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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 SEPTEMBER 30, 2002 or

o	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: 333-98077

Quality Distribution, LLC

(Exact name of registrant as specified in its charter)

Delaware		04-3668323
(State or other jurisdiction of incorporation or organization)		I.R.S. Employer Identification No.)
3802 Corporex Park Drive, Tampa, FL		33619
(Address of Principal Executive Offices)		(Zip Code)
(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 o

APPLICABLE ONLY TO CORPORATE USERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at September 30, 2002
Membership Interest, No par value		100

QUALITY DISTRIBUTION LLC
 
(SUCCESSOR TO QUALITY DISTRIBUTION, INC.)

INDEX

			Page No.
Part I	Financial Information
	Item 1.   Financial Statements
		Condensed Consolidated Balance Sheets - September 30, 2002 (unaudited) and December 31, 2001	3-4
		Condensed Consolidated Statements of Operations - Three months and nine months ended September 30, 2002 and 2001 (unaudited)	5
		Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2002 and 2001 (unaudited)	6
		Condensed Consolidated Statement of Membership Interest for the period ended September 30, 2002	7
		Notes to Condensed Consolidated Financial Statements (unaudited)	8-27
	Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations		28-33
	Item 3.   Quantitative and Qualitative Disclosures About Market Risk		34
	Item 4.   Controls and Procedures		34
Part II	Other Information
	Item 1.   Legal Proceedings		35
	Item 4.   Submission of Matters to a Vote of Security Holders		35
	Item 6.   Exhibits and Reports on Form 8-K		35
Signatures			36
	Certifications		37-42

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FORM 10-Q
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
QUALITY DISTRIBUTION, LLC
(SUCCESSOR TO QUALITY DISTRIBUTION, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

	September 30, 2002 (Unaudited)				December 31, 2001
ASSETS
Current assets:
Cash	$	141			$	2,212
Accounts receivable		96,765				98,173
Allowance for doubtful accounts		(10,733	)			(9,272	)
Inventories		944				1,143
Prepaid expenses		4,843				5,767
Prepaid tires		8,370				8,968
Income tax receivable		—				306
Other		2,486				2,666
Total current assets		102,816				109,963
Property, plant and equipment		339,682				348,688
Less — accumulated depreciation and amortization		(184,756	)			(171,329	)
Property, plant and equipment, net		154,926				177,359
Goodwill, net		130,111				150,510
Intangibles, net		2,385				2,265
Other assets		9,681				8,881
	$	399,919			$	448,978
The accompanying notes are an integral part of these condensed consolidated financial statements.
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FORM 10-Q
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
QUALITY DISTRIBUTION, LLC
(SUCCESSOR TO QUALITY DISTRIBUTION, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(continued)

	September 30, 2002 (Unaudited)				December 31, 2001
LIABILITIES AND MEMBERSHIP INTEREST
Current liabilities:
Current maturities of indebtedness	$	2,677			$	2,677
Accounts payable and accrued expenses		58,638				62,848
Affiliates and owner operators payable		11,034				4,930
Income taxes payable		536				1,092
Total current liabilities		72,885				71,547
Long-term debt, less current maturities		379,415				441,179
Environmental liabilities		32,160				36,163
Other long-term obligations		10,561				13,744
Deferred taxes		1,315				1,270
Total liabilities		496,336				563,903
Minority interest in subsidiary		1,833				1,833
Mandatorily redeemable preferred stock		—				16,499
Mandatorily redeemable common stock (30 shares)		—				1,210
MEMBERSHIP INTEREST:
Membership interest, no par value, 1,000 authorized, 100 issued at September 30, 2002; and Common stock, $.01 par value; 15,000 shares authorized and issued at December 31, 2001		—				20
Additional paid-in-capital		176,591				105,544
Treasury stock		—				(402	)
Accumulated (deficit)		(77,778	)			(37,435	)
Stock recapitalization		(189,589	)			(189,589	)
Accumulated other comprehensive (loss)		(7,474	)			(10,829	)
Notes receivable		—				(1,776	)
Total membership interest		(98,250	)			(134,467	)
	$	399,919			$	448,978
The accompanying notes are an integral part of these condensed consolidated financial statements.
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FORM 10-Q
PART I FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
QUALITY DISTRIBUTION, LLC
(SUCCESSOR TO QUALITY DISTRIBUTION, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited — In thousands)

	Nine months ended September 30,								Three months ended September 30,
	2002				2001				2002				2001
Operating revenues:
Transportation	$	338,771			$	339,823			$	115,253			$	114,466
Other		49,873				46,991				16,754				15,942
Total operating revenues		388,644				386,814				132,007				130,408
Operating expenses:
Purchased transportation		227,766				226,850				77,646				75,917
Depreciation and amortization		23,282				25,051				7,686				8,392
Other operating expenses		113,098				109,453				38,770				37,368
Operating income		24,498				25,460				7,905				8,731
Interest expense, net		27,012				29,552				7,528				10,490
Interest expense, transaction fees		10,077				—				—				—
Other expense (income)		83				(6	)			35				(4	)
Income (loss) before taxes		(12,674	)			(4,086	)			342				(1,755	)
Provision for income taxes		415				797				62				87
Net income (loss) from continuing operations		(13,089	)			(4,883	)			280				(1,842	)
Discontinued operations:
Income (loss) from operations of discontinued division (net of tax of $0 and $48, $0 and $48)		(263	)			(326	)			—				93
Loss on disposal of discontinued division (net of tax of $0)		(1,938	)			—				(507	)			—
Total income (loss) from discontinued operations		(2,201	)			(326	)			(507	)			93
Net loss before cumulative effect of change in accounting principle		(15,290	)			(5,209	)			(227	)			(1,749	)
Cumulative effect of a change in accounting principle (net of tax of $0)		(23,985	)			—				—				—
Net loss		(39,275	)			(5,209	)			(227	)			(1,749	)
Preferred stock dividends and accretions		(1,068	)			(1,191	)			(32	)			(397	)
Net loss attributable to owner’s interest	$	(40,343	)		$	(6,400	)		$	(259	)		$	(2,146	)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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FORM 10-Q
ITEM 1 — FINANCIAL STATEMENTS
QUALITY DISTRIBUTION, LLC
(SUCCESSOR TO QUALITY DISTRIBUTION, INC.) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited — In thousands)

	Nine months ended September 30,
	2002				2001
Cash flows provided by (used in) operating activities:
Net loss	$	(39,275	)		$	(5,209	)
Cumulative effect of change in accounting principle		23,985				—
Adjustments for non-cash charges		24,493				28,484
Changes in assets and liabilities		2,840				(11,162	)
Net cash provided by operating activities		12,043				12,113
Investing activities:
Capital expenditures		(9,602	)			(21,994	)
Proceeds from asset dispositions		7,564				1,975
Net cash (used in) investing activities		(2,038	)			(20,019	)
Financing activities:
Proceeds from issuance of debt		—				11,500
Payment of debt obligations		(6,508	)			(2,356	)
Preferred stock redemption		—				(2,600	)
Exchange offer fees		(4,690	)			—
Other		(788	)			769
Net cash provided by (used in) financing activities		(11,986	)			7,313
Net decrease in cash		(1,981	)			(593	)
Effect of exchange rate changes on cash		(90	)			(1,216	)
Cash, beginning of period		2,212				2,636
Cash, end of period	$	141			$	827
Supplemental disclosures of cash flow information:
Cash payments for:
Interest	$	17,542			$	22,303
Income taxes	$	115			$	604
Supplemental disclosures of non-cash activities:
Preferred Stock Accretion	$	959			$	1,083
Unrealized gain or (loss) on derivative instruments	$	—			$	(3,475	)
The accompanying notes are an integral part of these condensed consolidated financial statements.
6 of 40

Quality Distribution, LLC (Successor to Quality Distribution, Inc.) and Subsidiaries
Condensed Consolidated Statement of Membership Interest
For the Period Ended September 30, 2002
(In thousands)

	Common Stock				Treasury Stock				Additional Paid-in-capital				Accumulated Deficit				Stock Recapitalization				Accumulated Other Comprehensive Loss				Notes Receivable				Total Membership Interest
Balance December 31, 2001	$	20			$	(402	)		$	105,544			$	(37,435	)		$	(189,589	)		$	(10,829	)		$	(1,776	)		$	(134,467	)