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, 2009.
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
[__]Smaller reporting company [ X ]
(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 May 15, 2009 there were 14,243,409 shares of registrant's common
stock outstanding.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ASSETS
March 31, 2009 December 31, 2008
(Unaudited)
Cash $ 242,412 $ -
Accounts receivable-trade, less allowances for
doubtful accounts of $1,787,000 and
$1,360,000, respectively 26,129,347 30,054,657
Other receivables, including receivables due from
affiliated entities of $142,000 and $964,000,
respectively 5,690,505 4,676,388
Prepaid expenses and other current assets 2,407,574 2,214,218
Current deferred income tax asset 2,165,913 1,444,670
___________ ____________
Total current assets 36,635,751 38,389,933
FIXED ASSETS:
Land 195,347 195,347
Equipment 2,317,677 2,286,465
Leasehold Improvements 302,773 302,773
Less accumulated depreciation and amortization (994,084) (833,771)
____________ ___________
Net property and equipment 1,821,713 1,950,814
____________ ___________
Non-current deferred income tax asset - 721,243
Notes receivable - long term 1,004,014 1,314,395
Intangible assets 3,505,168 3,736,000
Goodwill 4,778,342 4,756,943
Other assets 8,700 135,162
___________ ___________
Total Assets $47,753,688 $51,004,490
=========== ===========
<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, 2009 (UNAUDITED) AND DECEMBER 31, 2008
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2009 December 31, 2008
(Unaudited)
<s> <c> <c>
CURRENT LIABILITIES:
Revolving line of credit $ 11,352,286 $ 11,312,690
Bank overdraft - 3,090,613
Current portion of capital lease obligation 41,228 107,196
Current portion of long-term debt 1,133,670 1,372,546
Accounts payable 11,287,243 9,987,291
Insurance and claims 1,874,312 1,836,391
Other accrued expenses 1,572,534 1,871,800
_____________ _____________
Total current liabilities 27,261,273 29,578,527
LONG-TERM DEBT, less current portion 763,900 817,277
CAPITAL LEASE, LESS CURRENT PORTION 77,979 44,108
SHAREHOLDERS' EQUITY:
Common stock, authorized 20,000,000 shares: no par
value; 14,838,657 shares issued at March 31, 2009
and December 31, 2008, respectively 47,001,741 46,920,288
Treasury stock, 595,248 shares at both March 31,
2009 and December 31, 2008, respectively (952,513) (952,513)
Accumulated US 1 Industries, Inc. deficit (27,228,680) (26,249,640)
_____________ _____________
Total US 1 Industries, Inc. shareholder's equity 18,820,548 19,718,135
Noncontrolling Interests 829,988 846,443
_____________ _____________
Total equity 19,650,536 20,564,578
_____________ _____________
Total liabilities and shareholders' equity $47,753,688 $51,004,490
============= =============
<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, 2009 AND MARCH 31, 2008 (UNAUDITED)
March 31, 2009 March 31, 2008
(Unaudited) (Unaudited)
OPERATING REVENUES $44,212,904 $41,740,278
OPERATING EXPENSES:
Purchased transportation 30,688,183 29,549,377
Commissions 5,829,511 5,335,809
Insurance and claims 1,566,942 1,335,236
Salaries, wages and other 4,164,809 2,789,069
Other operating expenses 2,804,320 1,678,741
____________ ____________
Total operating expenses 45,053,765 40,688,232
____________ ____________
OPERATING (LOSS) INCOME (840,861) 1,052,046
____________ ____________
NON-OPERATING INCOME (EXPENSE)
Interest income 9,161 3,025
Interest expense (161,246) (23,343)
Other income (expense) 120,179 37,235
____________ ____________
Total non operating (expense) income (31,906) 16,917
NET (LOSS) INCOME BEFORE INCOME TAXES $ (872,767) $ 1,068,963
Income tax expense 82,728 70,991
____________ ____________
NET (LOSS) INCOME BEFORE NONCONTROLLING INTEREST $ (955,495) $ 997,972
Income attributable to noncontrolling interest 23,545 308,242
____________ ____________
NET (LOSS) INCOME AVAILABLE TO COMMON SHARES $ (979,040) $ 689,730
____________ ____________
Basic and Diluted Net (Loss) Income per
Common Share $ (0.07) $ 0.05
Weighted Average Shares Outstanding
Basic and Diluted 14,243,409 14,243,409
<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, 2009 and 2008
Total
US1 Industries, Inc.
Common Stock Treasury Accumulated Stockholders' Noncontrolling
Shares Amount Shares Amount Deficit Equity Interests
_____________________________________________________________________________________________________________
Balance at January 1, 2009 14,838,657 $46,920,288 (595,248) $(952,513) $(26,249,640) $19,718,135 $846,443
Net (loss) income for the
three months ended March 31,
2009 - - - - (979,040) (979,040) 23,545
Stock Compensation Expense - 81,453 - - - 81,453 -
Distribution to noncontrolling
interests - - - - - - (40,000)
__________________________________________________________________________________________________________
Balance at March 31, 2009 14,838,657 $47,001,741 (595,248) $(952,513) $(27,228,680) $18,820,548 $829,988
==========================================================================================================
<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, 2009 AND MARCH 31, 2008 (UNAUDITED)
Three Months Ended March 31,
2009 2008
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income (979,040) 689,730
Adjustments to reconcile net (loss) income
to net cash provied by operating activities
Depreciation and amortization 370,921 39,723
Stock compensation expense 81,453 -
Provision for bad debts 523,216 138,422
Noncontrolling interest 23,545 308,242
Changes in operating assets and liabilities:
Accounts receivable - trade 3,402,094 (804,626)
Other receivables (1,001,792) (650,040)
Notes receivable 310,381 (183,007)
Prepaid expenses and other current assets (79,221) 121,569
Accounts payable 1,369,954 1,264,877
Insurance and claims 37,921 (63,479)
Other accrued expenses (299,266) (421,287)
____________ ____________
Net cash provided by operating activities 3,760,166 440,124
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment (10,988) (58,012)
Goodwill purchase accounting adjustment (37,896) -
Proceeds from sales of fixed assets - 2,421
____________ ____________
Net cash used in investing activities (48,884) (55,591)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under the line of credit 39,596 167,606
Change in bank overdraft (3,090,613) (504,139)
Capital lease payments (44,864) -
Principal payments of long term debts (332,989) -
Distributions to noncontrolling interests (40,000) (48,000)
____________ ____________
Net cash used in financing activities (3,468,870) (384,533)
____________ ____________
NET CHANGE IN CASH 242,412 -
CASH, BEGINNING OF PERIOD - -
CASH, END OF PERIOD $242,412 $ -
____________ ____________
Cash paid for interest $ 146,000 $ 87,000
Cash paid for income taxes $ 200,000 $ 187,982
<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, 2009 AND 2008
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of March 31, 2009 and
the consolidated statements of income and cash flows for the three month
periods ended March 31, 2009 and 2008, and the statement of shareholders'
equity for the three months ended March 31, 2009 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, 2008, 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, 2009 and 2008 are not necessarily indicative of the results
for a full year.
2. 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 April 2008, the FASB issued FASB Staff Position ("FSP") No.
142-3, Determination of the Useful life of Intangible Assets ("FSP 142-3").
FSP 142-3 amends the factors that should be considered in developing
assumptions about renewal or extension used in estimating the useful life of
a recognized intangible asset under SFAS 142, and expands the disclosure
requirements of SFAS 142. The provisions of FSP 142-3 are effective for the
Company as of January 1, 2009. The provisions of FSP 142-3 for determining
the useful life of a recognized intangible asset shall be applied
prospectively to intangible assets recognized as of, and subsequent to, the
effective date. The adoption of this staff position did not have a material
impact on the Company's consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. In February 2008, the FASB
issued FSP No. 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. The Company has adopted SFAS 157 as of January 1, 2008,
with the exception of the application of the statement to non-recurring
nonfinancial assets and nonfinancial liabilities. The implementation
of SFAS 157 did not have any material impact on its consolidated financial
condition or results of operations.
Effective January 1, 2009, the Company adopted FASB Staff Position No.
157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2") which delayed
the effective date of SFAS No. 157 "Fair Value Measurements" for all non-
financial assets and non-financial liabilities, except for items that are
recognized or disclosed at fair value on a recurring basis such as reporting
units measured at fair value for goodwill impairment, indefinite-lived
intangible assets measured at fair value for impairment assessment,
nonfinancial assets and liabilities initially measured at fair value in a
business combination, or nonfinancial long-lived assets measured at fair
value for impairment assessment. This standard did not have a material impact
on the Company's results of operations or financial condition.
Effective January 1, 2009, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 160,"Noncontrolling Interests in
Consolidated Financial Statements" SFAS No. 160 amends Accounting Research
Bulletin No. 51,"Consolidated Financial Statements" ("ARB 51") and establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the accounting for future ownership changes with respect to
those subsidiaries. This standard defines a noncontrolling interest,
previously called a minority interest, as the portion of equity in a
subsidiary not attributable, directly or indirectly, to a parent. SFAS
No. 160 requires, among other items, that a noncontrolling interest be
included in the consolidated balance sheet within equity separate from the
parent's equity; consolidated net income to be reported at amounts inclusive
of both the parent's and noncontrolling interest's shares and, separately, the
amounts of consolidated net income attributable to the parent and
noncontrolling interest all on the consolidated statements of income; and if
a subsidiary is deconsolidated, any retained noncontrolling equity investment
in the former subsidiary be measured at fair value and a gain or loss be
recognized in net income based on such fair value. The Company applied the
provisions of SFAS No. 160 retrospectively. As a result, noncontrolling
interests of $846,443 were reclassified from the liability section to equity
in the December 31, 2008 balance sheet. Certain reclassifications have been
made to prior period amounts to conform to the presentation of the current
period under SFAS No. 160.
3. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported
2008 financial statements to conform with the 2009 presentation.
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 March 31,
Numerator 2009 2008
______________ ______________
Net (loss) income available to common
shareholders for basic and diluted EPS $ (979,040) $ 689,730
Denominator
Weighted average common shares
outstanding for basic and diluted EPS 14,243,409 14,243,409
The outstanding stock options granted to two employees as part of the
acquisition of ARL Transport, LLC ("ARL"), in December 2008, have been excluded
from the calculation of earnings per share because the effect would be anti-
dilutive.
The Company has no other options or warrants to purchase common stock
outstanding.
5. REVENUE RECOGNITION
Revenue for freight is recognized upon delivery. The Company
accounts for its revenue in accordance with Emerging Issues Task Force
("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 $22.0 million line of credit
that matures on October 1, 2010. This line of credit was increased on December
18, 2008 from $15.0 million to $22.0 million in conjunction with the ARL
acquisition. Advances under this revolving line of credit are limited to 75%
of eligible accounts receivable. Unused availability under this line of credit
was $10.6 million at March 31, 2009. Under the amended line of credit
agreement, the Company's interest rate is based upon certain financial
covenants and may range from "One Month LIBOR" plus 3.35% to "One Month LIBOR"
plus 4.35%. As of March 31, 2009, the interest rate on this line of credit was
4.413%. The Company's accounts receivable, property, and other assets
collateralize advances under the agreement. Borrowings up to $3.0 million are
guaranteed by the Chief Executive Officer and Chief Financial Officer of the
Company. At March 31, 2009, the outstanding borrowings on this line of credit
were $11.4 million and $1.8 million was outstanding at March 31, 2008. The
significant increase relates to funding the retirement of $10 million of debt
assumed in the ARL acquisition.
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 March 31, 2009, the
Company was not in compliance with certain financial covenants and as of the
date of this filing has not yet received a waiver from its lender. The Company
is currently in default of its loan agreement, however has not been notified by
the lender that the outstanding balance will be called immediately. If the
outstanding balance were called, the Company would not have the ability to pay-
off the outstanding balance. The Company is currently working with its lender
to amend the covenants such that they will be in compliance with the covenants
for the remainder of the year. At December 31, 2008 and March 31, 2008, the
Company was in compliance with these financial covenants. Because the line-of-
credit contains both a subjective acceleration clause and a lockbox
arrangement, the Company has classified the balance outstanding under this
line-of-credit agreement as a current liability at March 31, 2009 and 2008.
The balance outstanding under this line-of-credit agreement is classified as
a current liability at March 31, 2009 and 2008. Historically the revolving
line of credit has been extended prior to maturity.
On January 15, 2009, the Company and its subsidiaries entered into a no
cost Interest Rate Swap Agreement with U.S. Bank effective February 2, 2009
through February 1, 2012. This agreement is in the notional amount of $10.0
million from February 2, 2009 through January 31, 2010, then $7.0 million from
February 1, 2010 through January 31, 2011, then $4.0 million from February 1,
2011 to February 1, 2012. The agreement provides for the Company to pay
interest at an annual rate of 1.64% times the notional amount of the swap
agreement, and receive interest at the LIBOR rate times the notional amount
of the swap. The Company did not enter into this agreement for speculative
purposes. The fair value of the interest rate swap was minimal at March
31, 2009.
7. EQUITY TRANSACTIONS
In December 2008, as part of the acquisition of ARL, the Company
granted two employees a total of 200,000 options to purchase shares of common
stock at an exercise price of $0.80 per share. These options vest over 4
years. The fair value of these options of $0.1 million was calculated using
a Black Scholes Model. During the first quarter 2009, the Company recorded
stock compensation expense of $0.08 million. These options have been
excluded from the calculation of earnings per share because the effect would
be anti-dilutive. The Company has no other options or warrants to purchase
common stock outstanding as of March 31, 2009.
8. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in certain litigation
matters in the normal course of its business. Management intends to
vigorously defend these cases. In the opinion of management, any negative
outcome from litigation now pending will not have a material adverse affect
on the consolidated financial statements of the Company.
9. INCOME TAXES
The Company files a consolidated U.S income tax return and tax
returns in various states and local jurisdictions. Income tax expense of
$.08 and $.07 for the three months ended March 31, 2009 and 2008 respectively,
is for estimated tax payments to various state and local jurisdictions. Each
subsidiary of the Company is required to file stand-alone state tax returns
and pay taxes based on certain apportionment factors. As such, each
subsidiary is not able to obtain state tax benefits for the losses
generated by the consolidated entity and is required to pay quarterly
state taxes. As a result, the effective tax rate will vary from the
statutory rate.
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 2009 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, 2009 and 2008
and in the Company's Form 10-K for its fiscal year ended December 31, 2008,
are essential to obtain 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 between the three months ended March 31, 2009 and March 31, 2008.
Three months ended March 31, 2009 compared to the three months ended
March 31, 2008
The following table sets forth the percentage relationships of expense
items to revenue for the three months ended March 31, 2009 and March
31, 2008:
2009 2008
__________ ___________
Revenue 100.0 % 100.0 %
Operating expenses:
Purchased transportation 69.4 70.8
Commissions 13.2 12.8
Insurance and claims 3.6 3.2
Salaries, wages and other 9.4 6.7
Other operating expenses 6.3 4.0
________ ________
Total operating expenses 101.9 97.5
________ ________
Operating (loss) income (1.9) 2.5
The Company's operating revenues increased by $2.5 million to $44.2
million for the three months ended March 31, 2009 from $41.7 million for the
same period in 2008. This is an increase of 5.9%. The increase is primarily
attributable to the acquisition of ARL Transport, LLC ("ARL") during December
2008. The additional revenue from the newly acquired operation offset the
significant revenue declines at a number of other existing subsidiaries.
This decline is largely attributable to 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. Purchased transportation and
commission together decreased 1.0% as a percentage of revenue for the
three months ended March 31, 2009 from the same period of time in 2008.
Purchased transportation expense decreased 1.4% as a percentage of
operating revenue from 70.8% for the three months ended March 31, 2008 to
69.4% for the three months ended March 31, 2009. 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.
This decrease was somewhat offset by the increase in commission expense of
0.4% of operating revenues for the three months ended March 31, 2009
compared to the three months ended March 31, 2008.
Salaries expense is not directly variable with revenue and
increased approximately $1.4 million for the three months ended March
31, 2009 compared to the same period of time in 2008. This increase in
salaries expense is primarily attributable to the failure to reduce
salaries in proportion to the decrease in sales during the first quarter
of 2009. Salaries expense increased 2.7% as a percentage of operating
revenue from 6.7% for the three months ended March 31, 2008 to 9.4% for
the three months ended March 31, 2009. Some of the increase in salaries
expense as a percentage of revenue included severance pay during the first
quarter of 2009 as well as expenses associated with the acquisition of
ARL.
Insurance and claims increased slightly to 3.6% of operating
revenue for the three months ended March 31, 2009 from 3.2% for the same
period of time in 2008. This was an increase of $0.02 million for the
three months ended March 31, 2009 compared to the same period of time in
2008. This increase is primarily attributable to insurance and claims
expense at the newly acquired subsidiary, ARL. 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 6.3% of revenue for the three
months ended March 31, 2009 from 4.0% of revenue for the three months ended
March 31, 2008. The actual dollar amount increased by approximately $1.1
million to approximately $2.8 million for the three months ended March 31,
2009 compared to approximately $1.7 million for the three months ended March
31, 2008. This increase is attributable to several factors. The Company
experienced a defalcation related to accounts receivable which resulted in an
increase in the Company's bad debt expense of approximately $0.5 million
during the first quarter of 2009. In addition, the Company experienced
increases in rent expense, depreciation expense, and amortization expense,
many of these increases are associated with the ARL subsidiary acquired in
December 2008.
Interest expense increased $0.14 million from $0.02 million for
the three months ended March 31, 2008 to $0.16 million for the three months
ended March 31, 2009. This increase is primarily attributable to increased
borrowings as part of the acquisition of ARL. Under the amended line of credit
agreement, the interest rate is based upon certain financial covenants and may
range from "One Month LIBOR" plus 3.35% to "One Month LIBOR" plus 4.35%. As
of March 31, 2009 the interest rate on this line of credit was 4.413%.
Other income includes income from rental property, storage and
equipment usage fees and other administrative fee income. Other income
increased $0.08 million from $0.04 million for the three months ended March
31, 2008 to $0.12 million for the three month's ended March 31, 2009.
The Company also recognized noncontrolling interest expense of $0.02
million for the three months ended March 31, 2009 compared to $0.3 million for
the three months ended March 31, 2008 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 remained relatively consistent at $0.08 million for
the three months ended March 31, 2009 compared to $0.07 million for the three
months ended March 31, 2008. Income tax expense is primarily related to state
and local taxes, as each subsidiary is required to file stand-along state tax
returns, and is not able to obtain the benefit of losses generated by the
consolidated entity.
As a result of the factors outlined above, the Company experienced a
net loss in the amount of $1.0 million for the three months ended March 31,
2009 compared to net income of $0.7 million for the three months ended March
31, 2008.
Liquidity and Capital Resources
During the three months ended March 31, 2009, the Company's financial
position deteriorated. The Company had shareholders' equity of $19.7 million
at March 31, 2009 compared with $20.6 million at December 31, 2008.
Net cash provided by operating activities increased $3.3 million from
$0.4 million for the three months ended March 31, 2008 to $3.7 million for the
three months ended March 31, 2009. Working capital needs provided cash of
$3.7 million during the three months ended March 31, 2009. For the three
months ended March 31, 2008, working capital needs used cash of $0.7 million.
The Company experienced a decrease in accounts receivable for the
three months ended March 31, 2009 due to an increase in cash payments from
customers accompanied by a decrease in revenues and a reduction in the fuel
surcharge for the three months ended March 31, 2009.
Other receivables used cash for the three months ended March 31, 2009
in the amount of $1.0 million compared to $0.7 million for the same period in
2008. The largest contributor to this change is an increase in owner operator
advances associated with the daily operations of the Company.
Accounts Payable provided $1.4 million in cash for the three
months ended March 31, 2009 compared to $1.3 million for the same period in
2008. This decrease in accounts payable during the three months ended March
31, 2009 is attributable to timing as well as decreases in fuel surcharge paid
to the owner operators.
Net cash used in investing activities was $0.01 million for the three
months ended March 31, 2009 compared to $.05 million for the same period in
2008. The net cash used in investing activities is primarily due to the
purchase of fixed assets.
Net cash used in financing activities increased $3.1 million from $0.3
million for the three months ended March 31, 2008 to $3.5 million for the three
months ended March 31, 2009. The reduction in the bank overdraft used net cash
of $3.1 million for the three months ended March 31, 2009 compared to using net
cash of $0.5 million for the three months ended March 31, 2008. For the three
months ended March 31, 2008, net borrowings under the line of credit were
$0.1 million compared to $0.04 million for the three months ended March
31, 2009. Net borrowings under the line of credit decreased for the three
months ended March 31, 2009. For the three months ended March 31, 2009, the
Company distributed $0.04 million to minority shareholders of the Company's
majority owned subsidiaries, Carolina National Transportation, LLC and US1
Logistics, LLC compared to $0.05 million for the three months ended March
31, 2008. Net cash used in repayments of debt was $0.3 million for the three
months ended March 31, 2009.
The Company and its subsidiaries have a $22.0 million line of credit
that matures on October 1, 2010. This line of credit was increased on December
18, 2008 from $15.0 million to $22.0 million in conjunction with the ARL
acquisition. Advances under this revolving line of credit are limited to 75%
of eligible accounts receivable. Unused availability under this line of
credit was $10.6 million at March 31, 2009. Under the amended line of credit
agreement, the Company's interest rate is based upon certain financial
covenants and may range from "One Month LIBOR" plus 3.35% to "One Month
LIBOR" plus 4.35%. As of March 31, 2009, the interest rate on this line of
credit was 4.413%. The Company's accounts receivable, property, and other
assets collateralize advances under the agreement. Borrowings up to $3.0
million are guaranteed by the Chief Executive Officer and Chief Financial
Officer of the Company. At March 31, 2009, the outstanding borrowings on this
line of credit were $11.4 million and $1.8 million was outstanding at March
31, 2008. The significant increase relates to funding the retirement of
$10 million of debt assumed in the ARL acquisition.
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 March
31, 2009, the Company was not in compliance with certain financial covenant
and as of the date of this filing has not yet received a waiver from its
lender. The Company is currently in default of its loan agreement, however
has not been notified by the lender that the outstanding balance be called
immmediately. If the outstanding balance were called, the Company would not
have the ability to pay-off the outstanding balance. The Company is
currently working with its lender to amend the covenants such that they will
be in compliance with the covenants for the remainder of the year. Because
the line-of-credit contains both a subjective acceleration clause and a
lockbox arrangement, the Company has classified the balance outstanding
under this line-of-credit agreement as a current liability at March 31,
2009 and 2008. At December 31, 2008 and March 31, 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
March 31, 2009 and 2008 as the line of credit contains both a subjective
acceleration clause and a lockbox agreement. Historically the revolving
line of credit has been extended prior to maturity.
On January 15, 2009, the Company and its subsidiaries entered into a
no cost Interest Rate Swap Agreement with U.S. Bank effective February 2,
2009 through February 1, 2012. This agreement is in the notional amount of
$10.0 million from February 2, 2009 through January 31, 2010, then $7.0
million from February 1, 2010 through January 31, 2011, then $4.0 million
from February 1, 2011 to February 1, 2012. The agreement provides for the
Company to pay interest at an annual rate of 1.64% times the notional amount
of the swap agreement, and receive interest at the LIBOR rate times the
notional amount of the swap. The Company did not enter into this agreement
for speculative purposes. The fair value of the interest rate swap was
minimal at March 31, 2009.
The Company's primary sources of liquidity consist of cash on hand
generated through operations and availability under the line of credit
agreement. The Company believes these sources are sufficient to operate its
business and meet its obligations.
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 $0.01 million of other accounts
receivable due from entities that could be deemed to be under common control
as of March 31, 2009.
One of the Company's insurance providers, American Inter-Fidelity
Exchange (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, 2008, 2007 and 2006, cash paid to AIFE for insurance premiums
and deductibles was approximately $4.9 million, $6.0 million, and $5.4
million, respectively.
The Company has an investment in AIFE which is accounted for under
the cost method as the Company has not 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 three months ended March 31, 2009 and 2008. 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, 2008 AIFE had a
recorded unaudited surplus of approximately $11.1 million.
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, 2008
or the three months ended March 31, 2009.
Mr. Kibler, the Chief Executive Officer and a director of the Company,
Mr. Antonson, the Chief Financial Officer and a director of the Company, as
well as Mr. Venditti, a 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 $0.5 million, $0.5 million,
and $0.6 million for the years ended December 31, 2008, 2007, and 2006,
respectively. These management fees are available to be paid as dividends
to these officers and directors of the Company.
At March 31, 2009 and 2008, 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
Interest Rate Risk
The Company has a revolving line of credit with U.S. Bank
which currently bears interest at the "One Month LIBOR" plus 3.35% (at
March 31, 2009 the interest rate was 4.413%). The interest rate was
based on certain financial covenants. A one percentage point change in
the LIBOR rate would result in approximately $0.1 million in additional
expense annually.
On January 15, 2009, the Company and its subsidiaries entered
into a no cost Interest Rate Swap Agreement with U.S. Bank effective
February 2, 2009 through February 1, 2012. This agreement is in the
notional amount of $10.0 million from February 2, 2009 through January
31, 2010, then $7.0 million from February 1, 2010 through January 31,
2011, then $4.0 million from February 2011 to February 1, 2012. The
agreement provided for the Company to pay interest at an annual rate
of 1.64% times the notional amount of the swap agreement and U.S. Bank
pays interest at the LIBOR rate times the notional amount of the swap.
The Company did not enter into this agreement for speculative purposes.
The fair value of the interest rate swap was minimal at March 31, 2009.
Item 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures,
as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the "Exchange Act") 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.
Item 4T. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in the Company's internal control over
financial reports (as such term is defined in Rule 13a-15(f) under the
Exchange Act) that occurred during the quarterly period ended March 31,
2009 that have materially affected, or are reasonably likely to materially
affect, the Company's 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
May 20, 2009