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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number: 333-210698

Jack Cooper Holdings Corp.

(Exact name of Registrant as specified in its charter)

Delaware	26-4822446
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1100 Walnut Street, Suite 2400 Kansas City, Missouri	64106
(Address of principal executive offices)	(Zip code)

(816) 983-4000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ◻ No ☒ 

(Note: The registrant is a voluntary filer and not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. Although not subject to these filing requirements, the registrant has filed all reports that would have been required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months had the registrant been subject to such requirements.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ◻ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻Accelerated filer ◻Non-accelerated filer   ☒   (Do not check if a smaller reporting company) Smaller reporting company ◻

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ☒

As of March 31, 2017, there were outstanding 100 shares of the Registrant’s common stock, all of which were issued to the Registrant’s parent company.



INDEX

		Page
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Comprehensive Loss	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

JACK COOPER HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

	Three Months Ended March 31,
	2017		2016
Operating Revenues	$	161,403	$	175,771
Operating Expenses
Compensation and benefits		83,712		90,691
Fuel		14,151		12,818
Depreciation and amortization		9,362		12,904
Repairs and maintenance		11,438		13,580
Other operating		24,423		30,920
Selling, general and administrative expenses		12,680		12,825
Loss on disposal of property and equipment		258		659
Total operating expenses		156,024		174,397
Operating Income		5,379		1,374
Other Expense (Income)
Interest expense, net		12,839		11,538
Other, net		(626)		(2,806)
Total other expenses		12,213		8,732
Loss Before Income Taxes		(6,834)		(7,358)
Provision for Income Taxes		56		255
Net Loss		(6,890)		(7,613)
Other Comprehensive Income (Loss), Net of Tax:
Amortization of actuarial pension gain		19		21
Foreign currency translation loss		(327)		(1,991)
Comprehensive Loss	$	(7,198)	$	(9,583)

See accompanying Notes to Condensed Consolidated Financial Statements

2

JACK COOPER HOLDINGS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

	March 31,		December 31,
	2017		2016
Assets
Current Assets
Cash and cash equivalents	$	22,907	$	17,934
Accounts receivable, net of allowance		48,534		45,141
Prepaid expenses		17,561		16,304
Assets held for sale		122		126
Total current assets		89,124		79,505
Restricted cash		120		120
Property and equipment,  net		106,348		111,027
Goodwill		32,151		32,038
Intangibles, net		25,879		26,344
Deposits and other assets		31,196		30,078
Total assets	$	284,818	$	279,112
Liabilities and Stockholders' Deficit
Current Liabilities
Credit Facility	$	69,764	$	71,039
Current maturities of long-term debt		1,726		1,905
Accounts payable		22,572		22,766
Accrued wages and vacation payable		22,164		17,867
Other accrued liabilities		28,452		18,022
Total current liabilities		144,678		131,599
Other liabilities		7,390		7,515
Long-term debt, less current maturities		477,823		477,684
Pension liability		2,195		2,198
Deferred income taxes		10,102		9,969
Total liabilities		642,188		628,965
Stockholders' Deficit
Jack Cooper Holdings Corp. Deficit:
Common stock, $0.0001 par value; 1,000 shares authorized; 100 issued and outstanding at March 31, 2017 and December 31, 2016		—		—
Additional paid-in capital		—		—
Accumulated deficit		(358,069)		(350,860)
Accumulated other comprehensive income		699		1,007
Total stockholders' deficit		(357,370)		(349,853)
Commitments and Contingencies
Total liabilities and stockholders' deficit	$	284,818	$	279,112

See accompanying Notes to Condensed Consolidated Financial Statements

3

JACK COOPER HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended March 31,
	2017		2016
Operating Activities
Net loss	$	(6,890)	$	(7,613)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		9,362		12,904
Deferred financing cost amortization		846		723
Loss on disposal of property and equipment		258		659
Deferred income taxes		133		120
Stock based compensation		(317)		210
Non-cash interest expense (income)		1		(97)
Unrealized foreign exchange gains, net		(579)		(2,767)
Changes in assets and liabilities:
Trade and other receivables		(3,548)		(4,594)
Prepaid expenses		(1,254)		(3,891)
Accounts payable and accrued expenses		14,550		10,507
Other non-current assets		(1,242)		(4,386)
Other non-current liabilities		326		(25)
Net cash provided by operating activities		11,646		1,750
Investing Activities
Proceeds from sale of property and equipment		251		7
Purchases of property and equipment		(4,608)		(6,184)
Net cash used in investing activities		(4,357)		(6,177)
Financing Activities
Borrowings under Credit Facility		—		38,906
Payments on Credit Facility		(1,275)		(31,154)
Principal payments on long-term debt and other liabilities		(989)		(1,936)
Deferred financing costs		(215)		—
Net cash provided by (used in) financing activities		(2,479)		5,816
Effect of exchange rate change on cash		163		121
Increase in Cash, Cash Equivalents and Restricted Cash		4,973		1,510
Cash, Cash Equivalents and Restricted Cash, Beginning of Period		18,054		2,691
Cash, Cash Equivalents and Restricted Cash, End of Period	$	23,027	$	4,201
Reconciliation of Cash, and Cash Equivalents and Restricted Cash
Cash and cash equivalents, beginning of period		17,934		2,571
Restricted cash, beginning of period		120		120
Cash, Cash Equivalents and Restricted Cash, Beginning of Period	$	18,054	$	2,691
Cash and cash equivalents, end of period		22,907		4,081
Restricted cash, end of period		120		120
Cash, Cash Equivalents and Restricted Cash, End of Period	$	23,027	$	4,201

See accompanying Notes to Condensed Consolidated Financial Statements

4

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

Note 1: ACCOUNTING POlicies and basis of presentation

The condensed consolidated financial statements include all the accounts of Jack Cooper Holdings Corp. and its subsidiaries (“we,” the “Company” or “JCHC”). All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements, and the notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2016. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal, recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.

Organization and Business Overview

The Company is a specialty transportation and other logistics provider and the largest over-the-road finished vehicle logistics company in North America. The Company provides premium asset-heavy and asset-light based solutions to the global new and previously owned vehicle markets, specializing in finished vehicle transportation and other logistics services for major automotive original equipment manufacturers, fleet ownership companies, remarketers, dealers and auctions. The Company offers a broad, complementary suite of asset-heavy and asset-light transportation and logistics solutions, operating through a fleet of 1,995 active rigs and a network of 51 strategically located terminals across North America as of March 31, 2017. The Company believes its scale and full range of over-the-road transportation and value-added logistics services, offered in over 80 locations across the U.S., Canada and Mexico, allow it to operate efficiently and deliver superior customer service.

Revenue

The Company primarily earns revenues under multi-year or single-year contracts from the intrastate and interstate transportation of vehicles. Approximately 47%,  34%, and 7% of the Company’s revenues were from its three largest customers, General Motors Company (“GM”), Ford Motor Company (“Ford”), and Toyota Motor Sales, USA, Inc. (“Toyota”), respectively, for the three months ended March 31, 2017, and 45%, 34%, and 13%, respectively, for the three months ended March 31, 2016. These customers also collectively represented approximately 66% of accounts receivable at March 31, 2017 and 64% at December 31, 2016. The allowance for doubtful accounts totaled $1.0 million and $1.3 million as of March 31, 2017 and December 31, 2016, respectively.

Foreign Currency

The Company’s financial condition and results of operations are recorded in multiple currencies, including the Canadian dollar and the Mexican peso, and the Company has an accounts receivable balance denominated in Nigerian naira. Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar were translated at the exchange rate in effect at the balance sheet date, and revenues and expenses were translated at average exchange rates for the period. Translation adjustments are included in other comprehensive income (loss). Gains and losses on certain of the Company's intercompany loans are included in other, netin the condensed consolidated statements of comprehensive loss due to the intercompany loans not being considered long-term investment in nature.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events relating to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of expenses during the reporting periods. Significant items subject to such estimates and assumptions include those related to workers’ compensation insurance, pension withdrawal liabilities, allowance for doubtful accounts, the recoverability and useful lives of assets, litigation provisions and income taxes. Estimates are revised when facts and circumstances change. As such, actual results could differ materially from those estimates.

5

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

Recently Adopted Accounting Standards

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18 which clarifies the presentation requirements of restricted cash within the statement of cash flows. The changes in restricted cash and restricted cash equivalents during the period should be included in the beginning and ending cash and cash equivalents balance reconciliation on the statement of cash flows. When cash, cash equivalents, restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position, an entity shall calculate a total cash amount in a narrative or tabular format that agrees to the amount shown on the statement of cash flows. Details on the nature and amounts of restricted cash should also be disclosed. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. As permitted in the standard, this new guidance was early adopted by the Company in the first quarter of 2017. As a result of adopting this standard on January 1, 2017, restricted cash of $0.1 million as of March 31, 2017 and 2016, and restricted cash activity are disclosed separately within the cash flow statement. Restricted cash as of March 31, 2017 and 2016 represented certificates of deposits related to merchant services provided by the Company.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which provides for simplification of certain aspects of employee share-based payment accounting including income taxes, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The standard was adopted by the Company January 1, 2017 and was applied prospectively. Excess tax benefits or deficiencies resulting from the exercise or vesting of awards are included in income tax expense in the reporting period in which they occur. No prior or current period financial or cash flow statements were impacted as a result of this change in accounting policy.

Note 2: Property and equipment

Property and equipment, net were as follows for the periods presented below:

	March 31,		December 31,
(in thousands)	2017		2016
Land	$	7,045	$	7,045
Carrier revenue equipment		275,516		272,846
Buildings and equipment		39,732		39,007
Leasehold improvements		2,778		2,710
Construction in process		3,336		4,168
		328,407		325,776
Less: accumulated depreciation		222,059		214,749
Property and equipment, net	$	106,348	$	111,027

The Company performs periodic reviews of the appropriateness of depreciable lives for each category of property and equipment, taking into consideration actual usage, physical wear and tear, and replacement history to determine the remaining life of the asset base. No changes to the remaining useful life of the asset base were made during the three months ended March 31, 2017.

The Company identified certain assets that meet the criteria for assets held for sale classification. The Company had approximately $0.1 million in assets held for sale as of March 31, 2017 and December 31, 2016, on its condensed consolidated balance sheets. These assets primarily consist of tractors and trailers that do not fit the Company’s fleet needs. The Company plans to sell substantially all of the remaining assets during 2017 and, as such, the assets were measured at fair value less cost to sell.

Note 3: LINE OF CREDIT

The Company is party to an Amended and Restated Credit Agreement with the lenders party thereto and Wells Fargo Capital Finance, LLC, as agent, dated June 18, 2013 (as amended, modified and supplemented, the “Credit Facility”),

6

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

which provides a revolving line of credit of $100 million, with the amount available to borrow determined by a borrowing base calculation based on accounts receivable and vehicles owned less letters of credit and other offsets. The Credit Facility matures at the earlier of (i) June 18, 2018 or (ii) the date that is 90 days prior to the then extant maturity date of the Term Loan (as defined in Note 4, which is currently October 18, 2018). As of March 31, 2017 and December 31, 2016, there were $69.8 million and $71.0 million, respectively, in outstanding borrowings under the Credit Facility with a weighted average interest rate of 4.01% and 3.81%, respectively. As of March 31, 2017 and December 31, 2016, the Company had available borrowing capacity of $14.5 million and $12.5 million, respectively, without consideration of the maximum revolver threshold disclosed below. Borrowings under the Credit Facility are reflected within current liabilities on the condensed consolidated balance sheets. Debt issuance costs associated with the Credit Facility of $0.5 million as of March 31, 2017, and $0.6 million as of December 31, 2016 are included within deposits and other assets on the condensed consolidated balance sheets.

All borrowings under the Credit Facility bear interest at the Base Rate plus the Base Rate Margin, or at the Company’s option, at the LIBOR Rate plus the LIBOR Rate Margin (in minimum amounts of $1 million, each such term as defined under the Credit Agreement).

The Credit Facility contains customary representations, warranties and covenants including, but not limited to, certain limitations on the Company’s and its subsidiaries’ ability to incur additional debt, guarantee other obligations, create or incur liens on assets, make investments or acquisitions, make certain dispositions of assets, make optional payments or modifications of certain debt instruments, pay dividends or other payments to our equity holders, engage in mergers or consolidations, sell assets, change our line of business and engage in transactions with affiliates. If availability under the Credit Facility falls below 12.50% of the Maximum Revolver Amount, the Company will be required to maintain a fixed charge coverage maintenance ratio of at least 1.10:1.00 for a specified time. If excess availability under the Credit Facility falls below 12.50% of the Maximum Revolver Amount, the lender may automatically sweep funds from the Company’s cash accounts to pay down the revolver. At March 31, 2017 and December 31, 2016, the Company’s availability under the Credit Facility exceeded the specified threshold amounts and accordingly, the Company was not in a financial covenant period.

During the three months ended March 31, 2017, borrowings under the Credit Facility ranged from $69.8 million to $71.1 million. As of March 31, 2017 and December 31, 2016, the Company had $0.3 million in letters of credit outstanding under the Credit Facility. The Company was in compliance with all applicable covenants under the Credit Facility as of March 31, 2017 and December 31, 2016.

Note 4: Long-Term Debt

Solus Term Loan

On October 28, 2016, the Company entered into a new credit agreement for a $41.0 million senior secured term loan facility with Wilmington Trust, National Association, as agent for Solus Alternative Asset Management LP (“Solus”) as the lender thereto (the “Solus Term Loan”). The Solus Term Loan bears interest at a rate per annum equal to 10.5% payable quarterly in arrears. The Solus Term Loan will mature on October 28, 2020, subject to a springing maturity of March 3, 2020 if $20.0 million or more of the 2020 Notes remain outstanding as of such date, as more fully described in the Solus Term Loan credit agreement. The outstanding principal balance recorded within long-term debt on the condensed consolidated balance sheets is net of deferred financing costs and the unamortized discount totaling $3.0 million as of March 31, 2017, and $2.9 million as of December 31, 2016.

The Solus Term Loan is secured by substantially all of the assets of the Company and its domestic subsidiaries on a subordinated basis to the liens securing the Credit Facility and the MSD Term Loan. The Solus Term Loan is secured on a senior basis, with respect to the ABL Collateral (as defined in the indenture governing the 2020 Notes), and on a subordinated basis, with respect to the Notes Collateral (as defined in the indenture governing the 2020 Notes), to the liens securing the 2020 Notes. Approximately $24.0 million of the proceeds from the Solus Term Loan were loaned to JCEI, which was used to fund the cash portion of the consideration for JCHC’s parent company, Jack Cooper Enterprises, Inc. (“JCEI”), note exchanges commenced and completed by JCEI during the fourth quarter of 2016. The Solus Term Loan provides for voluntary prepayments as well as mandatory prepayments in certain circumstances, such

7

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

as in a change of control or certain asset sales, and is subject to certain prepayment premiums. Further, if the Solus Term Loan is prepaid with the proceeds of a qualified equity raise within one year of entering into the agreement, the Company will pay a premium equal to 5.25% of the aggregate principal amount of the prepayment. The Solus Term Loan also contains customary affirmative and negative covenants and events of default for financings of its type.

MSD Term Loan

On March 31, 2015, the Company entered into a senior secured term loan facility (as amended, the “MSD Term Loan”) in the principal amount of $62.5 million issued at a 4.0% discount with MSDC JC Investments, LLC (“MSDC”), as agent and lender. MSDC is an affiliate of MSD Credit Opportunity Fund, L.P., a Class B stockholder of JCEI, which is the parent company of JCHC. The outstanding principal balance recorded within long-term debt on the condensed consolidated balance sheets is net of the unamortized discount and deferred financing costs totaling $2.3 million as of March 31, 2017, and $2.6 million as of December 31, 2016. The proceeds from the MSD Term Loan were used to pay down outstanding borrowings on the Credit Facility and for general corporate purposes.

Interest on the MSD Term Loan accrues at LIBOR plus 7.0% (10.0% at March 31, 2017), subject to a LIBOR floor of 3.0% per annum. The MSD Term Loan matures on October 18, 2018. The MSD Term Loan also imposes an availability block under the Credit Facility of $6.25 million so long as any indebtedness is outstanding under the MSD Term Loan (or MSDC has any commitment to extend credit resulting in incurrence of such indebtedness). The MSD Term Loan is guaranteed by certain domestic subsidiaries of the Company and is secured by substantially all of the assets of the Company and its domestic subsidiaries and a pledge of 65% of the outstanding equity of the Company’s first-tier foreign subsidiaries. MSDC’s liens have first priority status on the ABL Collateral (as defined in the indenture governing the 2020 Notes) and second priority status on the Notes Collateral (as defined in the indenture governing the 2020 Notes) to the same extent as the liens of the lenders under the Credit Facility in such assets (as contemplated by the Intercreditor Agreement (as defined in the indenture governing the 2020 Notes)), but are junior to the liens of the lenders under the Credit Facility.

2020 Notes

As of March 31, 2017, the Company had outstanding $375 million principal amount of 9.25% Senior Secured Notes due 2020 (the “2020 Notes”), issued pursuant to an indenture dated June 18, 2013. The outstanding principal balance of the 2020 Notes recorded within long-term debt on the condensed consolidated balance sheets is net of unamortized premium and debt financing costs totaling $1.8 million as of March 31, 2017, and $2.0 million as of December 31, 2016.

Interest on the 2020 Notes, accruing at a rate of 9.25% as of March 31, 2017, is payable semi-annually in cash in arrears on June 1 and December 1 of each year. The indenture governing the 2020 Notes contains certain covenants, including covenants, which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries (as defined in the indenture) to incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates and create liens on assets of the Company or the guarantors. The Company was in compliance with all applicable covenants under the indenture governing the 2020 Notes as of March 31, 2017 and December 31, 2016.

NOTE 5: INCOME TAXES

For the three months ended March 31, 2017 and 2016, the Company determined the interim tax expense using an effective tax rate by jurisdiction which was calculated using an estimate of annual earnings and annual tax. The Company’s effective tax rate for the three months ended March 31, 2017 and 2016 was (0.7)% and (3.5)%, respectively. The accounting for income taxes requires deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. As of March 31, 2017 and December 31, 2016, the Company had $100.7 million and $96.5 million, respectively, recorded for valuation allowances. The Company released an unrecognized tax benefit as a discrete item during the three months ended March 31 2017, resulting in an income tax expense benefit of $0.3 million.

8

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

Note 6: Commitments and ContingencieS

Letters of Credit

At March 31, 2017 and December 31, 2016, the Company had $0.3 million in outstanding letters of credit to be used as collateral for certain insurance bonds.

Litigation

On April 27, 2016, we filed a lawsuit against Applied Underwriters, Inc., Applied Underwriters Captive Risk Assurance Company (“AUCRA”), and certain of their affiliates (collectively, the “Applied Defendants”) in California State Court. JCHC alleged the following three claims in the lawsuit: (1) declaratory relief and rescission; (2) tortious breach of the implied covenant of good faith and fair dealing; and (3) fraud and misrepresentation. In connection with these claims, JCHC has demanded compensatory damages, rescission, punitive damages, and/or attorney’s fees. The claims are related to the Applied Defendants’ sale and management of JCHC’s workers’ compensation program, and specifically the Reinsurance Participation Agreements that the Applied Defendants sold to Jack Cooper starting in 2009.

On May 24, 2016, AUCRA submitted a demand for arbitration with the American Arbitration Association (“AAA”), alleging that Jack Cooper has failed to pay certain money owed to it in the amount of $9.5 million. In support of this arbitration demand, on June 14, 2016, AUCRA filed a Motion to Compel Arbitration and Stay the Action on behalf of all Applied Defendants in the California State Court, seeking to force the Company into arbitration and stay the Company’s lawsuit. On July 26, 2016, the California State Court issued an order denying AUCRA’s Motion to Compel Arbitration and Stay the Action, concluding that AUCRA’s dispute resolution provisions were void and unenforceable as a matter of law. In light of the California State Court’s order, on August 8, 2016, AAA placed AUCRA’s arbitration demand in abeyance, cancelling any pending deadlines and requesting that AUCRA provide a status update on any appeal to the California State Court’s order within twelve months. 

On August 9, 2016, the Applied Defendants filed a Notice of Appeal for the California State Court’s order that denied the Motion to Compel Arbitration and Stay the Action. JCHC has opposed the Applied Defendants’ appeal, and the parties are currently awaiting the oral argument to be scheduled. We estimate that the appellate court will not decide the Applied Defendants’ appeal until later in 2017 or in 2018. In August 2017, AUCRA must pay an abeyance fee to AAA or the arbitration will be closed. At this time, we have concluded that a loss related to the Applied Defendants’ arbitration demand is not reasonably possible. 

From time to time and in the ordinary course of business, the Company is a plaintiff or a defendant in other legal proceedings related to various issues, including workers’ compensation claims, tort claims, contractual disputes, and collections. The Company carries insurance that provides protection against certain types of claims, up to the policy limits of its insurance. It is the opinion of management that none of the other known legal actions will have a material adverse impact on the Company’s financial position, results of operations, or liquidity.

Other Commitments

In December of 2016, we estimated that we had triggered a full pension withdrawal liability of $0.2 million from the Central Pennsylvania Teamsters Defined Benefit Plan and as a result, we had recorded an estimated full pension withdrawal liability of $0.2 million as of March 31, 2017 and December 31, 2016.

In March 2016, the Company received a $0.3 million assessment in connection with triggering a full withdrawal from the Western Conference of Teamsters Pension Trust (the “Western Conference Trust”), which the Company had fully accrued as of December 31, 2015. In January 2017, we received a $0.3 million assessment in connection with triggering a partial withdrawal from the Western Conference Trust related to the 2013 plan year. We had total actual liabilities in the amount of $0.3 million as of March 31, 2017 and $0.5 million as of December 31, 2016 for all Western Conference Trust partial withdrawal liabilities as a result of declines in its contributions to the fund during the periods between 2011 and 2014 and the full withdrawal in 2015.

9

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

During the three months ended June 30, 2016, the Company estimated it had triggered a full withdrawal liability from the Teamsters of Philadelphia and Vicinity Pension Plan (the “Philadelphia Plan”) due to the closure of one of the Company’s terminals during the second quarter of 2016. The Company recorded a $2.9 million estimate, net of previously recorded estimated partial withdrawal liabilities, for the full withdrawal liability during the three months ended June 30, 2016. The Company recorded total assessed and estimated liabilities of $5.1 million as of March 31, 2017 and $5.3 million as of December 31, 2016 for all withdrawal liabilities from the Philadelphia Plan as a result of declines in its contributions to the fund during the periods since 2009 and the full withdrawal during 2016.

Note 7: Fair value of financial instruments

GAAP has established a hierarchy for ranking the quality and reliability of the information used to determine fair values and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: 

Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities.

Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3: Unobservable inputs for the asset or liability. 

The Company utilizes the best available information in measuring fair value.  Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Cash and cash equivalents, accounts receivable and payables approximate fair value due to their liquid and short term nature. The estimated fair value of the 2020 Notes outstanding at March 31, 2017 and December 31, 2016 was approximately $134.1 million and $162.2 million, respectively. The estimated fair value of the remaining outstanding debt (including the unsecured debt and outstanding balance on the Credit Facility, MSD Term Loan and Solus Term Loan) was approximately $189.6 million and $193.2 million at March 31, 2017 and December 31, 2016, respectively. The fair value was estimated by comparing interest rates to debt with similar terms and maturities, except for the fair values of the 2020 Notes which were based on quoted prices in markets that are not active, which represents a Level 2 input in the fair value hierarchy.

NOTE 8: GOODWILL AND ACQUIRED INTANGIBLE ASSETS

The Company had total goodwill of $32.2 million and $32.0 million as of March 31, 2017 and December 31, 2016, respectively, and net intangible assets of $25.9 million and $26.3 million as of March 31, 2017 and December 31, 2016, respectively.

The tables below present the change in carrying values by segment:

	Indefinite-Lived				Definite-Lived
Transport Segment			Customer		Customer		Non-Compete		Total
(in thousands)	Goodwill		Relationships		Relationships		Agreement		Intangibles
Balance at December 31, 2016	$	25,144	$	20,356	$	4,209	$	—	$	24,565
Amortization		—		—		(334)		—		(334)
Balance at March 31, 2017	$	25,144	$	20,356	$	3,875	$	—	$	24,231

10

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

	Indefinite-Lived		Definite-Lived
Logistics Segment			Customer		Vendor		Non-Compete				Total
(in thousands)	Goodwill		Relationships		Relationships		Agreement		Trade Names		Intangibles
Balance at December 31, 2016	$	6,894	$	661	$	—	$	—	$	1,118	$	1,779
Amortization		—		(183)		—		—		—		(183)
Currency translation adjustment		113		31		—		—		21		52
Balance at March 31, 2017	$	7,007	$	509	$	—	$	—	$	1,139	$	1,648

Note 9: Related Party Transactions

The Company paid EVE Merchant Holdings, LLC, an affiliate of one of the Company’s directors, less than $0.1 million during the three months ended March 31, 2017 and 2016, as a non-exclusive advisor in connection with certain operations of the Company.  

Note 10: Segment Reporting

The Company had two reportable segments at March 31, 2017 and 2016: the Transport segment and the Logistics segment.

Transport Segment.  The Transport segment provides automotive transportation services to original equipment manufacturers (“OEMs”) of automobiles and light trucks in the U.S. and Canada. Specific services include (i) transportation of new vehicles from OEM assembly centers, vehicle distribution centers and port sites to dealers or other intermediate destinations, in connection with which the Company collects fuel surcharges; and (ii) certain asset-light services such as rail car loading and gate releasing services at OEM assembly centers and related new vehicle inspection services. The average length of haul is approximately 170 miles, though lengths of haul range from less than a mile up to approximately 2,400 miles. The consolidated entities that comprise the Transport segment are: Jack Cooper Transport Company, Inc. and its wholly owned subsidiaries, and Jack Cooper Transport Canada, Inc. and its wholly owned subsidiaries.

Logistics Segment.  The Logistics segment engages in the global asset-light automotive supply chain for new and used finished vehicles and includes: (i) brokerage of transportation of used vehicles, including vehicles sold through automotive auction process and (ii) services within the growing remarketed vehicle sector, in which our customers are typically OEM remarketing departments, automotive auction companies and logistics brokers, including brokering of the international shipment of cars and trucks from various ports in the U.S. to various international destinations; inspection and title storage services for pre-owned and off-lease vehicles; and supply chain management services as well as rail and yard management and port processing. Customers contract through AES to ship vehicles and equipment using space purchased on third-party vessels. Other items shipped include heavy construction equipment, farm equipment and commercial trucking vehicles.

The consolidated entities that comprise the Logistics segment are Jack Cooper Logistics, LLC and AES, and their wholly-owned subsidiaries, including, Axis Logistics Services, Inc., Jack Cooper CT Services, Inc., Jack Cooper Rail & Shuttle, Inc. and five Mexican operating companies.

The following table provides information on the two segments as of and for the three months ended March 31, 2017 and 2016:

	2017
(in thousands)	Transport		Logistics		Segments Total		Corporate		Consolidated
Sales to external customers	$	148,229	$	13,174	$	161,403	$	—	$	161,403
Operating income (loss)		5,460		337		5,797		(418)		5,379
Capital expenditures		4,454		154		4,608		—		4,608
Total assets		257,891		23,828		281,719		3,099		284,818

11

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

	2016
(in thousands)	Transport		Logistics		Segments Total		Corporate		Consolidated
Sales to external customers	$	157,938	$	17,833	$	175,771	$	—	$	175,771
Operating income (loss)		401		1,440		1,841		(467)		1,374
Capital expenditures		5,883		88		5,971		213		6,184
Total assets		274,804		24,234		299,038		3,481		302,519

Administrative services provided by the corporate office allocated to the individual segments represent corporate services rendered to and costs incurred for each segment including allocation of general corporate management oversight costs.

NOTE 11: CONDENSED CONSOLIDATING SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The following tables present condensed consolidating financial statements under the equity method of (a) the parent company, Jack Cooper Holdings Corp., as issuer of the 2020 Notes; (b) the subsidiary guarantors of the 2020 Notes; and (c) the subsidiaries that are not guarantors of the 2020 Notes. Separate financial statements of the subsidiary guarantors are not presented because the Company owns all outstanding voting stock of each of the subsidiary guarantors and the guarantee by each subsidiary guarantor is full and unconditional and joint and several. As a result and in accordance with Rule 3-10(f) of Regulation S-X under the Securities Exchange Act of 1934, as amended, the Company includes the following tables in these notes to the condensed consolidated financial statements:

	Three Months Ended March 31, 2017
(in thousands)					Non-
Condensed Consolidating Statements of Comprehensive Income (Loss):	Parent		Guarantors		Guarantors		Eliminations		Consolidated
Operating Revenues	$	—	$	153,087	$	10,376	$	(2,060)	$	161,403
Operating Expenses
Compensation and benefits		—		79,567		4,145		—		83,712
Fuel		—		13,048		1,103		—		14,151
Depreciation and amortization		55		8,701		606		—		9,362
Repairs and maintenance		—		10,461		977		—		11,438
Other operating		—		23,514		2,610		(1,701)		24,423
Selling, general and administrative expenses		365		11,814		860		(359)		12,680
Gain (loss) on disposal of property and equipment		—		318		(60)		—		258
Total operating expenses		420		147,423		10,241		(2,060)		156,024
Operating Income (Loss)		(420)		5,664		135		—		5,379
Other Expense (Income)
Interest expense (income), net		12,891		(164)		112		—		12,839
Other, net		—		—		(626)		—		(626)
Equity in loss of consolidated subsidiaries		(6,421)		(845)		—		7,266		—
Income (Loss) Before Income Taxes		(6,890)		6,673		649		(7,266)		(6,834)
Provision (Benefit) for Income Taxes		—		252		(196)		—		56
Net Income (Loss)		(6,890)		6,421		845		(7,266)		(6,890)
Equity in other comprehensive loss of consolidated subsidiaries		(308)		(327)		—		635		—
Other comprehensive income (loss), net of tax		—		19		(327)		—		(308)
Comprehensive Income (Loss)	$	(7,198)	$	6,113	$	518	$	(6,631)	$	(7,198)

12

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

	Three Months Ended March 31, 2016
(in thousands)					Non-
Condensed Consolidating Statements of Comprehensive Income (Loss):	Parent		Guarantors		Guarantors		Eliminations		Consolidated
Operating Revenues	$	—	$	166,761	$	13,105	$	(4,095)	$	175,771
Operating Expenses
Compensation and benefits		—		83,831		6,860		—		90,691
Fuel		—		11,410		1,408		—		12,818
Depreciation and amortization		59		11,360		1,485		—		12,904
Repairs and maintenance		—		12,024		1,556		—		13,580
Other operating		—		29,962		4,447		(3,489)		30,920
Selling, general and administrative expenses		407		11,964		1,060		(606)		12,825
Loss on disposal of property and equipment		—		341		318		—		659
Total operating expenses		466		160,892		17,134		(4,095)		174,397
Comprehensive Income (Loss)		(466)		5,869		(4,029)		—		1,374
Other Expense (Income)
Interest expense (income), net		11,560		(132)		110		—		11,538
Other, net		—		2		(2,808)		—		(2,806)
Equity in loss (income) of consolidated subsidiaries		(4,413)		1,332		—		3,081		—
Income (Loss) Before Income Taxes		(7,613)		4,667		(1,331)		(3,081)		(7,358)
Provision for Income Taxes		—		254		1		—		255
Net Income (Loss)		(7,613)		4,413		(1,332)		(3,081)		(7,613)
Equity in other comprehensive loss of consolidated subsidiaries		(1,970)		(1,991)		—		3,961		—
Other comprehensive income (loss), net of tax		—		21		(1,991)		—		(1,970)
Comprehensive Income (Loss)	$	(9,583)	$	2,443	$	(3,323)	$	880	$	(9,583)

13

JACK COOPER HOLDINGS, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

	As of March 31, 2017
(in thousands)					Non-
Condensed Consolidating Balance Sheet:	Parent		Guarantors		Guarantors		Eliminations		Consolidated
Assets
Current Assets
Cash and cash equivalents	$	—	$	17,882	$	5,025	$	—	$	22,907
Accounts receivable, net of allowance		—		47,769		1,057		(292)		48,534
Prepaid expenses		265		16,549		747		—		17,561
Assets held for sale		—		71		51		—		122
Total current assets		265		82,271		6,880		(292)		89,124
Restricted cash		—		120		—		—		120
Investment in affiliates		(21,570)		(17,691)		—		39,261		—
Property and equipment, net		2,831		98,130		5,387		—		106,348
Goodwill		—		30,980		1,171		—		32,151
Intangibles, net		—		25,358		521		—		25,879
Deposits and other assets		477		30,403		316		—		31,196
Intercompany receivables		216,859		94,754		—		(311,613)		—
Total assets	$	198,862	$	344,325	$	14,275	$	(272,644)	$	284,818
Liabilities and Stockholders' Equity
Current Liabilities
Credit Facility	$	69,764	$	—	$