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, 2010.
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 April 30, 2010 there were 14,243,409 shares of registrant's common
stock outstanding.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2010 (UNAUDITED) AND DECEMBER 31, 2009
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ASSETS
March 31, 2010 December 31, 2009
(Unaudited)
Accounts receivable-trade, less allowances for
doubtful accounts of $1,227,000 and
$1,147,000, respectively $29,672,363 $26,614,970
Other receivables, including receivables due from
affiliated entities of $825,000 and $861,000,
respectively 5,425,376 4,427,027
Prepaid expenses and other current assets 1,696,909 1,623,808
Current deferred income tax asset 975,178 975,178
___________ ___________
Total current assets 37,769,826 33,640,983
FIXED ASSETS:
Land 195,347 195,347
Equipment 1,920,000 2,748,270
Less accumulated depreciation and amortization (964,965) (1,353,102)
___________ ___________
Net property and equipment 1,150,382 1,590,515
___________ ___________
Non-current deferred income tax asset 1,107,575 1,107,575
Notes receivable - long term 732,288 833,651
Intangible assets, net 2,621,012 2,812,672
Goodwill 1,391,741 1,780,639
Other assets 126,461 126,461
___________ ___________
Total Assets $44,899,285 $41,892,496
=========== ===========
<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, 2010 (UNAUDITED) AND DECEMBER 31, 2009
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 2010 December 31, 2009
(Unaudited)
CURRENT LIABILITIES:
Revolving line of credit $ 9,376,261 $ 9,592,474
Bank overdraft 2,104,088 1,628,383
Current portion of capital lease obligation - 30,246
Current portion of long-term debt 27,760 642,413
Accounts payable 11,909,589 9,538,918
Insurance and claims 1,681,347 1,435,924
Other accrued expenses 1,805,138 1,410,098
___________ ___________
Total current liabilities 26,904,183 24,278,456
LONG-TERM DEBT, less current portion 49,330 146,878
CAPITAL LEASE, less current portion - 56,241
SHAREHOLDERS' EQUITY:
Common stock, authorized 20,000,000 shares:
no par value; 14,838,657 shares issued at
March 31, 2010, and December 31, 2009,
respectively 46,980,768 46,978,349
Treasury stock, 595,248 shares at both
March 31, 2010 and December 31, 2009,
respectively (952,513) (952,513)
Accumulated deficit (28,629,545) (28,835,952)
___________ ___________
Total US 1 Industries, Inc.
shareholders' equity 17,398,710 17,189,884
Noncontrolling Interests 547,062 221,037
__________ __________
Total equity 17,945,772 17,410,921
__________ __________
Total liabilities and shareholders'
equity $44,899,285 $41,892,496
========== ==========
<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, 2010 AND MARCH 31, 2009 (UNAUDITED)
March 31, 2010 March 31, 2009
(Unaudited) (Unaudited)
OPERATING REVENUES $ 47,487,770 $ 44,212,904
OPERATING EXPENSES:
Purchased transportation 32,859,920 30,688,183
Commissions 6,998,435 5,829,511
Insurance and claims 1,488,986 1,566,942
Salaries, wages and other 2,960,238 4,164,809
Other operating expenses 2,378,937 2,804,320
____________ ____________
Total operating expenses 46,686,516 45,053,765
____________ ____________
OPERATING INCOME (LOSS) 801,254 (840,861)
____________ ____________
NON-OPERATING INCOME (EXPENSE)
Interest income 22,640 9,161
Interest expense (210,074) (161,246)
Other income (expense) (1,215) 120,179
____________ ____________
Total non operating (expense) income (188,649) (31,906)
NET INCOME (LOSS) BEFORE INCOME TAXES $ 612,605 $ (872,767)
Income tax expense 188,629 82,728
____________ ____________
NET INCOME (LOSS) BEFORE NONCONTROLLING INTEREST $ 423,976 $ (955,495)
Income attributable to noncontrolling interest 318,497 23,545
____________ ____________
NET INCOME (LOSS) AVAILABLE TO COMMON SHARES $ 105,479 $ (979,040)
============ ============
Basic and Diluted Net Income (Loss)
per Common Share $ 0.01 $ (0.07)
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, 2010 and 2009
Total
US1 Industries, Inc.
Common Stock Treasury Accumulated Stockholders' Noncontrolling
Shares Amount Shares Amount Deficit Equity Interests
Balance at January 1, 2010 14,838,657 $46,978,349 (595,248) $(952,513) $(28,835,952) $17,189,884 $221,038
Stock Compensation Expense - 2,419 - - - 2,419 -
Deconsolidation of Stoops Ferry 100,928 100,928 55,527
Net income for the three months
ended March 31, 2010 - - - - 105,479 105,479 318,497
Distribution to noncontrolling
interests - - - - - - (48,000)
___________ __________ _________ _________ ____________ __________ ________
Balance at March 31, 2010 14,838,657 $46,980,768 (595,248) $(952,513) $(28,629,545) $17,398,710 $547,062
=========== ========== ========= ========= ============ ========== ========
<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, 2010 AND MARCH 31, 2009 (UNAUDITED)
Three Months Ended March 31,
2010 2009
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) 105,479 (979,040)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization 237,687 370,921
Stock compensation expense 2,419 81,453
Provision for bad debts 228,836 523,216
Noncontrolling interest 318,497 23,545
Changes in operating assets and liabilities:
Accounts receivable - trade (3,312,192) 3,402,094
Other receivables (763,749) (1,001,792)
Notes receivable 101,363 310,381
Prepaid expenses and other current assets (174,101) (79,221)
Accounts payable 2,759,233 1,369,954
Insurance and claims 245,423 37,921
Other accrued expenses 395,040 (299,266)
___________ ___________
Net cash provided by operating activities 143,935 3,760,166
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment (86,206) (10,988)
Goodwill purchase accounting adjustment - (37,896)
Proceeds from sales of fixed assets 15,027 -
___________ ___________
Net cash used in investing activities (71,179) (48,884)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under the
line of credit (216,213) 39,596
Change in bank overdraft 451,014 (3,090,613)
Capital lease payments - (44,864)
Principal payments of long term debts (259,557) (332,989)
Distributions to noncontrolling interests (48,000) (40,000)
___________ ___________
Net cash used in financing activities (72,756) (3,468,870)
___________ ___________
NET CHANGE IN CASH - 242,412
CASH, BEGINNING OF PERIOD - -
CASH, END OF PERIOD - $242,412
Cash paid for interest $202,706 $146,000
Cash paid for income taxes $396,546 $200,000
<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, 2010 AND 2009
1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of March 31, 2010 and
the consolidated statements of income and cash flows for the three month
periods ended March 31, 2010 and 2009, and the statement of shareholders'
equity for the three months ended March 31, 2010 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, 2009, 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, 2010 and 2009 are not
necessarily indicative of the results for a full year.
2. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Accounting Standards Codification ("ASC") 605-25-In October 2009, the
Financial Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") No. 2009-13 for updated revenue recognition guidance under
the provisions of ASC 605-25, "Multiple-Element Arrangements". The previous
guidance has been retained for criteria to determine when delivered items in
multiple-deliverable arrangements should be considered separate units of
accounting, however the updated guidance removes the previous separation
criterion that objective and reliable evidence of fair value of any
undelivered items must exist for the delivered items to be considered a
separate unit or separate units of accounting. This guidance is effective
for fiscal years beginning on or after June 15, 2010. The Company does not
expect that the adoption of this guidance will have a material effect on the
Company's consolidated results of operations, financial position or cash flows.
ASC 820-In January 2010, the FASB issued ASU No. 2010-06, "Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures About Fair
Value Measurements." This guidance amends Subtopic 820-10 to require new
disclosures and clarify existing disclosures. This guidance requires new
disclosures of amounts and reasons for significant transfers between Level 1
and Level 2 fair value measurements. Additionally, in the reconciliation for
fair value measurements using significant unobservable inputs (Level 3),
separate presentation of information about purchases, sales, issuances and
settlements is required. The guidance clarifies that fair value measurement
disclosures for each class of assets and liabilities may constitute a subset
of assets and liabilities within a line item on a reporting entity's balance
sheet. The guidance also clarifies disclosure requirements about inputs and
valuation techniques for both recurring and nonrecurring fair value
measurements (Level 2 or Level 3). The ASU also amends guidance on employers'
disclosures about postretirement benefit plan assets under ASC 715 to
require that disclosures be provided by classes of assets instead of by
major categories of assets. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about
purchases, sales, issuances and settlements in the roll forward of activity
for Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, including interim periods
within those fiscal years. The Company does not expect that the adoption of
this guidance will have a material effect on the Company's consolidated
results of operations, financial position or cash flows.
ASC 815-In March 2010, the FASB issued ASU 2010-11, "Scope
Exception Related to Embedded Credit Derivatives" to address questions that
have been raised in practice about the intended breadth of the embedded
credit derivative scope exception in paragraphs 815-15-15-8 through
815-15-15-9 of ASC 815, "Derivatives and Hedging". The amended guidance
clarifies that the scope exception applies to contracts that contain an
embedded credit derivative that is only in the form of subordination of
one financial instrument to another. This guidance is effective on
July 1, 2010 for the Company. The adoption of this guidance is not
expected to have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
ASC 810-In January 1, 2010 the Company adopted the provisions of
ASU No. 2009-17, Consolidations: Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities, which requires
reporting entities to evaluate former qualifying special purpose entities
for consolidation, changes the approach to determining a VIE's primary
beneficiary from a quantitative assessment to a qualitative assessment
designed to identify a controlling financial interest, and increases the
frequency of required reassessments to determine whether a company is the
primary beneficiary of a VIE. It also clarifies, but does not significantly
change, the characteristics that identify a VIE. As a result, the Company
concluded that Stoops Ferry, LLC no longer qualifies for consolidation into
ARL; the net assets, including goodwill, and retain earnings were removed
from the Company's financial statements accordingly. The impact of this
deconsolidation was not material to the Company's financial statements.
3. RECLASSIFICATIONS
Certain reclassifications have been made to the previously
reported 2009 financial statements to conform to the 2010 presentation.
4. EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") in accordance
with SFAS No. 128, which was primarily codified into ASC 260-10.
Following is the reconciliation of the numerators and denominators of
basic and diluted EPS.
Three Months Ended March 31,
2010 2009
____________________________
Numerator
Net income (loss) available
to common shareholders for
basic and diluted EPS $ 105,479 $ (979,040)
Denominator
Weighted average common
shares outstanding for
basic and diluted EPS 14,243,409 14,243,409
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," which was primarily codified into ASC topic 605. Amounts payable
for purchased transportation, commissions and insurance are accrued when
incurred. The Company follows guidance of this standard 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 $17.5 million line of credit
that was amended on March 11, 2010. The amendment included (1) a
redefinition of the minimum debt service ratio, (2) the imposition of a
covenant that the Company's current maturities of long term debt other than
debt to the Lender will not exceed $700,000, (3) a restriction on Capital
Expenditures in excess of $600,000, (4) a restriction on dividends,
distributions or other expenditures to the Company's capital stock
ownership interest, (5) the reduction of the minimum debt service ratio, and
(6) an increase in the Company's limit of current maturities of Indebtedness
for Borrowed Money other than the Revolving Loan. This line of credit
matures on October 1, 2010. Historically the revolving line of credit has
been extended prior to maturity and management anticipates that this will
occur in 2010. Advances under this revolving line of credit are limited to
75% of eligible accounts receivable. Unused availability under the amended
line of credit was $8.1 million at March 31, 2010. 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, 2010, the interest rate on
this line of credit was 4.60%. The Company's accounts receivable, property,
and other assets are collateral 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, 2010, the outstanding
borrowings on this line of credit were $9.4 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. As of March 31, 2010,
financial covenants include: minimum debt service ratio, maximum total
debt service coverage ratio, limits on capital expenditures, prohibition
of dividends and distributions that would put the Company out of
compliance, and prohibition of additional indebtedness without prior
authorization. At March 31, 2010, the Company, and its subsidiaries
were in compliance with these financial covenants.
On January 15, 2009, the Company and its subsidiaries entered
into a no cost Interest Rate Swap Agreement with US 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 US Bank pay interest at the LIBOR rate times the
notional amount of the swap. The Company did not enter into this
agreement for speculative purposes. At March 31, 2010 the Company
recorded the fair value of the interest rate swap resulting in
additional interest expense of approximately $0.08 million.
7. EQUITY TRANSACTIONS
In December 2008, as part of the acquisition of ARL, the
Company granted two employees a total of 300,000 options to purchase
shares of common stock at an exercise price of $0.80 per share.
These options vest over 4 years: however 150,000 options vested early
in 2009 due to one employee's termination. All options expire by
December 18, 2018. The fair value of these options of $0.1 million
was calculated using a Black Scholes model. During 2009, the Company
recorded stock compensation expense of $0.06 million and the remainder
is to be recorded through 2012. The Company has no other options or
warrants to purchase common stock outstanding as of March 31, 2010.
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 US income tax return and tax
returns in various states and local jurisdictions. Federal Income tax
expense is $118K and $0 for the three months ended March 31, 2010 and
2009 respectively. State tax is $71K and $83K for the respective
periods. The Company will have utilized their federal net operating
loss carry-forwards by the end of the year and as a result the federal
tax has increased. 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. The Company is also
required to file in certain states that use a gross margin tax as
opposed to an income tax. As a result, the effective tax rate will
vary from the statutory rate because the state tax does not necessarily
bear a direct relationship to net income.
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 2010 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, 2010
and 2009 and in the Company's Form 10-K for its fiscal year ended
December 31, 2009, are essential to obtain an understanding of the
comparisons and are incorporated by reference into the discussion that
follows.
Purchased transportation represents the amount an independent
contractor is paid to haul freight and is primarily based on a
contractually agreed-upon percentage of revenue generated by the haul
for truck capacity provided by independent contractors. Because the
Operating Subsidiaries generally do not own their own trucks, purchased
transportation is the largest component of the Company's operating
expenses and increases or decreases in proportion to the revenue
generated through independent contractors. Commissions to agents and
brokers are similarly based on contractually agreed-upon percentages of
revenue.
A majority of the Company's insurance expense, through its
subsidiaries, is based on a percentage of revenue and, as a result,
will increase or decrease with the Company's revenue. Potential
liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. A material increase in
the frequency or severity of accidents or the unfavorable development
of existing claims could adversely affect the Company's operating
income.
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, through its subsidiaries, has
added certain operations, which utilize employees rather than
independent agents, these non-variable expenses may not be directly
comparable.
Three months ended March 31, 2010 compared to the three months
ended March 31, 2009
The following table sets forth the percentage relationships of
expense items to revenue for the three months ended
March 31, 2010 and March 31, 2009:
2010 2009
________ ________
Revenue 100.0 % 100.0 %
Operating expenses:
Purchased transportation 69.2 69.4
Commissions 14.7 13.2
Insurance and claims 3.1 3.6
Salaries, wages and other 6.2 9.4
Other operating expenses 5.0 6.3
________ ________
Total operating expenses 98.2 101.9
________ ________
Operating income (loss) 1.8 (1.9)
The Company's operating revenues increased by $3.3 million to
$47.5 million for the three months ended March 31, 2010 from $44.2
million for the same period in 2009. This is an increase of 7.5%.
The increase is primarily attributable to the increase of load
activity at several of the Company's locations, which we believe is
attributable to a slight improvement of the general 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 increased 1.3% as
a percentage of revenue for the three months ended March 31, 2010
from the same period of time in 2009. Purchased transportation
expense decreased 0.2% as a percentage of operating revenue from
69.4% for the three months ended March 31, 2009 to 69.2% for the
three months ended March 31, 2010. 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 offset by the increase in commission
expense of 1.5% of operating revenues for the three months ended
March 31, 2010 compared to the three months ended March 31, 2009.
The increase in purchased transportation and commissions is the
result of increased brokerage activity at one of the Company's
operations.
Salaries expense is not directly variable with revenue
and decreased approximately $1.2 million for the three months
ended March 31, 2010 compared to the same period of time in 2009.
This decrease in salaries expense is primarily attributable to
subsidiaries of the Company that have closed offices and
restructured the workloads in order to cut costs. Salaries expense
decreased 3.2% as a percentage of operating revenue from 9.4% for
the three months ended March 31, 2009 to 6.2% for the three months
ended March 31, 2010.
Insurance and claims decreased slightly to 3.1% of operating
revenue for the three months ended March 31, 2010 from 3.6% for
the same period of time in 2009. This was a decrease of
approximately $0.08 million for the three months ended March 31,
2010 compared to the same period of time in 2009. 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 decreased to 5.0% of revenue for
the three months ended March 31, 2010 from 6.3% of revenue for the
three months ended March 31, 2009. 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. There was no such
defalcation related expenses during first quarter of 2010. During
the first quarter of 2010, the Company experienced a decrease in
depreciation and amortization expense with the deconsolidation of
Stoops Ferry.
Interest expense remained consistent at 0.4% as a percentage
of revenue for the three months ended March 31, 2010 and for the
same period in 2009.
Other income (expense) includes income from rental property,
storage and equipment usage fees and other administrative fee income.
Other income decreased $0.1 million from income of approximately
$0.1 million for the three months ended March 31, 2009 to expense
of ($0.01 million) for the three months ended March 31, 2010. This
decrease in other income is the result of the Company experiencing
a decrease in administrative fee income for the three months ended
March 31, 2010.
The Company also recognized noncontrolling interest expense
of $0.3 million for the three months ended March 31, 2010 compared
to $0.02 million for the three months ended March 31, 2009 to the
noncontrolling interest holders relating to their portion of its
subsidiaries', ARL Transport, LLC, Carolina National Transportation,
LLC and US 1 Logistics, LLC, net income for the three months ended
March 31, 2010 and 2009, respectively. ARL Transport, LLC, Carolina
National Transportation, LLC and US 1 Logistics LLC are each 60%
owned subsidiaries of the Company.
Federal and state income tax expense increased to $0.2
million for the three months ended March 31, 2010 compared to
$0.08 million for the three months ended March 31, 2009. Income
tax expense is primarily related to state and local taxes, as each
subsidiary is required to file stand-alone state tax returns, and
is not able to obtain the benefit of losses generated by the
consolidated entity. Assuming that the Company's business returns
to historical levels of performance for the remainder of 2010, the
Company will be required to commence paying Federal income tax as
the majority of the Company's NOL carry forwards are expiring.
As a result of the factors outlined above, net income
attributed to US 1 Industries, Inc. for the three months ended
March 31, 2010 was $0.1 million compared to a net loss attributed
to US 1 Industries, Inc. of ($1.0 million) for the three months
ended March 31, 2009.
Liquidity and Capital Resources
During the three months ended March 31, 2010, the Company's
financial position improved slightly. The Company had
shareholders' equity of $17.4 million at March 31, 2010 compared
with $17.2 million at December 31, 2009.
Net cash provided by operating activities decreased $3.6
million from $3.8 million for the three months ended March 31,
2009 to $0.2 million for the three months ended March 31, 2010.
Working capital needs used cash of $0.7 million during the three
months ended March 31, 2010. For the three months ended March 31,
2009, working capital needs provided cash of $3.7 million.
The Company's accounts receivable used cash of $3.3 million
for the three months ended March 31, 2010 due to an increase in
revenue at several of the company's subsidiaries. For the three
months ended March 31, 2009 the Company's account receivable
provided cash of $3.4 million due to decreased revenues and an
increase in cash payments from customers.
Other receivables used cash for the three months ended
March 31, 2010 in the amount of $0.8 million compared to $1.0
million cash used for the same period in 2009. The largest
contributor to this change is a decrease in owner operator
advances associated with the daily operations of the Company and
the write off of receivables due to a defalcation in 2009.
Accounts Payable provided $2.8 million in cash for the three
months ended March 31, 2010 compared to $1.4 million for the same
period in 2009. This increase in cash provided from accounts
payable during the three months ended March 31, 2010 is
attributable to timing of payments made to owner operators.
Net cash used in investing activities was $0.07 million for
the three months ended March 31, 2010 compared to $0.05 million for
the same period in 2009. The net cash used in investing activities
is primarily due to the purchase of fixed assets.
Net cash used in financing activities decreased $3.4 million
from $3.5 million for the three months ended March 31, 2009 to using
$0.07 million for the three months ended March 31, 2010. The
reduction in the bank overdraft provided net cash of $0.5 million
for the three months ended March 31, 2010 compared to using net
cash of $3.1 million for the three months ended March 31, 2009.
For the three months ended March 31, 2009, net borrowings under the
line of credit were $0.04 million compared to repayments of ($0.2
million) for the three months ended March 31, 2010. For the
three months ended March 31, 2010, the Company distributed $0.05
million to minority shareholders of the Company's majority owned
subsidiaries, Carolina National Transportation, LLC and US1
Logistics, LLC compared to $0.04 million for the three months
ended March 31, 2009. Net cash used in repayments of long term
debt was $0.3 million for the three months ended March 31, 2010
and for March 31, 2009.
The Company and its subsidiaries have a $17.5 million line
of credit that was amended on March 11, 2010. The amendment
included (1) a redefinition of the minimum debt service ratio, (2)
the imposition of a covenant that the Company's current maturities
of long term debt other than debt to the Lender will not exceed
$700,000, (3) a restriction on Capital Expenditures in excess of
$600,000, (4) a restriction on dividends, distributions or other
expenditures to the Company's capital stock ownership interest,
(5) the reduction of the minimum debt service ratio, and (6) an
increase in the Company's limit of current maturities of
Indebtedness for Borrowed Money other than the Revolving Loan.
This line of credit matures on October 1, 2010. Historically the
revolving line of credit has been extended prior to maturity and
management anticipates that this will occur in 2010. Advances
under this revolving line of credit are limited to 75% of eligible
accounts receivable. Unused availability under the amended line
of credit was $8.1 million at March 31, 2010. 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,
2010, the interest rate on this line of credit was 4.60%. The
Company's accounts receivable, property, and other assets are
collateral 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, 2010, the outstanding
borrowings on this line of credit were $9.4 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.
As of March 31, 2010, financial covenants include: minimum debt
service ratio, maximum total debt service coverage ratio, limits
on capital expenditures, prohibition of dividends and
distributions that would put the Company out of compliance, and
prohibition of additional indebtedness without prior
authorization. At March 31, 2010, the Company, and its
subsidiaries, was in compliance with these financial covenants.
On January 15, 2009, the Company and its subsidiaries
entered into a no cost Interest Rate Swap Agreement with US 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 US Bank pay
interest at the LIBOR rate times the notional amount of the swap.
The Company did not enter into this agreement for speculative
purposes. At March 31, 2010 the Company recorded the fair value
of the interest rate swap resulting in additional interest
expense of approximately $0.08 million.
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 $0.8 million of other accounts
receivable due from entities that could be deemed to be under common
control as of March 31, 2010.
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, 2009, 2008 and
2007, cash paid to AIFE for insurance premiums and deductibles was
approximately $3.9 million, $4.9 million, and $6.1 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, 2010 and 2009. 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.
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, 2009 or the three months ended
March 31, 2010.
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 for
the years ended December 31, 2009, 2008, and 2007, respectively.
These management fees are available to be paid as dividends to
these officers and directors of the Company.
At March 31, 2010 the Company paid consulting fees to two
of its directors, Robert Scissors and Walter Williamson relating
to insurance and other services. At March 31, 2009 the Company
paid consulting fees to one of its directors, Robert Scissors,
relating to insurance and other services.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company has a revolving line of credit with
US Bank which currently bears interest at the "One Month LIBOR"
plus 3.35% (at March 31, 2010 the interest rate was 4.60%). 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 US
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 US Bank pay interest
at the LIBOR rate times the notional amount of the swap. The
Company did not enter into this agreement for speculative purposes.
At March 31, 2010 the Company recorded the fair value of the
interest rate swap resulting in additional interest expense of
approximately $0.08 million.
Item 4. CONTROLS AND PROCEDURES
The Company and its subsidiaries maintain 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.
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, 2010 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 7, 2010