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8-K - FORM 8-K - QUALITY DISTRIBUTION INCd775480d8k.htm

Exhibit 99.1

Quality Distribution, Inc. Announces Third Quarter 2014 Results

— Company Reports Record Q3 Revenue of $258.5 Million, Up 9.7% versus Last Year —

— Quality Reports Q3 Net Income of $0.13 per Diluted Share —

— Quality Generates Q3 Adjusted Net Income of $0.23 per Diluted Share —

— Company Amends and Extends Maturity of ABL Facility and Term Loan —

TAMPA, FL – November 5, 2014 – Quality Distribution, Inc. (NASDAQ: QLTY) (“Quality” or the “Company”), a North American logistics and transportation provider with market leading businesses, today reported a 9.7% increase in revenue in the third quarter ended September 30, 2014 versus the prior-year period.

The Company reported net income of $3.6 million, or $0.13 per diluted share, for the third quarter of 2014, compared to net income of $2.8 million, or $0.10 per diluted share, for the third quarter of 2013.

Adjusted net income for the third quarter of 2014 was $6.5 million, or $0.23 per diluted share, compared with adjusted net income of $5.4 million, or $0.20 per diluted share, in the comparable prior-year period. Adjusted results are calculated by excluding pre-tax items not considered part of regular operating activities, which are presented in a reconciliation of net income to adjusted net income in the attached financial exhibits.

“We are pleased with our third quarter results and in particular, the revenue growth in our largest business, Chemical, at nearly 11%, and just over 15% revenue growth in our Intermodal business,” stated Gary Enzor, Chairman and Chief Executive Officer. “Our Chemical business is growing nicely through the expansion of our national footprint, and our Intermodal business continues to deliver steady and profitable growth. Our Energy Logistics revenue was relatively flat from last year, yet achieved modest year-over-year margin improvement this quarter. On an overall basis, our driver count is up 7.1% since the end of last year as all of our businesses have benefited from our successful driver recruiting and retention efforts.”

Third Quarter 2014 Consolidated Results

Consolidated revenue for the third quarter of 2014 was $258.5 million, an increase of 9.7% versus the same quarter last year. Excluding fuel surcharges, revenue for the third quarter of 2014 increased $17.8 million, or 8.7%, compared to the prior-year period. This revenue improvement was primarily due to continued growth in Chemical Logistics, which was driven by increased volumes and positive contribution from new terminals established in 2014.

On a consolidated basis, Quality generated $13.5 million of operating income in the third quarter of 2014 compared to operating income of $11.6 million in the prior-year period. After adjusting for the non-operating items presented in the attached financial exhibits, third quarter 2014 operating income was $16.8 million or 9.2% above the prior-year period, driven primarily by increased operating income in our Intermodal segment. Adjusted EBITDA for the third quarter of 2014 was $23.5 million, an increase of 4.6% compared to the third quarter of 2013. A reconciliation of net income to adjusted EBITDA is included in the attached financial exhibits.

 

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Third Quarter 2014 Segment Results

Chemical Logistics

Revenues in the Chemical Logistics segment were $174.2 million in the third quarter of 2014, up $17.1 million or 10.9% versus the third quarter of 2013. Excluding fuel surcharges, revenues increased $14.0 million or 10.8%, resulting from higher volumes and solid price increases, benefits from a business acquired by an independent affiliate earlier this year, and the opening of several new terminal locations in 2014. Active recruiting and retention actions continue to improve driver counts, enabling Chemical Logistics to meet strong customer demand.

Operating income in the Chemical Logistics segment was $19.1 million in the third quarter of 2014, which was relatively flat from the comparable prior-year period. Third quarter 2013 results included higher gains on asset sales of $1.3 million; excluding asset sale gains in both periods, operating income increased by $0.7 million driven by incremental revenues from top-line growth in the quarter. Comparable margins (excluding gains on asset sales) declined as profitability from revenue growth was offset by ongoing growth incentives for independent affiliates, lower margins from start-up terminals, and higher insurance claims expense.

Intermodal

Third quarter 2014 revenues in the Intermodal segment were $40.6 million, up $5.3 million or 15.1% versus the prior-year period. Excluding fuel surcharges, revenues for the third quarter increased $4.5 million, or 14.6%. Strong international customer demand drove higher shipments, particularly import volumes, which in turn led to increases in both transportation and depot services revenue.

Operating income in the Intermodal segment was $7.0 million in the third quarter of 2014, a more than 50% increase over the third quarter of 2013. Margins increased nearly 500 basis points due to positive contribution from increased transportation revenue and a 16.2% increase in high margin repair and storage business.

Energy Logistics

Revenues in the Energy Logistics segment were $43.2 million during the third quarter of 2014, which was flat versus the comparable prior-year period. Excluding fuel surcharges, revenues were down 2.4% versus last year as stronger volumes in the Marcellus and Utica shale regions were primarily offset by lower disposal water related activity in the Eagle Ford shale region.

The Energy Logistics segment reported an operating loss of $1.1 million in the third quarter of 2014, compared to an operating loss of $1.8 million in the prior-year period. After adjusting for non-operating items, operating income in the third quarter of 2014 was $2.1 million, up $0.2 million versus the prior-year period. Higher profitability was achieved primarily in the Bakken shale due to lower operating costs and better asset utilization, as well as stronger performance in the Marcellus shale. These positive impacts were partially offset by declines in the company’s Eagle Ford terminal operations driven primarily from lower volumes. Energy Logistics adjusted EBITDA for the third quarter of 2014 was $4.1 million, up slightly versus the prior-year period.

Shared Services

Shared services costs totaled $11.5 million in the third quarter of 2014, compared to $10.9 million in the prior-year period. This increase related primarily to higher driver recruitment expenses, as well as increased non-cash, performance-based incentive compensation costs.

 

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Summary

Mr. Enzor continued, “Historically, driver turnover increases in the fourth quarter due to expected seasonal declines in volumes, and extra efforts are being made to retain drivers through this slower period. The new Chemical terminals opened this year should contribute to revenue growth in the fourth quarter this year, compared to last year. We expect our Intermodal business to deliver solid profitability in the fourth quarter as well. We are cautious about our outlook for the Energy business for the remainder of the year. While there have been rapid declines in energy prices, we have not yet seen a material decline in our hauling activity. Consistent with our strategy, we continue to aggressively solicit steadier oil and disposal water business, while de-emphasizing front end development work to lower our exposure to new drilling activity.”

Balance Sheet and Cash Flow

On November 3, 2014, the Company amended its asset based loan facility (“ABL Facility”) and term loan facility (“Term Loan”). The amendments resulted in lower spreads on borrowed funds, enhanced flexibility and extended maturities.

As previously reported, Quality redeemed $22.5 million of 9.875% Second-Priority Senior Secured Notes due 2018 (“Senior Notes”) on July 16, 2014. The optional redemption, which resulted in reduced cash interest costs during the third quarter of 2014, required a premium payment of $0.7 million and resulted in non-cash charges of $0.4 million to write off debt issuance costs.

The Company generated operating cash flow for the third quarter of 2014 of $22.4 million, versus $20.9 million in the prior-year period. Borrowing availability under the Company’s ABL Facility was $66.4 million at September 30, 2014. This represents a decrease from December 31, 2013 due primarily to borrowings used for the partial redemption of the Senior Notes this quarter, and the full settlement of subordinated notes that occurred in the second quarter of 2014.

Capital expenditures for the quarter ended September 30, 2014 were $10.5 million, which were offset by $8.8 million of equipment sale proceeds. For the nine months ended September 30, 2014, capital expenditures, net of proceeds from asset sales, were $8.8 million compared with $1.2 million for the comparable prior-year period. On a year-to-date basis, net capital expenditures were higher in 2014 to support increased transportation volumes in the Chemical Logistics business, consistent with our commitment to capture growth opportunities.

“During the third quarter we took further steps to improve our balance sheet, as we redeemed another $22.5 million of our high cost Senior Notes,” stated Joe Troy, Chief Financial Officer. “We generated significant operating cash flow in the third quarter, which provided strong liquidity for the Senior Note redemption, and we expect continued strong free cash generation during the balance of the year. In November, we also took the opportunity to amend our ABL Facility and our Term Loan, which provides us with greater flexibility moving forward.”

Mr. Troy continued, “We remain focused on our stated strategy to reduce debt and balance sheet leverage, and we achieved both this quarter. We will continue to monitor the bond market for a potential refinancing of our Senior Notes, and will be prepared to opportunistically access the market if conditions warrant.”

 

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Fourth Quarter and Full Year 2014 Expectations

For the fourth quarter of 2014, Quality expects adjusted earnings per diluted share to be in the range of $0.14 to $0.18. For the full year 2014, the Company expects adjusted earnings per diluted share to be in the range of $0.72 to $0.76. These estimates assume a 39% tax rate, and exclude any impacts from non-operating items, reorganization expenses in the Energy Logistics business, and costs related to any potential debt refinancing activity. The Company continues to expect its net capital expenditures for 2014 to be in the range of $10.0 to $15.0 million, and its free cash flow to be in the range of $46.0 to $50.0 million.

Quality will host a conference call for equity analysts and investors to discuss these results on Thursday, November 6, 2014 at 10:00 a.m. Eastern Time. The toll free dial-in number is 800-533-7619; the toll number is 785-830-1923; the passcode is 6555395. A replay of the call will be available through December 6, 2014, by dialing 888-203-1112; the passcode is 6555395. A webcast of the conference call may be accessed in the Investor Relations section of Quality’s website. Copies of the earnings release and other financial information about Quality may also be accessed in the Investor Relations section of Quality’s website at www.qualitydistribution.com. The Company regularly posts or otherwise makes available information within the Investor Relations section that may be important to investors.

About Quality

Headquartered in Tampa, Florida, Quality operates the largest chemical bulk logistics network in North America through its wholly-owned subsidiary, Quality Carriers, Inc., and is the largest North American provider of intermodal tank container and depot services through its wholly-owned subsidiary, Boasso America Corporation. Quality also provides logistics and transportation services to the unconventional oil and gas industry including crude oil, fresh water and production fluids, through its wholly-owned subsidiaries, QC Energy Resources, Inc. and QC Environmental Services, Inc. Quality’s network of independent affiliates and independent owner-operators provides nationwide bulk transportation and related services. Quality is an American Chemistry Council Responsible Care® Partner and is a core carrier for many of the Fortune 500 companies that are engaged in chemical production and processing.

This press release contains certain forward-looking information that is subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Forward-looking information is any statement other than a statement of historical fact and includes our 2014 expectations. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expected or projected in the forward-looking statements. Without limitation, risks and uncertainties regarding forward-looking statements include (1) the effect of local, national and international economic, credit, capital and labor market conditions on the economy in general, on our ability to obtain desired debt financing 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; (2) 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 flow from operations or borrowing under our ABL Facility to fund our liquidity needs; (3) competition and rate fluctuations, including fluctuations in prices and demand for transportation services as well as for commodities such as natural gas and oil; (4) our reliance on independent affiliates and independent owner-operators; (5) our liability related to third party equipment leasing programs; (6) a shift away from or slowdown in production in the shale regions in which we have energy logistics operations; (7) our ability to attract and retain qualified drivers; (8) our liability as a self-insurer to the extent of our deductibles as well as changing conditions and pricing in the insurance marketplace; (9) increased unionization, which could increase our operating costs or constrain operating flexibility; (10) changes in, or our inability to comply with, governmental regulations and legislative changes affecting the transportation industry

 

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generally or in the particular segments in which we operate; (11) federal and state legislative and regulatory initiatives, which could result in increased costs and additional operating restrictions upon us or our oil and gas frac shale energy customers; (12) our ability to access and use disposal wells and other disposal sites and methods in our energy logistics business; (13) our ability to comply with current and future environmental laws and regulations and the increasing costs relating to environmental compliance; (14) potential disruptions at U.S. ports of entry; (15) diesel fuel prices and our ability to recover costs through fuel surcharges; (16) terrorist attacks and the cost of complying with existing and future anti-terrorism security measures; (17) our dependence on senior management; (18) the potential loss of our ability to use net operating losses to offset future income; (19) potential future impairment charges; (20) our ability to successfully identify acquisition opportunities, consummate such acquisitions and successfully integrate acquired businesses, converted independent affiliates and new independent 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, independent affiliates, independent 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; (21) our ability to execute plans to profitably operate in the transportation business and disposal well business within the energy logistics market; (22) our success in entering new markets; (23) adverse weather conditions; (24) disruptions of our information technology and communications systems; (25) 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; (26) the assumptions underlying our expectations of financial results in 2014; and (27) changes in planned or actual capital expenditures due to operating needs, changes in regulation, covenants in our debt arrangements and other expenses, including interest expense. Readers are urged to carefully review and consider the various disclosures regarding these and other risks and uncertainties, including but not limited to risk factors contained in Quality Distribution, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013 and its Quarterly Reports on Form 10-Q, as well as other reports filed with the Securities and Exchange Commission. Quality disclaims any obligation to update any forward-looking statement, whether as a result of developments occurring after the date of this release or for any other reasons.

 

Contact:   Joseph J. Troy
  Executive Vice President and Chief Financial Officer
  800-282-2031 ext. 7195

 

5


QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In 000’s) Except Per Share Data

Unaudited

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2014     2013     2014     2013  

OPERATING REVENUES:

      

Transportation

   $ 186,102      $ 171,899      $ 539,959      $ 510,540   

Service revenue

     35,808        32,169        102,108        98,328   

Fuel surcharge

     36,580        31,603        106,509        95,521   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     258,490        235,671        748,576        704,389   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

      

Purchased transportation

     174,674        153,153        505,978        446,405   

Compensation

     23,871        24,431        68,081        76,402   

Fuel, supplies and maintenance

     24,841        26,376        73,601        79,991   

Depreciation and amortization

     5,287        6,318        16,185        19,740   

Selling and administrative

     9,031        8,331        24,069        23,965   

Insurance costs

     5,636        4,607        16,620        13,477   

Taxes and licenses

     856        922        2,532        2,904   

Communications and utilities

     929        930        2,884        2,947   

Gain on disposal of property and equipment

     (125     (1,014     (1,838     (2,512

Impairment charges

     —          —          —          55,692   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     245,000        224,054        708,112        719,011   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     13,490        11,617        40,464        (14,622

Interest expense

     7,439        8,169        22,085        23,776   

Interest income

     (129     (214     (374     (659

Gain on early extinguishment of debt

     —          —          (4,217     —     

Write-off of debt issuance costs

     422        521        422        521   

Other income

     (325     (102     (322     (7,345
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     6,083        3,243        22,870        (30,915

Provision for (benefit from) income taxes

     2,509        480        4,854        (11,675
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 3,574      $ 2,763      $ 18,016      $ (19,240
  

 

 

   

 

 

   

 

 

   

 

 

 

PER SHARE DATA:

      

Net income (loss) per common share

      

Basic

   $ 0.13      $ 0.10      $ 0.66      $ (0.73
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.13      $ 0.10      $ 0.64      $ (0.73
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares

      

Basic

     27,802        26,463        27,435        26,516   

Diluted

     28,281        27,146        27,983        26,516   

 

6


QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In 000’s)

Unaudited

 

     September 30,
2014
    December 31,
2013
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 2,286      $ 1,957   

Accounts receivable, net

     146,501        120,932   

Prepaid expenses

     13,612        13,401   

Deferred tax asset, net

     27,630        20,709   

Other current assets

     11,087        9,919   
  

 

 

   

 

 

 

Total current assets

     201,116        166,918   

Property and equipment, net

     160,539        170,114   

Assets held-for-sale

     2,836        1,129   

Goodwill

     32,955        32,955   

Intangibles, net

     15,683        16,149   

Non-current deferred tax asset, net

     20,214        31,401   

Other assets

     6,290        8,583   
  

 

 

   

 

 

 

Total assets

   $ 439,633      $ 427,249   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

    

Current liabilities:

    

Current maturities of indebtedness

   $ 10,614      $ 8,692   

Current maturities of capital lease obligations

     373        1,888   

Accounts payable

     11,929        10,248   

Independent affiliates and independent owner-operators payable

     21,987        14,398   

Accrued expenses

     37,690        30,580   

Environmental liabilities

     4,729        3,818   

Accrued loss and damage claims

     8,571        8,532   
  

 

 

   

 

 

 

Total current liabilities

     95,893        78,156   

Long-term indebtedness, less current maturities

     346,786        369,730   

Capital lease obligations, less current maturities

     253        2,995   

Environmental liabilities

     3,181        4,479   

Accrued loss and damage claims

     10,410        10,747   

Other non-current liabilities

     13,491        17,393   
  

 

 

   

 

 

 

Total liabilities

     470,014        483,500   
  

 

 

   

 

 

 

SHAREHOLDERS’ DEFICIT

    

Common stock

     449,565        441,877   

Treasury stock

     (11,443     (10,557

Accumulated deficit

     (252,489     (270,505

Stock recapitalization

     (189,589     (189,589

Accumulated other comprehensive loss

     (26,425     (27,477
  

 

 

   

 

 

 

Total shareholders’ deficit

     (30,381     (56,251
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

   $ 439,633      $ 427,249   
  

 

 

   

 

 

 

 

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QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

SEGMENT OPERATING RESULTS

(In 000’s)

Unaudited

The Company has three reportable business segments for financial reporting purposes that are distinguished primarily on the basis of services offered. The Company also separately reports Shared Services, which 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 prior-year periods were reclassified to conform to the current year presentation. The Company’s reportable business segments are:

 

    Chemical Logistics, which consists of the transportation of bulk chemicals primarily through our network that includes independent affiliates and company-operated terminals, 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 market, through company-operated terminals and independent affiliates, and equipment rental income; and

 

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

 

     Three Months Ended September 30, 2014  
     Chemical     Energy           Shared        
     Logistics (a)     Logistics (b)     Intermodal     Services     Total  

Operating Revenues:

          

Transportation

   $ 125,756      $ 39,469      $ 20,877      $ —        $ 186,102   

Service revenue

     18,404        2,566        14,360        478        35,808   

Fuel surcharge

     30,077        1,127        5,376        —          36,580   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 174,237      $ 43,162      $ 40,613      $ 478      $ 258,490   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     67.4     16.7     15.7     0.2     100.0

Segment operating income (loss)*

   $ 20,245      $ 2,015      $ 7,832      $ (11,440   $ 18,652   

Depreciation and amortization

     2,398        2,003        844        42        5,287   

(Gain) loss on disposal of property and equipment

     (1,256     1,131        —          —          (125
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 19,103      $ (1,119   $ 6,988      $ (11,482   $ 13,490   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three Months Ended September 30, 2013  
     Chemical     Energy           Shared        
     Logistics     Logistics (c)     Intermodal     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 revenues

   $ 157,170      $ 43,083      $ 35,289      $ 129      $ 235,671   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     66.7     18.3     15.0     0.0     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   

(Gain) loss on disposal of property and equipment

     (2,602     1,648        (15     (45     (1,014
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 19,751      $ (1,819   $ 4,578      $ (10,893   $ 11,617   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(a) Operating income in the Chemical Logistics segment during the three months ended September 30, 2014 includes $0.1 million of severance costs.
(b) Operating loss in the Energy Logistics segment during the three months ended September 30, 2014 includes $3.2 million of energy reorganization costs.
(c) Operating loss in the Energy Logistics segment during the three months ended September 30, 2013 includes $3.8 million of energy reorganization costs.

 

     Nine Months Ended September 30, 2014  
     Chemical
Logistics (d)
    Energy
Logistics (e)
    Intermodal (f)     Shared
Services
    Total  

Operating Revenues:

          

Transportation

   $ 363,951      $ 115,796      $ 60,212      $ —        $ 539,959   

Service revenue

     53,359        6,639        41,135        975        102,108   

Fuel surcharge

     87,411        3,642        15,456        —          106,509   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 504,721      $ 126,077      $ 116,803      $ 975      $ 748,576   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     67.5     16.8     15.6     0.1     100.0

Segment operating income (loss)*

   $ 59,610      $ 7,461      $ 20,504      $ (32,764   $ 54,811   

Depreciation and amortization

     7,270        6,188        2,498        229        16,185   

(Gain) loss on disposal of property and equipment

     (3,273     1,454        (19     —          (1,838
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 55,613      $ (181   $ 18,025      $ (32,993   $ 40,464   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Nine Months Ended September 30, 2013  
     Chemical     Energy           Shared        
     Logistics (g)     Logistics (h)     Intermodal     Services (i)     Total  

Operating Revenues:

          

Transportation

   $ 334,978      $ 120,321      $ 55,241      $ —        $ 510,540   

Service revenue

     50,420        8,685        38,782        441        98,328   

Fuel surcharge

     81,500        273        13,748        —          95,521   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 466,898      $ 129,279      $ 107,771      $ 441      $ 704,389   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     66.3     18.4     15.3     —          100.0

Segment operating income (loss)*

   $ 61,326      $ 9,991      $ 18,749      $ (31,768   $ 58,298   

Depreciation and amortization

     8,390        8,496        2,490        364        19,740   

Impairment charges

     —          55,692        —          —          55,692   

(Gain) loss on disposal of property and equipment

     (3,397     3,244        59        (2,418     (2,512
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 56,333      $ (57,441   $ 16,200      $ (29,714   $ (14,622
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(d) Operating income in the Chemical Logistics segment during the nine-month period ended September 30, 2014 includes $0.2 million of independent affiliate conversion costs and $0.2 million of severance costs.
(e) Operating loss in the Energy Logistics segment during the nine-month period ended September 30, 2014 includes $5.9 million of energy reorganization costs.
(f) Operating income in the Intermodal segment during the nine-month period ended September 30, 2014 includes $0.1 million of severance costs.
(g) Operating income in the Chemical Logistics segment during the nine-month period ended September 30, 2013 includes $0.4 million of affiliate conversion costs and $0.2 million of severance costs.
(h) Operating loss in the Energy Logistics segment during the nine-month period ended September 30, 2013 includes impairment charges of $55.7 million and $5.2 million of energy reorganization costs.
(i) Operating loss in Shared Services during the nine-month period ended September 30, 2013 includes $2.6 million of gains on property dispositions and $0.4 million of severance costs.
* Segment operating income (loss) reported in the business segment tables above excludes amounts such as depreciation and amortization and gains and losses on disposal of property and equipment.

 

9


RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME, EBITDA AND ADJUSTED EBITDA AND RECONCILIATION OF NET INCOME (LOSS) PER SHARE TO ADJUSTED NET INCOME PER SHARE

For the Three Months and the Nine Months Ended September 30, 2014 and 2013

(In 000’s)

Unaudited

Adjusted Net Income and Adjusted Net Income per Share, EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under United States Generally Accepted Accounting Principles (“GAAP”). Adjusted Net Income and Adjusted Net Income per Share, EBITDA and Adjusted EBITDA are presented herein because they are important metrics used by management to evaluate and understand the performance of the ongoing operations of Quality’s business. For the three months ended September 30, 2014 and 2013 Adjusted Net Income, management uses the Company’s actual effective tax rate of 38.4% and 37.8%, respectively, for calculating the provision for income taxes. For the nine months ended September 30, 2014 and 2013 Adjusted Net Income, management uses the Company’s actual effective tax rate of 38.4% (adjusted for the release of a deferred tax valuation allowance), and 37.8%, respectively, for calculating the provision for income taxes. In addition, in arriving at Adjusted Net Income and Adjusted Net Income per Share, the Company adjusts for significant items that are not part of regular operating activities. These adjustments include energy reorganization costs, severance costs, independent affiliate conversion costs, gain on early extinguishment of debt, gain on property dispositions, impairment charges, equity offering costs, note redemption costs, write-off of debt issuance costs and earnout adjustments.

EBITDA is a component of the measure used by Quality’s management to facilitate internal comparisons to competitors’ results and the bulk transportation, chemical and energy logistics and intermodal industries in general. We believe that financial information based on GAAP for businesses, such as Quality’s, should be supplemented by EBITDA so investors better understand the financial information in connection with their evaluation of the Company’s business. This measure addresses variations among companies with respect to capital structures and cost of capital (which affect interest expense) and differences in taxation and book depreciation of facilities and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Accordingly, EBITDA allows analysts, investors and other interested parties in the bulk transportation, logistics and intermodal industries to facilitate company-to-company comparisons by eliminating some of the foregoing variations. EBITDA as used herein may not, however, be directly comparable to similarly titled measures reported by other companies due to differences in accounting policies and items excluded or included in the adjustments, which limits its usefulness as a comparative measure. To calculate EBITDA, Net Income (loss) is adjusted for the provision for income taxes, depreciation and amortization and net interest expense. To calculate Adjusted EBITDA, we calculate EBITDA from Net Income, which is then further adjusted for items that are not part of regular operating activities, including energy reorganization costs, severance costs, independent affiliate conversion costs, gain on early extinguishment of debt, gain on property dispositions, impairment charges, equity offering costs, write-off of debt issuance costs and earnout adjustments and other non-cash items such as non-cash stock-based compensation. Adjusted Net Income and Adjusted Net Income per Share, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for the consolidated statements of operations prepared in accordance with GAAP, or as an indication of Quality’s operating performance or liquidity.

 

10


     Three months ended
September 30,
     Nine months ended
September 30,
 
     2014      2013      2014     2013  

Net Income (Loss) Reconciliation:

          

Net income (loss)

   $ 3,574       $ 2,763       $ 18,016      $ (19,240

Net income (loss) per common share:

          

Basic

   $ 0.13       $ 0.10       $ 0.66      $ (0.73
  

 

 

    

 

 

    

 

 

   

 

 

 

Diluted

   $ 0.13       $ 0.10       $ 0.64      $ (0.73
  

 

 

    

 

 

    

 

 

   

 

 

 

Weighted average number of shares:

          

Basic

     27,802         26,463         27,435        26,516   

Diluted

     28,281         27,146         27,983        26,516   

Reconciliation:

          

Net income (loss)

   $ 3,574       $ 2,763       $ 18,016      $ (19,240

Adjustments to net income (loss):

          

Provision for (benefit from) income taxes

     2,509         480         4,854        (11,675

Energy reorganization costs

     3,240         3,770         5,943        5,232   

Severance and lease termination costs

     78         —           267        632   

Independent affiliate conversion costs

     —           —           222        438   

Gain on early extinguishment of debt

     —           —           (4,217     —     

Gain on property dispositions

     —           —           —          (2,577

Impairment charges

     —           —           —          55,692   

Note redemption costs

     675         675         675        675   

Write-off of debt issuance costs

     422         521         422        521   

Equity offering costs

     —           476         —          476   

Earnout adjustment

     —           —           —          (6,800
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted income before income taxes

     10,498         8,685         26,182        23,374   

Provision for income taxes at 38.4% for the three months and the nine months ended September 30, 2014 and 37.8% for the three months and the nine months ended September 30, 2013

     4,031         3,280         10,054        8,828   
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted net income

   $ 6,467       $ 5,405       $ 16,128      $ 14,546   
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted net income per common share:

          

Basic

   $ 0.23       $ 0.20       $ 0.59      $ 0.55   
  

 

 

    

 

 

    

 

 

   

 

 

 

Diluted

   $ 0.23       $ 0.20       $ 0.58      $ 0.54   
  

 

 

    

 

 

    

 

 

   

 

 

 

Weighted average number of shares:

          

Basic

     27,802         26,463         27,435        26,516   

Diluted

     28,281         27,146         27,983        27,098   

 

11


EBITDA and Adjusted EBITDA:    Three months ended
September 30,
     Nine months ended
September 30,
 
     2014      2013      2014     2013  

Net income (loss)

   $ 3,574       $ 2,763       $ 18,016      $ (19,240

Adjustments to net income (loss):

          

Provision for (benefit from) income taxes

     2,509         480         4,854        (11,675

Depreciation and amortization

     5,287         6,318         16,185        19,740   

Interest expense, net

     7,310         7,955         21,711        23,117   
  

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA

     18,680         17,516         60,766        11,942   

Energy reorganization costs

     3,240         3,207         5,865        4,669   

Severance and lease termination costs

     78         —           267        483   

Independent affiliate conversion costs

     —           —           222        438   

Gain on early extinguishment of debt

     —           —           (4,217     —     

Gain on property dispositions

     —           —           —          (2,577

Impairment charges

     —           —           —          55,692   

Write-off of debt issuance costs

     422         521         422        521   

Equity offering costs

     —           476         —          476   

Earnout adjustment

     —           —           —          (6,800

Non-cash stock-based compensation

     1,033         709         2,735        2,489   
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 23,453       $ 22,429       $ 66,060      $ 67,333   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

12