Quality buys Dunn’s, Nassau Disposal assets for $34.3M; posts higher 2Q profit

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Quality Distribution Inc. on Monday, Aug. 6, announced that certain company subsidiaries purchased the operating assets of Dunn’s Tank Service Inc. and the operating assets and rights of Nassau Disposal Inc. for an aggregate cash purchase price of $34.3 million plus an additional $3.6 million in cash consideration if certain future operating and financial performance criteria are satisfied. Quality also announced its financial results for the 2012 second quarter ended June 30.

Dunn’s, headquartered in Velma, Okla., provides transportation services to the unconventional oil and gas industry primarily within the Woodford and Utica shales, primarily hauling flowback and production water for various energy customers. The flowback and production water that Dunn’s hauls primarily is disposed of utilizing two existing saltwater disposal wells owned and operated by Nassau.

“The acquisition of Dunn’s and Nassau represents another important step in expanding and diversifying our energy logistics business,” said Gary Enzor, chief executive officer of Tampa, Fla.-based Quality. “The Woodford and Utica shales are growing, and Dunn’s is well positioned to capitalize on these oil rich areas. We are impressed with Todd Dunn and his operating team and are confident this acquisition will further accelerate our growth in the unconventional energy market.”

On a combined basis for its most recent fiscal year ended Dec. 31, 2011, Dunn’s and Nassau had revenues of about $17.5 million. “We are excited about the opportunity to become part of the Quality family,” said Todd Dunn, president of Dunn’s and Nassau. “This relationship will enable us to capitalize on the rapidly growing markets where oil and natural gas are being actively explored.”

Quality reported net income of $28.8 million for the second quarter ended June 30 compared to net income of $9.0 million in the second quarter ended June 30, 2011. Net income for the second quarter of 2012 included a $22.8 million noncash benefit resulting from releasing a substantial portion of the company’s deferred tax valuation allowance; adjusted net income was $6.5 million compared to adjusted net income of $5.6 million for the same quarter in 2011.

“Second-quarter earnings and year-to-date performance improved from last year, and we anticipate improvement in the second half of the year as we realize further benefits from our recent acquisitions, improve utilization of startup energy assets and stabilize our chemical segment volumes via driver additions,” said Enzor. “We are now operating in five separate shale regions within the U.S., providing us with regional diversity, expanded customer relationships and increased flexibility towards maximizing our productivity.”

Total revenue was $212.7 million, an increase of 12.0 percent. Excluding fuel surcharges, revenue increased 15.0 percent, driven primarily by $24.1 million of higher revenues from the company’s energy logistics business. Higher demand and pricing led to a $3.9 million increase in intermodal revenues, which was offset by $4.5 million of lower revenues in the chemical logistics business primarily driven by reduced volumes and partially offset by higher pricing.

Operating income was $13.4 million, a decrease of 20.6 percent primarily due to about $4.3 million of costs; excluding these items, operating income would have been $17.7 million, up 7.9 percent excluding a $0.5 million restructuring credit in the 2011 period.