FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-8129.
US 1 INDUSTRIES, INC.
________________________________________________________________
(Exact name of registrant as specified in its charter)
Indiana 95-3585609
_________________________ ____________________________________
(State of Incorporation) (I.R.S. Employer Identification No.)
336 W. US Hwy 30, Valparaiso, Indiana 46385
_________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 476-1300
______________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
_________________________ ____________________________
Common Stock, no par value None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes ___ No _X_
Indicate by check mark if the registrant is not required to file reports
pursuant to section 13 or 15(d) of the Securities Act.
Yes ___ No _X_
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ____Accelerated filer ____Non-accelerated filer _X__
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2
of the Exchange Act).
Yes _ _ No _X__
On March 6, 2007, there were 12,169,739 shares of registrant's common stock
outstanding, and the aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $11,036,981. For purposes of
the forgoing statement, directors and officers of the registrant have been
assumed to be affiliates.
TABLE OF CONTENTS
PART I
Item 1. Business 1
Item 1a. Risk Factors 5
Item 1b. Unresolved Staff Comments 7
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrants Common Equity, Related
Stockholder Matters, and Issuer Purchases of Equity
Securities 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 19
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 35
Item 9a. Controls and Procedures 35
Item 9b. Other Information 35
PART III
Item 10. Directors, Executive Officers and Corporate Governance 36
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 40
Item 13. Certain Relationships, Related Transactions, and Director
Independence 41
Item 14. Principal Accountant Fees and Services 43
PART IV
Item 15 Exhibits and Financial Statement Schedules 43
SIGNATURES
PART 1
Item 1. Business
The registrant, US 1 Industries, Inc., is a holding company that owns
subsidiary operating companies, most of which are interstate trucking
companies operating in 48 states. For descriptive purposes herein, US 1
Industries, Inc. may hereinafter be referred to, together with its
subsidiaries, as "US 1" or the "Company". The Company's business consists
principally of truckload operations, for which the Company obtains a
significant percentage of its business through independent agents, who
then arrange with independent truckers to haul the freight to the desired
destination.
US 1 was incorporated in California under the name Transcon Incorporated
on March 3, 1981. In March 1994, the Company changed its name to US 1
Industries, Inc. In February 1995, the Company was merged with an Indiana
corporation for purposes of re-incorporation under the laws of the state
of Indiana. The Company's principal subsidiaries consist of Antler
Transport, Inc., Blue and Grey Brokerage, Inc., Blue and Grey Transport,
Inc., Cam Transport, Inc., Carolina National Logistics, Inc., Carolina
National Transportation, LLC, Five Star Transport, Inc., Friendly
Transport, Inc., Gulf Line Brokerage, Inc., Gulf Line Transportation,
Inc., Harbor Bridge Intermodal Inc., Keystone Lines, Inc., Keystone
Logistics, Inc., Liberty Transport, Inc., Patriot Logistics, Inc., Risk
Insurance Services, LLC, TC Services, Inc., Transport Leasing, Inc.,
Unity Logistics Inc., and US1 Logistics, LLC. Most of these
subsidiaries operate under authority granted by the United States
Department of Transportation (the "DOT") and various state agencies.
The Company's operating subsidiaries generally maintain separate offices,
have their own management teams, officers and directors, and are run
independently of the parent and each other.
Operations
The Company, through its subsidiaries, carries virtually all forms of
freight transported by truck, including specialized trucking services such
as containerized, refrigerated, and flatbed transportation.
The Company, through its subsidiaries, is primarily a non-asset based
business, contracting with independent truckers who generally own the trucks
they drive and independent agents who own the terminals from which they
operate. The Company pays the independent truckers and agents a percentage
of the revenue received from customers for the transportation of goods.
The expenses related to the operation of the trucks are the responsibility
of the independent contractors and the expenses related to the operation of
the terminals are the responsibility of the agents. Certain subsidiaries of
the Company also subcontract ("broker") freight loads to other unaffiliated
transportation companies. Consequently, short-term fluctuations in
operating activity have less of an impact on the Company's net income than
they have on the net income of truck transportation companies that bear
substantially all of the fixed cost associated with the ownership of the
trucks. Like other truck transportation companies, however, US 1
Industries' revenues are affected by competition and the state of the
economy.
Marketing and Customers
The Company, through its subsidiaries, conducts the majority of its
business through a network of independent agents who are in regular contact
with shippers at the local level. The agents have facilities and personnel
to monitor and coordinate shipments and respond to shippers' needs in a
timely manner.
These agents are typically paid a commission of 6% to 13% of the
Company's revenues from the agents' trucking operations.
During 2006 and 2005, the Company utilized the services of approximately
68 agents. No agent accounted for more that 10% of revenue during 2006 or
2005. The Company shipped freight for approximately 1,000 customers in
2006, none of which accounted for more than 10% of the Company's revenues.
Independent Contractors
The independent contractors (persons who own the trucks) used by the
Company must enter into standard equipment operating agreements. The
agreements provide that independent contractors must bear many of the costs
of operations, including drivers' compensation, maintenance costs, fuel
costs, collision insurance, taxes related to the ownership and operation of
the vehicle, licenses, and permits. These independent contractors are paid
65% to 78% of the charges billed to the customer. The Company requires
independent contractors to maintain their equipment to standards established
by the DOT, and the drivers are subject to qualification and training
procedures established by the DOT. The Company is also required to conduct
random drug testing, enforce hours of service requirements, and monitor
maintenance of vehicles.
Employees
At December 31, 2006, the Company, through its subsidiaries, had
approximately 81 full-time employees. The Company's employees are not
covered by a collective bargaining agreement.
Competition
The trucking industry is highly competitive. The Company competes
for customers primarily with other nationwide carriers, some of which
have company-owned equipment and company drivers, and many of which have
greater volume and financial resources. The Company also competes with
private carriage conducted by existing and potential customers. In
addition, the Company competes with other modes of transportation
including rail.
The Company also faces competition for the services of independent
trucking contractors and agents. Agents routinely do business with a number
of carriers on an ongoing basis. The Company has attempted to develop a
strong sales agent network by maintaining a policy of prompt payment for
services rendered and providing advanced computer systems.
Competition is based on several factors such as cost, timely availability
of equipment, and quality of service.
Insurance
US 1's subsidiary trucking companies purchase liability insurance
coverage of up to $1 million per occurrence with a $5,000 to $50,000
deductible for the operation of the trucks. They also buy cargo insurance
coverage of up to $250,000 per occurrence with up to a $50,000 deductible.
The companies also purchase a commercial general liability policy with a
limit of $2,000,000 combined single limit and no deductible. The current
insurance market is volatile with significant rate changes that could
adversely affect the cost and availability of coverage. In addition, the
insurance coverage that the companies purchase may, given the recent trend
toward exorbitant jury verdicts, not be sufficient to cover losses
experienced by the companies.
One of the Company's insurance providers, American Inter-Fidelity
Exchange (AIFE), is managed by a director of the Company. The Company has an
investment of $126,461 in AIFE. AIFE provides auto liability and cargo
insurance to several subsidiaries of the Company as well as other entities,
some of which are related to the Company by common ownership. For the years
ended December 31, 2006, 2005 and 2004, cash paid to AIFE for insurance
premiums and deductibles was approximately $8,268,000, $4,787,000, and
$5,673,000, respectively.
The Company exercises no control over the operations of AIFE. As a
result, the Company recorded its investment in AIFE under the cost method
of accounting for each of the three years ended December 31, 2006, 2005,
and 2004. Under the cost method, the investment in AIFE is reflected at
its original amount and income is recognized only to the extent of dividends
paid by AIFE. There were no dividends declared by AIFE for the years ended
December 31, 2006, 2005 and 2004. However, as of December 31, 2006 AIFE
paid a commission due to favorable claims experience during 2006 to a
subsidiary insurance agency of US 1 Industries, Inc.
If AIFE incurs a net loss, the loss may be allocated to the various
policyholders based on each policyholder's premium as a percentage of the
total premiums of AIFE for the related period. There has been no such loss
assessment for any of the three years ended December 31, 2006, 2005, and
2004. For fiscal 2006, the Company accounted for approximately 65% of the
total premium revenue of AIFE. At December 31, 2005, AIFE had a net worth of
approximately $7.9 million, part of which is attributable to other policy-
holders of AIFE.
In addition, the Chief Executive Officer and Chief Financial Officer, as
well as another director of the Company, are the sole shareholders of
American Inter-Fidelity Corporation (AIFC), which serves as the attorney in
fact of AIFE. AIFC is entitled to receive a management fee from AIFE.
AIFE incurred management fees of approximately $0, $300,000, and $405,000
for the years ended December 31, 2006, 2005, and 2004, respectively.
Independent Contractor Status
From time to time, various legislative or regulatory proposals are
introduced at the federal or state levels to change the status of
independent contractors' classification to employees for either employment
tax purposes (withholding, social security, Medicare and unemployment taxes)
or other benefit purposes. Currently, most individuals are classified as
employees or independent contractors for employment tax purposes based on
20 "common-law" factors rather than any definition found in the Internal
Revenue Code or the regulations promulgated thereunder. In addition,
under Section 530 of the Revenue Act of 1978, taxpayers that meet
certain criteria may treat similarly situated workers as employees, if
they have received a ruling from the Internal Revenue Service or a court
decision affirming their treatment, or if they are following a long-
standing recognized practice.
Although management is unaware of any proposals currently pending to
change the employee/independent contractor classification, the costs
associated with potential changes, if any, in the employee/independent
contractor classification could adversely affect the Company's results of
operations if the Company were unable to reflect them in its fee arrangements
with the independent contractors and agents or in the prices charged to its
customers.
Regulation
The Company, through its subsidiaries is a common and contract motor
carrier regulated by the DOT and various state agencies. Among other things,
this regulation imposes requirements on the Company with regard to the
agreements that it has with owner-operators and the terms of payment to them.
The Company's compliance with these regulations was the subject of the
litigation described in Item 3. The Company's independent contractor drivers
also must comply with the safety and fitness regulations promulgated by the
DOT, including those relating to drug and alcohol testing and hours of
service.
The Company and its subsidiaries are subject to various federal, state,
and local environmental laws and regulations, implemented principally by the
Environmental Protection Agency (EPA) and similar state regulatory agencies,
governing the management of hazardous wastes, other discharge of pollutants
into the air and surface and underground waters, and the disposal of certain
substances. Management believes that its operations are in compliance with
current laws and regulations and does not know of any existing condition
(except as noted in the Environmental Regulation section below) that would
cause compliance with applicable environmental regulations to have a
material effect on the Company's earnings or competitive position.
Environmental Regulation
The Company's subsidiary, TC Services, Inc., owns property in Phoenix,
Arizona that was formerly leased to Transcon Lines as a terminal facility,
where soil contamination problems existed or are known to exist currently.
State environmental authorities notified the Company of potential soil
contamination from underground storage tanks, and management has been
working with the regulatory authorities to implement the required remediation.
The underground storage tanks were removed from the Phoenix facility in
February 1994. Currently the Arizona environmental authorities are
requiring further testing of the property. The Company believes it is in
substantial compliance with state and federal environmental regulations
relative to the trucking business. However, the Company is working with
regulatory officials to eliminate any sources of contamination and determine
the extent of existing problems. Estimates of the costs to complete the
future remediation of approximately $141,000 are considered in the land
valuation allowance in the Company's consolidated financial statements
at December 31, 2006, 2005, and 2004.
Item 1A. Risk Factors
The Company makes forward-looking statements in this document and in
other materials it files with the SEC or otherwise makes public. In
addition, senior management of the Company might make forward-looking
statements orally to analysts, investors, the media and others. Statements
concerning the Company's future operations, prospects, strategies,
financial condition, future economic performance (including growth and
earnings) and demand for our services, and other statements of the
Company's plans, beliefs, or expectations, are forward-looking statements.
In some cases these statements are identifiable through the use of words such
as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project,"
"target," "can," "could," "may," "should," "will," "would" and similar
expressions. You are cautioned not to place undue reliance on these
forward-looking statements. The forward-looking statements the Company
makes are not guarantees of future performance and are subject to various
assumptions, risks, and other factors that could cause actual results to
differ materially from those suggested by these forward-looking statements.
These factors include, among others, those set forth in the following
paragraphs and in the other documents that we file with the SEC.
The Company expressly disclaims any obligation to update or revise
any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
Factors That May Affect Future Results and/or Forward-Looking Statements
Insurance Limits. The Company currently purchases insurance coverage for
commercial trucking claims with limits of up to $1,000,000 per occurrence.
Liability associated with accidents in the trucking industry is severe
(sometimes in excess of $1,000,000) and occurrences are unpredictable. If
a claim for an amount in excess of $1,000,000 was successful, it could have
a material adverse effect on US 1 and its subsidiaries, including its results
of operations and financial condition.
Increased severity or frequency of accidents and other claims. Potential
liability associated with accidents in the trucking industry is severe and
occurrences are unpredictable. While the Company generally retains
deductibles of under $50,000, a material increase in the frequency or
severity of accidents, or cargo claims or the unfavorable development of
existing claims could have a material adverse effect through increased
insurance costs on US 1 and its subsidiaries, which would adversely affect
its results of operations and financial condition.
Dependence on third-party insurance companies. The cost of insurance
coverage for commercial trucking varies dramatically, but is expensive.
Further, the ability of US 1 to purchase coverage for losses in excess of
$1,000,000 is very limited. US 1 relies on AIFE for about 65% of its
insurance. AIFE is controlled by Mike Kibler and Harold Antonson and is
managed by Lex Venditti, all of whom are directors of the Company. AIFE,
in turn, retains some of the risk and reinsures the remainder. US 1's access
to affordable insurance other than through AIFE historically has been quite
limited. Should the premiums charged by AIFE increase significantly, or
should coverage be limited in any way or be unavailable, it could have a
material adverse affect on the Company and its results of operations and
financial condition.
Factors That May Affect Future Results and/or Forward-Looking
Statements (continued)
Dependence on independent commission agents. As noted above in Item 1,
"Business," the Company markets its services primarily through independent
commission agents. Currently the Company has a network of 68 agents.
During 2006, 32 of these agents generated revenue for US 1 of at least
$1,000,000 and one agent generated approximately $16,300,000, or 8.5% of
US 1's total revenue. The Company competes with motor carriers and other
third parties for the services of these independent agents. US 1's
contracts with these agents typically are terminable upon 30-days notice
by either party and do not restrict the ability of a former agent to
compete with US 1 following a termination. The loss of some of the
Company's agents or a significant decrease in volume generated by these
agents could have a materially adverse effect on US 1, including its results
of operations and revenue.
Dependence on third-party owner operators. As noted above in Item 1,
"Business," US 1 does not generally own trucks and relies on owner/operators
who operate as independent contractors and unrelated trucking companies to
transport freight for its customers. US 1 competes with other motor
carriers and third parties for the services of owner/operators. All the
freight hauled by the Company is by these owner/operators. A significant
decrease in available capacity provided by either of these parties could have
a material adverse effect on US 1, including its results of operations and
revenue.
Dependence on key personnel. The Company is dependent on the services of its
officers, particularly the officers of its subsidiaries. All of these
officers are free to leave the Company and start competing operations. None
have agreed to any covenant not to compete. Given the nature of the
relationship with the agents and owner/operators, as described above, it
would be relatively easy for the Company to loose a substantial amount of
business if one or more of these key people left and set up a competing
operation. This in turn could have a material adverse effect on the
Company, including its results of operations and revenue.
In October 2006, the Company and the general manager of Patriot Logistics,
Inc., a wholly owned subsidiary of the Company, entered into an agreement
under which the Company granted the individual the option to purchase 100% of
the outstanding stock of Patriot for a purchase price equal to the book value
of Patriot. This option to purchase Patriot terminates in October 2008 or
upon a change in control of the Company. The fair value of this option was
determined to be immaterial.
Disruptions or failures in the Company's computer systems. The Company's
information technology systems used in connection with its operations are
located in Arlington Heights, IL and Valparaiso, IN. US 1 relies, in the
regular course of business, on the proper operation of its information
technology systems to link its network of customers, agents and owner
operators. These systems in turn are dependent on operation of the
Internet. Any significant disruption or failure of these systems could
significantly disrupt the Company's operations and impose significant costs
on the Company.
Status of Owner/Operators. From time to time, various legislative or
regulatory proposals are introduced at the federal or state levels to change
the status of owner/operators' classification to employees (from independent
contractors) for either employment tax purposes (withholding, social
security, Medicare and unemployment taxes) or other benefit purposes.
Factors That May Affect Future Results and/or Forward-Looking
Statements (continued)
Currently, most individuals are classified as employees or independent
contractors for employment tax purposes based on 20 "common-law" factors
rather than any definition found in the Internal Revenue Code or the
regulations there under. In addition, under Section 530 of the Revenue Act
of 1978, taxpayers that meet certain criteria may treat similarly situated
workers as employees, if they have received a ruling from the Internal
Revenue Service or a court decision affirming their treatment, or if they
are following a long-standing recognized practice. US 1 treats its
owner/operators as independent contractors. The classification of
owner/operators as independent contractors does require significant analysis
of the facts relating to their service to the Company.
Although management is unaware of any proposals currently pending to
change the employee/independent contractor classification, the costs
associated with potential changes, if any, in the employee/independent
contractor classification could adversely affect the Company's results of
operations if the Company were unable to reflect them in its fee arrangements
with the owner/operators and agents or in the prices charged to its customers.
Credit Facility. The primary source of liquidity for US 1 is its revolving
credit facility. While this facility has provided all needed liquidity in
the recent past, there have been times in the history of US 1 where it was
not adequate. In addition, this facility contains both affirmative and
negative covenants that must be satisfied. Were the Company to fail to
satisfy those covenants, it no longer would be entitled to borrow under the
facility and there can be no assurances that an alternative borrowing
facility would be available.
Item 1b. Unresolved Staff Comments
None.
Item 2. Properties
The Company's administrative offices are at 336 W. US Hwy 30, Valparaiso,
Indiana. The Company leased office space for its headquarters in Gary,
Indiana, for $4,000 monthly, from Michael E. Kibler, the President and Chief
Executive Officer and a director of the Company, and Harold E. Antonson, the
Chief Financial Officer, Treasurer and a director of the Company through the
first quarter of 2006. In April, 2006, the Company relocated its
headquarters to Valparaiso, Indiana. The Company now leases its
administrative offices of approximately 7,000 square feet from an independent
owner. Patriot Logistics, Inc. leases a truck terminal in Fort Smith, AK of
approximately 13,250 square feet on a month-to-month basis for $3,216 from
Mr. Michael E. Kibler, President, Chief Executive Officer and a director of
the Company, and Mr. Harold Antonson, Treasurer, Chief Financial Officer and
a director of the Company.
In addition, the Company's subsidiaries lease office space and land in
several locations throughout the United States, as summarized below:
Approximate Monthly Lease
Subsidiary City,State Square Feet Rent Expiration
___________________________________________________________________________________
CAM Transport, Inc. Gulfport, MS 1,130 1,320 Aug. 31, 2007
Carolina National
Transportation,LLC Mt. Pleasant, SC 6,280 $ 9,506 June 30, 2011
Keystone Logistics, Inc. Clinton, MS 156 250 Nov. 14, 2007
Keystone Logistics, Inc. Houston, TX 288 350 month to month
Keystone Logistics, Inc. South bend, IN 4,400 3,148 month to month
Patriot Logistics, Inc. Atlanta, GA 48,750 1,788 Aug. 31, 2008
Patriot Logistics, Inc. Bellmar, NJ 525 678 July 31, 2007
Patriot Logistics, Inc. Charlotte, NC 500 2,600 Dec. 31, 2011
Patriot Logistics, Inc. Dallas, TX 5.0 acres 4,000 month to month
Patriot Logistics, Inc. Fontana, CA 4,000 5,775 Apr 14, 2009
Patriot Logistics, Inc. French Camp, CA 1,000 1,200 month to month
Patriot Logistics, Inc. Ft. Smith, AK 13,250 3,216 month to month
Patriot Logistics, Inc Houston, TX 33,000 9,500 Dec. 31, 2007
Patriot Logistics, Inc. Houston, TX 4,050 2,005 Dec. 14, 2007
Patriot Logistics, Inc Irving, TX 1,440 1,659 April 7, 2010
Patriot Logistics, Inc. Jacksonville, FL 1,500 5,664 Sept 30, 2007
Patriot Logistics, Inc Kansas City, MO 432 1,500 month to month
Patriot Logistics, Inc. Laredo, TX 400 1,100 month to month
Patriot Logistics, Inc. Lynwood, CA 18,704 8,416 July 7, 2007
Patriot Logistics, Inc. Memphis, TN 4,500 5,500 July 13, 2011
Patriot Logistics, Inc. Milpitas, CA 1,278 2,369 month to month
TC Services, Inc. Valparaiso, IN 7,000 7,000 Mar 31, 2009
Thunderbird Motor Express Alton, IL 2,700 1,500 Aug. 31, 2007
Thunderbird Logistics Terrell, TX 1,700 1,400 Aug. 31, 2007
Thunderbird Motor Express Olive Branch, MS 1,200 1,000 Dec. 31, 2008
Transport Leasing, Inc. Calhoun, GA 8.4 acres 7,500 July 14, 2007
Transport Leasing, Inc. Ft. Smith, AK 1,000 350 month to month
US1 Logistics, Inc. St. Augustine, FL 1,340 1,740 Mar. 31, 2008
Management believes that the Company's leased properties are adequate for
its current needs and can be retained or replaced at acceptable cost.
Item 3. Legal Proceedings
On November 4, 2005, Terrell C. Coleman and Willie B. Crocker
("Plaintiffs") filed a putative class action complaint (the "Complaint") in
the United State District Court for the Middle District of Florida (the
"Court") in Jacksonville, Florida, against Patriot Logistics, Inc.
("Patriot"). The complaint alleged that certain aspects of Patriot's motor
carrier leases with its independent-contractor owner-operators violate
certain federal leasing regulations, and sought injunctive relief, an
unspecified amount of damages, and attorney's fees. On January 6, 2006,
Defendant served an Answer denying most elements of the Complain and
asserting Affirmative Defenses. On May 1, 2006, the parties reached a
Settlement Agreement in the amount of $315,000. The Court approved the
Settlement Agreement on October 25, 2006 and the Company paid the settlement
in December 2006. The Settlement Agreement has resulted in Patriot's
entering into a new, more detailed independent contractor operating
agreement with each of its owner-operators.
Item 3. Legal Proceedings (continued)
The Company and its subsidiaries are involved in other litigation in
the normal course of its business. Management intends to vigorously defend
these cases. In the opinion of management, the other litigation now pending
will not have a material adverse affect on the consolidated financial
statements of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No Matters were submitted to a vote of Security Holders during the
fourth quarter of 2006.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Shares of Common Stock of the Company are listed and traded on the NASD
Electronic "bulletin board market" under the symbol "USOO".
The following table sets forth for the periods indicated. The high and
low bid prices per share of the Common Stock as reported from quotations
provided by North American Quotations and reflect inter-dealer prices,
without retail mark-up, mark-down, or commission and may not represent
actual transactions.
As of December 31, 2006 there were approximately 3,062 holders of record
of the Company's Common Stock.
The Company has not paid and, for the foreseeable future, does not
anticipate paying any cash dividends on its Common Stock. The Company's
current credit agreement prohibits the payment of dividends.
The Company does not currently have any active equity compensation plans
or arrangements.
There were no purchases made, by or on behalf of the Company, of the
Company's equity securities during 2006.
Calendar Year High Low
__________________________________________________________________________
2006
First Quarter 1.38 1.12
Second Quarter 2.02 1.05
Third Quarter 2.27 1.17
Fourth Quarter 1.60 1.25
2005
First Quarter 1.65 .81
Second Quarter 1.26 .73
Third Quarter 1.40 1.04
Fourth Quarter 1.35 .91
Item 6. Selected Financial Data
The selected consolidated financial data presented below have been
derived from the Company's consolidated financial statements. The
consolidated financial statements for the years ended December 31, 2006,
2005 and 2004 have been audited by the Company's registered independent
certified public accountants, whose report on such consolidated financial
statements are included herein under Item 8. The information set forth
below should be read in conjunction with the consolidated financial
statements and notes thereto under Item 8 and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(in thousands, except shares and per share data)
Fiscal Year Ended December 31,
2006 2005 2004 2003 2002
STATEMENT OF OPERATIONS DATA:
Operating revenues $190,975 $175,625 $149,089 $121,747 $104,186
Purchased transportation 139,149 131,241 111,314 89,699 77,071
Commissions 21,866 17,243 14,294 12,348 10,278
Other operating costs
and expenses 24,999 22,659 23,425 17,977 14,435
Operating income 4,962 4,483 56 1,723 2,402
Interest expense 790 611 466 493 550
Minority interest expense 989 35 28 155 118
Income before income taxes 3,362 4,171 101 1,393 1,684
Income tax (expense) benefit (260) (54) (86) 0 0
Net income 3,102 4,117 15 1,393 1,684
Net Income available to
common shares $ 3,102 $ 4,117 $ 15 $ 1,393 $ 2,237
Income per common share
Net Income
Basic $0.25 $0.34 $0.00 $0.12 $0.20
Diluted $0.25 $0.34 $0.00 $0.11 $0.20
Weighted average shares
outstanding:
Basic 12,169,739 12,018,224 11,618,224 11,618,224 11,075,758
Diluted 12,169,739 12,169,739 11,964,174 11,852,507 11,075,758
Item 6. Selected Financial Data (continued)
(in thousands)
Fiscal Year Ended December 31,
2006 2005 2004 2003 2002
BALANCE SHEET DATA:
Total assets $32,423 $33,290 $26,120 $22,077 $21,444
Long-term debt, including
current portion 0 2,770 2,890 3,371 4,311
Working capital 10,413 9,508 5,145 4,888 2,966
Shareholders'equity 11,385 7,909 3,593 3,410 1,857
OTHER DATA:
Cash provided by (used in)
operating activities 3,874 (1,599) (271) 2,419 831
Cash (used in) provided by
investing activities (281) 146 274 (128) (157)
Cash (used in) provided by
financing activities (3,593) (1,453) (3) (2,291) (996)
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Overview
Purchased transportation represents the amount an independent contractor
is paid to haul freight and is primarily based on a contractually agreed-
upon percentage of revenue generated by the haul for truck capacity provided
by independent contractors. Because the Company does not generally own its
own trucks, purchased transportation is the largest component of the
Company's operating expenses and increases or decreases in proportion to
the revenue generated through independent contractors. Commissions to
agents and brokers are similarly based on contractually agreed-upon
percentages of revenue.
A majority of the Company's insurance expense is based on a percentage
of revenue and, as a result, will increase or decrease with the
Company's revenue. Potential liability associated with accidents in
the trucking industry is severe and occurrences are unpredictable. A
material increase in the frequency or severity of accidents or the
unfavorable development of existing claims could adversely affect the
Company's operating income. One of the Company's subsidiaries had a
substantial verdict entered against it in 2004. In 2005 the case was
settled for $750,000 and the Company's insurer, AIFE agreed to pay the
full amount of the settlement. The Company recorded a recovery on
this litigation of $1.7 million.
Historically salaries, wages, fringe benefits, and other operating
expenses had been principally non-variable expenses and remained
relatively fixed with slight changes in relationship to revenue. However,
since the Company has added certain operations, which utilize employees
rather than independent agents, these non-variable expenses may not be
directly comparable.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation (continued)
The following table set forth the percentage relationships of expense
items to operating revenue for the periods indicated:
Fiscal Years
--------------------------
2006 2005 2004
------ ------ ------
Revenue 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation 72.9 74.7 74.7
Agent Commissions 11.5 9.8 9.5
Insurance and claims 2.8 3.7 4.1
Litigation judgment 0.0 (1.0) 1.1
Salaries, wages and fringe benefits 6.1 6.0 6.0
Other operating expenses 4.2 4.2 4.5
_____ _____ ______
Total operating expenses 97.5 97.4 99.9
_____ _____ ______
Operating income 2.5% 2.6% 0.1%
Critical Accounting Policies and Estimates
US 1's financial statements reflect the selection and application of
accounting policies, which require management to make significant estimates
and assumptions. The Company believes that the following are some of the
more critical judgment areas in the application of its accounting policies
that currently affect its financial condition and results of operations.
Preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions affecting the
reported amounts of assets, liabilities, revenues, and expenses and related
contingent liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to revenues, bad debts, income taxes,
contingencies, and litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.
The Company records an allowance for doubtful accounts based on (1)
specifically identified amounts that it believes to be un-collectable and
(2) an additional allowance based on certain percentages of its aged
receivables, which are determined based on historical experience and (3)
our assessment of the general financial conditions affecting our customer
base. At December 31, 2006, the allowance for doubtful accounts was $991,908
or approximately 4% of total trade accounts receivable. If actual
collections experience changes, revisions to the Company's allowance may be
required. After reasonable attempts to collect a receivable have failed,
the receivable is written off against the allowance. In addition, US 1
reviews the components of other receivables, consisting primarily of advances
to drivers and agents, and writes off specifically identified amounts that it
believes to be un-collectable.
Critical Accounting Policies and Estimates (continued)
Revenue for freight is recognized upon delivery. The Company accounts
for its revenue in accordance with EITF 99-19, Reporting Revenues Gross as a
Principal Versus Net as an Agent. Amounts payable for purchased
transportation, commissions and insurance are accrued when incurred. The
Company follows the guidance in EITF 99-19 and records revenues at the gross
amount billed to customers because the Company performs service for the
customer and bears the credit risk.
The Company is involved in various litigation matters in the normal
course of business. Management evaluates the likelihood of a potential loss
from the various litigation matters on a quarterly basis. When it is probable
that a loss will occur from litigation and the amount of the loss can be
reasonably estimated, the loss is recognized in the Company's financial
statements. If a potential loss is not determined to be both probable and
reasonably estimated, but there is at least a reasonable possibility that a
loss may be incurred, the litigation is not recorded in the Company's
financial statements but this litigation is disclosed in the footnotes of
the financial statements.
The Company's subsidiaries carry insurance for auto liability, property
damage, and cargo loss and damage through various programs. About 70% of the
Company's liability insurance is obtained from AIFE, a related party. The
Company's insurance liabilities are based upon the best information
currently available and are subject to revision in future periods as
additional information becomes available. Management believes it has
adequately provided for insurance claims.
AIFE is managed by a director of the Company. The Company has an
investment of $126,461 in AIFE. AIFE provides auto liability, property
damage, and cargo loss and damage insurance coverage to several subsidiaries
of the ompany as well as other entities related to the Company by common
ownership. For the years ended December 31, 2006, 2005 and 2004, cash paid
to AIFE for insurance premiums and deductibles was approximately $8,268,000,
$4,787,000, and $5,673,000, respectively.
The Company exercises no control over the operations of AIFE. As a result,
the Company recorded its investment in AIFE under the cost method of
accounting for each of the three years in the period ended December 31,
2006. Under the cost method, the investment in AIFE is reflected at its
original amount and income is recognized only to the extent of dividends paid
by AIFE. There were no dividends declared by AIFE for the years ended
December 31, 2006, 2005 and 2004.
If AIFE incurs a net loss, the loss may be allocated to the various
policyholders based on each policyholder's premium as a percentage of the
total premiums of AIFE for the related period. There has been no such loss
assessment for each of the three years ending December 31, 2006, 2005, and
2004. The subsidiaries of the Company currently account for the majority of
the premiums of AIFE. For fiscal 2006, the Company accounted for
approximately 65% of the total premium revenue of AIFE. At December 31,
2005, AIFE had net worth of approximately $7.9 million, part of which is
attributable to other policyholders of AIFE.
Critical Accounting Policies and Estimates (continued)
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities. At December 31, 2006, the
Company's deferred tax asset of approximately $1.4 million consists
principally of net operating loss carry-forwards. The Company's deferred tax
asset has been reduced by a valuation allowance to the extent such benefits
are not expected to be fully utilized. The Company has based its estimate of
the future utilization of the net operating loss carry-forwards upon its
estimate of future taxable income as well as the timing of expiration of the
Company's net operating loss carry-forwards. Approximately 7.4% of the
Company's net operating loss carry-forwards expire in 2007, with
substantially all of the net operating loss carry-forwards expiring by 2010.
At December 31, 2006 the valuation allowance for deferred tax assets was
approximately $2.0 million. If actual future taxable income differs,
revisions to the valuation allowance and net deferred tax asset may be required.
2006 Compared to 2005
The Company's operating revenues for the 2006 fiscal year was $191 million,
an increase of $15.4 million, or 8.7%, over operating revenue for the 2005
fiscal year. The increase was attributable to the continued growth of Harbor
Bridge Intermodal, Inc., Carolina National Transportation, LLC. and US1
Logistics, LLC. The growth of these subsidiaries is primarily attributable
to the addition of new terminals and growth of existing terminals.
Purchased transportation and commission expense generally increase or
decrease in proportion to the revenue generated through independent
contractors. Many agents negotiate a combined percentage payable for
purchased transportation and commission. Purchased transportation and
commission expense increase or decrease in proportion to the revenue
generated through independent contractors. Purchased transportation and
commissions in total averaged 84.4% of operating revenue in fiscal 2006
versus 84.5% of operating revenue in fiscal 2005. The mix between the
amounts of purchased transportation paid versus commissions paid may vary
slightly based on agent negotiations with independent owner operators.
In addition, pay on certain types of revenue may be higher than for other
types of revenue. Thus a change in the mix of revenue can cause some
variation in the percent paid out for purchased transportation and
commission. However, in total, commissions and purchased transportation
would typically be expected to remain relatively consistent as a percentage
of revenue.
In 2003, the operation known as Patriot Logistics, Inc. began using
employees to staff the terminals rather than independent sales agent. This
operation accounted for approximately 24% and 27% of the Company's
consolidated operating revenues in 2006 and 2005, respectively.
Insurance and claims decreased in 2006 to 2.8% of operating revenue
compared to 3.7% of operating revenue for 2005. A majority of the Company's
insurance expense is based on a percentage of revenue and, as a result, will
increase or decrease on a consolidated basis with the Company's revenue.
Potential liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. A material increase in the
frequency or severity of accidents or the unfavorable development of
2006 Compared to 2005 (continued)
existing claims could adversely affect the Company's operating income. The
0.9% improvement in the percentage of operating revenue represented by
insurance and claims between 2006 and 2005 can be attributed to the decrease
of certain operations' claim activity for the year ended December 31, 2006.
The Company also reduced insurance and claims expense by $400,000 due to a
commission received by an insurance subsidiary of the Company for favorable
claims experience during 2006. The Company obtains a significant amount of
its auto liability and cargo insurance from AIFE, an affiliated entity (see
Note 5 to consolidated financial statements).
The $1.7 million of litigation judgment from 2004 was recovered in 2005.
This recovery was the result of a settlement reached during third quarter 2005
pertaining to a personal injury case relating to an auto accident, which
occurred in March 2001 against a subsidiary of the Company, Cam Transport,
Inc., in the amount of $1.7 million. During the third quarter of 2005, the
case was settled for $750,000 and the Company's insurer, AIFE agreed to pay
the full amount of the settlement. As a result, the Company has recorded a
recovery on this litigation of $1.7 million for the fiscal year ended December
31, 2005.
Salaries, wages and fringe benefits increased slightly to 6.1% of
operating revenue compared to 6.0% of operating revenue for the same period
of time in 2005. This increase can be attributed to the addition of personnel
hired to accommodate the growth of expanding terminals that have not yet begun
to or did not produce at their full revenue potential.
Other operating expenses remained consistent at 4.2% of operating revenues.
While not all operating expenses are directly variable with revenues, the
increased revenue directly impacts several components of operating expenses
such as bad debt expense.
Based on the changes in revenue and expenses discussed above, operating
income increased by $0.5 million from $4.5 million in 2005 to $5.0 million
in 2006. Included in operating income for 2005 is a $1.7 million recovery
relating to litigation. The Company did not incur any such recoveries in
fiscal 2006.
Interest expense increased slightly to $0.8 million in 2006 from $0.6
million in 2005. This increase in interest expense is primarily attributable
to an increase in interest rates charged on the Company's line of credit.
The rate on the Company's' loan with US Bank is currently based on certain
financial covenants and may range from prime to prime less .50%. At December
31, 2006 the interest rate on this loan was prime less .50% (7.75%). At
December 31, 2005 the Company's interest rate on the credit facility with
its lender was at prime less .25% (7.00%).
Other income includes income from rental property, storage and equipment
usage fees. Other income decreased $0.1 million in 2006 from 2005. This
decrease was due primarily to a reduction of rental income in 2006 and the gain
on the sale of equipment the Company recognized during the first quarter of
2005 that did not occur in 2006.
The Company also recognized minority interest expense of $1.0 million and
$.35 million relating to the minority shareholders' portion of its subsidiary's,
Carolina National Transportation, LLC net income for the years ended December
31, 2006 and 2005, respectively. The decline in claims experience during 2006,
the decrease in management fees and the increase in revenue resulted in an
increase of net income for Carolina National Transportation, LLC. Carolina
2006 Compared to 2005 (continued)
National Transportation, LLC, is a 60% owned subsidiary of the Company.
The Company has net operating loss carry-forwards of approximately $9.0
million at December 31, 2006. These carry-forwards are available to offset
taxable income in future years and substantially all of these carry-forwards
will expire in the years 2007 through 2010. Approximately 7.4% of the
Company's net operating loss carry-forwards expire in 2007.
As a result of the factors outlined above, net income in 2006 was $3.1
million compared with $4.1 million in 2005.
2005 Compared to 2004
Operating revenue for the 2005 fiscal year was $175.6 million, an increase
of $26.5 million, or 17.8%, over operating revenue for the 2004 fiscal year.
The increase was attributable to the continued growth of Harbor Bridge, Inc.,
Carolina National, Inc., and the new operation of US1 Logistics, Inc. The
growth of these subsidiaries is primarily attributable to the addition of
new terminals and growth of existing terminals.
Purchased transportation and commission expense generally increase or
decrease in proportion to the revenue generated through independent
contractors. Many agents negotiate a combined percentage payable for
purchased transportation and commission. The mix between the amounts of
purchased transportation paid versus commissions paid may vary slightly based
on agent negotiations with independent owner/operators. However, in total,
commissions and purchased transportation would typically be expected to
remain relatively consistent as a percentage of revenue. Purchased
transportation and commissions in total averaged 84.5% of operating revenue
in fiscal 2005 versus 84.2% of operating revenue in fiscal 2004.
In 2003, the operation known as Patriot Logistics, Inc. began using
employees to staff the terminals rather than independent sales agent.
This operation accounted for approximately 27% and 23% of the Company's
consolidated operating revenues in 2005 and 2004, respectively.
Insurance and claims decreased in 2005 to 3.7% of operating revenue
compared to 4.1% of operating revenue for 2004. A majority of the Company's
insurance expense is based on a percentage of revenue and, as a result, will
increase or decrease on a consolidated basis with the Company's revenue.
Potential liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. A material increase in the
frequency or severity of accidents or the unfavorable development of
existing claims could adversely affect the Company's operating income. The
0.4% improvement in the percentage of operating revenue represented by
insurance and claims between 2005 and 2004 can be attributed to the decrease
of certain operations' claim activity for the year ended December 31, 2005.
The Company obtains a significant amount of its auto liability and cargo
insurance from AIFE, an affiliated entity (see Note 5 to consolidated
financial statements).
The $1.7 million litigation judgment from 2004 was recovered in 2005.
This recovery was the result of a settlement rendered during third quarter
2005 pertaining to a personal injury case relating to an auto accident, which
occurred in March 2001 against a subsidiary of the Company, Cam Transport,
Inc., in the amount of $1.7 million. During the third quarter of 2005, the
case was settled for $750,000 and the Company's insurer, AIFE agreed to pay
the full amount of the settlement. As a result, the Company has recorded a
2005 Compared to 2004 (continued)
recovery on this litigation of $1.7 million for the fiscal year ended December
31, 2005.
Salaries, wages and fringe benefits remained constant at 6.0% of
operating revenue in 2005 and 2004.
Other operating expenses decreased slightly as a percentage of operating
revenue to 4.2% in 2005 from 4.5% in 2004. While not all operating expenses
are directly variable with revenues, the increased revenue directly impacts
several components of operating expenses such as bad debt expense. In addition,
the Company's subsidiaries have expanded by adding new terminals and operations
resulting in the addition of new locations resulting in an increase in operating
expenses such as rent. Other operating expenses increased $0.7 million from $6.7
million in 2004 to $7.4 million in 2005. Two factors that contribute to this
increase are changes in rent expense and bad debt expense. Rent expense
increased by $0.2 million from $0.8 million for 2004 to $1.0 million for 2005.
Bad debt expense increased by $0.2 million from $0.8 million in 2004 to $1.0
million in 2005.
Based on the changes in revenue and expenses discussed above, operating
income increased by $4.4 million from $0.1 million in 2004 to $4.5 million in
2005. Included in operating income for 2005 is a $1.7 million recovery relating
to litigation.
Interest expense increased slightly to $0.6 million in 2005 from $0.5
million in 2004. This increase in interest expense is primarily attributable
to the increase in interest rates in the past year. The rate on the Companys'
credit facility with US Bank is currently based on certain financial covenants
and may range from prime to prime less .50%. An increase in the funds the
Company borrowed against its line of credit during 2005 also resulted in higher
interest expense. At December 31, 2005 the interest rate charged on the credit
facility with US Bank was prime less .25% (7.00%). At December 31, 2004 the
Company's interest rate on the credit facility with its lender was at prime
(5.25%).
Other income includes income from rental property, storage and equipment
usage fees. Other income decreased $0.2 million in 2005 from 2004. This
decrease was due primarily to the gain on the sale of equipment the Company
realized during 2004.
The Company also recognized minority interest expense of $.35 million and
$.28 million relating to the minority shareholders' portion of its subsidiary,
Carolina National Transportation, Inc., net income for the years ended December
31, 2005 and 2004, respectively. Carolina National Transportation, Inc., is a
60% owned subsidiary of the Company.
The Company had net operating loss carry-forwards of approximately $24
million at December 31, 2005. These carry-forwards are available to offset
taxable income in future years and substantially all of these carry-forwards
will expire in the years 2006 through 2010. Approximately 62% of the Company's
net operating loss carry-forwards expired or were used in 2006.
As a result of the factors outlined above, net income in 2005 was $4.1
million compared with $.14 million in 2004.
Liquidity and Capital Resources
During fiscal 2006, the Company's financial position continued to
improve. The Company had shareholders' equity of $11.4 million at December
31, 2006 compared with $7.9 million at December 31, 2005.
Net cash provided by (used in) operating activities increased $5.5
million from ($1.6 million) for the year ended December 31, 2005 to $3.9
million for the year ended December 31, 2006. Net income in 2006 of $3.1
million was the primary source of cash provided by operations. Accounts
receivable decreased by $1.3 million, however, this decrease was largely
offset by a decrease in accounts payable of $1.0 million.
Net cash provided by (used in) investing activities was $145,819 for
the year ending December 31, 2005 compared to ($281,177) for the year ending
December 31, 2006. Net cash used in investing activities increased due to
additions to the fixed assets in 2006 relating primarily to capital additions
for the new headquarters in Valparaiso, Indiana.
Net cash (used in) provided by financing activities decreased $5,046,156
from $1,452,998 for the year ending December 31, 2005 to ($3,593,158) for the
year ending December 31, 2006. The decrease resulted from repayments to the
Company's line of credit balance. The company and its subsidiaries repaid
$3,572,574 on the revolving line of credit during 2006 verses borrowing
additional funds of $1,692,998 in 2005.
The Company and its subsidiaries have a $10.0 million line of credit
that matures on October 1, 2007. Advances under this revolving line of
credit are limited to 75% of eligible accounts receivable. Unused
availability under this line of credit was $6.4 million at December 31,
2006. The interest rate is based upon certain financial covenants and may
range from prime to prime less .50%. At December 31, 2006, the interest rate
on this line of credit was at prime less .50% (7.75%). The Company's
accounts receivable, property, and other assets collateralize advances under
the agreement. Borrowings up to $1.5 million are guaranteed by the Chief
Executive Officer and Chief Financial Officer of the Company. At December 31,
2006 the outstanding borrowings on this line of credit were $3.6 million.
This line of credit is subject to termination upon various events of
default, including failure to remit timely payments of interest, fees and
principal, any adverse change in the business of the Company or failure to
meet certain financial covenants. Financial covenants include: minimum net
worth requirements, total debt service coverage ratio, and prohibition of
additional indebtedness without prior authorization. At December 31, 2006,
the Company was in compliance these financial covenants. The balance
outstanding under this line-of-credit agreement is classified as a current
liability at December 31, 2006.
On October 20, 2005, the Company and its subsidiaries entered into an
Interest Rate Swap Agreement with U.S. Bank effective November 1, 2005
through November 1, 2008. This agreement is in the notional amount of
$3,000,000. The agreement caps the interest rate at 7.71% through the term
of the agreement. The fair value of the interest rate swap was minimal at
December 31, 2006.
Liquidity and Capital Resources (Continued)
The Company also has approximately $3.6 million of debt payable net of
unamortized discount of $0.3 million to the Chief Executive Officer and
Chief Financial Officer or entities under their control. This debt is
subordinate to the lender of the revolving credit facility and matures on
September 22, 2007. This debt is also convertible into common stock of the
Company at a conversion price of $1.48 per share. The conversion feature
expires on the maturity date of September 22, 2007. Repayment of the
subordinate debt would require approval from the lender of the revolving
credit facility. The subordinated debt has historically been extended prior
to maturity.
The following is a table of our contractual obligations and other commercial
commitments as of December 31, 2006 (dollars in thousands):
Less than 2-3 4-5 After
Total 1 year Years Years 5 years
____________________________________________________
Revolving Line of Credit $ 3,634 $3,634 $ 0 $ 0 $ 0
Convertible Subordinated
Debt 3,637 3,637 0 0 0
Operating Leases 1,852 753 742 357 0
____________________________________________________
Total Contractual
Obligations $9,123 $8,024 $742 $357 $0
Historically the revolving line of credit and long term debt has been extended
prior to maturity.
The Company does not have any long-term purchase commitments as of December
31, 2006.
Environmental Liabilities
Neither the Company nor its subsidiaries is a party to any Super-fund
litigation and does not have any known environmental claims against it except
for the one property owned by its subsidiary TC Services, Inc. where soil
contamination problems existed or are known to exist currently. The Company
has conducted a preliminary evaluation of its potential liability at this site
and believes that it has reserved appropriately for remediation of the site or
that the fair market value of the property exceeds its net book value by an
amount in excess of any remediation cost. There can be no assurance, however,
that the cost of remediation would not exceed the expected amounts. The Company
continues to monitor soil contamination and may be required to remediate the
property in the near future.
Inflation
Changes in freight rates charged by the Company to their customers are
generally reflected in the cost of purchased transportation and commissions
paid by the subsidiaries to independent contractors and agents, respectively.
Therefore, management believes that future-operating results will be
affected primarily by changes in the volume of business. Rising fuel prices
are generally offset by a fuel surcharge they pass onto their customers.
However, due to the highly competitive nature of the truckload motor carrier
industry, it is possible that future freight rates, cost of purchased
transportation, as well as fuel prices may fluctuate, affecting the
Company's consolidated profitability.
Recently Issued Accounting Standards
In July 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold
a tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN48 applies to all tax positions related to
income taxes subject to FASB Statement No. 109, "Accounting for Income
Taxes"("FASB No. 109"). FIN 48 is effective for fiscal years beginning
after December 15, 2006. Differences between the amounts recognized in the
statements of financial position prior to the adoption of FIN 48 and the
amounts reported after adoption should be accounted for as a cumulative-
effect adjustment recorded to the beginning balance of retained earnings.
The Company is currently in the process of determining the impact, if any,
that the adoption of FIN 48 will have on the consolidated financial
statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Mistatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB No. 108"), to
address diversity in practice in quantifying finacial statements
misstatements based on their impact on each of its financial statements
and related disclosures. SAB No. 108 is effective as of the end of the
Company's 2006 fiscal year, allowing a one-time transitional
cumulative effect adjustment to retained earnings as of January 6, 2006
for errors that were not previously deemed material, but are material under
the guidance in SAB No. 108. The adobption of SAB No. 108 does not have
a material impact on the Company's consolidated financial statements.
Off-Balance Sheet Arrangements
The Company's subsidiaries obtain the majority of their auto liability
and cargo insurance from AIFE. For the years ended December 31, 2006, 2005,
and 2004, cash paid to AIFE for insurance premiums and deductibles was
approximately $8,268,000, $4,787,000, and $5,673,000, respectively. If
AIFE incurs a net loss, the loss may be allocated to the various policyholders
based on each policyholder's premium as a percentage of the total premiums of
AIFE for the related period. There has been no such loss assessment for each
of the years ended December 31, 2006, 2005, and 2004, respectively. The
Company currently accounts for the majority of the premiums of AIFE. For
fiscal 2006, the subsidiaries of the Company account for approximately 65% of
the total premium revenue of AIFE. At December 31, 2005, AIFE had net worth
of approximately $7.9 million.
The Company has no other off-balance sheet arrangements.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes. The Company has a
$10 million line of credit with a variable interest rate, which may ranges
from prime (8.25% at December 31, 2006) to prime less .50%. At December 31,
2006, the interest rate on this line of credit was at 7.75%. The outstanding
balance on this line of credit at December 31, 2006 was $3.6 million. The
Company also has approximately $3.6 million of debt payable net of
unamortized discount of $0.3 million to the Chief Executive Officer and
Chief Financial Officer or entities under their control which bears interest
at prime less 1%. Based on the Company's outstanding borrowings at December
31, 2006, a 1% increase in the prime rate would result in approximately
$40,000 of additional interest expense annually.
On October 20, 2005, the Company and its subsidiaries entered into
an Interest Rate Swap Agreement with U.S. Bank effective November 1, 2005
through November 1, 2008. This agreement is in the notional amount of
$3,000,000. The agreement caps the interest rate at 7.71% through the term
of the agreement. The fair value of the interest rate swap was minimal at
December 31, 2006.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
US 1 Industries, Inc.
Valparaiso, Indiana
We have audited the accompanying consolidated balance sheets of US 1
Industries, Inc. and Subsidiaries as of December 31, 2006 and 2005 and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2006.
We have also audited the schedule listed in the accompanying index. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and schedule are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements and schedule, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements and schedules. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of US 1
Industries, Inc. and Subsidiaries at December 31, 2006 and 2005, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
/s/BDO Seidman, LLP
Chicago, Illinois
March 9, 2007
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
ASSETS
2006 2005
CURRENT ASSETS:
Accounts receivable-trade, less
allowance for doubtful accounts of
$992,000 and $1,365,000 respectively $25,764,263 $28,108,082
Other receivables, including receivables due
from affiliated entities of $691,000 and
$144,000 in 2006 and 2005, respectively 3,159,640 2,343,563
Prepaid expenses and other current assets 649,692 509,919
Current deferred tax asset 717,400 987,348
------------ ----------
Total current assets 30,290,995 31,948,912
Property and Equipment
Land, less valuation allowance of $141,347 54,000 54,000
Equipment 952,675 859,602
Less accumulated depreciation and amortization (573,501) (574,810)
------------ ----------
Net property and equipment 433,174 338,792
------------ ----------
Non-current deferred tax asset 717,400 600,000
Notes receivable - Long Term 594,896 0
Other assets 386,037 402,219
------------- -----------
TOTAL ASSETS $32,422,502 $33,289,923
============= ===========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
LIABILITIES AND SHAREHOLDERS' EQUITY
2006 2005
CURRENT LIABILITIES:
Revolving line of credit $ 3,633,784 $ 7,206,358
Related Party Convertible subordinated debt,
net of Unamortized discount of $313,000 3,637,037 0
Accounts payable 9,594,681 10,557,403
Other accrued expenses 988,823 890,026
Insurance and claims 1,507,980 1,879,623
Accrued compensation 127,381 259,601
Accrued interest 32,595 1,213,227
Fuel and other taxes payable 355,853 434,404
----------- -----------
Total current liabilities 19,878,134 22,440,642
----------- -----------
LONG-TERM DEBT(RELATED PARTY) 0 2,769,708
MINORITY INTEREST 1,159,542 170,089
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, authorized 20,000,000 shares;
no par value; 12,169,739 and 12,018,224
shares outstanding as of December 31, 2006
and December 31, 2005, respectively.
42,970,288 42,596,639
Accumulated deficit (31,585,462) (34,687,155)
----------- -----------
Total shareholders' equity 11,384,826 7,909,484
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 32,422,502 $ 33,289,923
=========== =============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
2006 2005 2004
OPERATING REVENUES $190,975,659 $175,625,278 $149,089,326
OPERATING EXPENSES:
Purchased transportation 139,149,362 131,240,595 111,314,388
Commissions 21,865,698 17,242,997 14,293,663
Insurance and claims 5,324,667 6,531,988 6,067,748
Litigation Judgment
(recovery) 0 (1,700,000) 1,700,000
Salaries, wages, and
other 11,699,451 10,442,539 8,932,443
Other Operating expenses 7,974,762 7,384,480 6,724,737
___________ ____________ ___________
Total operating expenses 186,013,940 171,142,599 149,032,979
___________ ____________ ___________
OPERATING INCOME 4,961,719 4,482,679 56,347
___________ ___________ ___________
NON OPERATING INCOME (EXPENSE):
Interest income 16,927 60,814 21,981
Interest expense (790,369) (610,785) (465,903)
Other income, net 163,138 273,186 516,583
Total non operating _________ _________ _________
income (expense) (610,304) (276,785) 72,661
NET INCOME BEFORE
MINORITY INTEREST 4,351,415 4,205,894 129,008
Minority Interest (989,453) (35,143) (27,748)
_________ _________ ________
NET INCOME BEFORE
INCOME TAXES 3,361,962 4,170,751 101,260
Income Taxes 260,269 54,203 86,738
___________ ___________ ___________
NET INCOME $ 3,101,693 $ 4,116,548 $ 14,522
___________ ___________ ___________
Basic and Diluted Net Income
Per Common Share $0.25 $0.34 $0.00
Weighted Average Common Shares
Outstanding - Basic 12,169,739 12,018,224 11,618,224
Weighted Average Common Shares
Outstanding - Diluted 12,169,739 12,169,739 11,964,174
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2006, 2005, and 2004
Common Stock Accumulated
Shares Amount Deficit Total
______________________ _______________________
Balance at
December 31, 2003 11,618,224 $42,227,725 $(38,818,225) $3,409,500
Grant of restricted
Common Stock (Note 11) 0 125,714 0 125,714
Minority interest in
Subsidiary (Note 12) 0 43,200 0 43,200
Net Income 0 0 14,522 14,522
Balance at __________ ____________ ____________ ___________
December 31, 2004 11,618,224 $42,396,639 $(38,803,703) $3,592,936
Grant of restricted
Common Stock (Note 11) 0 200,000 0 200,000
Common shares issued
to employees (Note 11) 400,000 0 0 0
Net Income 0 0 4,116,548 4,116,548
Balance at __________ ____________ ____________ ___________
December 31, 2005 12,018,224 $42,596,639 $(34,687,155) $7,909,484
Conversion option on
Subordinated debt
(note 9) 0 373,649 0 373,649
Grant of restricted
common stock 151,515 0 0 0
Net Income 0 0 3,101,693 3,101,693
Balance at __________ ____________ ____________ ___________
December 31, 2006 12,169,739 $42,970,288 $(31,585,462) $11,384,826
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006,2005 AND 2004
2006 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,101,693 $ 4,116,548 $ 14,522
Adjustments to reconcile net
income to net cash provided
by(used in) operating activities:
Depreciation and amortization 134,196 223,286 316,875
Compensation expense resulting from
Issuance of equity in subsidiary 0 0 100,000
Compensation expense resulting from
restricted stock grant to officers 0 200,000 125,714
Provision for bad debt 1,085,618 1,031,513 726,000
Amortization of discount on
convertible note 60,686 0 0
Minority interest 989,453 35,143 27,748
Deferred Income Tax Benefit
(Expense) 152,548 (387,348) 0
(Gain) Loss on disposal of fixed
assets 52,599 (107,485) (166,454)
Changes in operating assets and
liabilities:
Accounts receivable-trade 1,258,201 (7,088,536) (4,867,032)
Other receivables (816,077) (980,932) (108,388)
Prepaid expenses and other
current assets (718,487) (6,712) (217,905)
Accounts payable (962,722) 2,464,739 1,079,304
Accrued expenses 98,797 205,958 306,593
Insurance and claims (371,643) 537,768 552,901
Accrued interest 20,244 (61,283) 139,723
Accrued compensation (132,220) (37,080) 248,818
Fuel and other taxes payable (78,551) 338,937 67,329
Accrued legal 0 (2,083,333) 1,383,333
Net cash (used in) provided by __________ ___________ __________
operating activities 3,874,335 (1,598,817) (270,919)
__________ ___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (298,506) (145,701) (149,950)
Proceeds from sale of fixed assets 17,329 291,520 424,420
Net cash provided by (used in) _________ __________ ___________
investing activities (281,177) 145,819 274,470
_________ __________ ___________
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)
under line of credit (3,572,574) 1,692,998 628,602
Principal payments of long-term debt 0 0 (477,624)
Repayments of shareholder loans (20,584) (120,000) 0
Distribution to minority interest 0 (120,000) (154,529)
Net cash (used in) provided by ___________ __________ __________
financing activities (3,593,158) 1,452,998 (3,551)
___________ __________ __________
NET CHANGE IN CASH 0 0 0
CASH, BEGINNING OF YEAR 0 0 0
CASH, END OF YEAR $ 0 $ 0 $ 0
___________ ___________ __________
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid during year for interest $770,125 $672,068 $326,180
The Company recognized $0, $0, and $100,000 of compensation expense for the
years ended December 31, 2006, 2005, and 2004, respectively for the issuance of
common stock of a subsidiary, which was issued to key employees as further discussed
in Note 9.
The company recognized $0, $200,000, and $125,714 of compensation expense for
the years ended December 31, 2006, 2005, and 2004 respectively, for restricted stock
granted to executives.
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
The accompanying notes are an integral part of the consolidated financial
statements.
1. OPERATIONS
The Company, through its subsidiaries, is primarily an interstate
truckload carrier of general commodities, which uses independent agents and
owner-operators to contract for and haul freight for its customers in 48
states with a concentration in the Southeastern United States. No one agent
accounted for more than 10% of the Company's operating revenue for the years
ended December 2006 and 2005. One agent accounted for 10.3% of revenue
during 2004. The Company shipped freight for approximately 1,000 customers
in 2006, none of which accounted for more than 10% of the Company's revenues.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 2004
and 2005 financial statements to conform with the 2006 presentation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of US 1 Industries, Inc. and its subsidiaries. All intercompany
accounts and transactions have been eliminated.
Fair Value of Financial Instruments--The carrying amount of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value
due to the short-term nature of these instruments. The carrying amount of
outstanding borrowings and interest rate cap agreements approximate fair
value.
Allowance for Doubtful Accounts--The subsidiaries record an allowance for
doubtful accounts based on specifically identified amounts that it believes
to be uncollectible. The Company also records an additional allowance based
on percentages of aged receivables, which are determined based on historical
experience and an assessment of the general financial conditions affecting
its customer base. If actual collections experience changes, revisions to
the allowance may be required. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance.
Revenue Recognition--Revenue for freight in transit is recognized upon
delivery. Amounts payable for purchased transportation, commissions and
insurance expense are accrued when an obligation is incurred, generally when
the related revenue is recognized.
Fixed Assets--Fixed assets are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
which range from three to eight years.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Long-Lived Assets--The Company assesses the realizability of its long-
lived assets in accordance with statement of Financial Accounting Standards
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets".
The company reviews long-lived assets for impairment when circumstances
indicate that the carrying amount of an asset may not be recoverable based
on the undiscounted future cash flows of the asset.
Accounting Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
dates of financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
Income Taxes--Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets. In addition,
the amounts of any future tax benefits are reduced by a valuation allowance
to the extent such benefits are not expected to be fully utilized.
Earnings Per Common Share ("FASB No. 128") --The Company computes earnings
per share under Statement of Financial Accounting Standards No. 128 "Earnings
Per Share." The statement required presentation of two amounts, basic and
diluted earnings per share. Basic earnings per share are computed by
dividing income available to common stockholders by the weighted average
common shares outstanding. Dilutive earnings per share would include all
common stock equivalents. There are 0, 151,514, and 400,000 common stock
equivalents at December 31, 2006, 2005, and 2004, respectively.
Business Segments--Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
requires public enterprises to report certain information about reporting
segments in financial statements. The Company presents its operations in
one business segment. All Other Segments are immaterial to the Company's
consolidated financial statements. All other segments meet the aggregation
requirement of SFAS No. 131.
Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold
a tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 applies to all tax positions related to
income taxes subject to FASB Statement No. 109, "Accounting for Income
Taxes" ("FASB No. 109"). FIN 48 is effective for fiscal years beginning
after December 15, 2006. Differences between the amounts recognized in the
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
statements of financial position prior to the adoption of FIN 48 and the
amounts reported after adoption should be accounted for as a cumulative-
effect adjustment recorded to the beginning balance of retained earnings.
The Company is currently in the process of determining the impact, if any,
that the adoption of FIN 48 will have on the consolidated financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Mistatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB No. 108"), to
address diversity in practice in quantifying finacial statements
misstatements based on their impact on each of its financial statements
and related disclosures. SAB No. 108 is effective as of the end of the
Company's 2006 fiscal year, allowing a one-time transitional
cumulative effect adjustment to retained earnings as of January 6, 2006
for errors that were not previously deemed material, but are material under
the guidance in SAB No. 108. The adobption of SAB No. 108 does not have
a material impact on the Company's consolidated financial statements.
4. EARNINGS PER COMMON SHARE
The Company calculates earnings per share ("EPS") in accordance with
FASB No. 128. Following is the reconciliation of the numerators and
denominators of the basic and diluted EPS.
Net income available to common
shareholders for basic
and diluted EPS 3,101,693 4,116,548 14,522
Denominator
Weighted average common shares
outstanding for basic EPS 12,169,739 12,018,224 11,618,224
Effect of diluted securities
Unvested restricted stock granted
to employees 0 151,515 345,950
__________________________________
Weighted average shares outstanding
for diluted EPS 12,169,739 12,169,739 11,964,174
5. RELATED PARTY TRANSACTIONS
One of the Company's subsidiaries provides safety, management, and
accounting services to companies controlled by the Chief Executive Officer
and Chief Financial Officer of the Company. These services are priced to
cover the cost of the employees providing the services. Revenues related to
those services was approximately $67,000, $66,000 and $119,000 in 2006, 2005,
and 2004, respectively. Accounts receivable due from entities affiliated
through common ownership was $691,000 and $144,000 as of December 31, 2006
and 2005, respectively.
One of the subsidiaries' insurance providers, AIFE, is managed by a
Director of the Company and the Company has an investment of $126,461 in the
provider. AIFE provides auto liability and cargo insurance to several
subsidiaries of the Company as well as other entities related to the Company
by common ownership. For the years ended December 31, 2006, 2005 and 2004,
cash paid to AIFE for insurance premiums and deductibles was approximately
$8,268,000, $4,787,000, and $5,673,000, respectively.
5. RELATED PARTY TRANSACTIONS (continued)
The subsidiaries exercised no control over the operations of AIFE. As a
result, the Company recorded its investment in AIFE under the cost method of
accounting for each of the three years in the period ended December 31, 2006.
Under the cost method, the investment in AIFE is reflected at its original
amount and income is recognized only to the extent of dividends paid by the
investee. There were no dividends declared by AIFE for the years ended December
31, 2006, 2005 and 2004.
If AIFE incurs a net loss, the loss may be allocated to the various
policyholders based on each policyholder's premium as a percentage of the
total premiums of AIFE for the related period. There has been no such loss
assessment for each of the three years in the period ended December 31, 2006.
The subsidiaries currently account for the majority of the premiums of AIFE.
For fiscal 2006, the Company through its subsidiaries accounted for
approximately 65% of the total premium revenue of AIFE. At December 31, 2005,
AIFE had net worth of approximately $7.9 million.
For the year ended December 31, 2006, AIFE paid a commission due to
favorable claims experience to a subsidiary insurance agency of US1
Industries, Inc. of $400,000. There were no such payments in 2005.
At December 31, 2006 the Company had accounts receivable from an
affiliated entity in the amount of $161,364 for payroll services provided to
the entity. There was no amount due for these services at December 31, 2005.
In addition, the Chief Executive Officer and Chief Financial Officer, as
well as another director of the Company, are the sole shareholders of American
Inter-Fidelity Corporation (AIFC), which serves as the attorney in fact of AIFE.
AIFC is entitled to receive a management fee from AIFE. AIFE incurred
management fees of approximately $0, $300,000, and $405,000 for the years ended
December 31, 2006, 2005, and 2004, respectively. These management fees are
available to be paid as dividends to these officers and directors of the
Company.
In 2006 and 2005 the company paid consulting fees of $19,000 and $24,000,
respectively to one of its directors relating to insurance services.
The Company has notes payable due to its Chief Executive Officer and
Chief Financial Officer that mature in September 2007 and is classified as
a current liability (see Note 9).
6. LEASES
The Company leased its administrative offices in Gary, Indiana on a
month-to-month basis for $4,000 per month during the first quarter of 2006. In
April the Company relocated its headquarter to Valparaiso, Indiana and now
pays monthly rental to an outside vendor. Patriot Logistics, Inc., a wholly-
owned subsidiary, leases a truck terminal in Fort Smith, Arkansas on a month-
to-month basis for $3,216 from the Company's President/Chief Executive Officer,
and Treasurer/Chief Financial Officer who are both directors of the Company.
In addition, the Company's subsidiaries lease office space and land in
Mississippi, Texas, Tennessee, Illinois, South Carolina, Georgia, Missouri,
North Carolina, Indiana, California, Arkansas, New Jersey, and Florida under
operating leases ranging from one to five years.
6. LEASES (continued)
Rent expense under these operating leases was $1,186,000, $1,064,000
and $837,000 for the years ended 2006, 2005, and 2004 respectively.
Future commitments under these operating leases are as follows:
2007 752,956
2008 417,960
2009 324,180
2010 220,163
2011 137,036
__________
$1,852,295
7. BANK LINE OF CREDIT
The Company and its subsidiaries have a $10.0 million line of credit
that matures on October 1, 2007. Advances under this revolving line of
credit are limited to 75% of eligible accounts receivable. Unused
availability under this line of credit was $6.4 million at December 31,
2006. The interest rate is based upon certain financial covenants and may
range from prime to prime less .50%. At December 31 ,2006, the interest rate
on this line of credit was at prime less .50% (7.75%). The Company's
accounts receivable, property, and other assets collateralize advances under
the agreement. Borrowings up to $1.5 million are guaranteed by the Chief
Executive Officer and Chief Financial Officer of the Company. At December
31, 2006 the outstanding borrowings on this line of credit were $3.6 million.
This line of credit is subject to termination upon various events of
default, including failure to remit timely payments of interest, fees and
principal, any adverse change in the business of the Company or failure to
meet certain financial covenants. Financial covenants include: minimum net
worth requirements, total debt service coverage ratio, and prohibition of
additional indebtedness without prior authorization. At December 31, 2006,
the Company was in compliance with these financial covenants. The balance
outstanding under this line-of-credit agreement is classified as
a current liability at December 31, 2006.
On October 20, 2005, the Company and its subsidiaries entered into an
Interest Rate Swap Agreement with U.S. Bank effective November 1, 2005 through
November 1, 2008. This agreement is in the notional amount of $3,000,000.
The agreement caps the interest rate at 7.71% through the term of the
agreement. The fair value of the interest rate swap was minimal at December
31, 2006.
8. LONG-TERM DEBT
Long-term debt at December 31, 2006 and 2005 comprises:
2006 2005
Note payable to the Chief Executive Officer
And Chief Financial Officer, interest at
Prime + .75% (8.00%), interest only payments
required, with principal balance due October
2007. $ 0 $1,919,708
Mortgage note payable to the Chief Executive
Officer and Chief Financial Officer
collateralized by land, interest at
prime + .75% (8.00%), interest only payments
required, principal balance due
October 2007 0 500,000
Note payable to August Investment
Partnership, interest at prime + .75% (8.00%),
interest only payments required, principal
balance due October 2007 0 250,000
Mortgage note payable to August Investment
Partnership, interest at prime + .75% (8.00%),
interest only payments required, principal
balance due October 2007 0 100,000
__________ ___________
Subtotal - related party debt $ 0 $2,769,708
Less current portion 0 0
Total long-term debt $ 0 $2,769,708
========== =========
Interest expense on related party notes was approximately $148,000 and
$131,000, for the year ended December 31, 2006 and 2005, respectively.
9. CONVERTIBLE SUBORDINATED DEBT
In November 2006, the long-term debt (referred to in note 8) was
exchanged for new notes payable with revised terms. In addition, the unpaid
accrued interest of approximately $1.2 million was rolled into the new notes
payable balance. As a result, the principal balance of the new notes payable
net of unamortized discount of $0.3 million is approximately $3.6 million.
These new notes payable earn interest at a rate of prime less 1% with
interest payable quarterly and the full principal balance will mature in
September 2007. These new notes payable are also convertible at the option
of the holder into common stock of the Company at a conversion price of
$1.48 per share. The conversion feature expires on the maturity date of
September 22, 2007.
Based on the guidance under Emerging Issue Task Force Issue 96-19,
"Debtor's Accounting for Modification or Exchange of Debt Instruments", the
Company has determined the revision of this debt to be a modification of the
debt. As a result, the fair value of the conversion option, estimated at
$374,000, will be reflected as a discount on the debt and accreted as
additional interest expense over the term of the debt.
The related party debt remains subordinate to borrowings under the
Company's line of credit.
10. INCOME TAXES
The composition of income tax expense (benefit) is as follows:
December 31, 2006 2005 2004
____________________________________________________________________________
Current $1,184,496 $ 1,366,203 $ 746,738
Deferred 387,348 298,000 (695,000)
Benefit from operating
loss carry-forward (1,076,775) (1,057,000) (719,000)
Adjustment of valuation allowance (234,800) (553,000) 754,000
______________________________________
$ 260,269 $ 54,203 $ 86,738
______________________________________
The following summary reconciles income taxes at the maximum federal statutory
rate with the effective rates for 2006, 2005, and 2004:
December 31, 2006 2005 2004
______________________________________________________________________________
Income tax expense at statutory
rate $ 834,615 $1,418,000 $ 34,000
State income tax expense, net of
federal tax benefit 349,881 246,000 17,000
Adjustment of valuation allowance (924,227) (1,609,797) 35,738
_______________________________________
$ 260,269 $ 54,203 $ 86,738
_______________________________________
The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return. Carolina National, the Company's 60% owned subsidiary
files a separate federal income tax return.
Deferred income taxes consist of the following:
December 31, 2006 2005
___________________________________________________________
Total deferred tax assets, relating
principally to net operating
loss carry-forwards $ 3,399,706 $ 9,205,000
Less valuation allowance (1,964,906) ( 7,617,652)
___________________________
Total net deferred tax asset $ 1,434,800 $ 1,587,348
___________________________
At December 31, 2006 and 2005, the Company has realized a net deferred
tax asset of $1,434,800 and $1,587,348 as it is more likely than not that
this amount will be realized as a result of anticipated future taxable income
to be generated by the Company. Due to the uncertainty of realization, a
valuation allowance has been maintained for the remaining deferred tax asset
at December 31, 2006.
10. INCOME TAXES (continued)
The Company has net operating loss carry-forwards of approximately $9.0
million at December 31, 2006. These carry-forwards are available to offset
taxable income in future years and substantially all of these carry-forwards
will expire in the years 2007 through 2010. Approximately 7.4% of the
Company's net operating loss carry forwards expire in 2007.
11. STOCK COMPENSATION
In March 2003, the Company granted 400,000 shares (200,000 each) of
common stock to the Company's Chief Executive Officer and Chief Financial
Officer, subject to the continued employment of these employees through
December 2004. In December 2004, the Board of Directors extended the vesting
period until March 2005. As a result, the Company incurred $0, $0, and
$125,712 of compensation expense (based on the quoted market price of the
Company's stock on the date of grant) for the years ended December 31, 2006,
2005, and 2004, respectively. The shares were issued during the first quarter
of 2005.
In December 2005, the Company granted 151,515 shares (75,757 each) of
common stock to the Company's Chief Executive Officer and Chief Financial
Officer based on certain earnings criteria. These shares vested as of
January 1, 2006. As a result, the Company incurred $200,000 of compensation
expense (based on the quoted market price of the Company's stock on the date
of grant) for the year ended December 31, 2005. The shares were issued
during the first quarter of 2006.
12. MINORITY INTEREST
The Company entered into an agreement with certain key employees of
its subsidiary, Carolina National Transportation, Inc. ("Carolina"), in which
these employees earned a 40% ownership interest in Carolina over a three year
period, beginning in the year following which Carolina achieved positive
retained earnings, contingent upon certain restrictions, including continued
employment at Carolina. In 2001, Carolina achieved positive retained
earnings. As a result, the Company incurred total compensation expense of
$400,000 over the three-year vesting period. The Company incurred compensation
expense of $100,000 for the year ended December 31 2004. The excess of the
fair value of the Carolina common stock issued over the book value of this
common stock is reflected as a credit to common stock in the amount of
$43,200 fiscal 2004. The Company also recognized minority interest expense
of $989,453, $35,143, and $27,748 relating to the employees' portion of
Carolina's net income for the years ended December 31, 2006, 2005, and
2004, respectively. Carolina paid dividends of $0, $120,000 and $154,529 to
the minority shareholders for the years ended December 31, 2006, 2005 and 2004,
respectively. Net income for Carolina was $2,473,631, $87,859, and $69,370,
for the years ended 2006, 2005, and 2004, respectively.
In October 2006, the Company and the general manager of Patriot Logistics,
Inc. , a wholly owned subsidiary of the Company, entered into an agreement
under which the Company granted the individual the option to purchase 100% of
the outstanding stock of Patriot for a purchase price equal to the book value
of Patriot. This option to purchase Patriot terminates in October 2008 or
upon a change in control of the Company. The fair value of this option was
determined to be immaterial.
13. COMMITMENTS AND CONTINGENCIES
Litigation
On March 16, 2005, a jury entered a verdict against a subsidiary of the
Company, Cam Transport, Inc. ("CAM") in the amount of $1.7 million in a
personal injury case relating to an auto accident which occurred on March
22, 2001 entitled Lina Bennett vs Toby M. Ridgeway and Cam Transport, Inc.
in the Court of Common Pleas of Allendale County, South Carolina. As a
result, the Company recorded a charge of $1.7 million related to this
litigation for the year-ended December 31, 2004.
On March 16, 2005, a jury entered a verdict against a subsidiary of the
Company, Cam Transport, Inc. ("CAM") in the amount of $1.7 million in a
personal injury case relating to an auto accident which occurred on March
22, 2001 entitled Lina Bennett vs Toby M. Ridgeway and Cam Transport, Inc.
in the Court of Common Pleas of Allendale County, South Carolina. As a
result, the Company recorded a charge of $1.7 million related to this
litigation for the year-ended December 31, 2004.
CAM maintains auto liability insurance up to a maximum of $1 million per
occurrence for litigation related to such accidents. However, CAM's insurer,
American Inter-fidelity Exchange, initially filed a declaratory judgment
action asserting that it was not obligated to provide insurance coverage on
this matter. As a result of the uncertainty regarding the insurance coverage
for this claim, the expense recorded for this litigation was not reduced by
any expected amounts to be recovered from the insurance company and there was
no receivable established at December 31, 2004 for the amount which could
possibly be covered under the auto liability policy.
During the third quarter of 2005, the case was settled for $750,000 and
the Company's insurer, American Inter-Fidelity Exchange agreed to pay the full
amount of the settlement. As a result, the Company recorded a recovery on
this litigation of $1.7 million for the year ended December 31, 2005.
On November 4, 2005, Terrell C. Coleman and Willie B. Crocker
("Plaintiffs") filed a putative class action complaint (the "Complaint") in
the United State District Court for the Middle District of Florida (the
"Court") in Jacksonville, Florida, against Patriot Logistics, Inc.
("Patriot"). The complaint alleged that certain aspects of Patriot's motor
carrier leases with its independent-contractor owner-operators violate
certain federal leasing regulations, and sought injunctive relief, an
unspecified amount of damages, and attorney's fees. On January 6, 2006,
Defendant served an Answer denying most elements of the Complaint and
asserting Affirmative Defenses. On May 1, 2006, the parties reached a
proposed Settlement Agreement, $315,000. The Court approved the Settlement
Agreement on October 25, 2006 and the Company paid the settlement in December
2006. The Settlement Agreement has resulted in Patriot's entering into a
new, more detailed independent contractor operating agreement with each of
its owner-operators.
The Company and its subsidiaries are involved in other litigation in the
normal course of its business. Management intends to vigorously defend these
cases. In the opinion of management, the other litigation now pending will
not have a material adverse affect on the consolidated financial statements
of the Company.
13. COMMITMENTS AND CONTINGENCIES (continued)
Other
In October 2006, the Company and the general manager of Patriot Logistics,
Inc., a wholly owned subsidiary of the Company, entered into an agreement
under which the Company granted the individual the option to purchase 100% of
the outstanding stock of Patriot for a purchase price equal to the book value
of Patriot. This option to purchase Patriot terminates in October 2008 or
upon a change in control of the Company. The fair value of this option was
determined to be immaterial.
14. ENVIRONMENTAL MATTERS
The Company's subsidiary, TC Services, Inc owns a piece of property in
Phoenix where soil contamination problems exist. The Company has been
working with regulatory officials to eliminate new contamination sources
and determine the extent of existing problems. Estimates of the cost to
complete the future remediation of approximately $141,000 are considered in
the land valuation allowance at December 31, 2006 and 2005.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data) Net Net
Net Income Income
Operating Operating Income per share per share
Revenue Income basic diluted
_______________________________________________________________________
2006
$190,976 $4,961 $3,102 $0.25 $0.25
_______________________________________________________________________
Quarters:
Fourth 48,569 2,173 1,384 0.10 0.10
Third 49,505 1,207 706 0.06 0.06
Second 48,327 458 317 0.03 0.03
First 44,575 1,123 695 0.06 0.06
_______________________________________________________________________
2005
$175,626 $4,483 $4,117 $0.34 $0.34
_______________________________________________________________________
Quarters:
Fourth 47,687 367 558 0.05 0.05
Third 44,447 2,571 2,326 0.19 0.19
Second 43,991 685 516 0.04 0.04
First 39,501 860 717 0.06 0.06
US 1 INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2004,2005, AND 2006
Schedule II
Balance At Charged to Write-Offs,
Beginning of Costs and Retirements & Balance At
Year Expenses Recoveries End of Year
___________ _____________ ___________ ____________
Description
_______________
Year Ended December 31, 2004
Allowance for
Doubtful Accounts
Receivable $ 844,000 $ 726,000 $547,000 $1,023,000
Year Ended December 31, 2005
Allowance for
Doubtful Accounts
Receivable $1,023,000 $1,032,000 $690,000 $1,365,000
Year Ended December 31, 2006
Allowance for
Doubtful Accounts
Receivable $1,365,000 $1,285,000 $1,658,000 $ 992,000
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management,
under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures, as such terms are defined in Rules 13a-15(e) and 15d
15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as of the end of the period covered by this report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective and are reasonably designed to ensure that all
material information relating to the Company that is required to be included
in reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission.
Internal Control Over Financial Reporting. There were no changes in the
Company's internal control over financial reporting during the quarter ended
December 31, 2006 identified in connection with the evaluation thereof by the
Company's management, including the Chief Executive Officer and Chief
Financial Officer, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
Item. 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the company as of March 10, 2006 were
as follows
NAME AGE POSITION
- ---- --- --------
Michael E. Kibler 66 President, Chief Executive Officer,
and Director
Harold E. Antonson 67 Chief Financial Officer, Treasurer,
and Director
Lex Venditti 54 Director
Robert I. Scissors 73 Director
Brad James 51 Director
Name Office and Experience
______ ______________________
Michael E. Kibler Mr. Kibler is President and Chief Executive
Officer of the Company and has held these
positions since September 13, 1993 and has been
a director since 1993. He also has been
President of Enterprise Truck Lines, Inc.,
an interstate trucking company engaging in
operations similar to the Company's, since 1972.
Mr. Kibler is a partner of August Investment
Partnership and is also a shareholder of
American Inter-Fidelity Corporation, the
attorney-in-fact of AIFE, an entity that
provides auto liability and cargo insurance
to the Company.
Harold E. Antonson Mr. Antonson is Chief Financial Officer of the
Company, a position he has held since March
1998. Mr. Antonson is a certified public
accountant. Prior to joining the Company, he
was Secretary/Treasurer of AIFE. Mr Antonson is
also a partner in August Investment Partnership.
Mr. Antonson was elected a director and
Treasurer of the Company in November 1999. Mr.
Antonson is also a shareholder of American
Interfidelity Corporation, the attorney-in-fact
of AIFE, an affiliated entity that provides auto
liability and cargo insurance to the Company.
Item 10. Directors, Executive Officers and Corporate Governance (continued)
Name Office and Experience
Lex Venditti Mr. Venditti has served as a director of the
Company since 1993. Mr. Venditti is the
General Manager of AIFE, an insurance reciprocal
located in Indiana. Mr. Venditti is also a
shareholder of AIFE, the attorney-in-fact of
AIFE, an entity that provides auto liability
and cargo insurance to the Company.
Robert Scissors Mr. Scissors has been a Director of the Company
since 1993. Mr. Scissors began his career in
the Insurance Industry in 1957. In 1982, Mr.
Scissors joined a brokerage firm called
Alexander/Alexander where he worked until
retiring in 1992. Mr. Scissors currently works
as an insurance consultant and broker.
Brad James Mr. James is the President of Seagate
Transportation Services, Inc. Mr. James
graduated from Bowling Green University with a
Bachelors Degree in Business Administration.
He has been in the trucking industry since 1977.
Mr. James was elected a director of the Company
in 1999.
There are no family relationships between any director or executive officer
of the Company.
Code of Ethics
The Company has adopted a Code of Ethics that applies to the Chief
Executive Officer and the Chief Financial Officer a copy of which was filed
as Exhibit 14.1 to the 2003 Form 10-K.
Audit Committee and Audit Committee Financial Expert
The Company has an audit committee consisting of Lex Venditti and
Robert Scissors. The Company's Board of Directors has determined that
Mr. Venditti is an "audit committee financial expert" as defined under
SEC rules. However, because of his position as general manager of AIFE and as
a shareholder of American Inter-Fidelity Corporation, Mr. Venditti is not
considered an independent director as defined under Rule 10A-3(b) of the
Exchange Act. In addition, Mr. Scissors receives fees for consulting services
provided to the Company and is also not considered an independent director.
The audit committee is responsible for selecting the Company's independent
auditors and approving the scope, fees and terms of all audit engagements and
permissible non-audit services provided by the independent auditor, as well as
assessing the independence of the Company's independent auditor from management.
The audit committee also assists the Board in oversight of the Company's
financial reporting process and integrity of its financial statements, and also
reviews other matters with respect to the Company's accounting, auditing and
financial reporting practices as it may find appropriate or may be brought to
its attention.
Item 10. Directors, Executive Officers and Corporate Governance (continued)
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of
the outstanding common stock of the Company to file with the Securities and
Exchange Commission reports of changes in ownership of the common stock of the
Company held by such persons. Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all
forms they file under this regulation. To the Company's knowledge based
solely on a review of the copies of such reports furnished to the Company and
representations that no other reports were required, during the year ended
December 31, 2006, except for Form 4s that was filed late by Messrs Kibler
and Antonson, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% shareholders were complied with.
Director Nomination Procedures
The Company will consider nominations for directors submitted by
shareholders of the Company. Shareholders who wish to make a nomination
for director should send the name and biographical information with respect
to such nominee to the Secretary of the Company along with a certification by
such nominee that he or she will serve as a director of the Company if
elected. There have not been any changes to this process in the past year.
Item 11. Executive Compensation
Compensation Discussion and Analysis
Overview of Executive Compensation Program
The Company does not have a formalized program for determining executive
compensation. Any executive compensation changes are taken before the Board
of Directors for approval. In general, our executive officers receive
compensation consisting of a salary and on occasion, there have been stock
bonuses issued. Executive officers participate in the same group health
insurance program as the Company's full-time employees. The company has not
used, nor intends to use an outside consultant in connection with making
compensation decisions.
Objectives of Compensation Program
The Company's compensation of executive officers is intended to provide
requisite compensation to the Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO"). Because the CEO and CFO are large shareholders of
the Company, the CEO and CFO should be motivated to act in the best interest
of the Company's shareholders.
Current Executive Officers
The company currently has two executive officers, Michael Kibler, our Chief
Executive Officer "CEO", and Harold Antonson, Chief Financial Officer "CFO".
Item 11. Executive Compensation (continued)
The following Summary Compensation Table sets forth compensation paid by
the Company during the years ended December 31, 2006, 2005 and 2004 to Mr.
Michael E. Kibler, Chief Executive Officer and Mr. Harold Antonson, Chief
Financial Officer, where applicable. No other officer of the Company earned
in excess of $100,000.
Summary Compensation Table
Stock All Other
Name and Position Year Salary Awards Compensation Total
- ---------------- ---- ------ ----- ------------ ------
Michael Kibler 2006 93,841 0 0 93,841
Chief Executive Officer
Harold Antonson 2006 98,071 0 0 98,071
Chief Financial Officer
In December 2005, the Company granted 151,514 shares (75,757 each) of
common stock to the Company's Chief Executive Officer and Chief Financial
Officer based on certain earnings criteria. These shares vested as of
January 1, 2006. As a result, the Company incurred $200,000 of compensation
expense (based on the quoted market price of the Company's stock on the date
of grant) for the year ended December 31, 2005. The shares are to be issued
during the first quarter of 2007.
Option exercises and option values
No stock options have been issued to Mr. Michael E. Kibler, Chief
Executive Officer or Mr. Harold Antonson, Chief Financial Officer.
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company receive no additional
compensation for their services as directors. In 2006 and 2005 the company
paid consulting fees of $19,000 and $24,000, respectively to one of its
directors relating to insurance services. The Company will reimburse its
directors for travel expenses and other out-of-pocket costs incurred in
connection with the Company's board of directors' meetings. Because the
Company has held its board of directors' meeting via teleconference during
the past year, no costs have been booked associated with these meetings.
Item 11. Executive Compensation (continued)
DIRECTOR COMPENSATION TABLE
The following table provides compensation information for the year ended
December 31, 2006 for each member of our Board of Directors.
(a) (b) (c) (d) (e) (f) (g) (h)
_______________________________________________________________________________
Fees Earned Non-Equity Change in
Or Incentive Pension Value
Paid in Stock Option Compensation and
Name Cash Awards Awards Nonqualified
Deferred
Compensation All Other
$ $ $ $ Compensation Total
Earnings $ $
_________________________________________________________________________________
Brad James - - - - - - -
Robert Scissors $19,000 - - - - - $19,000
Lex Venditti - - - - - - - .
_________________________________________________________________________________
COMPENSATION COMMITTEE
The current memebers of the Board of Directors (Harold Antonson, Brad
James, Michael Kibler, Robert Scissors, and Lex Venditti) participated
in deliberation concerning the Compant's executive officer compensation.
The members of the Board reviewed and discussed the compensation
discussion and analysis with management and based on the review and
discussions, determined that the compensation discussion and analysis be
included in the Company's Form 10-K
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters:
Security Ownership of Management
The following table sets forth the number and percentage of shares of
Common Stock that as of March 9, 2005 are deemed to be beneficially owned by
each director of the company and director nominee, by each executive officer
of the Company and by all directors and executive officers of the company as a
group
Number of Shares of
Common Stock
Name and position Beneficially Owned Percentage of Class
- ----------------- ------------------ -------------------
Harold E. Antonson 3,734,914 (1) 30.7%
Chief Financial Officer,
Treasurer and Director
Michael E Kibler 3,626,791 (1) 29.8%
Director, President and
Chief Executive Officer
Item 11. Executive Compensation (continued)
Brad A. James 1,317,927 (2) 10.8%
Director
Robert I. Scissors, 64,770 (3) *
Director
Lex L. Venditti 217,500 (4) 1.8%
Director
All Directors and Executive
Officers 5,205,272 42.8%
* Indicates less than 1% ownership.
(1) Includes shares held by August Investment Partnership, August Investment
Corporation, Eastern Refrigerated Transport, Inc., Enterprise Truck
Lines, Inc., Seagate Transportation Services, Inc., and American
Inter-Fidelity Exchange, of which Messrs. Kibler and Antonson are either
directors, partners, or significant shareholders or otherwise share the
voting and dispositive authority with respect to these shares. Also
includes 200,000 shares of restricted stock for each.
(2) Includes shares held by Seagate Transportation Services, Inc. and
August Investment Partnership, of which Mr. James is a director, partner
or significant shareholder.
(3) Includes 11,770 shares held in the Saundra L. Scissors Trust of which
Mr. and Mrs. Scissors are joint trustees.
(4) Includes shares held by American Inter-Fidelity Exchange, of which Mr.
Venditti is a director and significant shareholder of the attorney-in-
fact.
Security Ownership of Certain Beneficial Owners
The following table sets forth the number and percentage of shares of
Common Stock beneficially owned as of March 9, 2004 by any person who is known
to the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock:
Number of Shares of
Name and Address of Common Stock Percentage
Beneficial Owner Beneficially Owned of Class
- ---------------- ------------------ --------
Harold E. Antonson 3,734,914 (1) 30.7%
8400 Louisiana Street
Merrillville, IN 46410
August Investment Partnership 1,150,946 9.5%
8400 Louisiana Street
Merrillville, IN 46410
Brad A. James 1,317,927 (2) 10.8%
Director
Michael Kibler 3,626,791 (1) 29.8%
8400 Louisiana Street
Merrillville, IN 46410
Item 11. Executive Compensation (continued)
Loeb Partners Corp 939,205 (3) 7.7%
61 Broadway
New York, NY 10006
(1) Includes shares held by August Investment Partnership, August Investment
Corporation, Eastern Refrigerated Transport, Inc., Enterprise Truck
Lines, Inc., Seagate Transportation Services, Inc., and American
Inter-Fidelity Exchange, of which Messrs. Kibler and Antonson are either
directors, partners, or significant shareholders or otherwise share the
voting and dispositive authority with respect to these shares. Also
includes 200,000 shares of restricted stock for each.
(2) Includes shares held by Seagate Transportation Services, Inc. and
August Investment Partnership, of which Mr. James is a director, partner
or significant shareholder.
(3) Includes shares held by Loeb Arbitrage Fund, Loeb Partners Corporation
and Loeb Offshore Fund Ltd.
Item 13. Certain Relationships, Related Transactions, and Director
Independence
One of the Company's subsidiaries provides safety, management, and
accounting services to companies controlled by the Chief Executive Officer
and Chief Financial Officer of the Company. These services are priced to
cover the cost of the employees providing the services. Revenues related
to those services was approximately $67,000, $66,000 and $119,000 in 2006,
2005, and 2004, respectively. Accounts receivable due from entities
affiliated through common ownership was $691,000 and $144,000 as of December
31, 2006 and 2005, respectively.
One of the subsidiaries insurance providers, AIFE, is managed by a
Director of the Company and the Company has an investment of $126,461 in the
provider. AIFE provides auto liability and cargo insurance to several
subsidiaries of the Company as well as other entities related to the Company
by common ownership. For the years ended December 31, 2006, 2005 and 2004,
cash paid to AIFE for insurance premiums and deductibles was approximately
$8,268,000, $4,787,000, and $5,673,000, respectively.
The subsidiaries exercised no control over the operations of AIFE. As a
result, the Company recorded its investment in AIFE under the cost method
of accounting for each of the three years in the period ended December 31,
2006. Under the cost method, the investment in AIFE is reflected at its
original amount and income is recognized only to the extent of dividends paid
by the investee. There were no dividends declared by AIFE for the years ended
December 31, 2006, 2005 and 2004.
If AIFE incurs a net loss, the loss may be allocated to the various
policyholders based on each policyholder's premium as a percentage of the
total premiums of AIFE for the related period. There has been no such loss
assessment for each of the three years in the period ended December 31,
2006. The subsidiaries currently account for the majority of the premiums of
AIFE. For fiscal 2006, the Company through its subsidiaries accounted for
approximately 65% of the total premium revenue of AIFE. At December 31,
2005, AIFE had net worth of approximately $7.9 million.
Item 13. Certain Relationships, Related Transactions, and Director
Independence (continued)
For the year ended December 31, 2006, AIFE paid a commission due to
favorable claims experience to a subsidiary insurance agency of US1
Industries, Inc. for $400,000. There were no such payments in 2005.
At December 31, 2006 the Company had a receivable from an affiliated
entity in the amount of $161,364 for payroll services provided to the entity.
There was no amount due for these services at December 31, 2005.
In addition, the Chief Executive Officer and Chief Financial Officer, as
well as another director of the Company, are the sole shareholders of
American Inter-Fidelity Corporation (AIFC), which serves as the attorney in
fact of AIFE. AIFC is entitled to receive a management fee from AIFE. AIFE
incurred management fees of approximately $0, $300,000, and $405,000 for the
years ended December 31, 2006, 2005, and 2004, respectively.
In 2006 and 2005 the company paid consulting fees of $19,000 and $24,000,
respectively to Robert I. Scissors, one of its directors, relating to insurance
services.
The Company has notes payable due to its Chief Executive Officer and Chief
Financial Officer that matures in September 2007 and is classified as a current
liability.
The Company's directors are identified in response to Item 10 above. The
company does not consider any of the directors to be independent.
Item 14. Principal Accountant Fees and Services
The following table shows the fees paid or accrued by the Company for the
audit and other services provided by BDO Seidman, LLP
2006 2005
Audit Fees (1) $150,000 $150,000
Audit-Related Fees(2) $ 0 $ 0
Tax Fees(2) $ 0 $ 0
All Other Fees(3) $ 0 $ 0
_____________ __________
Total $ 150,000 $150,000
(1) Audit fees include fees associated with the annual audit of our
consolidated financial statements and reviews of our quarterly reports
on Form 10-Q.
(2) There were no audit related services or tax fees.
(3) There were no other services or fees.
The Audit Committee must pre-approve audit-related and non-audit services
not prohibited by law to be performed by the Company's independent registered
public accounting firm. There were no audit-related, tax or other fees during
2004.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements:
Reports of Independent Registered Public Accountint Firm 22
Consolidated Balance Sheets as of December 31, 2005 and 2004 23
Consolidated Statements of Income for the years ended 25
December 31, 2006, 2005, and 2004
Consolidated Statements of Shareholders' Equity 26
for the years ended December 31, 2006, 2005, and 2004
Consolidated Statements of Cash Flows 27
for the years ended December 31, 2006, 2005, and 2004
Notes to Consolidated Financial Statements 29
(a)(2) Financial Statement Schedules:
Schedule of Valuation and Qualifying Accounts 37
Other schedules are not included because of the absence of the conditions
under which they are required or because the required information is included
in the consolidated financial statements or notes thereto.
(a)(3) List of Exhibits
The following exhibits, numbered in accordance with Item 601 of
Regulation S-K, are filed as part of this report:
Exhibit 3.1 Articles of Incorporation of the Company.
(incorporated herein by reference to the Company's Proxy
Statement of November 9, 1993).
Exhibit 3.2 By-Laws of the Company.
(incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
Exhibit 10.1 Amended and Restated Loan Agreement with US BANK and Carolina
National Transportation Inc., Gulfline Transport Inc.,Five Star
Transport, Inc., Cam Transport, Inc., Unity Logistic Services,
Inc., ERX, Inc., Friendly Transport, Inc., Transport Leasing,
Inc., Harbor Bridge Intermodal, Inc., Patriot Logistics, Inc.,
Liberty Transport, Inc., Keystone Lines Corporation, and US 1
Industries, Inc. (incorporated by reference to the Company's Form
10-Q for the nine months ended September 30, 2005 filed on
November 11, 2005).
Exhibit 10.2 Amendment to Amended and Restated Loan Agreement with US BANK and
Carolina National, Transportation Inc., Gulfline Transport
Inc.,Five Star Transport, Inc., Cam Transport, Inc., Unity
Logistic Services, Inc., ERX, Inc., Friendly, Transport, Inc.,
Transport Leasing, Inc., Harbor Bridge Intermodal, Inc., Patriot
Logistics, Inc., Liberty Transport, Inc., Keystone Lines
Corporation, and US 1 Industries, Inc. (incorporated by reference
to the Company's Form 10-Q for the nine Months ended September 30,
2005 filed on November 11, 2005).
Exhibit 10.3 Second Amendment to Amended and Restated Loan Agreement with US
BANK and Carolina National, Transportation Inc., Gulfline
Transport Inc., Five Star Transport, Inc., Cam Transport, Inc.,
Unity Logistic Services, Inc., ERX, Inc., Friendly, Transport,
Inc., Transport Leasing, Inc., Harbor Bridge Intermodal, Inc.,
Patriot Logistics, Inc., Liberty Transport, Inc., Keystone Lines
Corporation, and US 1 Industries, Inc. (incorporated by reference
to the Company's Form 10-Q for the nine months ended September 30,
2005 filed on November 11, 2005).
Exhibit 10.4 Convertible notes in favor of Messrs. Kibler and Antonson
(incorporated by reference to the Company's Form 8-K dated
November 8, 2006 filed November 9, 2006.
Exhibit 14.1 US 1 Industries, Inc. Code of Ethics (incorporated by reference to
the Company's Form 10-K for the year ended December 31, 2003 filed
on March 26, 2005.
Exhibit 21.1 Subsidiaries of the Registrant
Exhibit 31.1 Rule 13a-14(a)\15d-14a(a) Certifications
Exhibit 32.1 Section 1350 Certifications
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned there unto duly authorized.
US 1 INDUSTRIES, INC.
Date:_________________ By: _________________________
Michael E. Kibler
President & Chief Executive Officer
(Principal Executive Officer)
Date:_________________ By: _________________________
Harold Antonson
Chief Financial Officer & Treasurer
(Principal Financial & Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date:_________________ _________________________
Michael E. Kibler, Director
Date:_________________ _________________________
Robert I. Scissors, Director
Date:_________________ _________________________
Lex L. Venditti, Director
Date:_________________ _________________________
Brad James, Director
Date:_________________ _________________________
Harold Antonson, Director