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8-K - FORM 8-K - QUALITY DISTRIBUTION INCd8k.htm

Exhibit 99.1

Quality Distribution, Inc. Announces Second Quarter 2011 Results

— Company Reports Second Quarter Net Income of $0.37 per Diluted Share —

— Adjusted Earnings of $0.23 per Diluted Share Up 130% versus Q2 2010 —

— Energy Business Awarded Multi-Year Logistics Contract in Marcellus Shale —

TAMPA, FL – August 1, 2011 – Quality Distribution, Inc. (NASDAQ: QLTY) (“Quality” or the “Company”), which operates the largest chemical bulk tank truck network and is the largest provider of intermodal tank container and depot services in North America, today reported net income of $9.0 million, or $0.37 per diluted share, for the second quarter ended June 30, 2011, compared to net income of $2.1 million, or $0.09 per diluted share, in the second quarter ended June 30, 2010.

Adjusted net income for the second quarter of 2011 was $5.6 million, or $0.23 per diluted share, compared to adjusted net income of $2.2 million, or $0.10 per diluted share, for the same quarter in 2010. Adjusted net income for the second quarter of 2011 was derived by excluding a restructuring credit of approximately $0.5 million reflecting a lower than expected withdrawal liability from a multi-employer pension plan, and then applying a normalized tax rate of 39%. Adjusted net income for the second quarter of 2010 was derived by excluding a restructuring charge of approximately $1.1 million, and then applying a normalized tax rate of 39%. These adjustment items are excluded as the Company does not consider them to be part of regular operating activities. A reconciliation of net income to adjusted net income is included in the attached financial exhibits.

The significant improvement in earnings for the second quarter ended June 30, 2011 was driven by a 33.6% increase in quarter-over-quarter operating income (after adjusting for the restructuring items) resulting from cost containment initiatives, reduced maintenance and depreciation expenses from the fleet rationalization program begun in 2010, and lower insurance costs. Additionally, debt reduction and redemption activity resulted in a 15.9% decrease in net interest expense from the prior year quarter.

“I am very pleased with the Company’s solid earnings this quarter, especially in light of lighter volumes in our core chemical logistics business due to continued driver turnover issues,” said Gary Enzor, Chief Executive Officer. “More importantly, we recently won a multi-year contract with a major energy company to provide full logistics for their 100 truck fresh and disposal water hauling needs in the Marcellus Shale region. The revenues associated with this contract will begin ramping in the second half of 2011 and are expected to be a significant contributor to our top-line in 2012.”

Total revenue for the second quarter ended June 30, 2011 was $190.0 million, an increase of 7.0% versus the same quarter last year. Excluding fuel surcharges, revenue for the second quarter of 2011 increased 0.7% compared to the prior-year quarter, driven by a 7.1% increase from Boasso’s intermodal business. Revenues from the logistics business were flat, as slightly lower volumes in the chemicals business were offset by revenues associated with the frac shale energy market. The Company’s initiative to implement electronic on-board recorders (“EOBR’s”) continues to adversely impact driver turnover, which is constraining growth within the chemical logistics business, and is expected to continue through the balance of 2011.


Adjusted EBITDA for the second quarter of 2011 was $20.5 million, up 22.6% versus the comparable prior-year period, driven primarily from cost containment initiatives, reduced maintenance and depreciation expenses and lower insurance costs. A reconciliation of net income to adjusted EBITDA is included in the attached financial exhibits.

Gary Enzor commented further, “Our multifaceted growth strategy is coming to fruition and we remain confident that we can deliver revenue and earnings enhancement for our shareholders. Our team has worked very hard to organically enter the frac shale energy market, which directly led to the recently awarded logistics contract, which we estimate could deliver $30 to $40 million of gross revenue in 2012.”

Significant Transactions and Other

On June 20, 2011 the Company issued notices to redeem the remaining $5.8 million balance of its 11.75% PIK Notes. This redemption occurred on July 20, 2011 and is expected to further reduce interest expense in future periods.

Capital expenditures for the six months ended June 30, 2011 were $9.3 million, of which approximately $5.0 million was for equipment to be utilized for logistics services to the frac shale energy market. Proceeds from sales of equipment during the first half of 2011 were $6.3 million. Availability under the Company’s asset-based revolving credit facility (“ABL Facility”) at June 30, 2011 was $79.5 million, an increase of $31.7 million, or 66.3% from availability under the ABL Facility at June 30, 2010. Since December 31, 2010, ABL availability remained relatively stable as strong cash flow from operating activities of $12.4 million was utilized to support the redemption of a significant amount of 11.75% PIK Notes during the first six months of 2011.

In July 2011, the Company launched a refinancing of its existing $225 million ABL Facility with a new $250 million ABL Facility. This new facility is expected to have a five year maturity, and contain terms and conditions (including pricing) substantially similar to the existing ABL Facility. The refinancing is expected to close during the third quarter.

“With the redemption of our remaining high cost 11.75% PIK Notes now behind us and the launch of the ABL refinancing well underway, we have moved another critical step forward in our capital structure improvement strategy,” said Joe Troy, Chief Financial Officer. “These improvements are enabling us to actively evaluate and pursue multiple internal and external growth objectives, including potential acquisitions. We remain optimistic about our future growth prospects as the new frac shale contract takes hold, and pressure on our chemical logistics business from the EOBRs implementation is substantially alleviated by the end of 2011.”

Quality will host a conference call for investors to discuss these results on Tuesday, August 2, 2011 at 10:00 a.m. Eastern Time. The toll free dial-in number is 888-686-9683; the toll number is 913-312-1507; the passcode is 8764887. A replay of the call will be available through August 31, 2011, by dialing 888-203-1112; passcode: 8764887. A webcast of the conference call may be accessed in the Investor Relations section of Quality’s website at www.qualitydistribution.com. Copies of this earnings release and other financial information about Quality may also be accessed in the Investor Relations section of Quality’s website. 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 tank truck 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 services to the water hauling segment of the gas and oil frac shale market through its wholly owned subsidiaries QC Energy Resources, Inc. and QC Energy Resources, LLC. 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 and the oral public statements made by a Quality representative during the webcast announced in this press release may contain certain forward-looking information that is subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995 and is 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, additional risks and uncertainties regarding forward-looking statements include the effect of local and national economic, credit and capital 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, the availability of qualified drivers, changes in fuel and insurance prices, interest rate fluctuations, and downturns in customers’ business cycles and shipping requirements; our substantial leverage, our ability to make required payments and restrictions contained in our debt arrangements; competition and rate fluctuations; our reliance on independent affiliates and independent owner-operators; the loss of or material reduction in the services to one or more of our major customers; our liability as a self-insurer to the extent of our deductibles as well as changing conditions and pricing in the insurance marketplace; changes in health insurance benefit regulations; changes in the future, or our inability to comply with, governmental regulations and legislative changes affecting the transportation industry; increased unionization, which could increase our operating costs or constrain operating flexibility; 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; the interests of our largest shareholder, which may conflict with your interests; our ability to successfully identify acquisition opportunities, consummate such acquisitions and integrate acquired businesses; our success in entering new markets such as the frac shale market; adverse weather conditions; the impact of our restructuring on our operations and costs; our liability for our proportionate share of unfunded vested benefit liabilities in the event of our withdrawal from any of our multi-employer pension plans; 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. Readers are urged to carefully review and consider the various disclosures, 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, 2010, as well as other reports filed with the Securities and Exchange Commission. Quality disclaims any obligation to update any forward-looking statement as a result of developments occurring after the date of this release.

 

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


QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In 000’s) Except Per Share Data

Unaudited

 

     Three months ended
June 30,
    Six months ended
June  30,
 
     2011     2010     2011     2010  

OPERATING REVENUES:

      

Transportation

   $ 129,397      $ 129,473      $ 254,078      $ 248,390   

Service revenue

     27,642        26,473        54,380        51,379   

Fuel surcharge

     32,954        21,606        59,445        39,116   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     189,993        177,552        367,903        338,885   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

      

Purchased transportation

     133,692        121,670        258,414        231,495   

Compensation

     15,515        14,980        30,398        28,872   

Fuel, supplies and maintenance

     11,665        13,455        23,442        26,822   

Depreciation and amortization

     3,378        4,067        6,870        8,310   

Selling and administrative

     4,886        4,449        10,035        9,227   

Insurance costs

     3,540        4,540        8,225        7,877   

Taxes and licenses

     652        674        1,099        1,270   

Communications and utilities

     657        1,192        1,459        2,238   

(Gain) loss on disposal of property and equipment

     (410     234        (650     652   

Restructuring (credit) costs

     (521     1,068        (521     2,215   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     173,054        166,329        338,771        318,978   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     16,939        11,223        29,132        19,907   

Interest expense

     7,311        8,640        15,122        17,307   

Interest income

     (178     (156     (317     (317

Write-off of debt issuance costs

     —          —          1,786        —     

Other expense (income)

     29        220        (7     226   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     9,777        2,519        12,548        2,691   

Provision for (benefit from) income taxes

     731        463        780        (163
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 9,046      $ 2,056      $ 11,768      $ 2,854   
  

 

 

   

 

 

   

 

 

   

 

 

 

PER SHARE DATA:

      

Net income per common share

      

Basic

   $ 0.39      $ 0.10      $ 0.52      $ 0.14   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.37      $ 0.09      $ 0.49      $ 0.13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares

      

Basic

     23,253        20,256        22,723        19,880   

Diluted

     24,581        21,748        24,024        21,585   


QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In 000’s)

Unaudited

 

     June 30,
2011
    December 31,
2010
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 1,643      $ 1,753   

Accounts receivable, net

     95,202        80,895   

Prepaid expenses

     5,503        6,911   

Deferred tax asset, net

     4,503        3,848   

Other

     4,684        4,891   
  

 

 

   

 

 

 

Total current assets

     111,535        98,298   

Property and equipment, net

     111,229        113,419   

Goodwill

     27,023        27,023   

Intangibles, net

     16,231        16,924   

Other assets

     13,348        15,671   
  

 

 

   

 

 

 

Total assets

   $ 279,366      $ 271,335   
  

 

 

   

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ DEFICIT

    

Current liabilities:

    

Current maturities of indebtedness

   $ 2,631      $ 3,991   

Current maturities of capital lease obligations

     5,246        4,572   

Accounts payable

     7,754        7,200   

Independent affiliates and independent owner-operators payable

     14,449        11,059   

Accrued expenses

     21,063        24,363   

Environmental liabilities

     3,208        3,687   

Accrued loss and damage claims

     10,011        8,471   
  

 

 

   

 

 

 

Total current liabilities

     64,362        63,343   

Long-term indebtedness, less current maturities

     280,337        300,491   

Capital lease obligations, less current maturities

     5,075        8,278   

Environmental liabilities

     6,336        7,255   

Accrued loss and damage claims

     11,109        10,454   

Other non-current liabilities

     25,503        26,060   
  

 

 

   

 

 

 

Total liabilities

     392,722        415,881   

Redeemable noncontrolling interest

     —          1,833   

SHAREHOLDERS’ DEFICIT

    

Common stock

     391,963        371,288   

Treasury stock

     (1,606     (1,593

Accumulated deficit

     (290,206     (301,974

Stock recapitalization

     (189,589     (189,589

Accumulated other comprehensive loss

     (25,601     (26,194

Stock purchase warrants

     1,683        1,683   
  

 

 

   

 

 

 

Total shareholders’ deficit

     (113,356     (146,379
  

 

 

   

 

 

 

Total liabilities, redeemable noncontrolling interest and shareholders’ deficit

   $ 279,366      $ 271,335   
  

 

 

   

 

 

 


QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

SEGMENT OPERATING RESULTS

(In 000’s)

Unaudited

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

 

   

Logistics, which primarily consists of transportation of bulk chemicals and water primarily through our network of independent affiliates and equipment rentals; and

 

   

Intermodal, specifically Boasso’s International Organization for Standardization, or intermodal ISO tank container transportation and depot services.

Segment operating results were as follows (in thousands):

 

     Three Months Ended June 30, 2011  
     Logistics     Intermodal     Total  

Operating Revenues:

      

Transportation

   $ 114,310      $ 15,087      $ 129,397   

Service revenue

     17,155        10,487        27,642   

Fuel surcharge

     29,013        3,941        32,954   
  

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 160,478      $ 29,515      $ 189,993   
  

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     84.5     15.5     100.0

Segment operating income

   $ 14,651      $ 4,735      $ 19,386   
     Three Months Ended June 30 , 2010  
     Logistics     Intermodal     Total  

Operating Revenues:

      

Transportation

   $ 114,728      $ 14,745      $ 129,473   

Service revenue

     17,339        9,134        26,473   

Fuel surcharge

     19,247        2,359        21,606   
  

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 151,314      $ 26,238      $ 177,552   
  

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     85.2     14.8     100.0

Segment operating income

   $ 12,064      $ 4,528      $ 16,592   

 

     Six Months Ended June 30, 2011  
     Logistics     Intermodal     Total  

Operating Revenues:

      

Transportation

   $ 224,922      $ 29,156      $ 254,078   

Service revenue

     33,663        20,717        54,380   

Fuel surcharge

     52,652        6,793        59,445   
  

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 311,237      $ 56,666      $ 367,903   
  

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     84.6     15.4     100.0

Segment operating income

   $ 25,433      $ 9,398      $ 34,831   
     Six Months Ended June 30 , 2010  
     Logistics     Intermodal     Total  

Operating Revenues:

      

Transportation

   $ 220,560      $ 27,830      $ 248,390   

Service revenue

     33,979        17,400        51,379   

Fuel surcharge

     34,913        4,203        39,116   
  

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 289,452      $ 49,433      $ 338,885   
  

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     85.4     14.6     100.0

Segment operating income

   $ 22,882      $ 8,202      $ 31,084   

 


RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME, EBITDA AND ADJUSTED EBITDA AND RECONCILIATION OF NET INCOME PER SHARE TO ADJUSTED NET INCOME PER SHARE

For the Three Months and the Six Months Ended June 30, 2011 and 2010

(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 Adjusted Net Income, management uses a 39% tax rate for calculating the provision for income taxes to normalize Quality’s tax rate to that of competitors, and to compare Quality’s reporting periods with different effective tax rates. 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 restructuring charges (credits) related to a plan of restructure which began in the second quarter of 2008 and concluded in the fourth quarter of 2010, as well as write-offs of debt issuance costs.

EBITDA is a component of the measure used by Quality’s management to facilitate internal comparisons to competitors’ results and the bulk transportation, 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 is adjusted for provision for (benefit from) income tax, depreciation and amortization and interest expense. To calculate Adjusted EBITDA, we calculate EBITDA from Net Income, which is then further adjusted for significant items that are not part of regular operating activities, including the restructuring charges (credits) related to a plan of restructure which began in the second quarter of 2008 and concluded in 2010, write-off of debt issuance costs and other non-cash items such as non-cash stock-based compensation, to arrive at Adjusted EBITDA. 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.


     Three months ended
June 30,
     Six months ended
June 30,
 
     2011     2010      2011     2010  

Net Income Reconciliation:

         

Net income

   $ 9,046      $ 2,056       $ 11,768      $ 2,854   

Net income per common share:

         

Basic

   $ 0.39      $ 0.10       $ 0.52      $ 0.14   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

   $ 0.37      $ 0.09       $ 0.49      $ 0.13   
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average number of shares:

         

Basic

     23,253        20,256         22,723        19,880   

Diluted

     24,581        21,748         24,024        21,585   

Adjustments to net income:

         

Provision for (benefit from) income taxes

     731        463         780        (163

Write-off of debt issuance costs

     —          —           1,786        —     

Restructuring (credit) costs

     (521     1,068         (521     2,215   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted income before income taxes

     9,256        3,587         13,813        4,906   

Provision for income taxes at 39%

     3,610        1,399         5,387        1,913   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income

   $ 5,646      $ 2,188       $ 8,426      $ 2,993   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income per common share:

         

Basic

   $ 0.24      $ 0.11       $ 0.37      $ 0.15   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

   $ 0.23      $ 0.10       $ 0.35      $ 0.14   
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average number of shares:

         

Basic

     23,253        20,256         22,723        19,880   

Diluted

     24,581        21,748         24,024        21,585   
     Three months ended
June 30,
     Six months ended
June 30,
 
     2011     2010      2011     2010  

EBITDA and Adjusted EBITDA:

         

Net income

   $ 9,046      $ 2,056       $ 11,768      $ 2,854   

Adjustments to net income:

         

Provision for (benefit from) income taxes

     731        463         780        (163

Depreciation and amortization

     3,378        4,067         6,870        8,310   

Interest expense, net

     7,133        8,484         14,805        16,990   
  

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA

     20,288        15,070         34,223        27,991   

Write-off of debt issuance costs

     —          —           1,786        —     

Restructuring (credit) costs

     (521     1,068         (521     2,215   

Non-cash stock-based compensation

     734        588         1,458        1,077   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 20,501      $ 16,726       $ 36,946      $ 31,283