the person to whom such report or response is provided. Failure of the Employee to fulfill all fiduciary obligations ordinarily imposed by law on similarly situated employees in a fiduciary relationship will be deemed a material breach of this Agreement by the Employee.
2. Term of Employment; Renewal.
The term of Employees employment under this Agreement (the Term) shall commence on February 13, 2012 (the Effective Date) and end on February 13, 2013, unless sooner terminated pursuant to Section 4, below. Thereafter, this Agreement shall automatically renew for successive one (1) year Terms, unless either party provides the other with written notice of non-renewal at least thirty (30) days prior to the expiration of the then-current Term.
3. Compensation; Benefits.
3.1 Salary. As compensation for all services to be rendered pursuant to this Agreement, the Company agrees to pay to the Employee during the Term a base salary, payable bi-weekly, at the initial annual rate of $220,000 (the Base Salary). On or about each anniversary of the Effective Date, or such other appropriate date during each year of the Term when the salaries of the Companys employees are normally reviewed, the Board shall review the recommendation of the Chief Executive Officer regarding the Employees Base Salary and determine if, and by how much, the Base Salary should be increased.
3.2 Bonus. Employee shall be eligible to participate in such bonus plan as may be in effect for Company executives from time to time. At target, Employees bonus opportunity shall be 40% of Base Salary. Employees annual cash bonus, if any, shall be paid in accordance with applicable bonus plan documents, at the same time as annual bonuses are normally paid to other executive-level employees of the Company.
3.3 Stock Option / Equity Grants. Nothing in this Agreement shall modify any stock option grants, or other equity grants, previously made to Employee by the Companys ultimate parent, Quality Distribution, Inc. (QDI). Future grants, if any, will be at the sole discretion of the Compensation Committee of the Board of QDI and in accordance with applicable plan documents.
3.4 Business Expenses. The Company shall pay or reimburse the Employee for all reasonable expenses actually incurred or paid by the Employee during the Term in the performance of the Employees services under this Agreement, subject to and in accordance with applicable expense-reimbursement and related policies and procedures as in effect from time to time.
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3.5 Automobile. During the Term, the Company will pay to the Employee an automobile allowance of $850 per month, payable in accordance with the Companys customary policies for the reimbursement of automobile expenses.
3.6 Vacation. During the Term, the Employee shall be entitled to vacation in accordance with the policies and practices of the Company in effect from time to time for management-level employees. For purposes of application of such policies, Employees term of service with the Company shall include Employees employment with the Company prior to the date of this Agreement.
3.7 Benefits and Perquisites. During the Term, the Employee shall be eligible to participate in those defined contribution, salary deferral, group insurance, medical, dental, disability and other benefit plans and such perquisites of the Company as from time to time in effect and on a basis no less favorable than any other management-level Employee of the Company. For purposes of vesting and eligibility, but not accrual of benefits, under such plans, coverage, and benefits, Employees term of service with the Company shall include Employees employment with the Company prior to the date of this Agreement. The Company may at any time, without notice, discontinue or modify any of the benefit plans, coverage, or fringe benefits that it has granted or may grant, as determined in its sole discretion.
4. Termination.
4.1 Termination Events.
4.1.1 Employees employment and the Term shall terminate immediately upon the occurrence of any of the following:
(i) Employees death;
(ii) Employees physical or mental disability, whether totally or partially, such that, with or without reasonable accommodation, the Employee is unable to perform the Employees essential duties, for a period equal to the greater of three months or the eligibility waiting period under the Companys long-term disability insurance policy; or
(iii) Companys notice to Employee of termination for Cause. As used herein, Cause means (a) a good faith finding by the Company of the Employees failure to satisfactorily perform Employees assigned duties for the Company as a result of Employees material dishonesty, gross negligence or intentional misconduct (including intentionally violating any law, rule or regulation or any policy or guideline of the Company); (b) Employees conviction of, or the entry of a pleading of guilty or nolo contendere by Employee to, any crime involving moral turpitude or any felony; (c) a material breach of this Agreement not cured to the reasonable satisfaction of the Chief Executive Officer within thirty days after written notice to the Employee by the Chief Executive
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Officer; (d) Employees engagement in any unlawful harassment or discrimination towards the Companys employees or clients; (e) Employees engagement in conduct, which in the good faith opinion of the Board, has, had, or may be expected to have, a detrimental effect upon the reputation, character or standing of the Company; or (f) Employees breach of any of the Restrictive Covenants identified in Section 5 of this Agreement.
4.1.2 Employee may voluntarily resign from Employees position for Good Reason, and, in such event, the Term shall terminate. As used herein, Good Reason means, without the Employees consent, a material breach of this Agreement by the Company not cured to the Employees reasonable satisfaction within thirty (30) days after written notice to the Chief Executive Officer by the Employee.
4.1.3 The Company may terminate the Employees employment upon fifteen (15) days written notice of termination without Cause given by the Company, and, in such event, the Term shall terminate.
4.1.4 The Employee may voluntarily resign the Employees position upon fifteen (15) days written notice to the Company of the Employees intent to voluntarily resign without Good Reason, and, in such event, the Term shall terminate.
4.1.5 The date upon which Employees employment and the Term terminate pursuant to this Section 4.1 shall be the Employees Termination Date for all purposes of this Agreement.
4.2 Payments Upon a Termination Event.
4.2.1 Following any termination of the Employees employment, the Company shall pay or provide to the Employee, or the Employees estate or beneficiary, as the case may be: (i) Base Salary earned through the Termination Date; (ii) the balance of any awarded but as yet unpaid, annual cash bonus or other incentive awards for any fiscal year prior to the fiscal year during which the Employees Termination Date occurs; (iii) any vested, but not forfeited benefits on the Termination Date, under the Companys employee benefit plans in accordance with the terms of such plans; and (iv) benefit continuation and conversion rights to which the Employee is entitled under the Companys employee benefit plans.
4.2.2 Following termination of Employees employment and the Term by reason of Section 4.1.1(i) or (ii), for the fiscal year during which the Termination Date shall occur, the Employee, or his or her estate or representative, as applicable, shall receive in addition to the payments in Section 4.2.1 above, an annual cash bonus calculated at the target set forth in Section 3.2, but prorated from the first day of such fiscal year through the Termination Date. Such prorated annual cash bonus shall be paid at the same time annual cash bonuses are normally paid to management-level employees of the Company.
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4.2.3 Following a termination of Employees employment and the Term by reason of Section 4.1.2 or Section 4.1.3, the Company shall pay or provide to the Employee in addition to the payments in Section 4.2.1 above, (i) an annual cash bonus calculated at the target set forth in Section 3.2, but prorated from the first day of such fiscal year through the Termination Date, which prorated annual cash bonus shall be paid at the same time as annual cash bonuses are normally paid to management-level employees of the Company; (ii) Base Salary payable in accordance with the normal payroll cycles of the Company for fifty-two weeks following the Termination Date; and (iii) if participating in the Companys medical benefits at the time of termination, Company provided medical benefits for the Employee (and his or her eligible dependents) under COBRA, at active employee contribution rates, for fifty-two weeks following the Termination Date. If, and only if, required by law, the Company shall not commence payment of the amount described in Section 4.2.3(ii) above until six months after the Termination Date. Employees full compliance with the Restrictive Covenants identified in Section 5 of this Agreement constitutes essential consideration for, and is a condition of, Employees right to receive any benefits under this Section 4.2.3.
4.2.4 Upon termination of this Agreement, for any reason, Company shall be obligated to immediately exercise its option, if any, to terminate any existing lease of chassis (Chassis Lease) entered into between Company and Employee and pursuant to and in accordance with the terms thereof, in return for delivery of title to the chassis leased under such lease, to pay Employee the applicable amount of purchase price due to Employee set forth in such Chassis Lease within ten (10) days thereafter.
4.3 General Release.
4.3.1 The receipt of any payment as set forth in Section 4.2.3 shall be contingent upon the Employees execution of a general release agreement reasonably acceptable to the Board that (i) waives any rights the Employee may otherwise have against the Company and its Affiliates (including, without limitation, Quality Distribution, Inc.), and its and their directors, officers, employees and agents, and (ii) releases the Company and its Affiliates from actions, suits, claims, proceedings and demands related to the period of Employees employment and/or the termination of Employees employment. For purposes of this Agreement, Affiliates means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated association or other entity (other than the Company) that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the Company. Notwithstanding the foregoing, said general release agreement shall exclude Employees right to enforce this Agreement, and Employees vested benefits and benefit continuation/conversion rights under the Companys employee benefit plans, and Employees right to indemnification under Section 6 of this Agreement.
5. Restrictive Covenant.
Employee agrees to be bound by the Restrictive Covenant agreement set forth on Appendix A.
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6. Indemnification.
The Company shall indemnify, defend, and hold harmless Employee in accordance with the provisions of Article VI of the Companys By-Laws.
7. No Duty to Mitigate.
The Employee shall have no duty to mitigate any amounts payable to him or her hereunder, and such amounts shall not be subject to reduction for any compensation received by Employee from employment in any capacity or other source following the termination of Employees employment with the Company and its subsidiaries.
8. Prior Agreements; Amendments; No Waiver.
This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof. This Agreement may not be changed orally, but only by an instrument in writing signed by each party hereto. No failure on the part of either party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any partial exercise of any right hereunder preclude any further exercise thereof. Without limiting the generality of the first sentence of this Section 8, this Agreement supersedes all other agreements (including, but not limited to, the Employment Agreement between Employee and Company dated December 18, 2007 (as modified January 29, 2010)), oral understandings, or other agreements or representations between Employee and Company that have not been specifically incorporated into this Agreement. In the event of any difference between this Agreement and any other document referred to in this Agreement, this Agreement shall control. Whenever possible, each provision of this Agreement (including Appendices A and B) should be construed and interpreted so that it is valid and enforceable under applicable law; however, if a provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, that provision shall be deemed severed from this Agreement and the remainder of this Agreement shall be binding on the parties.
9. Withholding.
The Company shall be entitled to withhold from any and all amounts payable to Employee hereunder such amounts as may, from time to time, be required to be withheld pursuant to applicable tax laws and regulations.
10. Succession; Assignability; Binding Effect.
10.1 The Company may assign all of its rights and obligations hereunder to any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company; provided, however, that the Company will require each such successor or successors expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, and further provided that nothing contained herein shall act as a release of the Company of its obligations hereunder.
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10.2 This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and assigns. Employee may not assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of his rights or obligations hereunder without the prior written consent of the Company, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void and without effect. Notwithstanding the foregoing, it is expressly understood and agreed that the Employees estate shall be entitled to all monies due to Employee hereunder in the event Employee dies at, or subsequent to, the termination of his employment, but prior to the receipt by Employee of monies due him pursuant to the terms hereof.
11. Headings.
The Section and subsection headings contained herein are included solely for convenience of reference and shall not control or affect the meaning or interpretation of any of the provisions of this Agreement.
12. Notices.
Notice hereunder will be addressed to Employee at Employees home address in accordance with Companys personnel records, and to Company at its corporate headquarters address (with a copy to Quality Distribution, Inc., Attn: General Counsel, 4041 Park Oaks Boulevard, Suite 200, Tampa, Florida 33610). Either party may change its address for notice purposes by written notice to the other party in accordance with this Section 12.
13. Governing Law.
This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Louisiana applicable to contracts made and to be performed wholly in that state, without giving effect to the principles thereof relating to conflicts or choice of laws.
14. Execution in Counterparts.
This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed to be an original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart.
15. Construction.
The parties acknowledge that this Agreement is the result of arms-length negotiations between sophisticated parties each afforded the opportunity to utilize representation by legal counsel. Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of same, and any rule of construction that a document shall be construed against the drafting party shall not be applicable to this Agreement.
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16. Dispute Resolution.
Subject to the rights of the Company pursuant to Appendix A herein, any controversy, claim or dispute arising out of or relating to this Agreement, the breach thereof, or the Employees employment by the Company shall be settled by arbitration before one arbitrator. The arbitration will be administered by the American Arbitration Association in accordance with its National Rules for Resolution of Employment Disputes. The arbitration proceeding shall be confidential, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. Any such arbitration shall take place in the New Orleans, Louisiana area, or in any other mutually agreeable location. In the event any judicial action is necessary to enforce the arbitration provisions of this Agreement, sole jurisdiction shall be in the federal and state courts, as applicable, located in Louisiana. Any request for interim injunctive relief or other provisional remedies or opposition thereto shall not be deemed to be a waiver of the right or obligation to arbitrate hereunder. The arbitrator shall have the discretion to award reasonable attorneys fees, costs and expenses to the prevailing party. To the extent a party prevails in any dispute arising out of this Agreement or any of its terms and provisions, all reasonable costs, fees and expenses relating to such dispute, including the parties reasonable legal fees, shall be borne by the party not prevailing in the resolution of such dispute, but only to the extent that the arbitrator or court, as the case may be, deems reasonable and appropriate given the merits of the claims and defenses asserted.
17. Corporate Opportunity.
During the Term, Employee shall submit to the Board all business, commercial and investment opportunities or offers presented to Employee or of which Employee becomes aware, which relate to the business of the Company at any time during the Term (Corporate Opportunities). Unless approved by the Board in writing after full disclosure, Employee shall not accept or pursue, directly or indirectly, any Corporate Opportunities on Employees own behalf, during the term of this agreement.
18. Insurance.
The Company may, at its discretion, apply for and procure in its own name and for its own benefit life and/or disability insurance on Employee in any amount or amounts considered advisable. Employee agrees to cooperate in any medical or other examination, supply any information and execute and deliver any applications or other instruments in writing as may be reasonably necessary to obtain and constitute such insurance.
19. Employees Representations.
Employee hereby represents and warrants to the Company that: (i) the execution, delivery and performance of this Agreement by Employee do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment
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or decree to which Employee is a party or by which he or she is bound; (ii) Employee is not a party to or bound by any employment agreement, non-compete agreement or confidentiality agreement with any other person or entity except as disclosed to the Company prior to the date hereof; and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Employee, enforceable in accordance with its terms. Employee hereby acknowledges and represents that he or she understands his or her rights and obligations under this Agreement and that he or she fully understands the terms and conditions contained herein.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and year first above written.
BOASSO AMERICA CORPORATION | ||
By: | /s/ Gary R. Enzor | |
Gary R. Enzor | ||
Chief Executive Officer | ||
EMPLOYEE: | ||
/s/ Scott D. Giroir | ||
Scott D. Giroir |
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Appendix A
RESTRICTIVE COVENANTS
In consideration of Employees employment with the Company, the provision by the Company of trade secrets and confidential information to Employee, the Companys introduction to Employee of its clients and customers, and other good and valuable consideration, the receipt and sufficiency of which Employee acknowledges, Employee agrees to be bound as follows:
1. NON-COMPETE AND NON-INTERFERENCE
During the Term and for a period of twelve (12) months after the Term ends, Employee will not, either on his own behalf or on behalf of any other person, firm or entity, individually or collectively, directly or indirectly:
(i) carry on or engage in the Company Business, which is defined as the intermodal depot and transportation services business (which involves trucking, transloading, tank cleaning, container services, logistics, freight brokerage, and freight forwarding involving bulk commodities), and any other business in which Company is engaged during the last twelve (12) months of the Term, within any of the municipalities, parishes, and counties listed in Appendix B, so long as the Company carries on a like business therein;
(ii) compete with Company or participate as an agent, employee, officer, consultant, advisor, stockholder, partner, member, joint venturer, or in any other substantial capacity, or have any direct or indirect financial interest, in any enterprise that has any material operations engaged in the Company Business in any location in North America;
(iii) engage in any business relationship with any independent contractor or employee of the Company or any of its affiliated companies;
(iv) engage in any manner with any company with which the Company has dealt in any manner as an acquisition or potential acquisition candidate;
provided, however, that nothing contained herein shall prohibit Employee from owning no more than five percent (5%) of the equity of any publicly traded entity with respect to which Employee does not serve as an officer, director, employee, consultant or in any other capacity other than as an investor; or being employed by an enterprise that engages in the Company Business, but whose principal business is not the Company Business, if Employees involvement is limited to those operations that are not the Company Business.
Without limiting the generality of the phrase carry on or engage in the Company Business, the parties agree that the phrase includes, but is not limited to, (a) carrying on or engaging in ones own business similar to that of the Company Business; (b) becoming employed by a business that competes with the Company regardless of whether or not one is an owner or equity interest holder of that competing business; and (c) participating as an agent, employee, officer, consultant, advisor, stockholder, partner, member, joint venturer, or in any other substantial capacity, or having any direct or indirect financial interest, in a competing business.
/s/ SG SDG |
2. CONFIDENTIALITY
Employee will adhere to the obligations set forth in this Confidentiality Section while Employee is employed by the Company in any capacity and for a period of five (5) years following the termination of Executives employment with the Company, regardless of the circumstances under which such termination occurred. Employee will not use or disclose any Confidential Information belonging to the Company (including its affiliated companies). Confidential Information means information or data in written, electronic, or any other form, tangible or intangible, which is not generally known outside the Company. Confidential Information includes, but is not limited to:
(i) business, financial and strategic information, such as sales and earnings information and trends, material, overhead and other costs, profit margins, accounting information, banking and financing information, pricing policies, capital expenditure/investment plans and budgets, forecasts, strategies, plans and prospects.
(ii) organizational and operational information, such as personnel and salary data, information concerning the utilization or capabilities of personnel, facilities or equipment, logistics management techniques, methodologies and systems, methods of operation data and facilities plans, and including specifically the same information with respect to owner/operators and affiliate or Company terminals;
(iii) advertising, marketing and sales information, such as marketing and advertising data, plans, programs, techniques, strategies, results and budgets, pricing and volume strategies, catalog, licensing or other agreements or arrangements, and market research and forecasts and marketing and sales training and development courses, aids, techniques, instruction and materials.
(iv) product and merchandising information, such as information concerning offered or proposed products or services and the sourcing of the same, product or services specifications, data, drawings, designs, performance characteristics, features, capabilities and plans and development and delivery schedules.
(v) information about existing or prospective customers, suppliers, such as customer and supplier lists and contact information, customer preference data, purchasing habits, authority levels and business methodologies, sales history, pricing and rebate levels, credit information and contracts.
(vi) technical information, such as information regarding plant and equipment organization, performance and design, information technology and logistics systems and related designs, integration, capabilities, performance and plans, computer hardware and software, research and development objectives, budgets and results, intellectual property applications, and other design and performance data.
At the end of the Term, Employee will return to the Company all property belonging to the Company, including all Confidential Information in a tangible form. Notwithstanding anything to the contrary contained in this Appendix A, the restrictions on using or disclosing Confidential Information set forth in this Section 2 shall extend beyond the Term for so long as the Confidential Information is not generally known outside of the Company.
2
/s/ SG SDG |
3. NON-SOLICITATION / NON - HIRE
During the Term and for a period of twelve (12) months after the Term ends (the Non-Solicitation Period), Employee will not solicit, directly or indirectly, within any of the municipalities, parishes, and counties listed in Appendix B, so long as the Company carries on a like business therein, any customer of the Company, who or which was a customer at any time during the last twelve (12) months of the Term, with respect to the provision of any service to any such customer that is the same or substantially similar to any offered or provided to such customer by the Company.
Employee will not, during the Non-Solicitation Period, solicit or make any other contact regarding the Company or any of its affiliated companies with any union or similar organization which has a collective bargaining agreement, union contract or similar agreement with the Company or any of its affiliated companies, or which is seeking to organize employees of the Company or any of its affiliated companies, with respect to any employee of the Company or such unions or similar organizations relationship or arrangements with the Company or any of its affiliated companies.
Employee will not, during the Non-Solicitation Period, solicit, hire, or make any other contact with, directly or indirectly, any person who is an employee or independent contractor (including, without limitation, any truck drivers, owner/operators, or terminal operators, or the employees or fleet owners associated with any terminal operator) of the Company or any of its affiliated companies during the last three (3) months of the Term, with respect to any employment services or other business relationship.
4. NON-DISPARAGEMENT
Employee will not make or publish, or cause to be made or published, any statement or information that disparages or defames the Company or any of its affiliated companies, or any of their respective officers, directors, shareholders, employees or representatives.
5. REMEDIES
Employee acknowledges that irreparable damage would occur in the event of Employees breach of any of the provisions of this Appendix A. Therefore, in addition to any other remedy to which Company may be entitled at law or in equity, Company shall be entitled to an injunction to prevent any such breach by Employee and to enforce specifically the terms and provisions of this Appendix A.
6. SCOPE
If the scope of any restriction or requirement contained in this Appendix A or Appendix B is found by any court of competent jurisdiction to be too broad or restrictive to permit enforcement of such restriction or requirement to its full extent, then such restriction or
3
/s/ SG SDG |
requirement shall be enforced to the maximum extent permitted by law, and the Employee consents and agrees that the court may modify the scope of such restriction or requirement so as to permit its enforcement, and if the court is unable or unwilling to so modify, the Employee consents and agrees that any unenforceable language is severable and shall be severed from this Agreement.
AGREED: | ||
/s/ SCOTT D. GIROIR | ||
SCOTT D. GIROIR |
DATE: | March 21, 2012 |
4
/s/ SG SDG |
APPENDIX B
RESTRICTED TERRITORY
The non-competition and customer non-solicitation covenants apply to the following municipalities, parishes in Louisiana, and counties in other states:
New Orleans, Louisiana Surrounding Parishes and Counties
Parishes in Louisiana: Ascension, Assumption, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, Saint Bernard, Saint Charles, Saint Helena, Saint James, Saint John the Baptist, Saint Martin (eastern portion only), Saint Mary, Saint Tammany, Tangipahoa, Terrebonne, Washington, and West Baton Rouge
Counties in Mississippi: Hancock, Harrison, Marion, Pearl River, Pike, Stone, and Walthall
Channelview, Texas Surrounding Parishes and Counties
Counties in Texas: Angelina, Austin, Brazoria, Brazos, Burleson, Calhoun, Chambers, Colorado, Fayette, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jackson, Jasper, Jefferson, Lavaca, Lee, Leon, Liberty, Madison, Matagorda, Montgomery, Newton, Orange, Polk, Robertson, San Jacinto, Trinity, Tyler, Waller, Walker, Washington, and Wharton
Parishes in Louisiana: Beauregard, Calcasieu, and Cameron
Jacksonville, Florida Surrounding Counties
Counties in Florida: Alachua, Baker, Bradford, Clay, Columbia, Duval, Flagler, Gilchrist, Hamilton, Marion, Nassau, Putnam, Saint Johns, Suwannee, Union, and Volusia
Counties in Georgia: Brantley, Camden, Charlton, Clinch, Echols, Glynn, McIntosh, Pierce, Ware, and Wayne
Charleston, South Carolina Surrounding Counties
Counties in South Carolina: Allendale, Bamberg, Beaufort, Berkeley, Calhoun, Charleston, Clarendon, Colleton, Dorchester, Florence, Georgetown, Hampton, Horry, Jasper, Marion, Orangeburg, Sumter, and Williamsburg
Detroit, Michigan Surrounding Counties
Counties in Michigan: Clinton, Genesee, Hillsdale, Ingham, Jackson, Lapeer, Lenawee, Livingston, Macomb, Monroe, Oakland, Saint Clair, Saginaw, Sanilac, Shiawassee, Tuscola, Washtenaw, and Wayne
Counties in Ohio: Erie, Fulton, Henry, Huron, Lorain, Lucas, Ottawa, Sandusky, Seneca, and Wood
5
/s/ SG SDG |
Chicago, Illinois Surrounding Counties
Counties in Illinois: Boone, Cook, De Kalb, Du Page, Ford, Grundy, Iroquois, Kane, Kankakee, Kendall, La Salle, Lake, Lee, Livingston, McHenry, Ogle, Will, and Winnebago
Counties in Indiana: Jasper, Lake, LaPorte, Marshall, Newton, Porter, Pulaski, Saint Joseph, Starke, and White
Counties in Wisconsin: Kenosha, Milwaukee, Racine, Rock, Walworth, and Waukesha
Counties in Michigan: Berrien, Cass, and Van Buren
6
/s/ SG SDG |
Exhibit 10.2
Modification to Terms of Employment for Scott D. Giroir
March 27, 2014
Dear Scott:
The following will modify your Employment Agreement dated March 21, 2012 (the Employment Agreement) with Quality Distribution, Inc. (the Company) effective as of March 3, 2014 (the Effective Date).
1. | Section 3.1 is amended by substituting the following for the first sentence thereof: |
As compensation for all services to be rendered pursuant to this Agreement, the Company agrees to pay to the Executive during the Term a base salary, payable bi-weekly, at the annual rate of $235,000 (the Base Salary).
2. | Section 3.2 is amended by substituting the following for the second sentence thereof: |
At target, Employees annual cash bonus opportunity shall be 50% of Base Salary.
3. | Section 3 is amended by inserting a new Section 3.4, and renumbering the prior Section 3.4 and the remaining sections (and references thereto) accordingly: |
Annual Equity Award. The Executive shall be eligible at the discretion of the Compensation Committee, to receive an annual equity award, at target, equal to 75% of Executives base salary compensation. The Executives annual equity award, if any, shall be made at the same time as annual equity awards are normally made to similarly situated employees of the Company, pursuant to the Quality Distribution, Inc. 2012 Equity Incentive Plan (Equity Plan).
4. | Subsection 4.2.2 is amended by deleting the last sentence thereof and by substituting the following: |
Such annual cash bonus shall be paid in the year following the year in which the Termination Date occurs and at the same time such annual cash bonuses are normally paid to similarly situated employees of the Company.
5. | Subsection 4.2.3 is amended by substituting the following for paragraph (i) thereof and by deleting the penultimate sentence thereof: |
(i) an annual cash bonus at target prorated from the first day of such fiscal year through the Termination Date to be paid in the year following the year in which the Termination Date occurs and at the same time annual cash bonuses are normally paid to similarly situated employees of the Company;
6. | Section 4.3 is amended by adding a new Subsection 4.3.2 as follows: |
4.3.2 The payments and benefits set forth in Section 4.2.3 shall be made or begin, as applicable, within the 45-day period immediately following the Termination Date, provided that Employee has delivered an executed copy of the general release agreement described above and the seven (7) day statutory period during which Employee may revoke such general release agreement has expired before such 45th day. If such 45-day period begins in one calendar year and ends in another, then any payments or benefits that are subject to Internal Revenue Code Section 409A (Section 409A) shall be made or provided in the later calendar year.
7. | A new Section 20 shall be added to the end of the Employment Agreement as follows: |
20. | Section 409A. |
This Agreement shall be interpreted, administered and construed to reflect the intent of the parties that all aspects of the Agreement shall, to the extent subject to Section 409A, comply with Section 409A and any regulations and other binding guidance thereunder and to avoid any adverse tax result thereunder. All payments under this Agreement are deemed to be a separate payment for purposes of Section 409A of the Code, and the right to a series of installment payments shall be treated as the right to a series of separate payments. If, and only if required by law, the Company shall not pay any amount or provide any benefit under Section 4.2 until the first day of the seventh (7th) month following the Termination Date, at which time all payments that would have otherwise been made since the Termination Date shall be made. Neither the Company nor any of its Affiliates makes or has made any representation, warranty, or guarantee of any federal, state, or local tax consequences with respect to the entitlement or receipt of any benefit or payment hereunder, including but not limited to, under Section 409A of the Code, and Employee is solely responsible for all taxes, penalties and interest that may result from his receipt of the amounts payable under this Agreement.
The Company requests your signature and your subsequent delivery of this letter agreement to the Company to evidence confirmation of your understanding of, and agreement to, the above-described changes to the terms of your employment as of the Effective Date. Except as set forth herein, all other terms and provisions of the Employment Agreement remain unchanged and in full force and effect.
QUALITY DISTRIBUTION, INC. | ||
By: | /s/ Gary R. Enzor | |
Gary R. Enzor | ||
Chief Executive Officer | ||
Agreed to and accepted as of the date first written above. | ||
By: | /s/ Scott D. Giroir | |
Scott D. Giroir |
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary R. Enzor, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Quality Distribution, Inc.: |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 9, 2014 |
/s/ Gary R. Enzor |
GARY R. ENZOR |
CHAIRMAN AND CHIEF EXECUTIVE OFFICER |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph J. Troy, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Quality Distribution, Inc.: |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 9, 2014 |
/s/ Joseph J. Troy |
JOSEPH J. TROY |
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned in connection with this Quarterly Report of Quality Distribution, Inc. (the Company) on Form 10-Q for the quarterly period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the undersigneds knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 9, 2014 |
/s/ Gary R. Enzor |
GARY R. ENZOR |
CHAIRMAN AND CHIEF EXECUTIVE OFFICER |
Date: May 9, 2014 |
/s/ Joseph J. Troy |
JOSEPH J. TROY |
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to Quality Distribution, Inc. and will be retained by Quality Distribution, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Goodwill within Segments (Detail) (USD $)
In Thousands, unless otherwise specified |
Mar. 31, 2014
|
Dec. 31, 2013
|
---|---|---|
Intangible Assets Goodwill And Other Assets [Line Items] | ||
Goodwill | $ 32,955 | $ 32,955 |
Intermodal
|
||
Intangible Assets Goodwill And Other Assets [Line Items] | ||
Goodwill | 31,410 | 31,410 |
Chemical Logistics
|
||
Intangible Assets Goodwill And Other Assets [Line Items] | ||
Goodwill | $ 1,545 | $ 1,545 |
Income Taxes - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2014
|
Mar. 31, 2013
|
Dec. 31, 2013
|
|
Income Taxes [Line Items] | |||
Unrecognized tax benefit | $ 2.4 | $ 2.5 | |
Unrecognized tax benefit that, if recognized, would favorably affect the effective income tax rate in any future periods | 1.3 | ||
Unrecognized tax benefits 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 | 0.1 | ||
Net of federal tax benefit accrued for interest | 0.5 | ||
Accrued for penalties | 0.2 | ||
Accrued for interest and penalties | 0.7 | ||
Effective tax rate | 34.70% | 38.60% | |
Maximum
|
|||
Income Taxes [Line Items] | |||
Net changes to gross unrecognized tax benefits | $ (0.1) |
Components of Estimated Net Periodic Pension Cost (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2014
|
Mar. 31, 2013
|
|
Defined Benefit Plan Disclosure [Line Items] | ||
Service cost | $ 42 | $ 41 |
Interest cost | 503 | 463 |
Amortization of prior service cost | 24 | 24 |
Amortization of loss | 292 | 362 |
Expected return on plan assets | (642) | (583) |
Net periodic pension cost | $ 219 | $ 307 |
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