EX-99.1 2 d434032dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

Quality Distribution, Inc. Announces Third Quarter 2012 Results

— Quality Reports Third Quarter Revenue of $222.1 million —

— Company Earns Third Quarter 2012 Net Income of $0.32 per Diluted Share —

— Q3 2012 Adjusted Net Income of $0.17 per Diluted Share —

— Third Quarter Adjusted EBITDA Up 14.5% vs. Prior-Year Period —

TAMPA, FL – November 6, 2012 – Quality Distribution, Inc. (NASDAQ: QLTY) (“Quality” or the “Company”), a North American logistics and transportation provider with market leading businesses, today reported net income of $8.9 million, or $0.32 per diluted share, for the third quarter ended September 30, 2012, compared to net income of $6.2 million, or $0.25 per diluted share, in the third quarter ended September 30, 2011. Net income for the third quarter of 2012 included a $4.9 million non-cash benefit from releasing a portion of the Company’s deferred tax valuation allowance.

Adjusted net income for the third quarter of 2012 was $4.8 million, or $0.17 per diluted share, compared to adjusted net income of $4.9 million, or $0.20 per diluted share, for the same quarter in 2011. Both periods are calculated by applying a normalized tax rate of 39% and excluding other items not considered part of regular operating activities.

Adjusted pre-tax income for the third quarter of 2012 included $3.5 million of costs related to the following: the previously disclosed termination of an independent affiliate relationship ($3.0 million), recent acquisition activity ($0.4 million), and severance charges ($0.1 million). Adjusted net income for the same period last year was derived by excluding debt issuance write-off costs of $1.4 million. A reconciliation of net income to adjusted net income is included in the attached financial exhibits.

“Our third quarter proved to be a real challenge, with the highly unusual circumstance whereby all three of our segments reported lower than expected results. Based on what we see today, especially with the impact of Hurricane Sandy in the Northeast, our fourth quarter will be equally challenging,” said Gary Enzor, Chief Executive Officer. “Despite these issues, we anticipate improved year-over-year performance in all of our segments in 2013. Given that we now have an excellent footprint in the energy space, our plans over the near-term are to optimize our existing and recently acquired operations, as well as generate free cash flow to reduce debt.”

Third Quarter Consolidated Results

Total revenue for the third quarter of 2012 was $222.1 million, an increase of 11.4% versus the same quarter last year. Excluding fuel surcharges, revenue for the third quarter of 2012 increased 13.3% compared to the prior-year period. This revenue improvement was driven primarily by a $19.5 million increase from the Energy Logistics business, $2.5 million of growth from Intermodal, and a $0.5 million increase from the Chemical Logistics business.

Operating income for the third quarter of 2012 was $11.6 million, a decrease of $3.7 million versus the prior-year period, driven primarily by the aforementioned independent affiliate conversion. Adjusting for this conversion, and the acquisition and severance costs mentioned above, third quarter 2012


operating income would have been approximately $15.2 million, or flat versus the prior-year third quarter. Operating margin declined primarily as a result of higher equipment lease expense and lower asset utilization within the Chemical and Energy segments, as well as higher depreciation and amortization expenses from the Company’s recent asset acquisitions.

Adjusted EBITDA for the third quarter of 2012 was $22.2 million, up 14.5% compared to the third quarter of 2011, driven primarily by income from Energy Logistics acquisitions consummated in 2012. A reconciliation of net income to adjusted EBITDA is included in the attached financial exhibits.

Third Quarter Segment Results

Chemical Logistics

Revenues in the Chemical Logistics segment were $151.4 million in the third quarter of 2012, which was up slightly versus the third quarter of 2011. Excluding fuel surcharges, revenues increased $0.5 million. The Company believes that the leadership team within this segment was successful in protecting most of the revenue related to the affiliate conversion, and expects to gain revenue following the transition in the coming quarters.

Operating income in the Chemical Logistics segment was $6.9 million, which was down $2.9 million versus the comparable prior-year period, primarily due to approximately $1.7 million of affiliate conversion, acquisition and severance charges. After adjusting for these charges, operating income was down $1.2 million, primarily related to higher equipment lease expense and lower asset utilization primarily in the Northeast region of the U.S.

Intermodal

Revenues in the Intermodal segment were $32.2 million, up $2.6 million or 8.8% versus the prior-year period. Excluding fuel surcharges, revenues increased 9.6% primarily due to continued higher demand for ISO container shipments, as well as the positive effects of the Greensville acquisition.

Operating income in the Intermodal segment was $3.4 million, down $1.3 million versus the prior-period. This quarter-over-quarter decline was primarily due to higher than expected equipment repair costs, increased overtime charges, and medical benefit expenses. These third quarter impacts represent temporary items that are expected to improve going forward.

Energy Logistics

Revenues in the Energy Logistics segment were $38.5 million, up $19.8 million versus the prior year period. Revenue increases from the recent acquisitions of Bice, Trojan and Dunn’s were partially offset by a steep decline in drilling activity from the Marcellus shale region. The decline in Marcellus revenue was driven primarily by lower natural gas prices, and partly by the independent affiliate conversion.

Operating income in the Energy Logistics segment was $1.4 million, an increase of $0.4 million versus the prior year period as significant affiliate conversion costs nearly offset higher income from acquisitions. Excluding $1.8 million of affiliate conversion costs, operating income increased $2.3 million, driven by higher margins from the acquisitions. Operating margins were also adversely impacted by $2.1 million of increased depreciation and amortization expenses resulting from asset purchase accounting allocations and lower utilization. Excluding the previously mentioned affiliate conversion costs, EBITDA from the Energy Logistics segment for the third quarter was $5.6 million, up $4.4 million versus the prior-year period.


Summary

“This quarter was well below expectations as we encountered headwinds that adversely impacted the performance within each of our business segments,” said Gary Enzor, Chief Executive Officer. “However, we did achieve positive year-over-year revenue in our Chemical Logistics business, representing a significant improvement versus our last several quarters. We also recently finalized the affiliate transition that caused a strain on resources and profitability during the last several months.”

Significant Recent Transactions

Due to financial and operational difficulties encountered by one of our larger independent affiliates, the Company terminated its business relationship with this independent affiliate during the third quarter of 2012. This independent affiliate operated eight terminals within the Chemical Logistics segment and one terminal within the Energy Logistics segment. Four Chemical Logistics terminals were transitioned to other independent affiliates, with the remaining terminals transitioned to company operations. During this transition, operating results for the third quarter of 2012 were adversely impacted by $3.0 million of greater than expected operating costs and reduced profitability.

Despite costs associated with the independent affiliate transition, Quality and certain other independent affiliates provided a smooth conversion of the business and retained the majority of the revenue. In connection with the business transition, on October 17, 2012 Quality acquired certain operating assets from this independent affiliate for approximately $17.1 million in cash. The Company expects to incur a moderate amount of additional expense in the fourth quarter related to the independent affiliate transition.

On August 1, 2012, the Company completed the acquisition of the operating assets of Dunn’s Tank Services, Inc., and the operating assets and rights of Nassau Disposal, Inc. (collectively “Dunn’s”), for aggregate cash consideration of $34.3 million. Potential additional consideration of $3.6 million may be paid in cash, subject to Dunn’s achieving certain future operating and financial performance criteria. Dunn’s has trucking operations in both the Woodford and Utica shale, including two operating salt-water disposal wells in Oklahoma.

In June 2012, the Company acquired the operating assets of Wylie Bice Trucking, LLC and the operating assets and rights of RM Resources, LLC, (collectively “Bice”) for aggregate consideration of $81.4 million, plus additional contingent consideration of $19.0 million, subject to Bice achieving certain future operating and financial performance criteria. In April 2012, the Company acquired the operating assets of Trojan Vacuum Services (“Trojan”) for cash consideration of $8.7 million, plus additional contingent consideration of $1.0 million, subject to Trojan achieving certain future operating and financial performance criteria.

In conjunction with these various transactions, the Company incurred acquisition-related costs of approximately $3.0 million during the first half of 2012 and $0.4 million during the third quarter of 2012, which are included within selling and administrative expenses. The Company’s results for the third quarter of 2012 include three months of operating results from Bice and Trojan and two months of operating results from Dunn’s. Results for the third quarter of 2011 do not include any of these operating results.


Balance Sheet and Cash Flow

On September 27, 2012, the Company increased the maximum borrowing capacity of its ABL Facility from $250 million to $350 million, utilizing the facility’s accordion feature. Substantially all other terms remain unchanged, and the Company’s immediate borrowing availability did not change as a result of the increase in capacity. Borrowing availability under the Company’s ABL Facility was $68.4 million at September 30, 2012, a decrease of $13.9 million versus December 31, 2011 availability of $82.3 million. During the first quarter of 2012, net proceeds from the Company’s sale of common stock were used to repay outstanding borrowings on the ABL Facility, and during the second and third quarters of 2012, borrowings were utilized primarily to fund the Trojan, Bice, and Dunn’s acquisitions. The Company expects to have sufficient borrowing availability under its ABL Facility to support its on-going operations following the previously mentioned acquisitions.

Operating cash flows for the quarter ended September 30, 2012 were $5.2 million, compared with $12.8 million in the quarter ended September 30, 2011. The decline was primarily due to the expected increase in working capital requirements from the growing Energy Logistics business. Net capital expenditures for the quarter ended September 30, 2012 were $9.0 million, most of which were targeted to growth opportunities.

“Our Bice and Dunn’s acquisitions have gotten off to a slower start than we had originally expected, as lower commodity pricing for natural gas and oil reduced drilling activity, thereby negatively impacting demand for transportation services primarily in the Bakken and Woodford shale regions. We also made significant capital investments and lease commitments for tractor and trailer assets in anticipation of higher levels of demand, which have not yet materialized and in turn hurt near-term productivity and profitability,” said Joe Troy, Chief Financial Officer.

Mr. Troy continued, “During the remainder of this year and into 2013, we will focus our efforts on asset utilization across each business unit, reposition assets into areas with the greatest growth potential and rationalize our fleet where warranted. We feel confident that each of our business units is taking the necessary actions to improve profitability, and the Company is well positioned to reduce leverage and generate improved earnings and free cash flow in 2013.”

Quality will host a conference call for investors to discuss these results on Wednesday, November 7, 2012 at 10:00 a.m. Eastern Time. The toll free dial-in number is 888-206-4913; the toll number is 913-312-0823; the passcode is 6526348. A replay of the call will be available through December 8, 2012, by dialing 888-203-1112; passcode: 6526348. 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 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, proppant sand, 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. 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 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; (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 commodities such as natural gas and oil; (4) our reliance on independent affiliates and independent owner-operators; (5) a shift away from or slowdown in production in the shale regions in which we have energy logistics operations; (6) our liability as a self-insurer to the extent of our deductibles as well as changing conditions and pricing in the insurance marketplace; (7) increased unionization, which could increase our operating costs or constrain operating flexibility; (8) changes in the future to, 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;(9) 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; (10) the use of disposal wells and other disposal sites in our energy logistics business; (11) our ability to comply with current and future environmental regulations and the increasing costs relating to environmental compliance; (12) potential disruptions at U.S. ports of entry; (13) diesel fuel prices and our ability to recover costs through fuel surcharges; (14) our ability to attract and retain qualified drivers;(15) terrorist attacks and the cost of complying with existing and future anti-terrorism security measures; (16) our dependence on senior management; (17) the potential loss of our ability to use net operating losses to offset future income; (18) potential future impairment charges; (19) the interests of our largest shareholder, which may conflict with your or our interests; (20) our ability to successfully identify acquisition opportunities, consummate such acquisitions and successfully integrate acquired businesses and converted 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; (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) 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; and (25) 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 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, 2011 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


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,
 
     2012     2011     2012     2011  

OPERATING REVENUES:

      

Transportation

   $ 160,079      $ 140,974      $ 443,804      $ 395,052   

Service revenue

     31,550        28,138        89,569        82,518   

Fuel surcharge

     30,449        30,186        93,353        89,631   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     222,078        199,298        626,726        567,201   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

      

Purchased transportation

     143,036        142,023        417,222        400,437   

Compensation

     22,522        15,014        57,669        45,412   

Fuel, supplies and maintenance

     24,085        13,114        56,996        36,556   

Depreciation and amortization

     6,039        3,600        14,452        10,470   

Selling and administrative

     8,258        5,910        24,857        15,945   

Insurance costs

     4,374        3,316        11,732        11,541   

Taxes and licenses

     807        638        2,179        1,737   

Communications and utilities

     980        595        2,724        2,054   

Loss (gain) on disposal of property and equipment

     360        (198     (4     (848

Restructuring credit

     —          —          —          (521
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     210,461        184,012        587,827        522,783   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     11,617        15,286        38,899        44,418   

Interest expense

     7,673        7,096        22,042        22,218   

Interest income

     (194     (117     (602     (434

Write-off of debt issuance costs

     —          1,395        —          3,181   

Other (income) expense

     (112     257        (276     250   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     4,250        6,655        17,735        19,203   

(Benefit from) provision for income taxes

     (4,613     468        (26,632     1,248   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 8,863      $ 6,187      $ 44,367      $ 17,955   
  

 

 

   

 

 

   

 

 

   

 

 

 

PER SHARE DATA:

      

Net income per common share

      

Basic

   $ 0.32      $ 0.26      $ 1.69      $ 0.78   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.32      $ 0.25      $ 1.64      $ 0.74   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares

      

Basic

     27,368        23,372        26,243        22,942   

Diluted

     28,089        24,643        27,057        24,255   


QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In 000’s)

Unaudited

 

     September 30,
2012
    December 31,
2011
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 2,928      $ 4,053   

Accounts receivable, net

     125,080        90,567   

Prepaid expenses

     13,805        7,849   

Deferred tax asset

     8,738        4,048   

Other current assets

     10,380        3,858   
  

 

 

   

 

 

 

Total current assets

     160,931        110,375   

Property and equipment, net

     179,782        125,892   

Goodwill

     102,320        31,344   

Intangibles, net

     38,752        18,471   

Non-current deferred tax asset

     18,682        —     

Other assets

     12,584        16,313   
  

 

 

   

 

 

 

Total assets

   $ 513,051      $ 302,395   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

    

Current liabilities:

    

Current maturities of indebtedness

   $ 4,264      $ 4,139   

Current maturities of capital lease obligations

     4,507        5,261   

Accounts payable

     13,301        7,571   

Independent affiliates and independent owner-operators payable

     18,601        9,795   

Accrued expenses

     46,710        25,327   

Environmental liabilities

     4,740        3,878   

Accrued loss and damage claims

     6,806        8,614   
  

 

 

   

 

 

 

Total current liabilities

     98,929        64,585   

Long-term indebtedness, less current maturities

     393,721        293,823   

Capital lease obligations, less current maturities

     2,629        3,840   

Environmental liabilities

     4,513        6,222   

Accrued loss and damage claims

     8,977        9,768   

Other non-current liabilities

     24,026        30,342   
  

 

 

   

 

 

 

Total liabilities

     532,795        408,580   

SHAREHOLDERS’ DEFICIT

    

Common stock

     436,222        393,859   

Treasury stock

     (1,944     (1,878

Accumulated deficit

     (234,176     (278,543

Stock recapitalization

     (189,589     (189,589

Accumulated other comprehensive loss

     (30,282     (31,381

Stock purchase warrants

     25        1,347   
  

 

 

   

 

 

 

Total shareholders’ deficit

     (19,744     (106,185
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

   $ 513,051      $ 302,395   
  

 

 

   

 

 

 

 


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:

 

   

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

 

   

Energy Logistics, which consists primarily of the transportation of fresh water, disposal water, proppant sand and crude oil for the unconventional oil and gas frac shale energy markets, primarily through company-operated terminals and one independent affiliate; 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, 2012  
     Chemical
Logistics** (a)
    Energy
Logistics (b)
    Intermodal     Total  

Operating Revenues:

        

Transportation

   $ 107,773      $ 35,144      $ 17,162      $ 160,079   

Service revenue

     17,414        3,043        11,093        31,550   

Fuel surcharge

     26,252        299        3,898        30,449   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 151,439      $ 38,486      $ 32,153      $ 222,078   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     68.2     17.3     14.5     100.0

Segment operating income*

   $ 9,718      $ 4,041      $ 4,257      $ 18,016   

Depreciation and amortization

     2,795        2,359        885        6,039   

Other expense (income)

     68        302        (10     360   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 6,855      $ 1,380      $ 3,382      $ 11,617   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended September 30, 2011  
     Chemical
Logistics **
    Energy
Logistics
    Intermodal     Total  

Operating Revenues:

        

Transportation

   $ 107,693      $ 18,341      $ 14,940      $ 140,974   

Service revenue

     16,981        306        10,851        28,138   

Fuel surcharge

     26,428        —          3,758        30,186   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 151,102      $ 18,647      $ 29,549      $ 199,298   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     75.8     9.4     14.8     100.0

Segment operating income*

   $ 12,080      $ 1,224      $ 5,384      $ 18,688   

Depreciation and amortization

     2,518        287        795        3,600   

Other income

     (145     —          (53     (198
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 9,707      $ 937      $ 4,642      $ 15,286   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Operating income in the Chemical Logistics segment during the three-month period ended September 30, 2012 includes $1.7 million of costs associated with the independent affiliate conversion, acquisition and severance costs.
(b) Operating income in the Energy Logistics segment during the three-month period ended September 30, 2012 includes $1.8 million of costs associated with the independent affiliate conversion.


     Nine Months Ended September 30, 2012  
     Chemical
Logistics ** 
(x)
    Energy
Logistics (y)
    Intermodal     Total  

Operating Revenues:

        

Transportation

   $ 321,355      $ 70,122      $ 52,327      $ 443,804   

Service revenue

     50,307        5,174        34,088        89,569   

Fuel surcharge

     79,944        625        12,784        93,353   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 451,606      $ 75,921      $ 99,199      $ 626,726   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     72.1     12.1     15.8     100.0

Segment operating income*

   $ 29,694      $ 9,037      $ 14,616      $ 53,347   

Depreciation and amortization

     8,229        3,623        2,600        14,452   

Other (income) expense

     (276     324        (52     (4
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 21,741      $ 5,090      $ 12,068      $ 38,899   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Nine Months Ended September 30, 2011  
     Chemical
Logistics **
    Energy
Logistics
    Intermodal     Total  

Operating Revenues:

        

Transportation

   $ 330,623      $ 20,333      $ 44,096      $ 395,052   

Service revenue

     50,567        383        31,568        82,518   

Fuel surcharge

     79,079        —          10,552        89,631   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 460,269      $ 20,716      $ 86,216      $ 567,201   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment revenue % of total revenue

     81.1     3.7     15.2     100.0

Segment operating income*

   $ 37,195      $ 1,542      $ 14,782      $ 53,519   

Depreciation and amortization

     7,750        328        2,392        10,470   

Other income

     (1,346     —          (23     (1,369
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 30,791      $ 1,214      $ 12,413      $ 44,418   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(x) Operating income in the Chemical Logistics segment during the nine-month period ended September 30, 2012 includes $6.3 million of costs associated with the independent affiliate conversion, acquisition and severance costs and legal and claims settlement expenses.
(y) Operating income in the Energy Logistics segment during the nine-month period ended September 30, 2012 includes $1.8 million of costs associated with the independent affiliate conversion.
* Segment operating income reported in the business segment tables above excludes amounts such as depreciation and amortization, gains and losses on disposal of property and equipment and restructuring costs.
** Most corporate and shared services overhead costs, including acquisition costs, are included in the Chemical Logistics segment.


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 Nine Months Ended September 30, 2012 and 2011

(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 acquisition costs, severance and lease termination costs, unusual legal and claims settlements, independent affiliate conversion costs, restructuring credits and the write-off 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, 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 is adjusted for provision for (benefit from) income tax, 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 acquisition costs, severance and lease termination costs, unusual legal and claims settlements, independent affiliate conversion costs, restructuring credits and the write-off of debt issuance costs, 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.


Net Income Reconciliation:    Three months ended
September 30,
     Nine months ended
September 30,
 
     2012     2011      2012     2011  

Net income

   $ 8,863      $ 6,187       $ 44,367      $ 17,955   

Net income per common share:

         

Basic

   $ 0.32      $ 0.26       $ 1.69      $ 0.78   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

   $ 0.32      $ 0.25       $ 1.64      $ 0.74   
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average number of shares:

         

Basic

     27,368        23,372         26,243        22,942   

Diluted

     28,089        24,643         27,057        24,255   

Reconciliation:

         

Net income

   $ 8,863      $ 6,187       $ 44,367      $ 17,955   

Adjustments to net income:

         

(Benefit from) provision for income taxes

     (4,613     468         (26,632     1,248   

Acquisition costs

     398        —           3,370        —     

Severance and lease termination costs

     125        —           1,059        —     

Legal and claims settlements

     —          —           762        —     

Affiliate conversion costs

     3,031        —           3,031        —     

Write-off of debt issuance costs

     —          1,395         —          3,181   

Restructuring credit

     —          —           —          (521
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted income before income taxes

     7,804        8,050         25,957        21,863   

Provision for income taxes at 39%

     3,044        3,140         10,123        8,527   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income

   $ 4,760      $ 4,910       $ 15,834      $ 13,336   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income per common share:

         

Basic

   $ 0.17      $ 0.21       $ 0.60      $ 0.58   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

   $ 0.17      $ 0.20       $ 0.59      $ 0.55   
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average number of shares:

         

Basic

     27,368        23,372         26,243        22,942   

Diluted

     28,089        24,643         27,057        24,255   
EBITDA and Adjusted EBITDA:    Three months ended
September 30,
     Nine months ended
September 30,
 
     2012     2011      2012     2011  

Net income

   $ 8,863      $ 6,187       $ 44,367      $ 17,955   

Adjustments to net income:

         

(Benefit from) provision for income taxes

     (4,613     468         (26,632     1,248   

Depreciation and amortization

     6,039        3,600         14,452        10,470   

Interest expense, net

     7,479        6,979         21,440        21,784   
  

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA

     17,768        17,234         53,627        51,457   

Acquisition costs

     398        —           3,370        —     

Severance and lease termination costs

     125        —           1,003        —     

Legal and claims settlements

     —          —           762        —     

Affiliate conversion costs

     3,031        —           3,031        —     

Write-off of debt issuance costs

     —          1,395         —          3,181   

Restructuring credit

     —          —           —          (521

Non-cash stock-based compensation

     856        747         2,374        2,205   
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 22,178      $ 19,376       $ 64,167      $ 56,322