News Column

RAND LOGISTICS, INC. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

June 12, 2014

All dollar amounts are presented in millions except share, per share and per day amounts. The following management's discussion and analysis ("MD&A") is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial Statements and the accompanying financial statement notes of the Company appearing elsewhere in this Annual Report on Form 10-K for the fiscal year ended March 31, 2014. Overview Business Rand (formerly Rand Acquisition Corporation) was incorporated in the State of Delaware in 2004 as a blank check company. In 2006, we acquired all of the outstanding shares of capital stock of Lower Lakes Towing and its affiliate, Grand River. Subsequent to the acquisition of Lower Lakes Towing and Grand River, we have added ten vessels to our fleet through acquisition transactions, including the calendar year 2011 acquisitions of three self-unloading articulated tug and barge units and two bulk carriers. We have also retired two smaller vessels. Our shipping business is operated in Canada by Lower Lakes Towing and in the United States by Lower Lakes Transportation. Lower Lakes Towing was organized in March 1994 under the laws of Canada to provide marine transportation services to dry bulk goods suppliers and purchasers operating in ports on the Great Lakes and has grown from its origin as a small tug and barge operator to a full service shipping company with a fleet of sixteen cargo-carrying vessels. We have grown to become one of the largest bulk shipping companies operating on the Great Lakes and the leading service provider in the River Class market segment, which we define as vessels less than 650 feet in overall length. We transport construction aggregates, coal, iron ore, salt, grain and other dry bulk commodities for customers in the construction, electric utility, integrated steel and food industries. We believe that Lower Lakes is the only company providing significant domestic port-to-port services to both Canada and the United States in the Great Lakes region. Lower Lakes maintains this operating flexibility by operating both U.S. and Canadian flagged vessels in compliance with the Shipping Act, 1916, and the Merchant Marine Act, 1920, commonly referred to as the Jones Act in the U.S. and the Coasting Trade Act in Canada. 22 -------------------------------------------------------------------------------- Results of Operations Fiscal year ended March 31, 2014 compared to fiscal years ended March 31, 2013 and 2012 Selected Financial Information Year ended March Year ended March Year ended March (USD in 000's) 31, 2014 31, 2013 31, 2012 Revenue: Freight and related revenue $ 128,145$ 117,797$ 107,618 Fuel and other surcharges $ 26,475 $ 37,404 $ 38,886 Outside voyage charter revenue $ 1,184 $ 1,437 $ 1,321 Total $ 155,804$ 156,638$ 147,825 Expenses: Outside voyage charter fees $ 1,086 $ 1,447 $ 1,312 Vessel operating expenses $ 102,804$ 104,896 $ 97,274 Repairs and maintenance $ 7,191 $ 8,350 $ 7,179 Sailing days: 4,166 3,922 3,721 Number of vessels operated: 15 16 14 Per day in whole USD: Revenue per sailing day: Freight and related revenue $ 30,760 $ 30,035 $ 28,922 Fuel and other surcharges $ 6,355 $ 9,537 $ 10,450 Expenses per sailing day: Vessel operating expenses $ 24,677 $ 26,746 $ 26,142 Repairs and maintenance $ 1,726 $ 2,129 $ 1,929 23

-------------------------------------------------------------------------------- Fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013 Selected Financial Information Year ended March Year ended March (USD in 000's) 31, 2014 31, 2013 Change % Change Revenue: Freight and related revenue $ 128,145$ 117,797$ 10,348 8.8 % Fuel and other surcharges $ 26,475$ 37,404$ (10,929 ) (29.2 )% Outside voyage charter revenue $ 1,184 $ 1,437 $ (253 ) (17.6 )% Total $ 155,804$ 156,638$ (834 ) (0.5 )% Expenses: Outside voyage charter fees $ 1,086 $ 1,447 $ (361 ) (24.9 )% Vessel operating expenses $ 102,804$ 104,896$ (2,092 ) (2.0 )% Repairs and maintenance $ 7,191 $ 8,350 $ (1,159 ) (13.9 )% Sailing Days: 4,166 3,922 244 6.2 % Number of vessels operated: 15 16 (1 ) (6.3 )% Per day in whole USD: Revenue per Sailing Day: Freight and related revenue $ 30,760$ 30,035$ 725 2.4 % Fuel and other surcharges $ 6,355 $ 9,537 $ (3,182 ) (33.4 )% Expenses per Sailing Day: Vessel operating expenses $ 24,677$ 26,746$ (2,069 ) (7.7 )% Repairs and maintenance $ 1,726 $ 2,129 $ (403 ) (18.9 )% 24

-------------------------------------------------------------------------------- The following table summarizes the changes in the components of our revenue and vessel operating expenses as a result of changes in Sailing Days, which we define as days a vessel is crewed and available for sailing, during the fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013: Freight and related Fuel and other Outside voyage Vessel operating (USD in 000's) Sailing Days revenue surcharges charter Total revenue expenses Fiscal year ended March 31, 2013 3,922 $ 117,797$ 37,404$ 1,437$ 156,638$ 104,896 Changes in fiscal year ended March 31, 2014 Decrease attributable to weaker Canadian dollar (2,914 ) (672 ) (66 ) (3,652 ) (2,361 ) Net increase attributable to customer demand, pricing (excluding currency impact) and reduction of lost time due to incidents. 244 13,262 (10,257 ) - 3,005 269 Changes in outside voyage charter revenue (excluding currency impact) (187 ) (187 ) - Sub-total 244 $ 10,348$ (10,929 )$ (253 )$ (834 )$ (2,092 ) Fiscal year ended March 31, 2014 4,166 $ 128,145$ 26,475$ 1,184$ 155,804 102,804 Total revenue during the fiscal year ended March 31, 2014 was $155.8 million, a decrease of 0.5%, compared to $156.6 million during the fiscal year ended March 31, 2013. This decrease was primarily attributable to reduced fuel surcharges and a weaker Canadian dollar, offset by increased tonnage carried and increased prices. According to the Lake Carriers' Association, during the 2013 sailing season, U.S.-flagged vessels on the Great Lakes experienced a modest 0.3% decrease in overall customer shipments for the commodities that we carry compared to the 2012 sailing season. The 3.0% decline in iron ore tonnage hauled was offset by a 3.7% increase in coal and a 1.6% increase in aggregates hauled by U.S.-flagged vessels during the 2013 sailing season compared to the 2012 sailing season. In the 2013 sailing season, on a total Great Lakes basis, which includes Canadian and U.S. ports, iron ore shipments decreased 5.4%, coal shipments decreased 2.8% and aggregates cargos increased 1.7% compared to the 2012 sailing season. During the three month period ended March 31, 2014, the Great Lakes experienced one of its harshest winters in approximately thirty years. Ice coverage on the Great Lakes reached near record levels during the winter season, delaying the formal opening of the St. Lawrence Seaway. Once the locks were opened, passage on the lakes and the seaway was limited, requiring Coast Guard ice breaker assistance to facilitate the limited movements that did occur. During the three month period ended March 31, 2014, on a total Great Lakes basis, iron ore shipments decreased 32.7% and coal shipments decreased 15.2% compared to the three month period ended March 31, 2013. There was no movement of aggregates cargoes during the three month period ended March 31, 2014. According to the Lake Carriers Association, U.S.-flagged vessels on the Great Lakes experienced a 38.3% decrease in overall customer shipments for the commodities that we carry during the three month period ended March 31, 2014. During the three month period ended March 31, 2014, iron ore tonnage hauled by U.S.-flagged vessels decreased 40.5%, coal tonnage hauled by U.S.-flagged vessels decreased 27.7% and there was no movement of aggregates due to the delay in the opening of the quarries. During the fiscal year ended March 31, 2014, we more than offset the decline in our iron ore and coal shipments by altering our commodity mix, which resulted in a 4.8% increase in our tonnage carried for the fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013. Our tonnage carried in the fiscal year ended March 31, 2014 was significantly negatively impacted by the adverse weather conditions experienced throughout such fiscal year. 25 -------------------------------------------------------------------------------- Freight and other related revenue generated from Company-operated vessels increased $10.3 million or 8.8%, to $128.1 million during the fiscal year ended March 31, 2014 compared to $117.8 million during the fiscal year ended March 31, 2013. Excluding the impact of currency changes, freight revenue increased 11.3% during the fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013. The increase in freight and related revenue was attributable to the increase in tonnage carried, 244 additional Sailing Days and contractual price increases. Additionally, certain customer contract renewals included a reset of the base fuel price to reflect prevailing market conditions for fuel, resulting in an increase in freight revenue and an equivalent reduction in fuel surcharges during the fiscal year ended March 31, 2014. The changes to these agreements had no impact on our actual fuel expenses and did not change the fuel escalation provisions that are part of all of our contracts. There was no impact to operating income resulting from these changes. We operated fifteen and sixteen vessels during the fiscal years ended March 31, 2014 and March 31, 2013, respectively. One of our vessels was in long-term layup status during the fiscal year ended March 31, 2014. This vessel operated for 251 days during the fiscal year ended March 31, 2013. The reduction of Sailing Days attributable to such vessel not sailing during the fiscal year ended March 31, 2014 was offset by the elimination of lost time due to vessel incidents and the addition of our newest vessel, which sailed for 296 days during the fiscal year ended March 31, 2014, compared to 92 days during the fiscal year ended March 31, 2013. Management believes that each of our vessels should achieve a theoretical maximum of 275 Sailing Days in the sailing season, assuming no major repairs, incidents or vessel layups and normal drydocking cycle times performed during the winter lay-up period. The Company's operated vessels sailed an average of approximately 278 Sailing Days during the fiscal year ended March 31, 2014, compared to an average of 255 Sailing Days during the fiscal year ended March 31, 2013. We also measure Delay Days, which we define as the lost time incurred by our vessels while in operation and includes delays caused by inclement weather, dock delays, traffic congestion and vessel mechanical issues. We experienced 470 Delay Days during the fiscal year ended March 31, 2014 compared to 375 Delay Days during the fiscal year ended March 31, 2013. We reduced Delay Days arising from vessel mechanical issues during the fiscal year ended March 31, 2014 by 40 days, or 31%, compared to the fiscal year ended March 31, 2013. However, the reduction in mechanical-related Delay Days during the fiscal year ended March 31, 2014 was offset by an increase of 137 Delay Days during the fiscal year ended March 31, 2014 related to increased weather-related delays, dock delays and traffic congestion. Weather-related delays accounted for approximately 43% of the Delay Days during the fiscal year ended March 31, 2014 compared to approximately 28% of the Delay Days during the fiscal year ended March 31, 2013. Such Delay Days represent a Lost Time Factor, calculated as Delay Days as a percentage of Sailing Days, of 11.3% for the fiscal year ended March 31, 2014 compared to 9.6% for the fiscal year ended March 31, 2013. Freight and related revenue per Sailing Day increased $725, or 2.4%, to $30,760 per Sailing Day during the fiscal year ended March 31, 2014 compared to $30,035 per Sailing Day during the fiscal year ended March 31, 2013. This revenue increase was due to an approximate 26%, 19% and 5% increases in salt, grain and aggregates tonnages carried, respectively, during the fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013, and was somewhat offset by a weaker Canadian dollar and an approximate 18% decrease in ore tonnage hauled during the fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013. The overall increase in tonnage carried and the efficient deployment of our vessels were not optimized due to the challenging weather conditions on the Great Lakes throughout the fiscal year ended March 31, 2014 generally, and further exacerbated in the three month period ended March 31, 2014. All of our customer contracts have fuel surcharge provisions pursuant to which changes in our fuel costs are passed on to our customers. Such increases and decreases in fuel surcharges impact margin percentages, but do not significantly impact our margin dollars. Fuel and other surcharges decreased $10.9 million, or 29.2%, to $26.5 million during the fiscal year ended March 31, 2014 compared to $37.4 million during the fiscal year ended ended March 31, 2013. This decrease was attributable to reduced fuel prices, a weaker Canadian dollar and the renewal of several customer contracts that reset the base fuel price and reduced the fuel surcharge (which surcharge was added to freight and other related revenue), slightly offset by an increased number of Sailing Days. Fuel and other surcharges per Sailing Day decreased by $3,182, or 33.4%, to $6,355 per Sailing Day during the fiscal year ended March 31, 2014 compared to $9,537 per Sailing Day during the fiscal year ended March 31, 2013. 26 -------------------------------------------------------------------------------- Vessel operating expenses decreased $2.1 million, or 2.0%, to $102.8 million during the fiscal year ended March 31, 2014 compared to $104.9 million during the fiscal year ended March 31, 2013. This decrease was primarily due to a weaker Canadian dollar, reduced fuel pricing and reduced expenses related to vessel incident costs, offset by a greater number of Sailing Days attributable to the elimination of lost time due to incidents. Vessel operating expenses per Sailing Day decreased $2,069, or 7.7%, to $24,677 per Sailing Day during the fiscal year ended March 31, 2014 from $26,746 per Sailing Day during the fiscal year ended March 31, 2013. Repairs and maintenance expenses, which primarily consist of expensed winter work, decreased $1.2 million to $7.2 million during the fiscal year ended March 31, 2014 from $8.4 million during the fiscal year ended March 31, 2013 primarily due to the three acquired vessels acquired in fiscal 2012 which incurred higher costs in the prior year, as well as lower fitout costs, which were delayed due to the late start of the 2014 sailing season. Repairs and maintenance per Sailing Day decreased $403, or 18.9%, to $1,726 per Sailing Day during the fiscal year ended March 31, 2014 from $2,129 per Sailing Day during the fiscal year ended March 31, 2013. Our general and administrative expenses were $12.2 million during the fiscal year ended March 31, 2014, a decrease of 1.3 million, or 9.8%, from $13.5 million during the fiscal year ended March 31, 2013. The reduction was due to a weaker Canadian dollar and reduced legal expenses and bank fees, partially offset by additional compensation and benefit costs. Our general and administrative expenses represented 9.5% of freight revenues during the fiscal year ended March 31, 2014 compared to 11.4% of freight revenues during the fiscal year ended March 31, 2013. Depreciation expense increased $1.6 million to $17.0 million during the fiscal year ended March 31, 2014 compared to $15.4 million during the fiscal year ended March 31, 2013. This increase was primarily attributable to the articulated tug and barge unit that began sailing in October 2012 and winter 2013 capital expenditures, offset by a weaker Canadian dollar during the fiscal year ended March 31, 2014. Amortization of drydock costs decreased $207 to $3.3 million during the fiscal year ended March 31, 2014 from $3.5 million during the fiscal year ended March 31, 2013. During each of the fiscal years ended March 31, 2014 and 2013, the Company amortized the deferred drydock costs of twelve of its sixteen vessels. As a result of the items described above, during the fiscal year ended March 31, 2014, the Company's operating income increased $2.8 million, or 35.1%, to $10.9 million compared to operating income of $8.1 million during the fiscal year ended March 31, 2013. Operating income plus depreciation, amortization of drydock costs and amortization of intangibles increased 14.9%, or $4.2 million, to $32.5 million during the fiscal year ended March 31, 2014 from $28.3 million during the fiscal year ended March 31, 2013. Interest expense decreased $798 to $9.4 million during the fiscal year ended March 31, 2014 from $10.2 million during the fiscal year ended March 31, 2013. This decrease in interest expense was primarily attributable to the expiration of interest rate swap contracts on March 31, 2013, a slightly lower average debt balance and a weaker Canadian dollar that translated into lower interest expenses for our Canadian dollar borrowings. Our interest rate swap contracts expired on March 31, 2013. During the fiscal year ended March 31, 2013, we recorded a gain on such contracts of $1.1 million. Our income before income taxes was $316 during the fiscal year ended March 31, 2014 compared to loss before income taxes of $4.3 million during the fiscal year ended March 31, 2013. Our effective tax rate for fiscal year ended March 31, 2014 was 1,526.3% on pre-tax income of $316 resulting in an income tax expense of $4.8 million. Other than statutory minimum foreign federal tax of approximately $100, none of our federal or foreign income tax expense is payable in cash due to our net operating loss carry-forwards ("NOL"). Our effective tax rate for fiscal year ended March 31, 2013 was 11.4% on pre-tax loss of $4.3 million resulting in an income tax recovery of $0.5 million. Our current effective tax expense is primarily driven by the establishment of a $4.1 million reserve or valuation allowance against our U.S. federal net deferred tax assets. Our U.S. NOL was $46.1 million as of March 31, 2014. As it relates to the $4.1 million valuation allowance against our US federal net deferred tax assets, the Company is required to establish a valuation allowance when future deductibility is uncertain. At March 31, 2014, the Company determined that its U.S. Federal net deferred tax assets, including net operating loss carry-forwards, may not be utilized. Generally accepted accounting principles in the U. S. 27 --------------------------------------------------------------------------------



("US GAAP") requires the evaluation of the prior three years cumulative US pre-tax earnings to determine the usability of an NOL. Based on the US GAAP requirements, management determined that the reserve was warranted as of March 31, 2014. On an ongoing basis, the valuation allowance will be reviewed and adjusted based on management's assessment of the realizability of the net deferred tax assets.

Our provision for income tax expense was $4.8 million during the fiscal year ended March 31, 2014 compared to an income tax recovery of $0.5 million during the fiscal year ended March 31, 2013. The increase in income tax expense was due to higher net income before income taxes and a higher consolidated tax rate during the fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013. In addition to pre-tax earnings variances, the increase in income tax expense was due to the implementation of a full Federal valuation allowance against the U.S. Federal net deferred tax assets.



Our net income before preferred stock dividends was $4.5 million during the fiscal year ended March 31, 2014 compared to $3.8 million during the fiscal year ended March 31, 2013.

We accrued $3.4 million for dividends on our preferred stock during the fiscal year ended March 31, 2014 compared to $3.2 million during the fiscal year ended March 31, 2013. The dividends accrued at a rate of 12.0% during the fiscal year ended March 31, 2013 and through March 11, 2014 in the fiscal year ended March 31, 2014. Beginning on March 12, 2014, dividends accrued at a rate of 7.75%. As of March 31, 2014, all preferred stock dividends had been paid. Our net loss applicable to common stockholders was $7.9 million during the fiscal year ended March 31, 2014 compared to a net loss of $7.0 million during the fiscal year ended March 31, 2013. The Canadian dollar weakened by 4.9% compared to the U.S. dollar during the fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013, averaging approximately $0.950 USD per CDN during the fiscal year ended March 31, 2014 compared to approximately $0.999 USD per CDN during the fiscal year ended March 31, 2013. The Company's balance sheet translation rate decreased from $0.984 USD per CDN at March 31, 2013 to $0.905 USD per CDN at March 31, 2014. During the fiscal year ended March 31, 2014, the Company operated an average of six vessels in the U.S. and nine vessels in Canada. The percentage of our total freight and other revenue, fuel and other surcharge revenue, vessel operating expenses, repairs and maintenance costs and combined depreciation and amortization costs approximate the percentage of vessels operated by country. Approximately half of our general and administrative costs are incurred in Canada. Approximately 50% of our interest expense is incurred in Canada, reflecting the approximate percentage of total debt. All of our preferred stock dividends are accrued in the U.S. 28

-------------------------------------------------------------------------------- Fiscal year ended March 31, 2013 compared to the fiscal year ended March 31, 2012 Selected Financial Information Year ended Year ended (USD in 000's) March 31, 2013 March 31, 2012 Change % Change Revenue: Freight and related revenue $ 117,797$ 107,618$ 10,179 9.5 % Fuel and other surcharges $ 37,404$ 38,886$ (1,482 ) (3.8 )% Outside voyage charter revenue $ 1,437$ 1,321$ 116 8.8 % Total $ 156,638$ 147,825$ 8,813 6.0 % Expenses: Outside voyage charter fees $ 1,447$ 1,312$ 135 10.3 % Vessel operating expenses $ 104,896$ 97,274$ 7,622 7.8 % Repairs and maintenance $ 8,350$ 7,179$ 1,171 16.3 % Sailing Days: 3,922 3,721 201 5.4 % Number of vessels operated: 16 14 2 14.3 % Per day in whole USD: Revenue per Sailing Day: Freight and related revenue $ 30,035$ 28,922$ 1,113 3.8 % Fuel and other surcharges $ 9,537$ 10,450$ (913 ) (8.7 )% Expenses per Sailing Day: Vessel operating expenses $ 26,746$ 26,142$ 604 2.3 % Repairs and maintenance $ 2,129$ 1,929$ 200 10.4 % 29

-------------------------------------------------------------------------------- The following table summarizes the changes in the components of our revenue and vessel operating expenses as a result of changes in Sailing Days during the fiscal year ended March 31, 2013 compared to the fiscal year ended March 31, 2012: Freight and related Fuel and other Outside voyage Vessel operating (USD in 000's) Sailing Days revenue surcharges charter Total revenue expenses Fiscal year ended March 31, 2012 3,721 $ 107,618$ 38,886$ 1,321$ 147,825$ 97,274 Changes in fiscal year ended December 31, 2013: Decrease attributable to weaker Canadian dollar (470 ) (139 ) (7 ) (616 ) (434 ) Net decrease attributable to vessel incidents (123 ) (3,428 ) (2,101 ) (5,529 ) (1,525 ) Net increase attributable to customer demand, pricing (excluding currency impact) and reduction of lost time due to incidents. 324 14,077 758 14,835 9,581 Changes in outside voyage charter revenue (excluding currency impact) 123 123 Sub-total 201 $ 10,179$ (1,482 )$ 116$ 8,813$ 7,622 Fiscal year ended March 31, 2013 3,922 $ 117,797$ 37,404$ 1,437$ 156,638$ 104,896 Total revenue during the fiscal year ended March 31, 2013 was $156.6 million, an increase of $8.8 million, or 6.0%, compared to $147.8 million during the fiscal year ended March 31, 2012. This increase was primarily attributable to higher freight revenue, partially offset by reduced fuel surcharges and the effect of the slightly weaker Canadian dollar. According to the Lake Carriers' Association, during the 2012 sailing season, U.S.-flagged vessels industry-wide experienced a 5.1% decrease in overall customer demand for the commodities that we carry on the Great Lakes compared to the 2011 sailing season. Other than aggregates, for which U.S.-flagged shipments increased 1.7%, overall industry tonnage decreased for all of the major commodities that we carried on the Great Lakes during the 2012 sailing season compared to the 2011 sailing season. Freight and other related revenue generated from Company-operated vessels increased $10.2 million, or 9.5%, to $117.8 million during the fiscal year ended March 31, 2013 compared to $107.6 million during the fiscal year ended March 31, 2012. Excluding the impact of currency changes, freight revenue increased 9.9% during the fiscal year ended March 31, 2013 compared to the fiscal year ended March 31, 2012. Tonnage hauled by our operated vessels for the fiscal year ended March 31, 2013 increased 6.5% compared to the fiscal year ended March 31, 2012. The increase in revenue was attributable to contractual price increases and 201 net additional Sailing Days. Of these additional Sailing Days, only 290 Sailing Days out of a potential 443 Sailing Days were gained from two of the three vessels acquired in the fiscal year ended March 31, 2012. One of these vessels was delayed in being put into service until October 23, 2012 versus our projected introduction date of August 1, 2012 due to modifications to such vessel taking longer than anticipated. The second of the two acquired vessels was impacted by a poor grain market earlier in the year (45 Sailing Days lost) and an early layup for further modifications at the end of the year (25 Sailing Days lost). The third vessel sailed 92 days more than in the prior 30 -------------------------------------------------------------------------------- year. The increase in freight and other related revenue for the fiscal year ended March 31, 2013 compared to the fiscal year ended March 31, 2012 was muted because the benefits from the acquisition of our three new vessels were partially offset by two vessel incidents that (i) reduced 123 Sailing Days from the directly affected vessels and (ii) impacted the trade patterns on our other vessels. Furthermore, our vessels sailed 52 fewer days in the three month period ended March 31, 2013 as compared to the three month period ended March 31, 2012 due to an earlier onset of winter weather as compared to the prior year. We operated sixteen vessels during the fiscal year ended March 31, 2013, including the three vessels acquired during the fiscal year ended March 31, 2012, compared to fourteen vessels operated during the fiscal year ended March 31, 2012. However, one of the aforementioned vessels however only began sailing on October 23, 2012. Management believes that each of our vessels should achieve a theoretical maximum 275 Sailing Days (April1 through December 31), assuming no major repairs, incidents or vessel layups and normal drydocking cycle times performed during the winter lay-up period. The Company's operated vessels sailed an average of approximately 255 Sailing Days during the fiscal year ended March 31, 2013 compared to an average of 266 Sailing Days during the fiscal year ended March 31, 2012.



The average number of Sailing Days per vessel during the fiscal year ended March 31, 2013 was adversely impacted by the following events that we consider non-recurring:

• 7.7 Sailing Days lost as a result of the loss of 123 Sailing Days due to

mechanical repairs on two vessels following incidents that occurred during

the sailing season;

• 1.6 Sailing Days lost related to a bulker that was taken out of service on

December 6, 2012 for further modifications ( 25 Sailing Days lost); and • 11.4 Sailing Days lost related to the articulated tug/barge which was



introduced into service on October 23, 2012 and only sailed 92 days during

such period.

Freight and related revenue per Sailing Day increased $1,113, or 3.8%, to $30,035 per Sailing Day in the fiscal year ended March 31, 2013 compared to $28,922 per Sailing Day during the fiscal year ended March 31, 2012. This increase was somewhat offset by a slightly weaker Canadian dollar and an approximately 34% decrease in salt tonnage hauled for the fiscal year ended March 31, 2013 compared to the fiscal year ended March 31, 2012. The reduction in our salt tonnage carried was due to an abnormally dry winter during the fiscal year ended March 31, 2012 in the Great Lakes region. Finally, we experienced erratic customer demand throughout the fiscal year ended March 31, 2013, which impacted the efficiency of our delivery patterns. All of our customer contracts have fuel surcharge provisions whereby changes in our fuel costs are passed on to our customers. Such increases and decreases in fuel surcharges impact margin percentages, but do not significantly impact our margin dollars. Fuel and other surcharges decreased $1.5 million, or 3.8%, to $37.4 million during the fiscal year ended March 31, 2013 compared to $38.9 million during the fiscal year ended March 31, 2012. This decrease was attributable to reduced fuel prices and a weaker Canadian dollar, offset by an increased number of Sailing Days. Fuel and other surcharges per Sailing Day decreased by $913, or 8.7%, to $9,537 per Sailing Day during the fiscal year ended March 31, 2013 compared to $10,450 per Sailing Day during the fiscal year ended March 31, 2012. Vessel operating expenses increased $7.6 million, or 7.8%, to $104.9 million during the fiscal year ended March 31, 2013 compared to $97.3 million during the fiscal year ended March 31, 2012. This increase was primarily due to a greater number of Sailing Days attributable to three additional vessels acquired in the fiscal year ended March 31, 2012. Vessel operating expenses were adversely impacted by associated start up and incremental operating costs related to the three vessels we acquired during the fiscal year ended March 31, 2012. Vessel operating expenses were partially offset by a slightly weaker Canadian dollar, reduced fuel pricing and reduced operating expenses due to vessel repairs. Vessel operating expenses per Sailing Day increased $604, or 2.3%, to $26,746 per Sailing Day during the fiscal year ended March 31, 2013 from $26,142 per Sailing Day during the fiscal year ended March 31, 2012. Repairs and maintenance expenses, which primarily consist of expensed winter work, increased $1.2 million to $8.4 million during the fiscal year ended March 31, 2013 from $7.2 million during the fiscal year ended March 31, 2012 primarily due to the two acquired vessels which first sailed in fiscal 2013. Repairs and maintenance per Sailing Day increased $200, or 10.4%, to $2,129 per Sailing Day during the fiscal year ended March 31, 2013 from $1,929 per Sailing Day during the fiscal year ended March 31, 2012. This increase was primarily due to the combined impact of the delays in completing winter work at the start of 31 -------------------------------------------------------------------------------- the 2012 sailing season, the normal winter work done during the fourth quarter of the fiscal year ended March 31, 2013 and the associated impact of fewer Sailing Days for two of the three recently acquired vessels. Our general and administrative expenses were $13.5 million during the fiscal year ended March 31, 2013 compared to $11.0 million during the fiscal year ended March 31, 2012, an increase of $2.5 million or 22.3%. These costs increased due to higher legal and consulting costs, financing/amendment fees related to our credit agreements and increased compensation and benefit costs related in part to higher engineering and IT headcount. Our general and administrative expenses represented 11.4% of freight revenues during the fiscal year ended March 31, 2013 and 10.2% during the fiscal year ended March 31, 2012. During the fiscal year ended March 31, 2013, $4.1 million of our general and administrative expenses was attributable to our parent company and $9.4 million was attributable to our operating companies. Depreciation expense increased $3.8 million to $15.4 million during the fiscal year ended March 31, 2013 compared to $11.6 million during the fiscal year ended March 31, 2012. The increase in depreciation expense was primarily attributable to two bulkers and the articulated tug/barge unit acquired during the fiscal year ended March 31, 2012 that we sailed during the fiscal year ended March 31, 2013, winter 2012 capital expenditures and the repowering of one vessel that was completed in June 2011, offset by a weaker Canadian dollar during the fiscal year ended March 31, 2013. Amortization of drydock costs increased $0.4 million to $3.5 million during the fiscal year ended March 31, 2013 from $3.1 million during the fiscal year ended March 31, 2012. During the fiscal year ended March 31, 2013, the Company amortized the deferred drydock costs of twelve of its sixteen operated vessels, compared to nine vessels during the fiscal year ended March 31, 2012. As a result of the items described above, during the fiscal year ended March 31, 2013, the Company's operating income decreased $7.1 million to $8.1 million compared to operating income of $15.2 million during the fiscal year ended March 31, 2012. Operating income plus depreciation, amortization of drydock costs and amortization of intangibles decreased 9.3%, or $2.9 million, to $28.3 million during the fiscal year ended March 31, 2013 from $31.2 million during the fiscal year ended March 31, 2012 Interest expense increased $0.8 million to $10.2 million during the fiscal year ended March 31, 2013 from $9.3 million during the fiscal year ended March 31, 2012. This increase in interest expense was primarily attributable to higher average debt balances due to the CDN $4.0 million increase in the Canadian Term Loan in July 2011, the $25.0 million increase in the U.S. Term Loan on December 1, 2011, the $15.3 million net increase in U.S. Term Loan on August 30, 2012 and higher average revolver balance. As a result of the Third Amended and Restated Credit Agreement discussed below, we recognized a loss on extinguishment of debt of $3.3 million during the fiscal year ended March 31, 2013, which comprised the unamortized deferred financing costs in connection with our previously existing financing arrangements. We recorded a gain on interest rate swap contracts of $1.1 million during the fiscal year ended March 31, 2013 compared to a gain of $0.8 million during the fiscal year ended March 31, 2012. Such gains were due to the recording of the fair value of our two interest rate swaps at the end of each such period. The contracts for these two interest swaps expired March 31, 2013. Our loss before income taxes was $4.3 million during the fiscal year ended March 31, 2013 compared to income before income taxes of $6.7 million during the fiscal year ended March 31, 2012. Our effective tax rate was 11.4% on a pre-tax loss for the fiscal year ended March 31, 2013 compared to (21.3%) on pre-tax income for the fiscal year ended March 31, 2012. Our provision for income tax was a benefit of $0.5 million for the fiscal year ended March 31, 2013 compared to a tax benefit of $1.4 million for the fiscal year ended March 31, 2012. In addition to pre-tax earnings variances, the decrease in income tax benefit was due to a foreign statutory rate change as applied to the foreign net deferred tax liabilities in the fiscal year ended March 31, 2013 and the absence of a tax benefit from a change in valuation allowance during the fiscal year ended March 31, 2013 as compared to the fiscal year ended March 31, 2012. 32

-------------------------------------------------------------------------------- The effective tax rate for the fiscal year ended March 31, 2013 is lower than the statutory tax rate due to permanent differences, primarily imputed interest, and the change in the foreign statutory rate as applied to the foreign net deferred tax liabilities. The effective rate for the fiscal year ended March 31, 2012 was lower than the statutory rate due to the tax benefit associated with the full reversal of the valuation allowance totaling $4.3 million. Our net loss before preferred stock dividends was $3.8 million during the fiscal year ended March 31, 2013 compared to our net income of $8.1 million during the fiscal year ended March 31, 2012. We accrued $3.2 million for dividends on our preferred stock during the fiscal year ended March 31, 2013 compared to $2.8 million during the fiscal year ended March 31, 2012. The dividends accrued at a rate of 12.0% during the fiscal year ended March 31, 2013 compared to an average rate of 11.90% during the fiscal year ended March 31, 2012. The dividend rate increased to a cap of 12.0% effective July 1, 2011. Our net loss applicable to common stockholders was $7.0 million during the fiscal year ended March 31, 2013 compared to net income of $5.3 million during the fiscal year ended March 31, 2012. The Canadian dollar weakened by 0.9% compared to the U.S. dollar, averaging approximately $0.999 USD per CDN during the fiscal year ended March 31, 2013 compared to approximately $1.008 USD per CDN during the fiscal year ended March 31, 2012. The Company's balance sheet translation rate decreased from $1.002 USD per CDN at March 31, 2012 to $0.984 USD per CDN at March 31, 2013. During the fiscal year ended March 31, 2013, the Company operated an average of seven vessels in the U.S. and nine vessels in Canada. The percentage of our total freight and other revenue, fuel and other surcharge revenue, vessel operating expenses, repairs and maintenance costs and combined depreciation and amortization costs approximate the percentage of vessels operated by country. Our outside voyage charter revenue and costs relate solely to our Canadian subsidiary and approximately half of our general and administrative costs are incurred in Canada. Nearly half of our interest expense is incurred in Canada. All of our preferred stock dividends are accrued in the U.S.. Impact of Inflation and Changing Prices During the fiscal years ended March 31, 2012, 2013 and 2014, there were major fluctuations in our fuel costs. However, our contracts with our customers provide for recovery of these costs over specified rates through fuel surcharges. In addition, there was volatility in the exchange rate between the U.S. dollar and the Canadian dollar during the past three fiscal years, which impacted the average of monthly translation rates for total revenue and costs to U.S. dollars by a decrease of approximately 4.9% during the fiscal year ended March 31, 2014 compared to the fiscal year ended March 31, 2013 and a decrease of approximately 0.9% during the fiscal year ended March 31, 2013 compared to the fiscal year ended March 31, 2012. Liquidity and Capital Resources Our primary sources of liquidity are cash from operations, the proceeds of our credit facility and proceeds from sales of our common stock. Our principal uses of cash are vessel acquisitions, capital expenditures, drydock expenditures, operations and interest and principal payments under our credit facility. Information on our consolidated cash flow is presented in the consolidated statements of cash flows (categorized by operating, investing and financing activities) which is included in our consolidated financial statements for the fiscal years ended March 31, 2014 and March 31, 2013. The Company makes seasonal net borrowings under its revolving credit facility during the first quarter of each fiscal year to fund working capital needed to commence the sailing season. Such borrowings are then reduced during the second half of each fiscal year. We believe cash generated from our operations and availability of borrowings under our credit facilities will provide sufficient cash availability to cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months. However, if the Company experiences a material shortfall to its financial forecasts or if the Company's customers materially delay their receivable payments due to further deterioration of economic conditions, the Company may breach its financial covenants and collateral thresholds and be strained for liquidity. The Company has maintained its focus on productivity gains and cost controls, and is closely monitoring customer credit and accounts receivable balances. Net cash provided by operating activities during the fiscal year ended March 31, 2014 was $11.2 million, a decrease of $9.4 million from $20.6 million during the fiscal year ended March 31, 2013. The decrease in cash provided reflected an increase in working capital partially offset by higher cash earnings compared to the prior year. 33 -------------------------------------------------------------------------------- The Company did not incur any significant bad-debt write-offs or material slowdowns in receivable collections during the fiscal years ended March 31, 2014, 2013 or 2012. The timing of the end of the Company's fiscal year in relation to the sailing season allows most of a sailing season's receivables to be collected prior to the end of the Company's fiscal year. Net cash used in investing activities decreased by $22.0 million to net cash used of $17.1 million during the fiscal year ended March 31, 2014 from net cash used of $39.1 million during the fiscal year ended March 31, 2013. This decrease was primarily due to payments during the fiscal year ended March 31, 2013 for upgrades of two acquired vessels, compared to payments for regular capital expenditures, drydocking projects and the acquisition of a vessel during the fiscal year ended March 31, 2014. Net cash provided by financing activities increased $5.7 million to $8.3 million used during the fiscal year ended March 31, 2014 compared to $14.0 million provided during the fiscal year ended March 31, 2013. During the fiscal year ended March 31, 2014, the Company received proceeds of $21.7 million from its revolving credit facility, refinanced the debt structure of the Company, resulting in proceeds of $177.5 million as discussed below, made principal payments and repaid the balance of its term debt of $139.4 million, repaid $27.4 million of the revolver balance and paid accrued preferred stock dividends of $16.9 million . During the fiscal year ended March 31, 2013, the Company received proceeds of $13.1 million in term loan proceeds (net of debt financing costs), proceeds of $24.3 million from its revolving credit facility and made principal payments on its term debt of $4.6 million and repaid $18.3 million of the revolver balances. Fourth Amended and Restated Credit Agreement On March 11, 2014, Lower Lakes Towing, Lower Lakes Transportation, Grand River and Black Creek Shipping, as borrowers, Rand LL Holdings Corp. ("Rand LL Holdings"), Rand Finance, Black Creek Shipping Holdings Company, Inc. ("Black Creek Holdings"), Lower Lakes Ship Repair and Lower Lakes (17) and Rand, as guarantors, General Electric Capital Corporation, as agent and Lender, and certain other lenders, entered into a Fourth Amended and Restated Credit Agreement (the "Fourth Amended and Restated Credit Agreement"), which (i) amends and restates the existing Third Amended and Restated Credit Agreement to which the borrowers are a party, dated as of August 30, 2012, as the same has been amended from time to time, in its entirety, (ii) consolidates the existing U.S. term loans into a single term loan, (iii) provides for certain new loans and (iv) provides working capital financing, funds for other general corporate purposes and funds for other permitted purposes. The Fourth Amended and Restated Credit Agreement provides for (i) a revolving credit facility under which Lower Lakes Towing may borrow up to CDN $17.5 million with a seasonal overadvance facility equal to the lesser of US $17.0 million or CDN $17.5 million, less the principal amount outstanding under the seasonal overadvance facility for Lower Lakes Transportation, and a swing line facility of CDN $4 million subject to limitations, (ii) a revolving credit facility under which Lower Lakes Transportation may borrow up to US $17.5 million with a seasonal overadvance facility of US $17 million, less the principal amount outstanding under the seasonal overadvance facility for Lower Lakes Towing, and a swing line facility of US $.05 million subject to limitations, (iii) the continuation of an existing Canadian dollar denominated term loan facility under which Lower Lakes Towing is obligated to the lenders in the amount of CDN $54.9 million as of the date of the Fourth Amended and Restated Credit Agreement (the "CDN Term Loan"), (iv) the modification and continuation of a U.S. dollar denominated term loan facility under which Grand River and Black Creek are obligated to the lenders in the amount of $55.2 million as of the date of the Fourth Amended and Restated Credit Agreement (the "U.S. Term Loan"). Under the Fourth Amended and Restated Credit Agreement, the revolving credit facilities and swing line loans expire on April 1, 2019. The outstanding principal amount of the CDN Term Loan borrowings will be repayable as follows: (i) payments equal to one percent (1%) of the initial principal amount thereof paid quarterly commencing September 1, 2014 and (ii) a final payment in the outstanding principal amount of the CDN Term Loan upon the CDN Term Loan's maturity on April 1, 2019. The outstanding principal amount of the U.S. Term Loan borrowings will be repayable as follows: (i) payments equal to one percent (1%) of the initial principal amount thereof paid quarterly commencing September 1, 2014 and (iii) a final payment in the outstanding principal amount of the U.S. Term Loan upon the U.S. Term Loan's maturity on April 1, 2019. Borrowings under the Canadian revolving credit facility, the Canadian swing line facility and the CDN Term Loan will bear an interest rate per annum, at the borrowers' option, equal to (i) the Canadian Prime Rate (as defined in the Fourth Amended and Restated Credit Agreement), plus 3.00% per annum or (ii) the BA Rate (as defined in the Fourth Amended and Restated Credit Agreement) plus 4.00% per annum. Borrowings under the U.S. revolving credit facility, the U.S. swing line facility and the U.S. Term Loan will bear interest, at the borrowers' option, equal to (i) LIBOR (as defined in the Fourth Amended and Restated Credit Agreement) plus 4.00% per annum or (ii) the U.S. Base Rate (as defined in the Fourth Amended and Restated Credit Agreement) plus 3.00% per annum. Obligations under the Fourth Amended and Restated Credit Agreement are secured by (i) a first priority lien and security interest on all of the borrowers' and guarantors' assets, tangible or intangible, real, personal or mixed, existing and newly acquired, (ii) a pledge by Rand LL Holdings of all of the outstanding capital stock of the borrowers other than Black Creek and Lower Lakes Towing, and a pledge of 65% of the outstanding capital stock of Lower Lakes Towing; (iii) a pledge by Black Creek Holdings of 34 -------------------------------------------------------------------------------- all of the outstanding capital stock of Black Creek; (iv) a pledge by Lower Lakes Towing of all of the outstanding capital stock of Lower Lakes Ship Repair and Lower Lakes (17) and (v) a pledge by Rand of all of the outstanding capital stock of Rand LL Holdings, Rand Finance and Black Creek Holdings. The indebtedness of each domestic borrower under the Fourth Amended and Restated Credit Agreement is unconditionally guaranteed by each other domestic borrower and by the guarantors which are domestic subsidiaries, and such guaranty is secured by a lien on substantially all of the assets of each borrower and each guarantor. Each domestic borrower also guarantees the obligations of the Canadian borrower and each Canadian guarantor guarantees the obligations of the Canadian borrower. Under the Fourth Amended and Restated Credit Agreement, the borrowers will be required to make mandatory prepayments of principal on term loan borrowings (i) if the outstanding balance of the term loans plus the outstanding balance of the seasonal facilities exceeds the sum of 85% of the orderly liquidation value of the vessels owned by the borrowers, less the amount of outstanding liens against the vessels with priority over the lenders' liens, in an amount equal to such excess, (ii) in the event of certain dispositions of assets and insurance proceeds (all subject to certain exceptions), in an amount equal to 100% of the net proceeds received by the borrowers therefrom and (iii) in an amount equal to 100% of the net proceeds to a borrower from any issuance of a borrower's debt or equity securities (all subject to certain exceptions). The Fourth Amended and Restated Credit Agreement contains certain covenants, including those limiting the guarantors', the borrowers' and their subsidiaries' ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the Fourth Amended and Restated Credit Agreement requires the borrowers to maintain certain financial ratios. Failure of the borrowers or the guarantors to comply with any of these covenants or financial ratios could result in the loans under the Fourth Amended and Restated Credit Agreement being accelerated. As a result of the execution of the Fourth Amended and Restated Credit Agreement discussed above, the Company recognized a loss on extinguishment of debt of $1.3 million during the fiscal year ended March 31, 2014, that consisted of the unamortized deferred financing costs in connection with the previously existing financing arrangement. As of March 31, 2014, the Company was in compliance with covenants under the Fourth Amended and Restated Credit Agreement. Term Loan Credit Agreement On March 11, 2014, Lower Lakes Towing, Grand River and Black Creek, as borrowers, Rand LL Holdings, Rand Finance , Black Creek Holdings and Rand, as guarantors, Guggenheim Corporate Funding, LLC, as agent and Lender, and certain other lenders, entered into a Term Loan Credit Agreement (the "Term Loan Credit Agreement"), which provides term loans (i) to partially repay outstanding indebtedness of borrowers under the Third Amended and Restated Credit Agreement, (ii) to partially pay the acquisition and conversion costs for a new vessel, (iii) pay accrued but unpaid dividends due on our Series A Convertible Preferred Stock and (iv) to provide working capital financing, funds for other general corporate purposes and funds for other permitted purposes. The Term Loan Credit Agreement provides for (i) a U.S. Dollar denominated term loan facility under which Lower Lakes Towing is obligated to the lenders in the amount of $34.2 million (the "Second Lien CDN Term Loan"), (ii) U.S. dollar denominated term loan facility under which Grand River and Black Creek are obligated to the Lenders in the amount of $38.3 million (the "Second Lien U.S. Term Loan") and (iii) an uncommitted incremental term loan facility of up to $32.5 million. The outstanding principal amount of the Second Lien CDN Term Loan borrowings will be repayable upon the Second Lien CDN Term Loan's maturity on March 11, 2020. The outstanding principal amount of the Second Lien U.S. Term Loan borrowings will be repayable upon the Second Lien U.S. Term Loan's maturity on March 11, 2020. The Second Lien CDN Term Loan and Second Lien U.S. Term Loan will bear an interest rate per annum at borrowers' option, equal to (i) LIBOR (as defined in the Term Loan Credit Agreement) plus 9.50% per annum, or (ii) the U.S. Base Rate (as defined in the Term Loan Credit Agreement), plus 8.50% per annum. Obligations under the Term Loan Credit Agreement are secured by (i) a first priority lien and security interest on all of the borrowers' and guarantors' assets, tangible or intangible, real, personal or mixed, existing and newly acquired, (ii) a pledge by Rand LL Holdings of all of the outstanding capital stock of the borrowers, other than Black Creek and Lower Lakes Towing, and a pledge of 65% of the outstanding capital stock of Lower Lakes Towing, (iii) a pledge by Black Creek Holdings of all of the outstanding capital stock of Black Creek, (iv) a pledge by Lower Lakes Towing of all of the outstanding capital stock of Lower Lakes Ship Repair and Lower Lakes (17) and (v) a pledge by Rand of all of the outstanding capital stock of Rand LL Holdings, Rand Finance and Black Creek Holding. The indebtedness of each domestic borrower under the Term Loan Credit Agreement is unconditionally guaranteed by each other domestic borrower and by the guarantors which are domestic subsidiaries, and such guaranty is secured by a lien on substantially all of the assets of each borrower and each guarantor. Each domestic borrower also 35 --------------------------------------------------------------------------------



guarantees the obligations of the Canadian borrower and each Canadian guarantor guarantees the obligations of the Canadian borrower.

Under the Term Loan Credit Agreement and subject to the terms of the Intercreditor Agreement (as defined below), the borrowers will be required to make mandatory prepayments of principal on term loan borrowings (i) in the event of certain dispositions of assets and insurance proceeds (all subject to certain exceptions), in an amount equal to 100% of the net proceeds received by the borrowers therefrom and (ii) in an amount equal to 100% of the net proceeds to a borrower from any issuance of a borrower's debt or equity securities (all subject to certain exceptions). The Term Loan Credit Agreement contains certain covenants, including those limiting the guarantors, the borrowers, and their subsidiaries' ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the Term Loan Credit Agreement requires the borrowers to maintain certain financial ratios. Failure of the borrowers or the guarantors to comply with any of these covenants or financial ratios could result in the loans under the Term Loan Credit Agreement being accelerated. The obligations of the borrowers and the liens of the lenders under the Term Loan Credit Agreement are subject to the terms of an Intercreditor Agreement, which is further described below under the heading "Intercreditor Agreement". As of March 31, 2014, the Company was in compliance with covenants under the Term Loan Credit Agreement. Intercreditor Agreement Also on March 11, 2014, Lower Lakes Towing, Lower Lakes Transportation, Grand River, Black Creek, Lower Lakes Ship Repair, Rand, Rand LL Holdings, Rand Finance, Black Creek Holdings and Lower Lakes (17) (collectively, the "Credit Parties"), General Electric Capital Corporation, as agent for the lenders under the Fourth Amended and Restated Credit Agreement (the "First Lien Lenders") and Guggenheim Corporate Funding , LLC, as agent for the lenders under the Term Loan Credit Agreement (the "Second Lien Lenders"), entered into an Intercreditor Agreement (the "Intercreditor Agreement"), pursuant to which the Second Lien Lenders have agreed to subordinate the obligations of the Credit Parties to them to the repayment of the obligations of the Credit Parties to the First Lien Lenders and have further agreed to subordinate their liens on the assets of the Credit Parties to the liens in granted in favor of the First Lien Lenders. Absent the occurrence of an Event of Default under the Fourth Amended and Restated Credit Agreement, the Second Lien Lenders are permitted to receive regularly scheduled principal and interest payments under the Term Loan Credit Agreement. Previous Agreements On August 30, 2012, Lower Lakes Towing, Lower Lakes Transportation, Grand River, and Black Creek, as borrowers, Rand LL Holdings, Rand Finance, Black Creek Holdings and Rand, as guarantors, General Electric Capital Corporation, as agent and lender, and certain other lenders, entered into a Third Amended and Restated Credit Agreement (the "Third Amended and Restated Credit Agreement") which (i) amended and restated the amended and restated credit agreement to which the borrowers were a party, dated as of September 28, 2011 (as the same had been amended from time to time, the "2011 Credit Agreement"), in its entirety, (ii) continued the tranches of loans provided for under the 2011 Credit Agreement, (iii) refinanced the indebtedness of Black Creek under its existing credit facility and adds Black Creek as a U.S. Borrower, (iv) provided for certain new loans and (v) provided working capital financing, funds for other general corporate purposes and funds for other permitted purposes. The Third Amended and Restated Credit Agreement provided for (i) a revolving credit facility under which Lower Lakes Towing could borrow up to CDN $13.5 million with a seasonal overadvance facility of CDN $12 million, less the principal amount outstanding under the seasonal overadvance facility for Lower Lakes Transportation, and a swing line facility of CDN $4 million, subject to limitations, (ii) a revolving credit facility that included letters of credit under which Lower Lakes Transportation could borrow up to US $13.5 million with a seasonal overadvance facility of US $12 million, less the principal amount outstanding under the seasonal overadvance facility for Lower Lakes Towing, and a swing line facility of US $0.1 million, subject to limitations, (iii) the modification and continuation of an existing Canadian dollar denominated term loan facility under which Lower Lakes was obligated to the lenders in the amount of CDN $53.0 million as of the date of the Third Amended and Restated Credit Agreement (the "2012 CDN Term Loan"), (iv) the modification and continuation of a U.S. dollar denominated term loan facility under which Grand River was obligated to the lenders in the amount of $64.1 million as of the date of the Third Amended and Restated Credit Agreement (the "Grand River Term Loan") and (v) a U.S. dollar denominated term loan facility under which Black Creek was obligated to lenders in the amount of $28.9 million as of the date of the Third Amended and Restated Credit Agreement (the "Black Creek Term Loan"). 36 -------------------------------------------------------------------------------- Under the Third Amended and Restated Credit Agreement, total scheduled term loan principal payments paid on a quarterly basis were approximately $3.6 million per year (2.5% of the total term debt at inception) in the fiscal year ended March 31, 2014, approximately $5.4 million in the fiscal year ending March 31, 2015, approximately $7.3 million in the fiscal year ending March 31, 2016 and the remaining balance to be repaid in the fiscal year ending March 31, 2017, subject to customary excess cash flow and collateral coverage conditions. Under the prior credit agreements, the Company was obligated to pay approximately $9.2 million per year in scheduled principal payments. Under the Third Amended and Restated Credit Agreement, the revolving credit facilities and swing line loans expire on August 1, 2016. The outstanding principal amount of the 2012 CDN Term Loan borrowings was repayable as follows: (i) quarterly payments of CDN $0.3 million commencing December 1, 2012 and ending September 2014, (ii) quarterly payments of CDN $0.7 million commencing December 1, 2014 and ending June 1, 2016 and (iii) a final payment in the outstanding principal amount of the 2012 CDN Term Loan upon the 2012 CDN Term Loan's scheduled maturity on August 1, 2016. The outstanding principal amount of the Grand River Term Loan borrowings was repayable as follows: (i) quarterly payments of US $0.4 million commencing December 1, 2011 and ending on September 1, 2014, (ii) quarterly payments of US $0.8 million commencing December 1, 2014 and ending June 1, 2016 and (iii) a final payment in the outstanding principal amount of the Grand River Term Loan upon the Grand River Term Loan's scheduled maturity on August 1, 2016. The outstanding principal amount of the Black Creek Term Loan borrowings was repayable as follows: (i) quarterly payments of US $0.2 million commencing quarterly December 1, 2011 and ending September 1, 2014, (ii) quarterly payments of US $0.4 million commencing December 1, 2014 and ending June 1, 2016 and (iii) a final payment in the outstanding principal amount of the Black Creek Term Loan upon the Black Creek Term Loan's scheduled maturity on August 1, 2016. Borrowings under the Canadian revolving credit facility, Canadian swing line facility and the 2012 CDN Term Loan bore an interest rate per annum, at the borrowers' option, equal to (i) the Canadian Prime Rate (as defined in the Third Amended and Restated Credit Agreement), plus 3.75% per annum or (ii) the BA Rate (as defined in the Third Amended and Restated Credit Agreement) plus 4.75% per annum. Borrowings under the U.S. revolving credit facility, U.S. swing line facility and the Grand River Term Loan and Black Creek Term Loan bore interest, at the borrowers' option, equal to (i) LIBOR (as defined in the Third Amended and Restated Credit Agreement) plus 4.75% per annum, or (ii) the U.S. Base Rate (as defined in the Third Amended and Restated Credit Agreement), plus 3.75% per annum. Obligations under the Third Amended and Restated Credit Agreement were secured by (i) a first priority lien and security interest on all of the borrowers' and guarantors' assets, tangible or intangible, real, personal or mixed, existing and newly acquired, (ii) a pledge by Rand LL Holdings of all of the outstanding capital stock of the borrowers other than Black Creek; (iii) a pledge by Black Creek Holdings of all of the outstanding capital stock of Black Creek; and (iv) a pledge by Rand of all of the outstanding capital stock of Rand LL Holdings, Rand Finance and Black Creek Holdings. The indebtedness of each domestic borrower under the Third Amended and Restated Credit Agreement was unconditionally guaranteed by each other domestic borrower and by the guarantors which are domestic subsidiaries, and such guaranty is secured by a lien on substantially all of the assets of each borrower and each guarantor. Each domestic borrower also guaranteed the obligations of the Canadian borrower and each Canadian guarantor guaranteed the obligations of the Canadian borrower. Under the Third Amended and Restated Credit Agreement, the borrowers are required to make mandatory prepayments of principal on term loan borrowings (i) if the outstanding balance of the term loans plus the outstanding balance of the seasonal facilities exceeded the sum of 75% of the fair market value of the vessels owned by the borrowers, less the amount of outstanding liens against the vessels with priority over the lenders' liens, in an amount equal to such excess, (ii) in the event of certain dispositions of assets and insurance proceeds (all subject to certain exceptions), in an amount equal to 100% of the net proceeds received by the borrowers therefrom, and (iii) in an amount equal to 100% of the net proceeds to a borrower from any issuance of a borrower's debt or equity securities. The Third Amended and Restated Credit Agreement contained certain covenants, including those limiting the guarantors', the borrowers', and their subsidiaries' ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the Third Amended and Restated Credit Agreement required the borrowers to maintain certain financial ratios. Failure of the borrowers or the guarantors to comply with any of these covenants or financial ratios could have resulted in the loans under the Third Amended and Restated Credit Agreement being accelerated. On March 29, 2013, Lower Lakes Towing, Lower Lakes Transportation, Grand River and Black Creek, as borrowers, Rand LL Holdings, Rand Finance, Black Creek Holdings and Rand, as guarantors, General Electric Capital Corporation, as agent and Lender, and certain other lenders, entered into a First Amendment (the "First Amendment") to the Third Amended and Restated 37 -------------------------------------------------------------------------------- Credit Agreement. The First Amendment modified the Credit Agreement's Minimum Fixed Charge Coverage Ratio, Minimum EBITDA, Maximum Senior Funded Debt to EBITDA Ratio and Maximum Capital Expenditures covenants and the definitions of EBITDA and Fixed Charge Coverage Ratio. In connection with the execution of the Third Amended and Restated Credit Agreement, on August 30, 2012, Black Creek and Black Creek Holdings terminated their Credit Agreement (the "Black Creek Credit Agreement") with General Electric Capital Corporation, as agent and lender, and certain other lenders, dated as of February 11, 2011, as amended. All outstanding amounts due under the Black Creek Credit Agreement were repaid in connection with the refinancing of Black Creek's indebtedness under the Third Amended and Restated Credit Agreement, as more fully described above. Preferred Stock and Preferred Stock Dividends The shares of the Company's series A convertible preferred stock rank senior to the Company's common stock with respect to liquidation and dividends; are entitled to receive a cash dividend at the annual rate of 7.75% (based on the $50 per share issue price), payable quarterly (subject to increases of 0.5% for each six month period in respect of which the dividend is not paid in cash, up to a maximum of 12%, subject to reversion to 7.75% upon payment of all accrued and unpaid dividends); are convertible into shares of the Company's common stock at any time at the option of the series A preferred stockholder at a conversion price of $6.20 per share (based on the $50 per share issue price and subject to adjustment) or 8.065 shares of common stock for each Series A Preferred Share (subject to adjustment); are convertible into shares of the Company's common stock (based on a conversion price of $6.20 per share, subject to adjustment) at the option of the Company if, after the third anniversary of our acquisition of Lower Lakes, the trading price of the Company's common stock for 20 trading days within any 30 trading day period equals or exceeds $8.50 per share (subject to adjustment); may be redeemed by the Company in connection with certain change of control or acquisition transactions; will vote on an as-converted basis with the Company's common stock; and have a separate vote over certain material transactions or changes involving the Company. As of March 31, 2014, the Company had fully paid all accrued dividends on its preferred stock. The accrued dividend payable at March 31, 2014 was $nil, compared to $13.5 million at March 31, 2013. As of March 31, 2014, the effective rate of preferred dividends was 7.75%. As of March 31, 2013, the effective rate of preferred dividends was 12.0%. The dividend rate decreased to 7.75% upon the cash payment of the accrued dividends. Investments in Capital Expenditures and Drydockings We incurred $15.8 million in paid and unpaid capital expenditures and drydock expenses during the fiscal year ended March 31, 2014 (excluding $7.6 million for an acquired vessel described below), including $1.9 million of carryover from the 2013 winter season, compared to $40.1 million in paid and unpaid capital expenditures and drydock expenses during the fiscal year ended March 31, 2013, including $7.5 million in the fiscal year ended March 31, 2013 relating to carryover from the 2012 winter season and $26.1 million, including a carryover of $2.3 million from the 2011 winter season, in the fiscal year ended March 31, 2012. Vessel Acquisitions On March 11, 2014, Lower Lakes (17) acquired the LALANDIA SWAN from Uni-Tankers M/T "Lalandia Swan" for a purchase price of $7,000,000. The Lalandia Swan is a Danish flagged chemical tanker that we intend to convert into a Canadian flagged river class self-unloader vessel. We currently plan to introduce this new vessel into service during the 2015 sailing season. On July 21, 2011, Lower Lakes acquired a Canadian-flagged dry bulk carrier for CDN $2.7 million with borrowings under its Canadian term loan. On September 21, 2011, Lower Lakes Towing and Grand River entered into an Asset Purchase Agreement with USUOS pursuant to which Lower Lakes Towing agreed to purchase a bulk carrier from USUOS for a purchase price of $5.3 million plus the value of the remaining bunkers and unused lubricating oils onboard such bulk carrier at the closing of the acquisition. We completed the acquisition of such bulk carrier on October 14, 2011. We used a portion of the net proceeds from the equity offering described above under "Liquidity and Capital Resources" to fund deferred drydock costs and improvements to such bulk carrier. 38 -------------------------------------------------------------------------------- Also on September 21, 2011, Grand River entered into an Asset Purchase Agreement (the "Tug Agreement") with USUOS pursuant to which Grand River purchased a tug (the "Tug") from USUOS for a purchase price of $7.8 million plus the value of the remaining bunkers and unused lubricating oils onboard the Tug at the closing of the acquisition. We completed the acquisition of the Tug on December 1, 2011. Additionally, on September 21, 2011, Grand River entered into an Asset Purchase Agreement (the "Barge Agreement") with USUOS pursuant to which USUOS granted Grand River the option to act as USUOS's third-party designee to purchase a self-unloading barge (the "Barge") for a purchase price of $12.0 million plus the value of the remaining bunkers and unused lubricating oils onboard the Barge at the closing of the acquisition. In connection with the option described in the preceding sentence, on December 1, 2011, Grand River entered into, and consummated the transactions contemplated by, an Asset Purchase Agreement with U.S. Bank National Association, as Trustee of the GTC Connecticut Statutory Trust, pursuant to which Grand River acquired the Barge. Contractual Commitments The following table summarizes the Company's contractual obligations for the next five years and thereafter as of March 31, 2014. Payment Due By



Period

Contractual

Obligations Total Less Than 1 Year 1-3 Years 3-5 Years More than 5 Years Long-Term Debt Obligations $ 104,890 $ 787 $ 2,098$ 2,098 $ 99,907 Subordinated Debt Obligations $ 72,500 - - - $ 72,500 Capital Lease Obligations - - - - - Operating Lease Obligations 2,029 499 702 380 448 Purchase Obligations 1,801 1,801 - - - Bareboat Charter Agreement 3,800 760 1,520 1,520 - Total $ 185,020 $ 3,847 $ 4,320$ 3,998 $ 172,855 As of June 11, 2014, we had aggregate purchase obligations of $19.3 million, including $3.7 million due in less than one year. Foreign Exchange Rate Risk We have foreign currency exposure related to the currency related translation of various financial instruments denominated in the Canadian dollar (fair value risk) and operating cash flows denominated in the Canadian dollar (cash flow risk). These exposures are associated with period to period changes in the exchange rate between the U.S. dollar and the Canadian dollar. At March 31, 2014, our liability for financial instruments with exposure to foreign currency risk was approximately CDN $54.8 million of term borrowings and CDN $nil of revolving borrowings. Although we have tried to match our indebtedness and cash flows from earnings by country, a sudden increase in the Canadian dollar exchange rates could increase the indebtedness converted to U.S. dollars before operating cash flows can make up for such a currency conversion change. From a cash flow perspective, our operations are insulated against changes in currency rates as operations in Canada and the United States have revenues and expenditures denominated in local currencies and our operations are cash flow positive. However, as stated above, a significant portion of our financial liabilities are denominated in Canadian dollars, exposing us to currency risks related to principal payments and interest payments on such financial liability instruments. Interest Rate Risk We are exposed to changes in interest rates associated with our banking facilities and senior debt bearing variable interest rates under our Fourth Amended and Restated Credit Agreement, which carries interest rates which vary with Canadian Prime 39 -------------------------------------------------------------------------------- Rates and B.A. Rates for Canadian borrowings, and U.S. Prime Rates and Libor Rates on U.S. borrowings under the Term Loan Credit Agreement, which carries interest rates which vary with the Libor rates, the U.S. Prime rates and the Federal Funds rates. In December 2012, the Company entered into two interest rate cap contracts through December 1, 2015 covering 38% of its outstanding term debt at a cap of three month Libor at 2.5% on 50% of its U.S. Term Debt borrowings and three month BA rates at 3.0% on 50% of its Canadian Term Debt borrowings. The notional amount on each of these instruments decreases in accordance with the principal payments schedule of the Third Amended and Restated Credit Agreement dated August 30, 2012. Off-Balance Sheet Arrangements There are no off-balance sheet arrangements. 40 -------------------------------------------------------------------------------- Lack of Historical Operating Data for Acquired Vessels From time to time, as opportunities arise and depending on the availability of financing, we may acquire additional secondhand drybulk carriers. Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, there is typically no historical financial due diligence process conducted when we acquire vessels. Accordingly, in such circumstances, we do not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make vessel acquisitions, nor do we believe it would be helpful to potential investors in our stock in assessing our business or profitability. Consistent with shipping industry practice, we generally treat the acquisition of a vessel as the acquisition of an asset rather than a business. In cases where a vessel services a contract of affreightment with a third party customer and the buyer desires to acquire such contract, the seller generally cannot transfer the contract to the buyer without the customer's consent. The purchase of a vessel itself typically does not transfer the contracts of affreightment serviced by such vessel because such contracts are separate service agreements between the vessel owner and its customers. Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we allocate the purchase price of acquired tangible and intangible assets based on their relative fair values. When we purchase a vessel and assume or renegotiate contracts of affreightment associated with the vessel, we must take the following steps before the vessel will be ready to commence operations: • obtain the customer's consent to us as the new owner if applicable; arrange for a new crew for the vessel; • replace all hired equipment on board, such as gas cylinders and communication equipment; • negotiate and enter into new insurance contracts for the vessel through our own insurance brokers; and



• implement a new planned maintenance program for the vessel.

The following discussion is intended to provide an understanding of how acquisitions of vessels affect our business and results of operations. Our business is comprised of the following main elements: • employment and operation of our drybulk vessels;

• scheduling our vessels to satisfy customer's contracts of affreightment; and

• management of the financial, general and administrative elements involved in the conduct of our business and ownership of our drybulk vessels.



The employment and operation of our vessels requires the following main components: • vessel maintenance and repair;

• crew selection and training;

• vessel spares and stores supply;

• planning and undergoing drydocking, special surveys and other major repairs;

• organizing and undergoing regular classification society surveys;

• contingency response planning;

• onboard safety procedures auditing;

• accounting;

• vessel insurance arrangement;

• vessel scheduling;

• vessel security training and security response plans (ISPS);

• obtain ISM certification and audit for each vessel within six months of taking over a vessel;



• vessel hire management;

• vessel surveying; and

• vessel performance monitoring.

41 -------------------------------------------------------------------------------- The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires the following main components: • management of our financial resources, including banking relationships (e.g., administration of bank loans); • management of our accounting system and records and financial reporting; • administration of the legal and regulatory requirements affecting our business and assets; and



• management of the relationships with our service providers and customers.

The principal factors that affect our profitability, cash flows and stockholders' return on investment include: • rates of contracts of affreightment and charterhire;

• scheduling to match vessels with customer requirements,



including

dock limitation, vessel trade patterns and backhaul opportunities; • weather conditions; • vessel incidents;



• levels of vessel operating expenses;

• depreciation and amortization expenses;

• financing costs; and

• fluctuations in foreign exchange rates.

Critical accounting policies Rand's significant accounting policies are presented in Note 2 to its audited consolidated financial statements, and the following summaries should be read in conjunction with the financial statements and the related notes included in this annual report on Form 10-K. While all accounting policies affect the financial statements, certain policies may be viewed as critical. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the application of certain accounting policies, many of which require the Company to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. Such differences could be material to the financial statements. Revenue and operating expenses recognition The Company generates revenues from freight billings under contracts of affreightment (voyage charters) generally on a rate per ton basis based on origin-destination and cargo carried. Voyage revenue is recognized ratably over the duration of a voyage based on the relative transit time in each reporting period when the following conditions are met: the Company has a signed contract of affreightment, the contract price is fixed or determinable and collection is reasonably assured. Included in freight billings are other fees such as fuel surcharges and other freight surcharges, which represent pass-through charges to customers for toll fees, lockage fees and ice breaking fees paid to other parties. Fuel surcharges are recognized ratably over the duration of the voyage, while freight surcharges are recognized when the associated costs are incurred. Freight surcharges are less than 5% of total revenue. Marine operating expenses such as crewing costs, fuel, tugs and insurance are recognized as incurred or consumed and thereby are recognized ratably in each reporting period. Repairs and maintenance and certain other insignificant costs are recognized as incurred. The Company subcontracts excess customer demand to other freight providers. Service to customers under such arrangements is transparent to the customer and no additional services are provided to customers. Consequently, revenues recognized for customers serviced by freight subcontractors are recognized on the same basis as described above. Costs for subcontracted freight providers, presented as "outside voyage charter fees" in the consolidated statements of operations, are recognized as incurred and therefore are recognized ratably over the voyage. The Company accounts for sales taxes imposed on its services on a net basis in the consolidated statements of operations. In addition, all revenues are presented on a gross basis. 42 --------------------------------------------------------------------------------



Vessel acquisitions

Vessels are stated at cost, which consists of the purchase price and any material expenses incurred upon acquisition, such as initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel for its initial voyage. Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessels. Significant financing costs incurred during the construction period of the vessels are also capitalized and included in the vessels' cost. Otherwise these amounts are charged to expense as incurred. Intangible assets and goodwill Intangible assets consist primarily of goodwill, financing costs, trademarks, trade names and customer relationships and contracts. Intangible Assets are amortized as follows: Trademarks and trade names 10 years straight-line Customer relationships and contracts 15 years straight-line Deferred financing costs are amortized on a straight-line basis over the term of the related debt, which approximates the effective interest method. Impairment of fixed assets Fixed assets (e.g. property and equipment) and finite-lived intangible assets (e.g. customer lists) are tested for impairment upon the occurrence of a triggering event that indicates the carrying value of such an asset or asset groups e.g. tugs and barges, might be no longer recoverable. Examples of such triggering events include a significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related asset(s), a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business, and a significant change in the operations of an acquired business. Once a triggering event has occurred, the recoverability test employed is based on whether the intent is to hold the asset(s) for continued use or to hold the asset(s) for sale. If the intent is to hold the asset(s) for continued use, the recoverability test involves a comparison of undiscounted cash flows excluding interest expense, against the carrying value of the asset(s) as an initial test. If the carrying value of such asset(s) exceeds the undiscounted cash flow, the asset(s) would be deemed to be impaired. Impairment would then be measured as the difference between the fair value of the fixed or amortizing intangible asset and the carrying value of such asset(s). The Company generally determines fair value by using the discounted cash flow method. If the intent is to hold the asset(s) for sale and certain other criteria are met (i.e., the asset(s) can be disposed of currently, appropriate levels of authority have approved the sale and there is an actively pursuing buyer), the impairment test is a comparison of the asset's carrying value to its fair value less costs to sell. To the extent that the carrying value is greater than the asset's fair value less costs to sell, an impairment loss is recognized for the difference. The Company has determined that there were no adverse changes in our markets or other triggering events that could affect the valuation of our assets during the fiscal year ended March 31, 2014. Impairment of goodwill The Company annually reviews the carrying value of goodwill to determine whether impairment may exist. Accounting Standards Codification ("ASC") 350 "Intangibles-Goodwill and Other" and Accounting Standards Update ("ASU") 2011-08 Intangibles-Goodwill and Other (Topic 350) - Testing Goodwill for Impairment requires that goodwill and certain intangible assets be assessed annually for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a three-step process. The first step of the goodwill impairment test is to perform a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, then entities are required to perform the two-step goodwill impairment test. The second step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The estimates of fair value of the Company's two reporting units, which are the Company's Canadian and US operations (excluding the parent), are determined using various valuation techniques with the primary techniques being a discounted cash flow analysis and peer 43 -------------------------------------------------------------------------------- analysis. A discounted cash flow analysis requires various judgmental assumptions, including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company's forecast and long-term estimates. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The third step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. As of March 31, 2014, the Company conducted the qualitative assessment and determined that the fair value of its two reporting units exceeded their carrying amounts and the remaining two-step impairment testing was therefore not necessary. The Company has determined that there were no adverse changes in our markets or other triggering events that indicated that it is more likely than not that the fair value of our reporting units was less than the carrying value of our reporting units during the twelve month period ended March 31, 2014.



Income taxes

The Company accounts for income taxes in accordance with ASC 740 "Income Taxes", which requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of tax assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recognized, if necessary, to measure tax benefits to the extent that, based on available evidence, it is more likely than not that they will be realized. The Company classifies interest expense related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense. To date, the Company has not incurred material interest expenses or penalties relating to assessed taxation amounts. There is a current examination taking place by the U.S. taxing authorities for the financial year 2012 with no adjustments proposed as of the date of this Annual Report on Form 10-K. Lower Lakes was examined by the Canadian taxing authority for the tax years 2009 and 2010 and such examination is now complete. This audit did not result in any material adjustments for such periods. The Company's primary U.S. state income tax jurisdictions are Illinois, Indiana, Michigan, Minnesota, Pennsylvania, Wisconsin and New York and its only international jurisdictions are Canada and its province of Ontario. The following table summarizes the open fiscal tax years for each major jurisdiction:



Jurisdiction Open Tax Years

Federal (USA) 2010 - 2013 Various states 2010 - 2013 Federal (Canada) 2009 - 2013 Ontario 2009 - 2013 Stock-based compensation The Company recognizes compensation expense for all newly granted awards and awards modified, repurchased or cancelled based on fair value at the date of grant. 44 -------------------------------------------------------------------------------- Recently Issued Pronouncements Disclosures about offsetting assets and liabilities In December 2011, the FASB issued ASU No. 2011-11, "Disclosures about offsetting assets and liabilities" ("ASU 2011-11"). ASU 2011-11 requires entities to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on an entity's financial position. ASU 2011-11 requires enhanced disclosure by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with current literature or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The Company adopted ASU 2010-11 as of April 1, 2013. Such adoption had no impact on the Company's consolidated financial statements. Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity In March 2013, the FASB issued ASU 2013-05 Topic 830 - Foreign Currency Matters ("ASU 2013-05"). ASU 2013-05 resolves the diversity in practice about whether Subtopic 810-10, Consolidation-Overall, or Subtopic 830-30, ASU 2013-05 applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, the amendments in ASU 2013-05 resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes referred to as step acquisitions) involving a foreign entity. The amendments in ASU 2013-05 are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company does not expect the adoption of ASU 2013-05 to have a material effect on the Company's consolidated financial statements.



Presentation of Unrecognized Tax Benefits

In July 2013, the FASB issued ASU 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss ("NOL") Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11"). ASU 2013-11 requires an unrecognized tax benefit to be presented as a reduction to a deferred tax asset in the financial statements for an NOL carryforward, a similar tax loss, or a tax credit carryforward except in circumstances when the carryforward or tax loss is not available at the reporting date under the tax laws of the applicable jurisdiction to settle any additional income taxes or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purposes. When those circumstances exist, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The new financial statement presentation provisions relating to this update are prospective and effective for interim and annual periods beginning after December 15, 2013, with early adoption permitted. The Company does not anticipate a material impact to its consolidated financial statements related to this guidance. 45



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