<PAGE> 1
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 SECURITY
EXCHANGE ACT OF 1934.
For the quarterly period ended MARCH 31, 2000
-----------------------------------------------
or
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
Commission File Number: 0-24180
-------------------------------------------------------
Quality Distribution,Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3239073
- ------------------------------------------------------------------------------
(State or other jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
- ------------------------------------------------------------------------------
(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.
(X) Yes ( ) No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
( ) Yes ( ) No
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 MARCH 31, 2000
- ------------------------------ ----------------------------------
(Common Stock, $.01 par value) 2,013,649
<PAGE> 2
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page No.
Item 1 Financial Statements
Condensed consolidated balance sheets -
March 31, 2000 (unaudited) and December 31, 1999 3-4
Condensed consolidated statements of operations -
three months ended March 31, 2000 and 1999 (unaudited) 5
Condensed consolidated statements of cash flows -
three months ended March 31, 2000 and 1999 (unaudited) 6
Notes to condensed consolidated financial
statements 7-20
Item 2 Management's Discussion and Analysis
Of Financial Condition and Results
of Operations
Management's discussion and analysis of financial
condition and results of operations 21-23
Part II Other Information
Item 1 Legal proceedings 24
Item 4 Submission of matters to a vote of
security holders 24
Item 6 Exhibits
Reports on Form 8-K 24
Signatures 25
<PAGE> 3
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited) *
----------- ------------
<C> <C>
<S>
ASSETS
Current Assets
Cash $ 176 $ 1,050
Accounts receivable 117,514 122,538
Allowance for doubtful accounts (6,654) (6,438)
Current maturities of other receivables 2,237 2,159
Inventories 1,726 1,763
Prepaid expenses 12,077 11,053
Prepaid tires 9,303 9,279
Income tax receivable 354 354
Deferred income taxes 15,198 15,214
Other 709 689
--------- ---------
Total Current assets 152,640 157,661
Property, plant and equipment 320,447 317,652
Less - accumulated depreciation and
amortization (134,843) (128,895)
--------- ----------
185,604 188,757
Intangibles and goodwill, net 157,248 158,414
Insurance proceeds receivable 850 11,403
Other Assets 24,714 26,006
-------- ---------
$521,056 $542,241
======== =========
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited) *
---------- ----------
<C> <C>
<S>
Current Liabilities
Current maturities of indebtedness $ 9,792 $ 18,026
Accounts payable and accrued expenses 65,749 72,424
Independent contractors payable 8,939 8,191
Other current liabilities 3,715 4,697
Income tax payable 957 854
------- -------
Total Current liabilities 89,152 104,192
Long term debt, less current maturities 275,443 275,967
Capital lease obligations, less current
maturities 8 163
Subordinated debt 140,000 140,000
Environmental liabilities 44,577 49,346
Other long term obligations 15,250 15,870
Accrued loss and damage claims 3,393 3,395
Minority interest in subsidiaries 4,434 4,434
Manditorily redeemable preferred stock 12,799 12,437
Redeemable common stock (30,239 shares) 1,210 1,210
Stockholders' equity (deficit)
Common stock 20 20
Additional paid-in-capital 105,113 104,915
Retained earnings 20,744 21,320
Stock recapitalization (189,589) (189,589)
Foreign currency translation (236) (177)
Note receivable (1,262) (1,262)
--------- ---------
Total stockholders' equity (deficit) (65,210) (64,773)
--------- --------
$521,056 $542,241
========= ========
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
------- --------
<C> <C>
<S>
Operating Revenues
Transportation $132,502 $128,854
Other 16,070 15,659
-------- --------
148,572 144,513
Operating Expenses
Purchased transportation 83,208 78,834
Depreciation and amortization 9,297 16,109
Other operating expenses 46,350 45,500
--------- --------
Operating income 9,717 4,070
Interest expense, net 10,174 9,770
Other (income) expense (25) (35)
--------- ---------
Income (loss) before taxes (432) (5,665)
Income tax benefit (293) (2,101)
Minority interest 75 5
--------- ---------
Net income (loss) $ (214) $(3,569)
Preferred stock dividends
and accretions (362) (401)
-------- ---------
Net income (loss) attributable
to common shareholders $ (576) $(3,970)
========= ========
Per Share Data:
Basic and diluted earnings
(loss) per common share $(0.29) $(1.98)
======= =======
Weighted average share
Outstanding 2,014 2,005
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) - (In thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
------- ------
<C> <C>
<S>
Cash provided by (used for)
Operating activities:
Net income (loss) $ (214) $( 3,569)
Adjustments for non cash charges 9,261 14,311
Changes in assets and liabilities 3,787 2,146
-------- ---------
Net cash provided by operating
activities 12,834 12,888
Investing activities:
Capital expenditures (5,914) (4,499)
Proceeds from asset dispositions 992 1,184
Other - (13)
-------- --------
Net cash used for
investing activities (4,922) (3,328)
Financing activities:
Payment of debt obligation (8,913) (8,851)
Issuance of common stock 200 456
Other - (77)
-------- --------
Net cash used in
financing activities (8,713) (8,472)
-------- ---------
Net Increase (decrease) in cash (801) 1,088
Effect of exchange rate changes on cash (73) (13)
Cash, beginning of period 1,050 85
--------- ---------
Cash, end of period $ 176 $ 1,160
======== =========
Cash payments (refunds received) for:
Interest $ 13,579 $ 6,598
Income taxes $ 275 $ (749)
Non cash financing activities:
Preferred Stock Accretion $ 362 $ 401
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 7
FORM 10-Q
Item 1. Financial Statements
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited condensed, consolidated financial statements of
Quality Distribution, Inc. (the "Company") have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments and accruals) considered necessary
for a fair presentation have been included. Certain reclassifications have
been made in the fiscal 1999 statements to conform to the 2000 presentation.
For further information, refer to the consolidated financial statements and
notes thereto for the year ended December 31, 1999, included in the Company's
Form 10-K dated March 30, 2000.
Operating results for the quarter ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the entire fiscal year.
2. CHEMICAL LEAMAN ACQUISITION:
On August 28, 1998, the Company completed its agreement and plan of merger
with Chemical Leaman Corporation ("CLC") and the shareholders of CLC in a
transaction accounted for as a purchase.
On February 3, 1999 the Company entered into a settlement agreement with the
former shareholders of CLC regarding the remaining consideration owed in the
CLC acquisition. The agreement called for a payment of $3 million of restricted
cash to the former shareholders as a settlement of final payment of amounts
owed under the merger agreement and a cancellation of the 5,000 preferred
shares issued in connection with the acquisition. This agreement resulted in
the recording of additional goodwill of approximatley $3 million.
3. COMPREHENSIVE INCOME:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the stockholders' equity
section of the consolidated balance sheets for annuual financial statements.
The Company adopted SFAS 130 in 1998 and accordingly, Comprehensive Income
is as follows:
<PAGE>8
FORM 10 - Q
ITEM 1 - Financial Statements
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)-(continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------- --------
<C> <C>
<S>
Net income (loss) $ (214) $(3,569)
Other comprehensive income, net of tax:
Foreign currency translation adjustments (59) 235
-------- --------
Comprehensive income (loss) $ (273) $(3,334)
======== ========
</TABLE>
4. DERIVATIVES:
The Company utilizes derivative financial instruments to reduce its exposure
to market risks from changes in interest rates and foreign exchange rates.
The instruments primarily used to mitigate these risks are interest rate
swaps and foreign exchange contracts. All derivative instruments held by the
Company are designed as hedges and accordingly, the gains and losses from
changes in derivative fair values are deferred. Gains and losses upon settle-
ment are recognized in the statement of operations or recorded as part of the
underlying asset or liability as appropriate. The Company is exposed to credit
related losses in the event of nonperformance by counterparties to these
financial instruments; however, counterparties to these agreements are major
financial institutions; and the risk of loss due to nonperformance is considered
by management to be minimal. The Company does not hold nor issue interest rate
swaps or foreign exchange contracts for trading purposes.
The Financial Accounting Standards Board ("FASB") issued FAS 133," Accounting
for Derivative Instruments and Hedging Activities," which is effective for the
Company's fiscal year beginning in 2001 (as extended by FAS 137). This Statement
requires that derivative instruments be recognized as assets or liabilities and
measured at fair value. The Company does not anticipate a material effect upon
adoption of this standard.
The Company currently has appproximately $325 million of variable interest
debt. The Company has entered into interest rate swap agreements designed as
a partial hedge of the Company's portfolio of variable rate debt. The purpose
of these swaps is to fix interest rates on variable rate debt and reduce certain
exposures to interest rate fluctuations. At March 31, 2000 the Company had
interest rate swaps with a notional amount of $100 million. The notional
amounts do not represent a measure of exposure of the Company. The Company will
pay counterparties interest at a fixed rate ranging from 5.41% to 5.48%, and
the counter parties will pay the Company interest at a variable rate equal
to LIBOR. The LIBOR rate applicable to these agreements at March 31, 2000 was
6.11%. These agreements mature and renew every three months and expire on
<PAGE>9
FORM 10 - Q
Item 1 - Financial Statements
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited) - (continued)
September 2, 2001. A 10% fluctuation in interest rates would have a $1.9
million impact, net of interest rate swap agreements, on future earnings.
The Company has entered into short-term foreign currency agreements to exchange
US dollars (US $3,150) for Canadian dollars (CN $4,611). The purpose of these
agreements are to hedge against fluctuations in foreign currency exchange
rates. The Company is required to make US dollar payments at fixed exchange
rates ranging from 1.4547 to 1.4700, and as such, the market risk based upon a
10% fluctuation in the exchange rate in immaterial.
5. ENVIRONMENTAL MATTERS:
The Company's activities involve the handling, transportation, storage, and
disposal of bulk liquid chemicals, many of which are classified as
hazardous materials, hazardous substances, or hazardous wastes. The
Company's tank wash and terminal operations engage in the storage or
discharge of wastewater and stormwater that may contain hazardous
substances, and from time to time the Company stores diesel fuel and other
petroleum products at their terminals. As such, the Company is subject to
environmental, health and safety laws and regulation by U.S. federal,
state, local and Canadian government authorities. Environmental laws and
regulations are complex, change frequently and have tended to become more
stringent over time. There can be no assurance that violations of such laws
or regulations will not be identified or occur in the future, or that such
laws and regulations will not change in a manner that could impose material
costs on the Company.
The Company has environmental management programs that it carries out in
conjunction with its safety program. Facility managers are responsible for
environmental compliance. Self-audits are required to address operations,
safety training and procedures, equipment and grounds maintenance,
emergency response capabilities, and wastewater management. The Company
also contracts with an independent environmental consulting firm that
conducts periodic, unscheduled, compliance assessments, which focus on
conditions with the potential to result in releases of hazardous substances
or petroleum, and which also include screening for evidence of past spills
or releases. The Company's relationship to its affiliates could, under
certain circumstances, result in the Company incurring liability for
environmental contamination attributable to an affiliate's operations,
although the Company has not incurred any such derivative liability in the
past. The Company's environmental management program has recently been
extended to its affiliates.
The Company's wholly-owned subsidiary, EnviroPower, Inc., is staffed with
environmental experts who manage the Company's environmental exposure
relating to historical operations and develop policies and procedures,
including periodic audits of the Company's terminals and tank cleaning
facilities, in order to minimize the existence of circumstances that could
<PAGE>10
Form 10-Q
Item 1 - Financial Statements
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited) - (continued)
lead to future environmental exposure. EnviroPower is also the Company's
principal interface with the U.S. Environmental Protection Agency ("EPA")
and various state environmental agencies.
As a handler of hazardous substances, the Company is potentially subject to
strict, joint and several liability for investigating and rectifying the
consequences of spills and other environmental releases of such substances
either under CERCLA or comparable state laws. From time to time, the
Company has incurred remedial costs and regulatory penalties with respect
to chemical or wastewater spills and releases at its facilities and,
notwithstanding the existence of its environmental management program, the
Company cannot assure that such obligations will not be incurred in the
future, nor that such liabilities will not result in a material adverse
effect on the Company's financial condition or results of operations or
its business reputation. As the result of environmental studies conducted
at its facilities in conjunction with its environmental management
program, the Company has identified environmental contamination at
certain of such sites which will require remediation.
The Company has also been named a "potentially responsible party," or has
otherwise been alleged to have some level of responsibility, under CERCLA
or similar state laws for cleanup of off-site locations at which the
Company's waste, or material transported by the Company, has allegedly been
disposed of. The Company has asserted defenses to such actions and has not
incurred significant liability in the CERCLA cases settled to date. While
the Company believes that it will not bear any material liability in any
current or future CERCLA matters, there can be no assurance that the
Company will not in the future incur material liability under CERCLA or
similar laws. See "Risk Factors -- Transporting Hazardous Substances Could
Create Environmental Liabilities" for a discussion of certain risks of the
Company associated with transporting hazardous substances.
CLC is currently solely responsible for remediation of the following two
federal Superfund sites:
Bridgeport, New Jersey. During 1991, CLC entered into a Consent Decree with
the EPA filed in the U.S. District Court for the District of New Jersey,
U.S. v. Chemical Leaman Tank Lines, Inc., Civil Action No. 91-2637 (JFG)
(D.N.J.), with respect to its site located in Bridgeport, New Jersey,
requiring CLC to remediate groundwater contamination. The Consent Decree
required CLC to undertake Remedial Design and Remedial Action ("RD/RA")
related to the groundwater operable unit of the cleanup.
In August 1994, the EPA issued a Record of Decision, selecting a remedy for
the wetlands operable unit at the Bridgeport site at a cost estimated by
the EPA to be approximately $7 million. In October 1998, the EPA issued an
administrative order that requires CLC to implement the EPA's wetlands
remedy. In April 1998, the federal and state natural resource damages
trustees indicated their intention to bring claims against CLC for natural
resource damages at the Bridgeport site. CLC has finalized a consent decree
with the state and federal trustees that will resolve the natural resource
damages claims. CLC has also entered an agreement in principle to reimburse
<PAGE>11
Form 10-Q
Item 1 - Financial Statements
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited) - (continued)
the EPA's past costs in investigating and overseeing activities at the site
over a three year period for which the Company has established reserves. In
addition, the EPA has investigated contamination in site soils. No decision
has been made as to the extent of soil remediation to be required, if any.
CLC initiated litigation against its insurers to recover its costs in
connection with environmental cleanups at its sites. In a case captioned
Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., et al.,
Civil Action No. 89-1543 (SSB) (D.N.J.), Chemical Leaman sought from its
insurers reimbursement of substantially all past and future environmental
cleanup costs at the Bridgeport site. In a case captioned The Aetna
Casualty and Surety Company v. Chemical Leaman Tank Lines, Inc., et al., Civil
Action No. 94-CV-6133 (E.D. Pa.), Chemical Leaman sought from its insurers
reimbursement of substantially all past and future environmental cleanup
costs at its other sites. In an agreement dated as of November 18, 1999,
Chemical Leaman favorably resolved these outstanding insurance claims
resulting in a net recovery of approximately $30 million of which $11.5
million was received during the first quarter of 2000.
West Caln Township, PA. The EPA has alleged that CLC disposed of Hazardous
Materials at the William Dick Lagoons Superfund Site in West Caln,
Pennsylvania. On October 10, 1995, CLC entered a Consent Decree with the
EPA which required CLC to
(1) pay the EPA for installation of an alternate water line to provide
water to area residents;
(2) perform an interim groundwater remedy at the site; and
(3) conduct soil remediation. U.S. v. Chemical Leaman Tank Lines, Inc.,
Civil Action No. 95-CV-4264 (RJB) (E.D. Pa.).
CLC has paid all costs associated with installation of the waterline. CLC
has completed a hydro-geologic study, and has commenced activities for
construction of a groundwater treatment plant to pump and treat
groundwater. The EPA anticipates that CLC will operate the plant for about
five years, at which time the EPA will evaluate groundwater conditions and
determine whether a final groundwater remedy is necessary. Field sampling
for soil remediation recently commenced. The Consent Decree does not cover
the final groundwater remedy or other site remedies or claims, if any, for
natural resource damages.
Other Environmental Matters. CLC has been named as PRP under CERCLA and
similar state laws at approximately 40 former waste treatment and/or
disposal sites including the Helen Kramer Landfill Site where CLC recently
settled its liability. In general, CLC is among several PRP's named at
these sites. CLC is also incurring expenses resulting from the
investigation and/or remediation of certain current and former CLC
properties, including its facility in Tonawanda, New York and its former
facility in Putnam County, West Virginia, and its facility in Charleston,
West Virginia. The Company has also favorably settled a toxic tort claim
brought against it and several co-defendants by an uncertified class of
Texas claimants. As a result of its acquisition of CLC, the Company
identified other owned or formerly owned properties that may require
investigation and/or remediation, including properties subject to the New
<PAGE>12
Form 10-Q
Item 1 - Financial Statements
QUALITY CARRIERS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited) - (continued)
Jersey Industrial Sites Recovery Act (ISRA). CLC's involvement at some of
the above referenced sites could amount to material liabilities, and there
can be no assurance that costs associated with these sites, individually or
in the aggregate, will not be material. The Company has established
reserves to cover amounts associated with the Helen Kramer Landfill, CLC's
facility at Tonawanda, New York and CLC's former facility in Putnam County.
6. GUARANTOR SUBSIDIARIES:
The 10% Series B Senior Subordinated Notes issued in June 1998 and due 2006
are unconditionally guaranteed on a senior unsecured basis pursuant to
guarantees by all the Company's direct and indirect domestic subsidiaries
("The Guarantors").
The Company conducts all of its business through and derives virtually all
its income from its subsidiaries. Therefore, the Company's ability to make
required principal and interest payments with respect all to the Company's
debt depends on the earnings of subsidiaries and its ability to receive funds
from its subsidiaries. The subsidiary guarantors are wholly owned subsidiarys
of the Company and have fully and unconditionally guaranteed the Notes on a
joint and several basis.
The Company has not presented separate financial statements and other
disclosures concerning subsidiary guarantors because management has determined
such information is not material to the holders of the Notes.
The following condensed consolidating financial information presents:
1. Balance Sheets as of March 31, 2000 and December 31,1999.
2. Statements of Operations for the three months ended March 31,2000 and 1999.
3. Statements of Cash Flows for the three months ended March 31,2000 and 1999.
4. The parent company and combined guarantor subsidiaries.
5. Elimination entries necessary to consolidate the parent company and all
its subsidiaries.
<PAGE> 13
FORM 10-Q
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
(Unaudited)
(In thousands)
<TABLE>
<CAPTION> Guarantor Non-Guaran- Consol-
Parent Subs tor Subs Elim's idated
--------- -------- -------- ------- --------
<C> <C> <C> <C> <C>
<S>
ASSETS
Current Assets
Cash and cash equivalents $ - $ (211) $ 387 $ - $ 176
Accounts receivable, net - 105,700 5,160 - 110,860
Inventories - 1,482 244 - 1,726
Prepaid expenses and
other current assets - 38,288 1,590 - 39,878
-------- -------- -------- -------- ---------
Total Current assets - 145,259 7,381 - 152,640
Property and equipment,net - 163,125 22,479 - 185,604
Intangibles & goodwill,net - 156,227 1,021 - 157,248
Insurance proceeds receivable - 850 - - 850
Other assets 100,000 24,479 235 (100,000) 24,714
Investment in Subsidiaries 267,206 - - (267,206) -
--------- -------- -------- -------- -------
$367,206 $489,940 $31,116 $(367,206) $521,056
======== ========= ======== ========= =========
</TABLE>
<PAGE> 14
FORM 10-Q
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED BALANCE SHEETS
CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
(Unaudited) - (In thousands, continued)
<TABLE>
<CAPTION>
Guarantor Non-Guaran- Consol-
Parent Subs tor Subs Elim's idated
--------- ---------- --------- ------- -------
<C> <C> <C> <C> <C>
<S>
Current Liabilities
Current maturities of
indebtedness $ 9,792 $ - $ - _ $ 9,792
Accounts payable and
accrued expenses - 61,465 4,284 - 65,749
Independent contractors
payable - 8,824 115 - 8,939
Other current liabilities - 2,722 993 - 3,715
Income tax payable - 369 588 - 957
--------- -------- -------- ------- -------
Total Current liabilities 9,792 73,380 5,980 - 89,152
Bank debt, less
current maturities 268,615 - 6,828 - 275,443
Capital lease obligations,
less current maturities - 8 - - 8
Subordinated debt 140,000 100,000 - (100,000) 140,000
Environmental liabilities - 44,577 - - 44,577
Other long term liabilities - 15,250 - - 15,250
Deferred income taxes - (2,287) 2,287 - -
Accrued loss and damage claims - 3,393 - - 3,393
Minority interest in subs - 4,434 - - 4,434
Mandatorily redeemable
preferred stock 12,799 - - - 12,799
Redeemable common stock 1,210 - - - 1,210
Stockholders' equity
Common stock and
Additional paid-in-capital 105,133 200,128 15,082 (215,210) 105,133
Retained earnings 20,744 51,057 1,244 (52,301) 20,744
Stock recapitalization (189,589) - (55) 55 (189,589)
Other stockholders' equity (236) - (250) 250 (236)
Note receivable (1,262) - - - (1,262)
-------- -------- --------- -------- --------
Total stockholders'
equity or (deficit) (65,210) 251,185 16,021 (267,206) (65,210)
-------- --------- -------- -------- --------
$367,206 $489,940 $31,116 ($367,206) $521,056
======== ======== ======== ========= ========
</TABLE>
* Condensed from audited financial statements.
<PAGE> 15
FORM 10-Q
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION> Guarantor Non-Guaran- Consol-
Parent Subs tor Subs Elim's idated
--------- -------- --------- ------- ---------
<C> <C> <C> <C> <C>
<S>
ASSETS
Current Assets
Cash and cash equivalents $ - $ 165 $ 885 $ - $ 1,050
Accounts receivable, net - 108,027 8,073 - 116,100
Inventories - 1,547 216 - 1,763
Prepaid expenses and
other current assets - 37,866 882 - 38,748
-------- -------- -------- -------- ---------
Total Current assets - 147,605 10,056 - 157,661
Property and equipment,net - 165,781 22,976 - 188,757
Intangibles & goodwill,net - 157,363 1,051 - 158,414
Insurance proceeds receivable - 11,403 - - 11,403
Other assets 100,000 25,769 237 (100,000) 26,006
Investment in Subsidiaries 271,767 - - (271,767) -
--------- -------- -------- -------- -------
$371,767 $507,921 $34,320 $(371,767) $542,241
======== ========= ======= ========= ========
</TABLE>
<PAGE> 16
FORM 10-Q
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED BALANCE SHEETS
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(Unaudited, in thousands, continued)
<TABLE>
<CAPTION>
Guarantor Non-Guaran- Consol-
Parent Subs tor Subs Elim's idated
--------- ---------- --------- ------- -------
<C> <C> <C> <C> <C>
<S>
Current Liabilities
Current maturities of
indebtedness $18,026 $ - $ - _ $ 18,026
Accounts payable and
accrued expenses - 68,169 4,255 - 72,424
Independent contractors
payable - 8,092 99 - 8,191
Other current liabilities - 4,697 - - 4,697
Income tax payable - 334 520 - 854
--------- -------- -------- ------- -------
Total Current liabilities 18,026 81,292 4,874 - 104,192
Bank debt, less
current maturities 264,867 - 11,100 - 275,967
Capital lease obligations,
less current maturities - 163 - - 163
Subordinated debt 140,000 100,000 - (100,000) 140,000
Environmental liabilities - 49,346 - - 49,346
Other long term liabilities - 15,870 - - 15,870
Deferred income taxes - (2,334) 2,334 - - -
Accrued loss and damage claims - 3,395 - - 3,395
Minority interest in subs - 4,434 - - 4,434
Mandatorily redeemable
preferred stock 12,437 - - - 12,437
Redeemable common stock 1,210 - - - 1,210
Stockholders' equity
Common stock and
Additional paid-in-capital 104,935 200,545 15,081 (215,626) 104,935
Retained earnings 21,320 55,210 1,174 (56,384) 21,320
Stock recapitalization (189,589) (55) 55 (189,589)
Other stockholders' equity (177) - (188) 188 (177)
Note receivable (1,262) - - - (1,262)
-------- -------- --------- -------- -------
Total stockholders'
equity or (deficit) (64,773) 255,755 16,012 (271,767) (64,773)
------- ------- -------- -------- -------
$371,767 $507,921 $34,320 ($371,767) $542,241
======= ======== ======= ========= ========
</TABLE>
* Condensed from audited financial statements.
<PAGE> 17
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUALITY DISTRIBUTION,INC.AND SUBS CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2000
(Unaudited) - (In thousands, except per share data)
<TABLE>
<CAPTION>
Guarantor Non-Guaran- Consol-
Parent Subs tor Subs Elim's idated
------- --------- ---------- -------- --------
<C> <C> <C> <C> <C>
<S>
Operating Revenues
Transportation $ - $125,247 $ 7,255 - $132,502
Other - 15,896 174 - 16,070
-------- -------- -------- -------- -------
- 141,143 7,429 - 148,572
Operating Expenses
Purchased transportation - 82,353 855 - 83,208
Depreciation and amortization - 8,329 968 - 9,297
Other operating expenses - 41,097 5,253 - 46,350
--------- -------- -------- -------- -------
Operating income (loss) - 9,364 353 - 9,717
Interest expense, net 9,928 - 246 - 10,174
Other (income) expense - (25) - - (25)
Equity in earnings (loss)
of Subsidiaries 5,534 - - (5,534) -
--------- --------- -------- --------- ------
Income (loss) before taxes (4,394) 9,389 107 (5,534) (432)
Income taxes (4,180) 3,849 38 - (293)
Minority interest - 75 - 75
--------- --------- -------- -------- ------
Net income (loss) $ (214) $ 5,465 $ 69 $ (5,534) $ (214)
========= ========= ======= ======== =======
</TABLE>
<PAGE> 18
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUALITY DISTRIBUTION,INC.AND SUBS CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999
(Unaudited) - (In thousands, except per share data)
<TABLE>
<CAPTION>
Guarantor Non-Guaran- Consol-
Parent Subs tor Subs Elim's idated
------- --------- ---------- -------- --------
<C> <C> <C> <C> <C>
<S>
Operating Revenues
Transportation $ - $122,685 $ 6,169 - $128,854
Other - 15,323 336 - 15,659
-------- -------- -------- -------- -------
- 138,008 6,505 - 144,513
Operating Expenses
Purchased transportation - 78,162 672 - 78,834
Depreciation and amortization - 15,203 906 - 16,109
Other operating expenses - 41,128 4,372 - 45,500
--------- -------- -------- -------- -------
Operating income (loss) - 3,515 555 - 4,070
Interest expense, net 9,620 - 150 - 9,770
Other expense - (35) - - (35)
Equity in earnings (loss)
of Subsidiaries 2,336 - - (2,336) -
--------- --------- -------- --------- ------
Income (loss) before taxes (7,284) 3,550 405 (2,336) (5,665)
Income taxes (3,716) 1,456 159 - (2,101)
Minority Interest - 5 - - 5
--------- --------- -------- -------- ------
Net income (loss) (3,569) 2,090 246 (2,336) (3,569)
======= ======= ===== ======= ======
</TABLE>
<PAGE> 19
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000(Unaudited) - (In thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guaran- Consol-
Parent Subs tor Subs Elim's idated
------- --------- ---------- ------- ----------
<C> <C> <C> <C> <C>
<S>
Cash provided by (used for)
Operating activities:
Net income (loss) $ (214) $ 5,465 $ 69 $(5,534) $ (214)
Adjustments for non
cash charges 214 8,122 925 9,261
Changes in assets/liabilities - (5,056) 3,309 5,534 3,787
-------- --------- --------- -------- --------
Net cash provided by
operating activities - 8,531 4,303 - 12,834
Investing activities:
Capital expenditures - (5,232) (682) - (5,914)
Proceeds from asset
dispositions - 867 125 - 992
Other - - - - -
-------- --------- --------- -------- -------
Net cash provided by (used
for)investing activities - (4,365) (557) - (4,922)
Financing activities:
Proceeds from issuance of
long term debt - - - - -
Payment of obligations (4,716) - (4,197) - (8,913)
Issuance of common stock 200 - - - 200
Issuance of preferred stock - - - -
Recapitalization expenditures - - - - -
Other - - - - -
Net change in intercompany
balances 4,516 (4,516)
-------- ---------- ---------- ------- --------
Net cash provided by
financing activities - (4,516) (4,197) - (8,713)
-------- ---------- ---------- ------- -------
Net increase (decrease) in
cash - (350) (451) - (801)
Effect of exchange rate
changes on cash - - (73) - (73)
Cash, beginning of period - 138 912 - 1,050
--------- --------- --------- ------- -------
Cash, end of period - $ (212) $ 387 - $ 176
========= ========= ========== ======= =======
</TABLE>
<PAGE> 20
FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUALITY CARRIERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,1999 (Unaudited) - (In thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guaran- Consol-
Parent Subs tor Subs Elim's idated
------- --------- ---------- ------- ----------
<C> <C> <C> <C> <C>
<S>
Cash provided by (used for)
Operating activities:
Net income (loss) $(3,569) $ 2,090 $ 246 ($2,336) $(3,569)
Adjustments for non
cash charges 3,569 9,735 1,007 - 14,311
Changes in assets/liabilities - 9 (198) 2,336 2,146
-------- --------- --------- -------- --------
Net cash provided by
operating activities - 11,833 1,055 - 12,888
Investing activities:
Acquisition of subsidiary - - - - -
Capital expenditures - (3,595) (904) - (4,499)
Proceeds from asset
dispositions - 1,035 149 - 1,184
Other - (13) - - (13)
-------- --------- --------- -------- -------
Net cash used for investing
activities - (2,573) (755) - (3,328)
Financing activities:
Proceeds from issuance of
long term debt - - - - -
Payment of obligations - (8,851) - - (8,851)
Issuance of common stock 456 - - - 456
Issuance of preferred stock - - - - -
Recapitalization expenditures
Other 186 (263) - (77)
Net change in intercompany
balances (456) 456
-------- ---------- ---------- ------- ------
Net cash provided by
financing activities - (8,209) (263) - (8,472)
-------- ---------- ---------- ------- ------
Net increase (decrease) in
cash - 1,051 37 - 1,088
Effect of exchange rate
changes on cash - - (13) - (13)
Cash, beginning of period - (721) 806 - 85
--------- --------- --------- ------- ------
Cash, end of period - $ 330 $ 830 - $1,160
========= ========= ========= ======= =======
</TABLE>
<PAGE>21
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
QUALITY DISTRIBUITION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 2000 COMPARED TO THE FIRST QUARTER 1999
The Company's operating results are affected by shipments for the bulk
chemical industry. Shipments of chemical products are in turn affected by
many other industries, including consumer and industrial products, automotive,
paint and coatings, and paper, and tend to vary with changing economic
conditions. The Company also participates in the shipment of bulk food
products through its food-grade division. The volumes of food products and
certain other consumer products tend to be subject to fewer fluctuations due
to swings in economic activity.
For the quarter ended March 31, 2000, revenues totaled $148.6 million, a 2.8%
increase over revenues of $144.5 million for the same period in 1999. This
increase is due primarily to $3.1 million resulting from the contractual
implementation of fuel surcharges on transportation revenue and increased
transportation revenue for dry bulk products.
For the quarter ended March 31, 2000, operating income totaled $9.7 million,
representing a 138.7 % increase compared to $4.1 million for the same period
in 1999. This increase is primarily due to a $5.9 million charge to depreciation
and amortization attributable to the reduction in the useful life of acquired
computer software made in 1999. Without this charge operating income would
have been $10.0 million in 1999.
The operating ratio for the quarter ended March 31, 2000 was 93.5% compared to
97.2% for the same period in 1999.
Net interest expense increased by $0.4 million to $10.2 million in the quarter
ended March 31 2000, from $9.8 million in the quarter ended March 31, 1999. This
increase is the result of higher interest rates on the variable interest
portion of the Company's debt.
The pretax loss for the quarter ended March 31, 2000 totaled $0.4 million
compared to $5.7 million loss for the same period in 1999.
The effective tax rate increased from 37% to 67% of pretax income or loss due
to the relative impact of non-deductable items on the different loss amounts.
For the quarter ended March 31,2000, the Company's net loss, was $0.2 million
compared with $3.6 million loss for the same period last year.
Basic weighted average shares outstanding increased slightly from 2,005,000
in the first quarter of 1999 to 2,013,649 in the first quarter of 2000.
As of March 31, 2000, a total of 2,013,649 shares were outstanding.
<PAGE> 22
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
QUALITY DISTRIBUTION, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
The Company's primary sources of liquidity are funds provided by operations
and borrowings under various credit arrangements with financial institutions.
Net cash provided by operating activities totaled $12.8 million for the three
months ended March 31, 2000, versus $12.9 million for the same period in 1999.
Cash used by investing activities totaled $4.9 million for the three month
period ended March 31, 2000, compared to $3.3 million used for the comparable
1999 period. This increase was the result of increased capital expenditures in
the first quarter of 2000. Capital was used primarily to acquire additional
revenue equipment to expand the Company's operations.
Cash used in financing activities totaled $8.7 million during the three
month period ended March 31, 2000, compared to $8.5 million used in the
the comparable period in 1999. This difference is primarily due to the
increased payment of debt obligations in 2000 and the reduced proceeds from
issuance of stock.
The Company has a $285,000,000 credit facility with a group of banks
maturing at various times from June of 2004 to 2006. Additionally, the
Company has a revolving credit facility in the amount of $75.0 million until
June 9, 2004. As of March 31, 2000, the Company has available $59.3 million
under this revolving credit facility. The Company also has $100.0 million in
10% senior subordinated notes due in 2006 and $40.0 million in floating
interest rate subordinated term securities also due in 2006.
The Company's management believes that borrowings under the line of credit,
together with available cash and internally generated funds, will be
sufficient to fund QDI's continued growth and meet its working capital
requirements for the foreseeable future.
Year 2000
The Company's business operations have not been materially impacted by year
2000 matters. The Company will continue to monitor it's operations for
possible year 2000 information processing issues.
<PAGE> 23
FORM 10 -Q
PART 1 - FINANCIAL INFORMATION
Forward Looking Statements And Risk Factors
Some of the statements contained in this report discuss future expectations and
contain projections of results of operations or financial condition or state
other "forward-looking" information. Those statements are subject to known and
unknown risks, uncertainties and other factors that could cause the actual
results to differ materially from those contemplated by the statements.
Please see the risk factors set forth in the Company's 1999 Form 10-K which
identify important risk factors such as the Company's high leverage, dependence
on affililiates and owner-operators, environmental risks and claims exposure.
The forward-looking information is based on various factors and was derived
using numerous assumptions. Important factors that could cause our actual
results to be materially different from the forward-looking statements
include general economic conditions, cost and availability of diesel fuel,
adverse weather conditions and competitive rate fluctuations. Future financial
and operating results of QDI may fluctuate as a result of these and other
risk factors as detailed from time to time in company filings with the
Securities and Exchange Commission.
<PAGE> 24
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Reference is made to Item 3 on page 11 of the Company's Form 10-K for the
year ended December 31, 1999. There have been no material changes in the
Company's legal proceedings since this filing.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 6. (a) Exhibits: 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K: None
<PAGE> 25
Signatures
QUALITY DISTRIBUTION, INC.
-------------------------------------------
MAY 11, 2000 /S/ THOMAS L. FINKBINER
-------------------------------------------
THOMAS L. FINKBINER, (CEO, PRESIDENT)
(DULY AUTHORIZED OFFICER)
MAY 11, 2000 /S/ RICHARD J. BRANDEWIE
-------------------------------------------
RICHARD J. BRANDEWIE, (TREASURER)
(PRINCIPAL FINANCIAL OFFICER)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 176
<SECURITIES> 0
<RECEIVABLES> 117514
<ALLOWANCES> 6654
<INVENTORY> 1726
<CURRENT-ASSETS> 152640
<PP&E> 320447
<DEPRECIATION> 134843
<TOTAL-ASSETS> 521056
<CURRENT-LIABILITIES> 89152
<BONDS> 0
12799
0
<COMMON> 20
<OTHER-SE> (1262)
<TOTAL-LIABILITY-AND-EQUITY> 521056
<SALES> 148572
<TOTAL-REVENUES> 148572
<CGS> 0
<TOTAL-COSTS> 138855
<OTHER-EXPENSES> (25)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10174
<INCOME-PRETAX> (432)
<INCOME-TAX> (293)
<INCOME-CONTINUING> (214)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214)
<EPS-BASIC> (.29)
<EPS-DILUTED> (.29)
</TABLE>
