FORM 10-Q
________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007.
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 30, Valparaiso, Indiana 46385
_______________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 476-1300
____________________
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes ___ No _X_
As of May 9, 2007, there were 12,169,739 shares of registrant's common
stock outstanding.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 (UNAUDITED) AND DECEMBER 31, 2006
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
ASSETS
March 31, December 31,
2007 2006
(Unaudited)
CURRENT ASSETS:
Accounts receivable-trade, less allowances
for doubtful accounts of $1,155,645
and $992,000, respectively $27,290,462 $25,764,263
Other receivables, including receivables due
from affiliated entities of $702,000 and
$691,000, respectively 3,591,799 3,159,640
Prepaid expenses and other current assets 726,907 875,834
Current deferred tax asset 717,400 717,400
----------- ----------
Total current assets 32,326,568 30,517,137
Property and Equipment:
Land 195,347 195,347
Equipment 1,140,490 952,675
Less accumulated depreciation and amortization (606,315) (573,501)
----------- ----------
Net property and equipment 729,522 574,521
----------- -----------
Non-current deferred tax asset 717,400 717,400
Notes receivable - Long Term 367,125 368,754
Other Assets 386,037 386,037
----------- -----------
TOTAL ASSETS $34,526,652 $32,563,849
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 (UNAUDITED) AND DECEMBER 31, 2006
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
2007 2006
(Unaudited)
CURRENT LIABILITIES:
Revolving line of credit $ 4,047,278 $ 3,633,784
Related Party Convertible subordinated debt,
Net of Unamortized discount of $210,000
and $313,000 as of March 31, 2007 and
December 31, 2006, respectively 3,740,437 3,637,037
Accounts payable 11,649,374 9,594,681
Other accrued expenses 720,545 988,823
Accrued remediation costs 141,347 141,347
Insurance and claims 1,666,633 1,507,980
Accrued compensation 134,798 127,381
Accrued interest 81,870 32,595
Other taxes payable 764,606 355,853
----------- ------------
Total current liabilities 22,946,888 20,019,481
----------- ------------
MINORITY INTEREST 399,192 1,159,542
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, authorized 20,000,000 shares;
no par value; 12,169,739 shares outstanding 42,970,288 42,970,288
as of March 31, 2007 and December 31, 2006.
Accumulated deficit (31,789,716) (31,585,462)
----------- -----------
Total shareholders' equity 11,180,572 11,384,826
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 34,526,652 $ 32,563,849
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
MARCH 31, 2007 AND MARCH 31, 2006 (UNAUDITED)
MARCH 31, MARCH 31,
2007 2006
______________ ______________
OPERATING REVENUES $45,911,460 $ 44,575,241
------------ ------------
OPERATING EXPENSES:
Purchased transportation 33,250,137 32,103,859
Commissions 5,549,044 5,096,604
Insurance and claims 1,661,184 1,533,407
Salaries, wages, and other 2,758,972 2,810,951
Other operating expenses 1,914,586 1,907,182
------------ ------------
Total operating expenses 45,133,923 43,452,003
------------ ------------
OPERATING INCOME 777,537 1,123,238
------------ ------------
NON-OPERATING INCOME (EXPENSE):
Interest income 11,868 8,975
Interest expense (241,712) (173,606)
Other income 41,392 28,361
------------ ------------
Total non-operating expense (188,452) (136,270)
------------ ------------
NET INCOME BEFORE MINORITY INTEREST $ 589,085 $ 986,968
Minority Interest Expense 199,650 126,694
------------ ------------
NET INCOME BEFORE INCOME TAXES $ 389,435 $ 860,274
Income Taxes 18,689 164,967
------------ ------------
NET INCOME AVAILABLE TO COMMON SHARES 370,746 695,307
------------ ------------
Basic and Diluted Net Income
Per Common Share $ 0.03 $ 0.06
==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 12,169,739 12,018,224
============ =============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2007
Total
Common Common Accumulated Shareholder's
Shares Stock Deficit Equity
________________________________________________________________________________
Balance, January 1, 2007 12,169,739 $42,970,288 $(31,585,462)$11,384,826
Cumulative effect of adoption
of FIN 48 (575,000) (575,000)
Net income for the three
months ended March 31, 2007 0 0 370,746 370,746
Balance, March 31, 2007 12,169,739 $42,970,288 $(31,789,716)$11,180,572
<FN>
The accompanying notes are in integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 2007 AND MARCH 31, 2006 (UNAUDITED)
Three Months Ended March 31,
2007 2006
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 370,746 695,307
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 34,982 37,925
Gain on disposal of assets (1,668) 0
Provision for bad debts 186,228 284,319
Amortization of discount on convertible note 103,400 0
Minority interest expense 199,650 126,694
Changes in operating assets and liabilities:
Accounts receivable - trade (1,712,427) 1,652,983
Other receivables (541,021) (319,161)
Notes receivable 166,171 0
Prepaid expenses and other assets 93,247 7,550
Accounts payable 2,054,693 (753,346)
Accrued expenses (268,278) 479,416
Accrued interest 49,275 (37,151)
Insurance and claims 158,653 (82,810)
Accrued compensation 7,417 (199,646)
Other taxes payable (166,247) 245,833
--------- ---------
Net cash provided by operating activities 734,821 2,137,913
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (194,315) (64,659)
Proceeds from sales of fixed assets 6,000 0
-------- ---------
Net cash used in investing activities (188,315) (64,659)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line of credit 413,494 (2,052,670)
Repayments of shareholder loans 0 (20,584)
Distributions to minority interest (960,000) 0
--------- ---------
Net cash used in financing activities (546,506) (2,073,254)
--------- ---------
NET CHANGE IN CASH 0 0
CASH, BEGINNING OF PERIOD 0 0
--------- ---------
CASH, END OF PERIOD 0 0
========= =========
Cash paid for interest $89,000 $210,757
========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2007 AND 2006
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of March 31, 2007 and the
consolidated statements of income, shareholders' equity and cash flows for
the three month periods ended March 31, 2007 and 2006 are unaudited, but, in
the opinion of management, include all adjustments (consisting of normal,
recurring accruals) necessary for a fair presentation of the financial
position and the results of operations at such date and for such periods.
The year-end balance sheet data was derived from audited financial
statements. These statements should be read in conjunction with US 1
Industries, Inc. and Subsidiaries' ("the Company") audited consolidated
financial statements for the year ended December 31, 2006, and the notes
thereto included in the Company's Annual Report on Form 10-K. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted, as permitted by the requirements of the
Securities and Exchange Commission, although the Company believes that
the disclosures included in these financial statements are adequate to make
the information not misleading. The results of operations for the three
months ended March 31, 2007 and 2006 are not necessarily indicative of the
results for a full year.
Statement of Financial Accounting Standard 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 has 16 subsidiaries, each of which is
considered an operating segment. As the Company's operating segments exhibit
similar economic characteristics and meet the aggregation criteria of
Statement 131, they are reported in one segment.
2. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 2007, we adopted the provisions of Financial
Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty
in Income Taxes ("FIN 48"). This interpretation clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with SFAS No. 109 and prescribes a recognition
threshold of more-likely-than-not to be sustained upon examination. As a
result of the implementation of FIN 48, we recognized a $575,000 increase in
the liability for unrecognized tax benefits related to tax positions taken in
prior periods. This increase was accounted for as an adjustment to accumulated
deficit in accordance with the provisions of this statement.
The Company's policy is to include interest and penalties related to
gross unrecognized tax benefits within our provision for income taxes. As
of January 1, 2007, we had accrued $175,000 and $175,000 for payment of such
interest and penalties, respectively.
Our total unrecognized tax benefits as of January 1, 2007 (the date of
adoption) totaled approximately $520,000. Also, our unrecognized benefits
that, if recognized, would affect our effective tax rate totaled approximately
$520,000 as of January 1, 2007.
The Company and its subsidiaries file income tax returns in various tax
jurisdictions, including the United States and several U.S. states. The
Company has substantially concluded all US Federal income tax matters through
2002. The Company's 2004 federal income tax returns are currently under audit
by the Internal Revenue Service. The Company still has several open tax
years for various state tax jurisdictions.
3. EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") in accordance with
SFAS No. 128. Following is the reconciliation of the numerators and
denominators of the basic and diluted EPS.
Three Months Ended March 31,
Numerator 2007 2006
Net income available to common
shareholders for basic and diluted EPS $370,746 $695,307
Denominator
Weighted average common shares
outstanding for basic and diluted EPS 12,169,739 12,018,224
2,668,919 common stock equiviliants (related to the Company's convertible
debt) have been excluded from the diluted weighted average common shares
outstanding as the impact of these common stock equiviliants would be
anti-dilutive.
4. REVENUE RECOGNITION
Revenue for freight is recognized upon delivery. The Company accounts
for its revenue in accordance with EITF 99-19, "Reporting Revenue 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 of EITF 99-19 and records revenues at the
gross amount billed to customers because the Company (1) determined it
operates as the primary obligor, (2) typically is responsible for damages
to goods and (3) bears the credit risk.
5. NOTES RECEIVABLE
The Company makes advances under notes receivable to certain agents
and owner operators in the normal course of its business. Currently, the
Company has a note receivable with an agent in the original amount of
$500,000 which is repayable in monthly installments of $8,333 with the
final payment due in June 2011. The balance on this note was approximately
$425,000 and $470,000 at March 31, 2007 and December 31, 2006, respectively.
The remainder of the balance of notes receivable consists of 11 notes
resulting from advances to agents and owner operators. The remaining balance
on these notes is approximately $112,587 and $124,896 as of March 31, 2007
and December 31, 2006, respectively. These notes bear interest at rates
ranging from 9.5% to 17% with weekly payments ranging from approximately
$100 - $400. Maturity on these notes receivable ranges from November 2007
through July 2011.
The current portion of these notes receivable totals $170,462 and
$226,142 at March 31, 2007 and December 31, 2006, respectively and is
classified in other receivables in the Company's consolidated balance sheet.
6. 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 $6.0 million at March 31, 2007.
The interest rate is based upon certain financial covenants and may range
from prime to prime less .50%. At March 31 ,2007, 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
6. BANK LINE OF CREDIT (continued)
$1.5 million are guaranteed by the Chief Executive Officer and Chief
Financial Officer of the Company. At March 31, 2007 the outstanding
borrowings on this line of credit were $4.0 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 March 31, 2007, 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 March 31, 2007.
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
March 31, 2007.
7. LEGAL PROCEEDINGS AND OTHER
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.
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. The option is immediately exercisable and may
be exercised in whole (not in part) at any time prior to October 2008. In
the event the option were exercised, based upon the actual results of
Patriot Logistics, our revenue would have declined by $9,567,176 and
$12,102,726 (a decrease of 20.84% and 27.15%, respectively) for the three
months ended March 31, 2007 and 2006, respectively. Patriot Logistics had
pre-tax income (loss) of $(256,221) and $56,261 for the three months ended
March 31, 2007 and 2006, respectively.
8. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported
2006 financial statements to conform with the 2007 presentation.
Results of Operations
You should read the following discussion regarding the Company and its
subsidiaries along with the Company's consolidated financial statements
and related notes included in this quarterly report. The following
discussion contains forward-looking statements that are subject to risks,
uncertainties and assumptions. The Company's actual results, performance
and achievements in 2007 and beyond may differ materially from those
expressed in, or implied by, these forward-looking statements.
The financial statements and related notes contained elsewhere in this
Form 10-Q as of and for the three months ended March 31, 2007 and 2006 and
in the Company's Form 10-K for its fiscal year ended December 31, 2006,
are essential to an understanding of the comparisons and are incorporated
by reference into the discussion that follows.
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.
The following table sets forth the percentage relationships of expense items
to revenue for the three months ended March 31, 2007 and March 31, 2006:
2007 2006
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 72.4 72.0
Commissions 12.1 11.4
Insurance and claims 3.6 3.5
Salaries, wages and other 6.0 6.3
Other operating expenses 4.2 4.3
------- ------
Total operating expenses 98.3 97.5
------ ------
Operating income 1.7 2.5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Three months ended March 31, 2007 compared to the three months ended
March 31, 2006
The Company's operating revenues increased by $1.3 million to
$45.9 million for the three months ended March 31, 2007 from $44.6 million
for the same period in 2006. This is an increase of 2.9%. The increase
was attributable to the continued growth of Carolina National Transportation,
LLC., US1 Logistics, LLC., and Thunderbird, LLC. The growth of these
subsidiaries is primarily attributable to the addition of new terminals and
growth of existing terminals.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (continued)
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. 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. Purchased transportation
expense increased 0.4% as a percentage of operating revenue from 72.0% for
the three months ended March 31, 2006 to 72.4% for the three months ended
March 31, 2007. The majority of this increase relates to an increase in fuel
tax expense.
Commission expense increased 0.7% of as a percentage of operating
revenue from 11.4% for the three months ended March 31, 2006 compared to
12.1% for the three months ended March 31, 2007. Increases in operating
revenue at operations that utilize independent agents as opposed to
employees has resulted in an increase in the Company's commission expense as
a percentage of operating revenue and a decrease in salaries expense as a
percentage of operating revenue.
Salaries expense decreased 0.3% as a percentage of operating revenue from
6.3% for the three months ended March 31, 2006 to 6.0% for the three months
ended March 31, 2007. This decrease in salaries expense is the result of one
of the operations closing an office that utilized employees rather than
independent commissioned agents and also due to the downsizing at certain
operations. The result of operations utilizing employees as opposed to
commissioned agents is that salaries will tend to run higher at these offices
and do not fluctuate directly with the operation's revenue. As a result, the
decrease in salaries expense as a percentage of revenue only partially offsets
the increase in the Company's commission expense as a percentage of revenue.
Insurance and claims increased to 3.6% of revenue for the three months
ended March 31, 2007 from 3.5% for the same period of time in 2006. A
majority of the insurance and claims 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 increase of 0.1% of revenue can be
attributed to the increase of certain operations' insurance rates along with
claim activity.
Other operating expenses decreased slightly to 4.2% of revenue for the
three months ended March 31, 2007 from 4.3% of revenue for the three months
ended March 31, 2006.
Interest expense increased by $68,106, from $173,606 for the three
months ended March 31, 2006 to $241,310 for the three months ended March
31, 2007. 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 March
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (continued)
31, 2007, the interest rate charged on the loan with US Bank was prime
less .25% (7.75%). At March 31, 2006 the interest rate on this loan was
prime less .25% (7.50%).
The Company also recognized minority interest expense of $199,650 for
the three months ended March 31, 2007 and $126,694 for the three months
ended March 31, 2006 relating to the minority shareholders' portion of its
subsidiary's, Carolina National Transportation, LLC, net income for the
three months ended March 31, 2007 and 2006, respectively. Carolina National
Transportation, LLC, is a 60% owned subsidiary of the Company.
Federal income taxes decreased $146,278 from $164,967 for the three
months ended March 31, 2006 to $18,689 for the three months ended March 31,
2007. 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. Prior to the
second quarter of 2006, the Company's 60% owned subsidiary was a C-
Corporation which was required to pay taxes on a stand-alone basis. In the
second quarter of 2006, Carolina National converted from a "C" corporation to
an LLC and no longer pays taxes on a stand-alone basis. This change in the
legal organization of Carolina National accounts for the majority of
the decrease in income taxes from 2006 to 2007.
As a result of the factors discussed above, including increases in
purchased transportation, increases in commissions that were not fully offset
by the decrease in salaries, and slight increases in insurance and claims
costs, and interest, and decreases in federal income taxes, net income for
the three months ended March 31, 2007 decreased by $324,561 from $695,307
for the three months ended March 31, 2006 to $370,746 for the three months
ended March 31, 2007.
Liquidity and Capital Resources
Net cash provided by operating activities decreased $1.4 million from
$2,137,913 for the three months ended March 31, 2006 to $734,821 for the
three months ended March 31, 2007. The decrease in net cash provided by
operating activities is attributable to decreased working capital needs.
The decrease in cash provided by operations was primarily attributable to a
decrease in cash received from customers. Accounts receivable increased by
$1.7 million for the three months ended March 31, 2007 compared to a decrease
of $1.7 million for the three months ended March 31, 2006. The increase in
accounts receivable for the three months ended March 31, 2007 is attributable
to an increase in revenues as well as a decline in collections.
A substantial amount of our costs are variable and as such the decrease
in cash received from customers was somewhat offset by a decrease in cash
paid for certain expenses that are directly related to operations, including
purchased transportation, commissions, and insurance. In addition, there
were decreases in cash paid to vendors for other non-variable obligations.
The Company utilizes a vendor that provides advances to drivers for fuel
purchases. Since the first quarter of 2006, this vendor granted the Company
a credit increase of $650,000. This increase resulted in the Company being
able to reduce the frequency of payments to this vendor, thus, increasing
accounts payable and cash availability.
Liquidity and Capital Resources (continued)
Net cash used in investing activities was $188,315 for the three
months ended March 31, 2007 compared to $64,659 for the three months ended
March 31 2006. Net cash used in investing activities increased primarily
due to the purchase of fixed assets.
Net cash used in financing activities decreased $1,526,748 from
$2,073,254 for the three months ended March 31, 2006 to $546,506 for the
three months ended March 31, 2007. For the three months ended March 31,
2007 net borrowings under the line of credit increased $413,494. This was
offset by distribution of $960,000 to shareholders of the Company's
majority owned subsidiary, Carolina National.
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 $6.0 million at March 31, 2007.
The interest rate is based upon certain financial covenants and may range
from prime to prime less .50%. At March 31 ,2007, 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 March 31,
2007 the outstanding borrowings on this line of credit were $4.0 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 March 31, 2007, 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 March 31, 2007.
This facility has historically provided the Company sufficient liquidity
to meet its needs on an ongoing basis. The Company anticipates it will be
able to extend this line of credit for at least an additional twelve months
prior to its maturity in October 2007.
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
March 31, 2007.
Quantitative and Qualitative Disclosures About Market Risk
Inflation
Changes in freight rates charged by the Company to its customers are
generally reflected in the cost of purchased transportation and commissions
paid by the Company to independent contractors and agents, respectively.
Therefore, management believes that future-operating results of the Company
will be affected primarily by changes in volume of business. Rising fuel
prices are generally offset by a fuel surcharge the Company passes onto its
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 profitability.
Interest Rate Risk
The Company has a revolving line of credit with a bank, which currently
bears interest at the prime rate less .50% (at March 31, 2007 the rate was
7.75%). The interest rate is based on certain financial covenants and may
range from prime to prime less .50%. The Company also has approximately $3.7
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%.
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 March 31, 2007.
Certain Relationships and Related 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 and the overhead.
The Company has approximately $702,000 of other accounts receivable due
from entities that could be deemed to be under common control as of March
31, 2007.
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 three
months ended March 31, 2007 and 2006.
Certain Relationships and Related Transactions (continued)
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 or the three months ended March 31, 2007. 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. for $400,000. There were no such payments for the three
months ended March 31, 2007.
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. As of
March 31, 2007, there have been no management fees received from AIFE for
2007.
In 2006 the Company paid consulting fees of $19,000 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. These notes payable will either be renewed prior
to their expiration date or converted.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their
evaluations as of the end of the period covered by the report, our
principal executive officer and principal financial officer, with
the participation of our full management team, have concluded that
our disclosure controls and procedures (as defined in Rules 13(a)-
14(c) and 15(d)-14(c) under the Securities Exchange Act) are
effective to ensure that information required to be disclosed by us
in reports that we file or submit under the Securities Exchange Act
is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC.
(b) Changes in controls. There were no changes in our internal controls
over financial reporting identified in connection with the
evaluations reported above that occurred during our last fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
Item 4. Controls and Procedures (continued)
(c) Disclosure controls and procedures. Disclosure controls and procedures
are our controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is accumulated and
communicated to our management, including our principal executive
officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) (1) List of Exhibits
The following exhibits, numbered in accordance with Item 601 of
Regulation S-K, are filed as part of this report:
Exhibit 31.1 Certification 302 of Chief Executive Officer
Exhibit 31.2 Certification 302 of Chief Financial Officer
Exhibit 32.1 Certification 906 of Chief Executive Officer
Exhibit 32.2 Certification 906 of Chief Financial Officer
(b)(1) Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
US 1 Industries, Inc.
Michael E. Kibler
Chief Executive Officer
Harold E. Antonson
Chief Financial Officer
May 15, 2007