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 September 30, 2008.
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 a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of "accelerated filer, large
accelerated filer", and "smaller reporting company" in Rule 12b-2 of
the Exchange Act.
Large accelerated filer _____ Accelerated filer _____
Non-accelerated filer X Smaller reporting company_____
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes _____ No X
As of November 12, 2008 there were 14,243,409 shares of registrant's
common stock outstanding.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ASSETS
September 30, 2008 December 31, 2007
(Unaudited)
CURRENT ASSETS:
Accounts receivable-trade, less allowances for
doubtful accounts of $1,478,000 and $1,237,000,
respectively $29,153,185 $24,992,476
Other receivables, including receivables due
from affiliated entities of $113,000 and $357,000,
respectively 4,337,381 3,784,820
Prepaid expenses and other current assets 1,071,607 578,519
Current deferred tax asset 717,400 717,400
__________ __________
Total current assets 35,279,573 30,073,215
FIXED ASSETS:
Land 195,347 195,347
Equipment 1,308,147 1,287,873
Less accumulated depreciation and amortization (718,831) (720,193)
_________ _________
Net fixed assets 784,663 763,027
_________ _________
Non-current deferred tax asset 717,400 717,400
Notes receivable - long term 1,118,507 457,850
Other assets 145,049 145,049
___________ ___________
TOTAL ASSETS $38,045,192 $32,156,541
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
2008 2007
(Unaudited)
CURRENT LIABILITIES:
Revolving line of credit $ 3,803,860 $ 1,616,157
Accounts payable 10,628,419 9,479,981
Other accrued expenses 1,054,596 1,039,731
Insurance and claims 2,016,131 1,691,674
Accrued compensation 27,436 173,896
Accrued interest 14,037 71,235
Other taxes payable 590,564 854,525
----------- ------------
Total current liabilities 18,135,043 14,927,199
----------- ------------
MINORITY INTEREST 774,143 569,047
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, authorized 20,000,000 shares;
no par value; 14,838,657 shares issued, 46,920,288 46,920,288
respectively
Treasury Stock, 595,248 shares, respectively (952,513) (952,513)
Accumulated deficit (26,831,769) (29,307,480)
----------- -----------
Total shareholders' equity 19,136,006 16,660,295
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 38,045,192 $ 32,156,541
=========== ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (UNAUDITED)
Three Months Ended Nine Months Ended
2008 2007 2008 2007
OPERATING REVENUES $46,060,907 $46,378,369 $132,748,074 $140,199,933
----------- ---------- ----------- ----------
OPERATING EXPENSES:
Purchased transportation 32,642,587 33,233,966 94,220,842 100,920,444
Commissions 6,192,030 5,735,333 17,227,768 16,867,290
Insurance and claims 1,482,117 1,275,196 4,304,678 4,402,032
Salaries, wages, and other 2,369,704 2,786,070 7,767,114 8,387,589
Other operating expenses 1,889,574 1,832,162 5,499,194 5,656,572
----------- ---------- ---------- ----------
Total operating expenses 44,576,012 44,862,727 129,019,596 136,233,927
----------- ---------- ---------- ----------
OPERATING INCOME 1,484,895 1,515,642 3,728,478 3,966,006
----------- ---------- ---------- ----------
NON-OPERATION INCOME (EXPENSE)
Interest income __ __ 20,891 2,467
Interest (expense) (51,057) (243,460) (108,682) (731,361)
Other income 48,188 (13,792) 129,464 123,078
----------- ---------- ---------- ----------
Total non-operating
income (expense) (2,869) (257,252) 41,673 (605,816)
----------- ---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST $ 1,482,026 $1,258,390 $3,770,151 $ 3,360,190
Minority Interest Expense 389,907 410,650 1,033,394 899,450
----------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES $ 1,092,119 $ 847,740 $2,736,757 $ 2,460,740
Income tax expense 119,596 58,680 261,046 186,555
----------- ---------- ---------- ----------
NET INCOME AVAILABLE
TO COMMON SHARES 972,523 789,060 2,457,711 $ 2,274,185
----------- ---------- ---------- ----------
Basic Net Income $0.07 $0.06 $0.17 $0.19
Per Common Shares
Diluted Net Income $0.07 $0.06 $0.17 $0.17
Per Common Shares
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 14,243,409 12,139,393 14,243,409 12,159,512
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 14,243,409 12,139,393 14,243,409 13,048,770
<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 NINE MONTHS ENDED SEPTEMBER 30, 2008
Common Stock Treasury Accumulated
Shares Amount Shares Amounts Deficit Total
________________________________________________________________________________
Balance at
January 1, 2008 14,838,657 $46,920,288 (595,248) $(952,513) $(29,307,480) $16,660,295
Net income for the nine
months ended
September 30, 2008 - - - - 2,475,711 2,475,711
__________________________________________________________________________________
Balance,
September 30, 2008 14,838,657 $46,920,288 (595,248) $(952,513) $(26,831,769) $19,136,006
==================================================================================
<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
SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007 (UNAUDITED)
Nine Months Ended September 30,
2008 2007
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 2,475,711 2,274,185
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 123,596 114,087
Gain on disposal of assets (16,309) (662)
Provision for bad debts 648,401 480,045
Amortization of discount on convertible debt - 312,963
Minority interest expense 1,033,394 899,450
Changes in operating assets and liabilities:
Accounts receivable - trade (4,809,110) (3,373,953)
Other receivables (552,561) (378,010)
Notes receivable (660,657) ( 54,385)
Prepaid expenses and other assets (493,088) (295,401)
Accounts payable 1,148,438 3,389,019
Accrued expenses 14,865 (267,476)
Accrued interest (57,198) 51,885
Insurance and claims 324,457 299,032
Accrued compensation (146,460) (95,965)
Fuel and other taxes payable (263,961) (176,342)
--------- --------
Net cash (used in) provided by operating activities (1,230,481) 3,178,472
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (150,845) (285,894)
Proceeds from sales of fixed assets 21,922 24,000
-------- ---------
Net cash used in investing activities (128,923) (261,894)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under the line of credit 2,187,703 (728,065)
Purchase of treasury stock - (952,513)
Distributions to minority interest (828,298) (1,236,000)
--------- ---------
Net cash provided by (used in) financing activities 1,359,405 (2,916,578)
--------- ---------
CHANGE IN CASH _ _
CASH, BEGINNING OF PERIOD _ _
--------- ---------
CASH, END OF PERIOD _ _
========= =========
Cash paid for interest $165,880 $366,513
========= =========
<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
NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of September 30, 2008 and
the consolidated statements of income and cash flows for the three and nine
month periods ended September 30, 2008 and 2007 and the statement of
shareholders' equity for the nine months ended September 30, 2008 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, 2007, 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
and nine months ended September 30, 2008 and 2007 are not necessarily
indicative of the results for a full year.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 2007
financial statement to conform with the 2008 presentation.
3. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141 (revised 2007)
("SFAS 141R"), a revision of SFAS 141, "Business Combinations." SFAS
141R establishes requirements for the recognition and measurement of acquired
assets, liabilities, goodwill, and non-controlling interests. SFAS 141R also
provides disclosure requirements related to business combinations. SFAS 141R
is effective for fiscal years beginning after December 15, 2008. Should they
occur, the Company will apply SFAS 141R prospectively to business combinations
with an acquisition date on or after the effective date.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements." SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. In February of 2008, the FASB issued
FASB Staff position 157-2 which delays the effective date of SFAS 157 for
non-financial assets and liabilities which are not measured at fair value
on a recurring basis (at least annually) until fiscal years beginning after
November 15, 2008. There will be minimal impact to the Company upon
adoption of SFAS No. 157 during the nine months ended September 30, 2008.
In December 2007, the FASB issued SFAS No. 160, "Non-Controlling
Interests in Consolidated Financial Statements an amendment of ARB No. 51"
("SFAS 160"). SFAS 160 establishes new standards for the accounting for
and reporting of non-controlling interests (formerly minority interests)
and for the loss of control of partially owned and consolidated subsidiaries.
SFAS 160 does not change the criteria for consolidating a partially owned
entity. SFAS 160 is effective for fiscal years beginning after December
15, 2008.
The provisions of SFAS 160 will be applied prospectively upon
adoption except for the presentation and disclosure requirements which will
be applied retrospectively. The Company is currently evaluating the
impact of the adoption of SFAS No. 160 on its consolidated financial
statements.
4. 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 basic and diluted EPS.
Three Months Ended Nine Months Ended
Numerator 2008 2007 2008 2007
Net income available to common $972,523 $789,060 $2,475,711 $2,274,185
Shareholders for basic EPS
Interest expense on convertible debt - - - 66,000
Discount amortization on convertible debt - - - 108,000
_____________________________________________________
Net income available to common $972,523 $789,060 $2,475,711 $2,448,185
Shareholders for diluted EPS
Denominator
Weighted average common shares outstanding
For basic EPS and diluted EPS 14,243,409 12,139,393 14,243,409 12,159,512
Shares issuable upon conversion of
Convertible debt (1) - - - 889,258
_______________________________________________________
Weighted average common shares outstanding 14,243,409 12,139,393 14,243,409 13,048,770
For diluted EPS
(1) Common stock equivalents for convertible debt for the three
months ended September 30, 2007, were excluded from weighted-average
common shares outstanding for diluted EPS because the effect would be
anti-dilutive. For the nine months ended September 30, 2007, the
converted debt was dilutive. This debt was converted into 2,668,918
shares in September 2007.
5. REVENUE RECOGNITION
Revenue for freight is recognized upon delivery. The Company
bills customers a fuel surcharge which is generally passed through 100%
to the owner operators. For this reason, amounts billed to customers
as fuel surcharge are not included in the companies freight revenues.
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 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.
6. BANK LINE OF CREDIT
The Company and its subsidiaries have a $15.0 million line of
credit that was amended on March 25, 2008 extending the maturity date
from 2008 to 2010, releasing the personal guaranties of the Company's
CFO, Mr. Harold Antonson, and the Company's CEO, Mr. Michael Kibler,
and increasing the maximum permitted annual capital expenditures from
$150,000 to $300,000. This line of credit matures on October 1, 2010.
Advances under this revolving line of credit are limited to 75% of
eligible accounts receivable. Unused availability under this line of
credit was $11.2 million at September 30, 2008. The interest rate is
based upon certain financial covenants and may range from prime to
prime less .75%. At September 30, 2008, the interest rate on this
line of credit was at prime less .75% (4.25%). The Company's
accounts receivable, property, and other assets collateralize
advances under the agreement. At September 30, 2008 the
outstanding borrowings on this line of credit were $3.8 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, maximum
total debt service coverage ratio, and prohibition of additional
indebtedness without prior authorization. At September 30, 2008,
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 September 30, 2008.
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 September 30, 2008.
7. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in litigation
in the normal course of its business. Management intends to
vigorously defend these cases. In the opinion of management,
the litigation now pending will not have a material adverse affect
on the consolidated financial statements of the Company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
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 2008 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 and nine months ended
September 30, 2008 and 2007 and in the Company's Form 10-K for its
fiscal year ended December 31, 2007, 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.
Nine months ended September 30, 2008 compared to the nine months ended
September 30, 2007
The following table sets forth the percentage relationships of
expense items to revenue for the nine months ended September 30,
2008 and September 30, 2007:
2008 2007
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 71.0 72.0
Commissions 13.0 12.0
Insurance and claims 3.2 3.1
Salaries, wages and other 5.9 6.0
Other operating expenses 4.1 4.0
------- ------
Total operating expenses 97.2 97.1
------ ------
Operating income 2.8 2.9
The Company's operating revenues decreased by $7.5 million
to $132.7 million for the nine months ended September 30, 2008 from
$140.2 million for the same period in 2007. This is a decrease of
5.3%. The decrease is primarily attributable to the closing of an
office at one of the Company's subsidiaries and a decrease in load
volume from various larger customers of the Company, which we believe
is attributable to the general slowing economy.
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 typically
are expected to remain relatively consistent as a percentage of
revenue. Purchased transportation and commission together
remained consistent at 84.0% as a percentage of revenue for the nine
months ended September 30, 2007 and for the same period of time in
2008. Purchased transportation expense decreased 1.0% as a
percentage of operating revenue from 72.0% for the nine months
ended September 30, 2007 to 71.0% for the nine months ended September
30, 2008. This decrease was offset by the increase in commission
expense of 1.0% of operating revenues for the nine months ended
September 30, 2008 compared to the nine months ended September 30,
2007. A factor contributing to the decrease in purchased
transportation was the closing of one of the Company's offices
that paid out purchased transportation at a higher rate than is
customary. The increase in commission as a percentage of
operating revenue is partially due to commissions paid to a manager
for increased profitability in 2008.
Salaries expense is not directly variable with revenue and decreased
approximately $620,000 for the nine months ended September 30, 2008 compared to
the same period of time in 2007. This decrease in salaries expense is
attributable to subsidiaries of the Company that have closed offices and
restructured the work loads in order to cut costs, as well as, the closing of
one of the Company's subsidiaries. Salaries expense decreased 0.1% as a
percentage of operating revenue from 6.0% for the nine months ended September
30, 2007 to 5.9% for the nine months ended September 30, 2008.
Insurance and claims increased slightly to 3.2% of operating revenue for
the nine months ended September 30, 2008 from 3.1% for the same period of time
in 2007. While increasing slightly as a percentage of operating revenue,
the dollar amount decreased by approximately $97,000. 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.
Other operating expenses increased to 4.1% of revenue for the
nine months ended September 30, 2008 from 4.0% of revenue for the nine
months ended September 30, 2007. While other operating expenses increased
as a percentage of revenue, the actual dollar amount decreased by
$157,378 for the nine months ended September 30, 2008 compared to
$5,656,572 for the nine months ended September 30, 2007. This decrease
is attributable to several factors related to one of the Company's
subsidiaries. This subsidiary closed one of its offices that operated
with higher overhead costs. As a result of closing this office, the
subsidiary has experienced a decrease in bad debt expense, rent expense
and travel and lodging for the first nine months of 2008. The decrease
was somewhat offset by increased costs associated with Information
Technology, as well as an increase in bad debt expense in 2008 compared
to 2007.
Interest expense decreased $622,679 from $731,361 for the nine months
ended September 30, 2007 to $108,682 for the nine months ended September 30,
2008. This decrease in interest expense is primarily attributable to a
decrease in interest rates on the Company's outstanding borrowings and the
conversion of shareholder debt into common stock during September 2007.
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 .75%. At
September 30, 2008 the interest rate on this loan was prime less .75%
(4.25%) compared to September 30, 2007 which was at prime less .75% (7.00%).
Other income includes income from rental property, storage and
equipment usage fees and other administrative fee income and remained
relatively consistent for the nine months ended September 30, 2008 compared
to the nine months ended September 30, 2007.
The Company also recognized minority interest expense of
$1,033,394 for the nine months ended September 30, 2008 and $899,450 for
the nine months ended September 30, 2007 relating to the minority
shareholders' portion of income generated by our majority owned
subsidiaries, Carolina National Transportation, LLC and US1
Logistics, LLC.
Income tax expense increased $74,491 to $261,046 for the nine months
ended September 30, 2008. This expense is attributable primarily to state
income taxes. The Company has federal net operating loss carry-forwards of
approximately $4.8 million. These carry-forwards are available to offset
taxable income in future years. Substantially all of these carry-forwards
will expire in the years 2008 through 2010. Approximately 50% of the
Company's net operating loss carry-forwards expire in 2008. During 2008,
a reversal of the Company's valuation reserve of approximately $950,000
has offset federal income tax expense of approximately the same amount.
The Company has a valuation reserve of approximately $250,000 at
September 30, 2008. The Company anticipates an effective tax rate of
approximately 39% for 2009.
As a result of the factors outlined above, net income for the
nine months ended September 30, 2008 was $2,475,711 compared to
$2,274,185 for the nine months ended September 30, 2007.
Three months ended September 30, 2008 compared to the three months ended
September 30, 2007.
The following table sets forth the percentage relationships of expense
items to revenue for the three months ended September 30, 2008 and
September 30, 2007:
2008 2007
------ ------
Revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 71.0 71.7
Commissions 13.4 12.4
Insurance and claims 3.2 2.7
Salaries, wages and fringe benefits 5.1 6.0
Other operating expenses 4.1 4.0
------ ------
Total operating expenses 96.8 96.8
------ ------
Operating income 3.2 3.2
The Company's operating revenues decreased by $0.3 million to
$46.0 million for the three months ended September 30, 2008 from $46.3
million for the same period in 2007. This is a decrease of 0.7%. The
decrease is primarily attributable to the closing of an office at one
of the Company's subsidiaries and a decrease in load volume from various
larger customers of the Company, which we believe to be attributable to
the general slowing economy.
Purchased transportation and commissions in total were 84.4% of
operating revenue for the three months ended September 30, 2008 versus
84.1% of operating revenue for the three months ended September 30, 2007.
This is a combined increase of 0.3% of operating revenue. Purchased
transportation decreased 0.7% of operating revenue for the three months
ended September 30, 2008 compared to the same period of time in 2007.
This decrease was more than offset by an increase in commissions of
1.0% of operating revenues for the three months ended September 30,
2008 compared to the three months ended September 30, 2007.
Commission expense increased as a percentage of operating
revenue from 12.4% for the three months ended September 30, 2007
compared to 13.4% for the three months ended September 30, 2008.
The increase in commission was somewhat offset by the decrease in
purchased transportation. The increase in commission as a
percentage of operating revenue is partially due to commissions
paid to a manager for increased profitability in 2008.
Salaries expense decreased 0.9% as a percentage of
operating revenue from 6.0% for the three months ended September
30, 2007 compared to 5.1% for the three months ended September
30, 2008. This reduction in salaries expense can be attributed
to two of the Company's subsidiaries restructuring staffing needs,
as well as the closing of one of the Company's subsidiaries.
Insurance and claims increased $206,921 to 3.2% of revenue
for the three months ended September 30, 2008 from 2.7% for the
same period of time in 2007. The increase of 0.5% of revenue is
largely related to additional claims expense.
Other operating expenses increased to 4.1% of revenue for
the three months ended September 30, 2008 from 4.0% of revenue for
the three months ended September 30, 2007. This increase in other
operating expenses is largely the result of a moderate increase
in bad debt expense.
Interest expense decreased $192,403 from $243,460 for the
three months ended September 30, 2007 compared to $51,057 for the
three months ended September 30, 2008. This decrease in interest
expense is primarily attributable to a decrease in outstanding
borrowings and the conversion of shareholder debt into common stock
during September 2007. Another contributing factor to the decrease
in interest expense is the decrease in interest rates.
Other income includes income from rental property, storage
and equipment usage fees and other administrative fee income.
Other income increased approximately $62,000 or 0.1% of operating
revenue.
The Company also recognized minority interest expense of
$389,907 for the three months ended September 30, 2008 and
$410,650 for the three months ended September 30, 2007 relating to
the minority shareholders' portion of its majority owned
subsidiaries, Carolina National Transportation, LLC and US1
Logistics, LLC.
Income tax expense increased $60,916 to $119,596 for the
three months ended September 30, 2008. For the three months
ended September 30, 2008, a reversal of the Company's valuation
reserve of approximately $300,000 has offset federal income tax
expense of the same amount. The Company has a valuation reserve
of approximately $250,000 at September 30, 2008. The Company
anticipates an effective tax rate of approximately 39% for 2009.
As a result of the factors outlined above, net income for
the three months ended September 30, 2008 was $972,923 compared
to $789,060 for the three months ended September 30, 2007.
Liquidity and Capital Resources
During the nine months ended September 30, 2008, the
Company's financial position continued to improve. The Company
had shareholders' equity of $19.1 million at September 30, 2008
compared with $16.7 million at December 31, 2007.
Net cash (used in) provided by operating activities decreased
($4,408,953) from $3,178,472 for the nine months ended September 30,
2007 to ($1,230,481) for the nine months ended September 30, 2008. Cash
provided by operations before working capital needs generated $4.3 million
for the period ended September 30, 2008 compared to $4.1 million for the
period ended September 30, 2007. Working capital needs used cash of
$5,495,275 during the nine months ended September 30, 2008. For the nine
months ended September 30, 2007, working capital needs used cash of $901,596.
The Company experienced an increase in accounts receivable for the
nine months ended September 30, 2008 primarily due to increased fuel surcharge
billed to customers that are not recognized as operating revenue as discussed
in Note 5.
Other receivables used cash for the nine months ended September 30, 2008
in the amount of $552,561 compared to $378,010 for the same period in 2007. The
largest contributor to this change is an increase in owner operator advances
associated with the daily operations of the Company.
Notes receivable used cash for the nine months ended September 30, 2008
in the amount of $660,657 compared to $54,385 for the same period in 2007.
This increase is primarily due to notes issued relating to the opening of new
offices.
Accounts Payable provided $1,148,438 in cash for the nine months ended
September 30, 2008 compared to $3,389,019 for the same period in 2007. This
increase in accounts payable during the nine months ended September 30, 2008
is attributable to increases in trade payables to owner operators. This
increase is the result of timing as well as increases in fuel surcharge paid
to the owner operators.
Net cash used in investing activities was $128,923 for the nine months
ended September 30, 2008 compared to $261,894 for the same period in 2007. The
net cash used in investing activities is primarily due to the purchase of
fixed assets.
Net cash provided by (used in) financing activities increased
$4,275,983 from ($2,916,578) for the nine months ended September 30, 2007 to
$1,359,405 for the nine months ended September 30, 2008. For the nine months
ended September 30, 2008, net borrowings (repayments) under the line of credit
were $2,187,703 compared to ($728,065) for the nine months ended September 30,
2007. For the nine months ended September 30, 2008, the Company distributed
$828,298 to minority shareholders of the Company's majority owned subsidiaries,
Carolina National Transportation, LLC and US1 Logistics, LLC compared to
$1,236,000 for the nine months ended September 30, 2007.
The Company and its subsidiaries have a $15.0 million line of credit
that was amended on March 25, 2008 extending the maturity date from 2008 to
2010, releasing the personal guaranties of the Company's CFO, Mr. Harold
Antonson and the Company's CEO Mr. Michael Kibler and increasing the maximum
permitted annual capital expenditures from $150,000 to $300,000. This line of
credit matures on October 1, 2010. Advances under this revolving line of
credit are limited to 75% of eligible accounts receivable. Unused
availability under this line of credit was $11.2 million at September 30,
2008. The interest rate is based upon certain financial covenants and may
range from prime to prime less .75%. At September 30, 2008, the interest rate
on this line of credit was at prime less .75% (4.25%). The Company's accounts
receivable, property, and other assets collateralize advances under the
agreement. At September 30, 2008 the outstanding borrowings on this line
of credit were $3.8 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, maximum total debt service coverage ratio, and prohibition
of additional indebtedness without prior authorization. At September 30, 2008,
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 September 30, 2008.
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 September 30, 2008.
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 $113,000 of other accounts receivable due
from entities that could be deemed to be under common control as of
September 30, 2008.
One of the Company's insurance providers, American Inter-Fidelity
Exchange (AIFE), is managed by Mr. Venditti, 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, 2007, 2006 and 2005, cash paid to AIFE for insurance
premiums and deductibles was approximately $6,064,000, $5,366,000, and
$4,787,000, respectively.
The Company has an investment in AIFE which is currently accounted
for under the cost method as the Company has not historically exercised
control over AIFE. 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
payable to US1 Industries, Inc. or its subsidiaries for the nine months
ended September 30, 2008 and 2007. In the future, the Company's control
over AIFE or the structure of AIFE could change, which might require the
Company to consolidated AIFE. The Company has not determined what, if any
impact a change in its control over AIFE or AIFE's structure and a resulting
consolidation of AIFE would have with respect to the market value of the
Company, but as of December 31, 2007 AIFE had a recorded surplus of
approximately $11.3 million. The Company has had discussions with AIFE
management in the past, and may again in the future, regarding a possible
change in the organizational structure of AIFE which could result in US1
obtaiing a controlling interest in AIFE, although any changes would require
regulatory approval.
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 in the period ended December 31, 2007 or the nine
months ended September 30, 2008. The Company currently accounts for the
majority of the premiums of AIFE. For fiscal 2007, the Company through its
subsidiaries, accounted for approximately 71% of the total premium revenue 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 $529,000, $579,000, and $300,000 for the years
ended December 31, 2007, 2006, and 2005, respectively. These management fees
are available to be paid as dividends to these officers and directors of the
Company. As of September 30, 2008, there have been $488,516 in dividends paid
to those indivivduals by AIFC for 2008. There were no dividends declared by
AIFE for the years ended December 31, 2007, 2006 and 2005.
At September 30, 2008 and 2007, the Company paid consulting fees to
Robert Scissors, one of its directors, relating to insurance services.
Item 3. 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 .75%
(at September 30, 2008 the rate was 4.25%). The interest rate
was based on certain financial covenants and ranged from prime to
prime less .75%.
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
September 30, 2008.
Item 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in
the Company's Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management is
required to apply its judgment in evaluating the cost-benefit relationship
of possible controls and procedures.
As required by SEC Rule 13a-15(b), the Company carried out an
evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and
the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures as of
the end of the period covered by this report. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective at
the reasonable assurance level.
There were no changes in our internal control over financial
reporting during the nine months ended September 30, 2008 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Part II OTHER INFORMATION
Item 6. 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
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
November 13, 2008