Item 1. Business
The registrant, US 1 Industries, Inc., is a holding company that owns subsidiary operating companies, most of which are interstate trucking companies operating in 48 states. For descriptive purposes herein, US 1 Industries, Inc. may hereinafter be referred to, together with its subsidiaries, as "US 1" or the "Company". The Company's business consists principally of truckload operations, for which the Company obtains a significant percentage of its business through independent agents, who then arrange with independent truckers to haul the freight to the desired destination.
US 1 was incorporated in California under the name Transcon Incorporated on March 3, 1981. In March 1994, the Company changed its name to US 1 Industries, Inc. In February 1995, the Company was merged with an Indiana corporation for purposes of re-incorporation under the laws of the state of Indiana. The Company's subsidiaries consist of Antler Transport, Inc., Blue and Grey Brokerage, Inc., Blue and Grey Transport, Inc., Bruin Motor Express, LLC, Cam Transport, Inc., Carolina National Logistics, Inc., Carolina National Transportation, LLC, Five Star Transport, Inc., Freedom Logistics, LLC, Friendly Transport, Inc., Gulf Line Brokerage, Inc., Gulf Line Transportation, Inc., Harbor Bridge Intermodal Inc., Keystone Lines,
Inc., Keystone Logistics, Inc., Liberty Transport, Inc., Patriot Logistics,
Inc., Risk Insurance Services, LLC, TC Services, Inc., Transport Leasing, Inc., Unity Logistics Inc., and US1 Logistics, LLC. Most of these subsidiaries operate under authority granted by the United States Department of Transportation (the "DOT") and various state agencies. The Company's operating subsidiaries generally maintain separate offices, have their own management teams, officers and directors, and are run independently of the parent and each other.
Operations
The Company, through its subsidiaries, carries virtually all forms of freight transported by truck, including specialized trucking services such as containerized, refrigerated, and flatbed transportation.
The Company, through its subsidiaries, is primarily a non-asset based business, contracting with independent truckers who generally own the trucks they drive and independent agents who own the terminals from which they operate. The Company pays the independent truckers and agents a percentage of the revenue received from customers for the transportation of goods. The expenses related to the operation of the trucks are the responsibility of the independent contractors and the expenses related to the operation of the terminals are the responsibility of the agents. Certain subsidiaries of the Company also subcontract ("broker") freight loads to other unaffiliated transportation companies. Consequently, short- term fluctuations in operating activity have less of an impact on the Company's net income than they have on the net income of truck transportation companies that bear substantially all of the fixed cost associated with the ownership of the trucks. Like other truck transportation companies, however, US 1 Industries' revenues are affected by competition and the state of the economy.
Marketing and Customers
The Company, through its subsidiaries, conducts the majority of its business through a network of independent agents who are in regular contact with shippers at the local level. The agents have facilities and personnel to monitor and coordinate shipments and respond to shippers' needs in a timely manner.
These agents are typically paid a commission of 6% to 13% of the Company's revenues from the agents' trucking operations.
During 2007, the Company utilized the services of approximately 87 agents. No agent has accounted for more than 10% of revenue during 2007, 2006 or 2005. The Company shipped freight for approximately 1,000 customers in 2007, none of which accounted for more than 10% of the Company's revenues.
Independent Contractors
The independent contractors (persons who own the trucks) used by the Company must enter into standard equipment operating agreements. The agreements provide that independent contractors must bear many of the costs of operations, including drivers' compensation, maintenance costs, fuel costs, collision insurance, taxes related to the ownership and operation of the vehicle, licenses, and permits. These independent contractors are paid 71% to 78% of the charges billed to the customer. The Company requires independent contractors to maintain their equipment to standards established by the DOT, and the drivers are subject to qualification and training procedures established by the DOT. The Company is also required to conduct random drug testing, enforce hours of service requirements, and monitor maintenance of vehicles.
Employees
At December 31, 2007, the Company, through its subsidiaries, had approximately 86 full-time employees. The Company's employees are not covered by a collective bargaining agreement.
Competition
The trucking industry is highly competitive. The Company competes for customers primarily with other nationwide carriers, some of which have company-owned equipment and company drivers, and many of which have greater volume and financial resources. The Company also competes with private carriage conducted by existing and potential customers. In addition, the Company competes with other modes of transportation including rail.
The Company also faces competition for the services of independent trucking contractors and agents. Agents routinely do business with a number of carriers on an ongoing basis. The Company has attempted to develop a strong sales agent network by maintaining a policy of prompt payment for services rendered and providing advanced computer systems.
Competition is based on several factors such as cost, timely availability of equipment, and quality of service.
Insurance
US 1's subsidiary trucking companies purchase liability insurance coverage of up to $1 million per occurrence with a $5,000 to $50,000 deductible for the operation of the trucks. They also buy cargo insurance coverage of up to $250,000 per occurrence with up to a $50,000 deductible. The companies also purchase a commercial general liability policy with a limit of $2,000,000 combined single limit and no deductible. The current insurance market is volatile with significant rate changes that could adversely affect the cost and availability of coverage. In addition, the insurance coverage that the companies purchase may, given the recent trend toward exorbitant jury verdicts, not be sufficient to cover losses experienced by the companies.
One of the Company's insurance providers, American Inter-Fidelity Exchange (AIFE), is managed by Lex Venditti, a director of the Company. The Company has an investment of $126,461 in AIFE. AIFE provides auto liability and cargo insurance to several subsidiaries of the Company as well as other entities, some of which are related to the Company by common ownership. For the years ended December 31, 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 exercises no control over the operations of AIFE. As a result, the Company recorded its investment in AIFE under the cost method of accounting for each of the three years ended December 31, 2007, 2006, and 2005. Under the cost method, the investment in AIFE is reflected at its original amount and income is recognized only to the extent of dividends paid by AIFE. There were no dividends declared by AIFE for the years ended December 31, 2007, 2006 and 2005. During 2007 and 2006, a subsidiary insurance agency of US1 Industries, Inc. recorded commissions of $353,000 and $400,000, respectively from American Inter-fidelity Exchange. These commissions are recorded as a reduction of insurance expense.
If AIFE incurs a net loss, the loss may be allocated to the various policyholders based on each policyholder's premium as a percentage of the total premiums of AIFE for the related period. There has been no such loss assessment for any of the three years ended December 31, 2007, 2006, and 2005. For fiscal 2007, the Company accounted for approximately 71% of the total premium revenue of AIFE. At December 31, 2007, AIFE had a net worth of approximately $11.3 million, part of which is attributable to other policyholders of AIFE.
In addition, Michael Kibler, the Chief Executive Officer, and a director of the Company and Harold Antonson, the Chief Financial Officer, and a director of the Company, and Mr. Venditti 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. AIFC is not consolidated with the Company.
Independent Contractor Status
From time to time, various legislative or regulatory proposals are introduced at the federal or state levels to change the status of independent contractors' classification to employees for either employment tax purposes (withholding, social security, Medicare and unemployment taxes) or other benefit purposes.
Currently, most individuals are classified as employees or independent contractors for employment tax purposes based on 20 "common-law" factors rather than any definition found in the Internal Revenue Code or the regulations promulgated thereunder. In addition, under Section 530 of the Revenue Act of 1978, taxpayers that meet certain criteria may treat similarly situated workers as employees, if they have received a ruling from the Internal Revenue Service or a court decision affirming their treatment, or if they are following a long-standing recognized practice.
Although management is unaware of any proposals currently pending to change the employee/independent contractor classification, the costs associated with potential changes, if any, in the employee/independent contractor classification could adversely affect the Company's results of operations if the Company were unable to reflect them in its fee arrangements with the independent contractors and agents or in the prices charged to its customers.
Regulation
The Company, through its subsidiaries, is a common and contract motor carrier regulated by the DOT and various state agencies. Among other things, this regulation imposes requirements on the Company with regard to the agreements that it has with owner-operators and the terms of payment to them. The Company's independent contractor drivers also must comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours of service.
The Company and its subsidiaries are subject to various federal, state, and local environmental laws and regulations, implemented principally by the Environmental Protection Agency (EPA) and similar state regulatory agencies, governing the management of hazardous wastes, other discharge of pollutants into the air and surface and underground waters, and the disposal of certain substances. Management believes that its operations are in compliance with current laws and regulations and does not know of any existing condition (except as noted in the Environmental Regulation section below) that would cause compliance with applicable environmental regulations to have a material effect on the Company's earnings or competitive position.
Environmental Regulation
The Company's subsidiary, TC Services, Inc., owns property in Phoenix, Arizona that was formerly leased to Transcon Lines as a terminal facility, where soil contamination problems existed or are known to exist currently. State environmental authorities notified the Company of potential soil contamination from underground storage tanks, and management has been working with the regulatory authorities to implement the required remediation. The underground storage tanks were removed from the Phoenix facility in February 1994. Currently the Arizona environmental authorities are requiring further testing of the property. The Company believes it is in substantial compliance with state and federal environmental regulations relative to the trucking business. However, the Company is working with regulatory officials to eliminate any sources of contamination and determine the extent of Environmental Regulation (Continued)
existing problems. Estimates of the costs to complete the future remediation of approximately $141,000 are accrued in the Company's consolidated financial statements at December 31, 2007 and 2006.
Item 1A.
Item 1A. Risk Factors
The Company makes forward-looking statements in this document and in other materials it files with the SEC or otherwise makes public. In addition, senior management of the Company might make forward-looking statements orally to analysts, investors, the media and others. Statements concerning the Company's future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings) and demand for our services, and other statements of the Company's plans, beliefs, or expectations, are forward-looking statements. In some cases these statements are identifiable through the use of words such as "anticipate, " "believe, " "estimate, " "expect, " "intend, " "plan, " "project, " "target, " "can, " "could, " "may, " "should, " "will, " "would" and similar expressions. You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements the Company makes are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. These factors include, among others, those set forth in the following paragraphs and in the other documents that the Company files with the SEC.
The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Factors That May Affect Future Results and/or Forward-Looking Statements
Insurance Limits. The Company currently purchases insurance coverage for commercial trucking claims with limits of up to $1,000,000 per occurrence. Liability associated with accidents in the trucking industry is severe (sometimes in excess of $1,000,000) and occurrences are unpredictable. If a claim for an amount in excess of $1,000,000 was successful, it could have a material adverse effect on US 1 and its subsidiaries, including its results of operations and financial condition.
Increased severity or frequency of accidents and other claims. Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. While the Company generally retains deductibles of under $50,000, a material increase in the frequency or severity of accidents, or cargo claims or the unfavorable development of existing claims could have a material adverse effect through increased insurance costs on US 1 and its subsidiaries, which would adversely affect its results of operations and financial condition.
Dependence on third-party insurance companies. The cost of insurance coverage for commercial trucking varies dramatically, but is expensive. Further, the ability of US 1 to purchase coverage for losses in excess of $1,000,000 is very limited. US 1 relies on AIFE for approximately 76% of its insurance. AIFE is managed by Lex Venditti, a director of the Company. AIFE, in turn, retains some of the risk and reinsures the remainder. US 1's access to affordable insurance other than through AIFE historically has been quite limited. Should the premiums charged by AIFE increase significantly, or should coverage be limited in any way or be unavailable,
Factors That May Affect Future Results and/or Forward-Looking Statements (continued)
it could have a material adverse affect on the Company and its results of operations and financial condition.
Dependence on independent commission agents. As noted above in Item 1, "Business," the Company markets its services primarily through independent commission agents. Currently the Company has a network of 87 agents. During 2007, 43 of these agents generated revenue for US 1 of at least $1,000,000 and one agent generated approximately $12,722,000, or 6.9% of US 1's total revenue. The Company competes with motor carriers and other third parties for the services of these independent agents. US 1's contracts with these agents typically are terminable upon 30-days notice by either party and do not restrict the ability of a former agent to compete with US 1 following a termination. The loss of some of the Company's agents or a significant decrease in volume generated by these agents could have a materially adverse effect on US 1, including its results of operations and revenue.
Dependence on third-party owner operators. As noted above in Item 1, "Business," US 1 does not generally own trucks and relies on owner/operators who operate as independent contractors and unrelated trucking companies to transport freight for its customers. US 1 competes with other motor carriers and third parties for the services of owner/operators. Almost all of the freight hauled by the Company is by these owner/operators. A significant decrease in available capacity provided by either of these parties could have a material adverse effect on US 1, including its results of operations and revenue.
Dependence on key personnel. The Company is dependent on the services of its officers, particularly the officers of its subsidiaries. All of these officers are free to leave the Company and start competing operations. None have agreed to any covenant not to compete. Given the nature of the relationship with the agents and owner/operators, as described above, it would be relatively easy for the Company to lose a substantial amount of business if one or more of these key people left and set up a competing operation. This in turn could have a material adverse effect on the Company, including its results of operations and revenue.
In October 2006, the Company and the general manager of Patriot Logistics, Inc., a wholly owned subsidiary of the Company, entered into an agreement under which the Company granted the individual the option to purchase 100% of the outstanding stock of Patriot for a purchase price equal to the book value of Patriot. This option to purchase Patriot was extended in 2007 and now terminates in October 2009 or upon a change in control of the Company. The option is immediately exercisable and maybe exercised in whole (not in part) at anytime prior to October 2009. The fair value of this option was determined to be deminimis. In the event the option were exercised, based upon the actual results of Patriot Logistics, our revenue would have declined by $39,255,861 (a decrease of 21.3%) for the year ended December 31, 2007 and $46,356,069 (a decrease of 24.3%) for the year ended December 31, 2006. Patriot Logistics had pre-tax income (loss) of $501,522 and ($280,799) for the year ended December 31, 2007 and 2006, respectively.
Factors That May Affect Future Results and/or Forward-Looking Statements (continued)
Disruptions or failures in the Company's computer systems. The Company's information technology systems used in connection with its operations are located in Arlington Heights, IL and Valparaiso, IN. US 1 relies, in the regular course of business, on the proper operation of its information technology systems to link its network of customers, agents and owner operators. These systems in turn are dependent on operation of the Internet. Any significant disruption or failure of these systems could significantly disrupt the Company's operations and impose significant costs on the Company.
Status of Owner/Operators. From time to time, various legislative or regulatory proposals are introduced at the federal or state levels to change the status of owner/operators' classification to employees (from independent contractors) for either employment tax purposes (withholding, social security, Medicare and unemployment taxes) or other benefit purposes. Currently, most individuals are classified as employees or independent contractors for employment tax purposes based on 20 "common-law" factors rather than any definition found in the Internal Revenue Code or the regulations there under. In addition, under Section 530 of the Revenue Act of 1978, taxpayers that meet certain criteria may treat similarly situated workers as employees, if they have received a ruling from the Internal Revenue Service or a court decision affirming their treatment, or if they are following a long-standing recognized practice. US 1 treats its owner/ operators as independent contractors. The classification of owner/operators as independent contractors does require significant analysis of the facts relating to their service to the Company.
Although management is unaware of any proposals currently pending to change the employee/independent contractor classification, the costs associated with potential changes, if any, in the employee/independent contractor classification could adversely affect the Company's results of operations if the Company were unable to reflect them in its fee arrangements with the owner/operators and agents or in the prices charged to its customers.
Credit Facility. The primary source of liquidity for US 1 is its revolving credit facility. While this facility has provided all needed liquidity in the recent past, there have been times in the history of US 1 where it was not adequate. In addition, this facility contains both affirmative and negative covenants that must be satisfied. Were the Company to fail to satisfy those covenants, it no longer would be entitled to borrow under the facility and there can be no assurances that an alternative borrowing facility would be available.
Item 1b.
Item 1b. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
The Company leases its administrative offices of approximately 7,000 square feet from an independent owner at 336 W. US Hwy 30, Valparaiso, Indiana for $7,000 monthly. Patriot Logistics, Inc. leases a truck terminal in Fort Smith, AK of approximately 13,250 square feet on a month-to-month basis for $2,618 from Fort Smith Property, LLC which is owned by Michael E. Kibler, the President and Chief Executive Officer and a director of the Company, Harold E. Antonson, the Chief Financial Officer, Treasurer and a director of the Company and Edwis Selph Sr., the terminal manager of Patriot Logistics, Inc.
In addition, the Company's subsidiaries lease office space and land in several locations throughout the United States, as summarized below:
Management believes that the Company's leased properties are adequate for its current needs and can be retained or replaced at acceptable cost.
Item 3.
Item 3. Legal Proceedings
The Company and its subsidiaries are involved in various 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 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No Matters were submitted to a vote of Security Holders during the fourth quarter of 2007.
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Shares of Common Stock of the Company are listed and traded on the NASD Electronic "bulletin board market" under the symbol "USOO".
As of December 31, 2007, there were approximately 3,051 holders of record of the Company's Common Stock.
The Company has not paid and, for the foreseeable future, does not anticipate paying any cash dividends on its Common Stock. The Company's current credit agreement prohibits the payment of dividends.
The Company does not currently have any active equity compensation plans or arrangements.
During 2007, the Company purchased 595,248 shares of its common stock for $952,513. These shares are reflected as treasury stock in the Company's balance sheet and statement of shareholders' equity as of and for the year ended December 31, 2007.
The following table sets forth for the periods indicated the high and low bid prices per share of the Common Stock as reported from quotations provided by North American Quotations and reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not represent actual transactions.
Item 6.
Item 6. Selected Financial Data
The selected consolidated financial data presented below have been derived from the Company's consolidated financial statements. The consolidated financial statements for the years ended December 31, 2007, 2006 and 2005 have been audited by the Company's registered independent certified public accountants, whose report on such consolidated financial statements are included herein under Item 8. The information set forth below should be read in conjunction with the consolidated financial statements and notes thereto under Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations. "
Item 6. Selected Financial Data (Continued)
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
Overview
Purchased transportation represents the amount an independent contractor is paid to haul freight and is primarily based on a contractually agreed-upon percentage of revenue generated by the haul for truck capacity provided by independent contractors. Because the Company does not generally own its own trucks, purchased transportation is the largest component of the Company's operating expenses and increases or decreases in proportion to the revenue generated through independent contractors. Commissions to agents and brokers are similarly based on contractually agreed-upon percentages of revenue.
A majority of the Company's insurance expense is based on a percentage of revenue and, as a result, will increase or decrease with the Company's revenue. Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. A material increase in the frequency or severity of accidents or the unfavorable development of existing claims could adversely affect the Company's operating income.
Historically salaries, wages, fringe benefits, and other operating expenses had been principally non-variable expenses and remained relatively fixed with slight changes in relationship to revenue. However, since the Company has added certain operations, which utilize employees rather than independent agents, these non-variable expenses may not be directly comparable.
The following table set forth the percentage relationships of expense items to operating revenue for the periods indicated:
Critical Accounting Policies and Estimates
US 1's financial statements reflect the selection and application of accounting policies, which require management to make significant estimates and assumptions. The Company believes that the evaluation of allowance for doubtful accounts, the estimates related to contingencies and litigation are the more critical accounting policies as they involve more significant estimates and assumptions. Critical Accounting Policies and Estimates (Continued)
Preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues, and expenses and related contingent liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenues, bad debts, income taxes, contingencies, and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The Company records an allowance for doubtful accounts based on (1) specifically identified amounts that it believes to be un-collectable and (2) an additional allowance based on certain percentages of its aged receivables, which are determined based on historical collection experience and (3) our assessment of the general financial conditions affecting our customer base. At December 31, 2007, the allowance for doubtful accounts was $1,236,849 or approximately 5% of total trade accounts receivable. If actual collections experience changes, revisions to the Company's allowance may be required. After reasonable attempts to collect a receivable have failed, the receivable is written off against the allowance. In addition, US 1 reviews the components of other receivables, consisting primarily of advances to drivers and agents, and writes off specifically identified amounts that it believes to be un-collectable.
Revenue for freight is recognized upon delivery. The Company accounts for its revenue on a gross basis in accordance with EITF 99-19, "Reporting Revenues Gross as a Principal Versus Net as an Agent". Amounts payable for purchased transportation, commissions and insurance are accrued when incurred.
The Company follows the guidance in EITF 99-19 and records revenues at the gross amount billed to customers because the Company(1)determined it operates as the primary obligor,(2)typically is responsible for damages to goods and(3)bears the credit risk.
The Company is involved in various litigation matters in the normal course of business. Management evaluates the likelihood of a potential loss from the various litigation matters on a quarterly basis. When it is probable that a loss will occur from litigation and the amount of the loss can be reasonably estimated, the loss is recognized in the Company's financial statements. If a potential loss is not determined to be both probable and reasonably estimated, but there is at least a reasonable possibility that a loss may be incurred, the litigation is not recorded in the Company's financial statements but this litigation is disclosed in the footnotes of the financial statements.
The Company's subsidiaries carry insurance for auto liability, property damage, and cargo loss and damage through various programs. About 95% of the Company's liability insurance is obtained from AIFE, a related party. The Company's insurance liabilities are based upon the best information currently available and are subject to revision in future periods as additional information becomes available. Management believes it has adequately provided for insurance claims.
Critical Accounting Policies and Estimates (Continued)
AIFE is managed by Lex Venditti, a director of the Company. The Company has an investment of $126,461 in AIFE. AIFE provides auto liability, property damage, and cargo loss and damage insurance coverage to several subsidiaries of the 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 exercises no control over the operations of AIFE. As a result, the Company recorded its investment in AIFE under the cost method of accounting for each of the three years in the period ended December 31, 2007. Under the cost method, the investment in AIFE is reflected at its original amount and income is recognized only to the extent of dividends paid by AIFE. There were no dividends declared by AIFE for the years ended December 31, 2007, 2006 and 2005.
If AIFE incurs a net loss, the loss may be allocated to the various policyholders based on each policyholder's premium as a percentage of the total premiums of AIFE for the related period. There has been no such loss assessment for each of the three years ending December 31, 2007, 2006, and 2005. The subsidiaries of the Company currently account for the majority of the premiums of AIFE. For fiscal 2007, the Company accounted for approximately 71% of the total premium revenue of AIFE. At December 31, 2007, AIFE had net worth of approximately $11.3 million, part of which is attributable to other policyholders of AIFE.
Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. At December 31, 2007, the Company's deferred tax asset of approximately $3.0 million consists principally of net operating loss carry-forwards. The Company's deferred tax asset has been reduced by a valuation allowance to the extent such benefits are not expected to be fully utilized.
The Company has based its estimate of the future utilization of the net operating loss carry-forwards upon its estimate of future taxable income as well as the timing of expiration of the Company's net operating loss carry-forwards. Approximately 50% of the Company's net operating loss carry-forwards expire in 2008, with substantially all of the net operating loss carry-forwards expiring by 2010.
At December 31, 2007 the valuation allowance for deferred tax assets was approximately $1.2 million. If actual future taxable income differs, revisions to the valuation allowance and net deferred tax asset may be required.
2007 Compared to 2006
The Company's operating revenues for the 2007 fiscal year were $185 million, a decrease of $6.3 million, or 3.3%, from operating revenue for the 2006 fiscal year. The decrease is attributable to the closing of an office at one of the Company's subsidiaries and a decrease in load volume from one of the Company's larger customers.
2007 Compared to 2006 (Continued)
Purchased transportation and commission expense generally increase or decrease in proportion to the revenue generated through independent contractors. Many agents negotiate a combined percentage payable for purchased transportation and commission. Purchased transportation and commission expense increase or decrease in proportion to the revenue generated through independent contractors. Purchased transportation and commissions in total averaged 83.8% of operating revenue in fiscal 2007 versus 84.3% of operating revenue in fiscal 2006. This is a combined decrease of 0.5% of operating revenue. Purchased transportation decreased 1.2% of operating revenue in fiscal 2007 compared to the same period of time in 2006. This decrease was somewhat offset by in increase in commissions of 0.7% of operating revenues for fiscal 2007 compared to fiscal 2006. 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. 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.
In 2003, the operation known as Patriot Logistics, Inc. began using employees to staff the terminals rather than independent sales agent. This operation accounted for approximately 21% and 24% of the Company's consolidated operating revenues in 2007 and 2006, respectively.
Salaries, wages and fringe benefits remained consistent at 6.1% of operating revenue for 2007 compared to the same period of time in 2006.
Insurance and claims increased in 2007 to 3.2% of operating revenue compared to 2.8% of operating revenue for 2006. A majority of the Company's insurance expense is based on a percentage of revenue and, as a result, will tend to increase or decrease on a consolidated basis with the Company's revenue. Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. A material increase in the frequency or severity of accidents or the unfavorable development of existing claims could adversely affect the Company's operating income. The 0.4% increase in the percentage of operating revenue represented by insurance and claims between 2007 and 2006 can be attributed to the increase of certain operations' insurance premium rates along with additional claims activity. The Company obtains a significant amount of its auto liability and cargo insurance from AIFE, an affiliated entity (see Note 6 to consolidated financial statements).
Other operating expenses remained consistent at 4.2% of operating revenues. While not all operating expenses are directly variable with revenues, the decreased revenue directly impacts several components of operating expenses such as bad debt expense.
Based on the changes in revenue and expenses discussed above, operating income increased $39,387 from 2006 to 2007. For the year ended December 31, 2007 the Company had operating income of 2.7% of operating revenues compared to 2.6% of operating revenues for the same period of time in 2006.
2007 Compared to 2006 (Continued)
Interest expense decreased $10,830 in 2007 compared to 2006. This decrease in interest expense is primarily attributable to a decrease in outstanding borrowings. 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 December 31, 2007 the interest rate on this loan was prime less .75% (6.5%).
Other income includes income from rental property, storage and equipment usage fees. Other income remained consistent at 0.09% of operating revenues for the years ended December 31, 2007 and 2006.
The Company also recognized minority interest expense of $1.2 million and $1.0 million relating to the minority shareholders' portion of its subsidiaries', Carolina National Transportation, LLC and US1 Logistics, LLC, net income for the years ended December 31, 2007 and 2006, respectively. Carolina National Transportation ,LLC and US1 Logistics LLC are each 60% owned subsidiaries of the Company.
Federal and state income tax expense increased $107,968 from $260,269 for the year ended December 31, 2006 to $368,237 for the year ended December 31, 2007. The Company has net operating loss carry-forwards of approximately $5.1 million at December 31, 2007. These carry-forwards are available to offset taxable income in future years and although 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.
As a result of the factors outlined above, net income in 2007 was $2.9 million compared with $3.1 million in 2006.
2006 Compared to 2005
The Company's operating revenues for the 2006 fiscal year was $191 million, an increase of $15.4 million, or 8.7%, over operating revenue for the 2005 fiscal year. The increase was attributable to the continued growth of Harbor Bridge Intermodal, Inc., Carolina National Transportation, LLC. and US1 Logistics, LLC. The growth of these subsidiaries is primarily attributable to the addition of new terminals and growth of existing terminals.
Purchased transportation and commission expense generally increase or decrease in proportion to the revenue generated through independent contractors. Many agents negotiate a combined percentage payable for purchased transportation and commission. Purchased transportation and commission expense increase or decrease in proportion to the revenue generated through independent contractors. Purchased transportation and commissions in total averaged 84.3% of operating revenue in fiscal 2006 versus 84.5% of operating revenue in fiscal 2005. The mix between the amounts of purchased transportation paid versus commissions paid may vary slightly based on agent negotiations with independent owner operators. In addition, pay on certain types of revenue may be higher than for other types of revenue. Thus a change in the mix of revenue can cause some variation in the percent paid out for purchased transportation and commission. However, in total, commissions and purchased transportation would typically be expected to remain relatively consistent as a percentage of revenue.
2006 Compared to 2005 (Continued)
In 2003, the operation known as Patriot Logistics, Inc. began using employees to staff the terminals rather than independent sales agent. This operation accounted for approximately 24% and 27% of the Company's consolidated operating revenues in 2006 and 2005, respectively.
Insurance and claims decreased in 2006 to 2.8% of operating revenue compared to 3.7% of operating revenue for 2005. A majority of the Company's insurance expense is based on a percentage of revenue and, as a result, will increase or decrease on a consolidated basis with the Company's revenue. Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. A material increase in the frequency or severity of accidents or the unfavorable development of existing claims could adversely affect the Company's operating income. The 0.9% improvement in the percentage of operating revenue represented by insurance and claims between 2006 and 2005 can be attributed to the decrease of certain operations' claim activity for the year ended December 31, 2006. The Company also reduced insurance and claims expense by $400,000 due to a commission received by an insurance subsidiary of the Company for favorable claims experience during 2006. The Company obtains a significant amount of its auto liability and cargo insurance from AIFE, an affiliated entity (see Note 6 to consolidated financial statements).
The $1.7 million of litigation judgment from 2004 was recovered in 2005. This recovery was the result of a settlement reached during third quarter 2005 pertaining to a personal injury case relating to an auto accident, which occurred in March 2001 against a subsidiary of the Company, Cam Transport, Inc., in the amount of $1.7 million. During the third quarter of 2005, the case was settled for $750,000 and the Company's insurer, AIFE agreed to pay the full amount of the settlement. As a result, the Company has recorded a recovery on this litigation of $1.7 million for the fiscal year ended December 31, 2005.
Salaries, wages and fringe benefits increased slightly to 6.1% of operating revenue compared to 6.0% of operating revenue for the same period of time in 2005. This increase can be attributed to the addition of personnel hired to accommodate the growth of expanding terminals that have not yet begun to or did not produce at their full revenue potential.
Other operating expenses remained consistent at 4.2% of operating revenues. While not all operating expenses are directly variable with revenues, the increased revenue directly impacts several components of operating expenses such as bad debt expense.
Based on the changes in revenue and expenses discussed above, operating income increased by $0.5 million from $4.5 million in 2005 to $5.0 million in 2006. Included in operating income for 2005 is a $1.7 million recovery relating to litigation. The Company did not incur any such recoveries in fiscal 2006.
Interest expense increased slightly to $0.8 million in 2006 from $0.6 million in 2005. This increase in interest expense is primarily attributable to an increase in interest rates charged on the Company's line of credit. The rate on the Company's loan with US Bank is currently based on certain financial covenants and may range from prime to prime less .50%. At December 31, 2006 the interest rate on this loan was prime less .50% (7.75%). At December 31, 2005 the Company's interest rate on the credit facility with its lender was at prime less .25% (7.00)
2006 Compared to 2005 (Continued)
Other income includes income from rental property, storage and equipment usage fees. Other income decreased $0.1 million in 2006 from 2005. This decrease was due primarily to a reduction of rental income in 2006 and the gain on the sale of equipment the Company recognized during the first quarter of 2005 that did not occur in 2006.
The Company also recognized minority interest expense of $1.0 million and $.35 million relating to the minority shareholders' portion of its subsidiary's, Carolina National Transportation, LLC, net income for the years ended December 31, 2006 and 2005, respectively. The decline in claims experience during 2006, the decrease in management fees and the increase in revenue resulted in an increase of net income for Carolina National Transportation, LLC. Carolina National Transportation, LLC, is a 60% owned subsidiary of the Company.
As a result of the factors outlined above, net income in 2006 was $3.1 million compared with $4.1 million in 2005.
Liquidity and Capital Resources
During fiscal 2007, the Company's financial position continued to improve. The Company had shareholders' equity of $16.7 million at December 31, 2007 compared with $11.4 million at December 31, 2006.
Net cash provided by operating activity increased $1,207,218 from $3,874,335 for the year ended December 31, 2006 to $5,081,553 for the year ended December 31, 2007. Net income for the year ended 2007 provided $2.9 million in cash for operations while earnings related to minority interest provided $1.2 million in cash for operations during the same period of time. This compared to $3.1 million of net income in 2006 with earnings related to minority interest of $1 million for the same period.
The Company experienced a decrease in accounts receivable for the year ended December 31, 2007 due to decreases in revenues. This decrease in revenues is attributable to the closing of offices at one of the Company's subsidiaries and a decrease in revenues from one of the Company's larger customers that ultimately resulted in decreased load volume within the Company's subsidiaries. The decrease in accounts receivable contributed to the increase in cash provided by operating activities.
Other receivables used cash for the year ended December 31, 2007 in the amount of $56,506 compared to $221,181 for the same period in 2006. The largest contributor to this change is due to a commission receivable recorded during 2006 by the Company from its insurance provider due to favorable claims. This commission was received by the Company during 2007. The remaining change is due to decreases in other receivables related to the daily operations of the Company.
Prepaid expenses used $256,513 of the Company's operating cash for the year ended December 31, 2007 compared to $718,487 for the year ended December 31, 2006. This decrease in cash usage during 2007 is the result of a reduction in prepaid insurance from 2006. During 2006, one of the Company's subsidiaries paid for insurance coverage based on a number of units thus resulting in prepaid insurance. After this policy expired this subsidiary had coverage where the cost was based on a percentage of operating freight revenue on a monthly basis.
Liquidity and Capital Resources (continued)
Insurance and claims provided $183,694 in cash for the year ended December 31, 2007 compared to the Company's insurance and claims using cash in the amount of $371,643 for the year ended December 31, 2006. There are several reasons for the increase in insurance and claims payable. New subsidiaries that opened in late 2006 had relatively small revenues as they had not yet begun to produce to their full potential. Since their insurance premiums are based on a percentage of revenue, the insurance payables for 2006 were lower than in 2007 when these same offices had begun to produce toward management's expectations. In addition, the Company's claims payable increased for the year ended December 31, 2007 versus December 31, 2006.
Net cash used in investing activities was $345,079 for the year ended December 31, 2007 compared to $281,177 for the year ended December 31, 2006. Net cash used in investing activities increased primarily due to the purchase of fixed assets.
Net cash used in financing activities increased $1,143,316 from $3,593,158 for the year ended December 31, 2006 to $4,736,474 for the year ended December 31, 2007. For the year ended December 31, 2007, net repayments under the line of credit were $2,017,627, compared to $3,572,574 for 2006. For the year ended December 31, 2007, the Company distributed $1,766,334 to minority shareholders of the Company's majority owned subsidiaries, Carolina National Transportation, LLC. and US1 Logistics, LLC whereas no such distributions were made in 2006. In addition, during 2007 the Company utilized $952,513 to repurchase 595,248 shares of its common stock whereas no such repurchases were made in 2006.
The Company and its subsidiaries have a $15.0 million line of credit that matures on October 1, 2008. Advances under this revolving line of credit are limited to 75% of eligible accounts receivable. Unused availability under this line of credit was $13.4 million at December 31, 2007. The interest rate is based upon certain financial covenants and may range from prime to prime less .75%. At December 31, 2007, the interest rate on this line of credit was at prime less .75 (6.50%). The Company's accounts receivable, property, and other assets collateralize advances under the agreement. Borrowings up to $1.5 million are guaranteed by the Chief Executive Officer and Chief Financial Officer of the Company. At December 31, 2007, the outstanding borrowings on this line of credit were $1.6 million compared with $3.6 million outstanding at December 31, 2006.
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 December 31, 2007 and 2006, the Company was in compliance these financial covenants. The balance outstanding under this line-of-credit agreement is classified as a current liability at December 31, 2007 and 2006. Historically the revolving line of credit has been extended prior to maturity.
On October 20, 2005, the Company and its subsidiaries entered into an Interest Rate Swap Agreement with U.S. Bank effective November 1, 2005 through November 1, 2008. This agreement is in the notional amount of $3,000,000. The agreement caps the interest rate at 7.71% through the term of the agreement. The fair value of the interest rate swap was minimal at December 31, 2007 and 2006. Liquidity and Capital Resources (continued)
The Company had convertible notes payable of $3.6 million due to its Chief Executive Officer and Chief Financial Officer as of December 31, 2006 that were converted into 2,668,918 shares of common stock of the company in September 2007.
Environmental Liabilities
Neither the Company nor its subsidiaries is a party to any Super-fund litigation and does not have any known environmental claims against it, except for the one property in Phoenix, Arizona owned by its subsidiary TC Services, Inc. where soil contamination problems existed or are known to exist currently. The Company has conducted a preliminary evaluation of its potential liability at this site and believes that it has reserved appropriately for remediation of the site or that the fair market value of the property exceeds its net book value by an amount in excess of any remediation cost. There can be no assurance, however, that the cost of remediation would not exceed the expected amounts. The Company continues to monitor soil contamination and may be required to remediate the property in the near future. Inflation
Changes in freight rates charged by the Company to their customers are generally reflected in the cost of purchased transportation and commissions paid by the subsidiaries to independent contractors and agents, respectively. Therefore, management believes that future-operating results will be affected primarily by changes in the volume of business. Rising fuel prices are generally offset by a fuel surcharge we pass onto our customers. However, due to the highly competitive nature of the truckload motor carrier industry, it is possible that future freight rates, cost of purchased transportation, as well as fuel prices may fluctuate, affecting the Company's consolidated profitability.
Recently Issued Accounting Standards
Effective January 1, 2007, we adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109 and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. As a result of the implementation of FIN 48, we recognized a $575,000 increase in the liability for unrecognized tax benefits related to tax positions taken in prior periods. This increase was accounted for as an adjustment to accumulated deficit in accordance with the provisions of this statement.
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. The Company is currently evaluating the impact of the adoption of SFAS No. 157 on its consolidated financial statements and note disclosures.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become effective for us beginning with the first quarter of 2008. The Company is currently evaluating the impact of the adoption of SFAS No. 159 on its consolidated financial statements and note disclosures.
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.
Off-Balance Sheet Arrangements
The Company's subsidiaries obtain the majority of their auto liability and cargo insurance from AIFE. For the years ended December 31, 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. If AIFE incurs a net loss, the loss may be allocated to the various policyholders based on each policyholder's premium as a percentage of the total premiums of AIFE for the related period. There has been no such loss assessment for each of the years ended December 31, 2007, 2006, and 2005, respectively. The Company currently accounts for the majority of the premium revenue of AIFE. For fiscal 2007, the subsidiaries of the Company account for approximately 71% of the total premium revenue of AIFE. At December 31, 2007, AIFE had net worth of approximately $11.3 million.
The Company has no other off-balance sheet arrangements.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes. The Company has a $15.0 million line of credit with a variable interest rate, which ranges from prime (7.25% at December 31, 2007) to prime less .75%. At December 31, 2007, the interest rate on this line of credit was at 6.50%. The outstanding balance on this line of credit at December 31, 2007 was $1.6 million. Based on the Company's outstanding borrowings at December 31, 2007, a 1% increase in the prime rate would result in approximately $20,000 of additional interest expense annually.
On October 20, 2005, the Company and its subsidiaries entered into an Interest Rate Swap Agreement with U.S. Bank effective November 1, 2005 through November 1, 2008. This agreement is in the notional amount of $3,000,000. The agreement caps the interest rate at 7.71% through the term of the agreement. The fair value of the interest rate swap was minimal at December 31, 2007 and 2006.
Item 8.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of US 1 Industries, Inc. Valparaiso, Indiana
We have audited the accompanying consolidated balance sheets of US 1 Industries, Inc. and Subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2007. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of US 1 Industries, Inc. and Subsidiaries at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respect, the information set forth therein.
As disclosed in note 3 to the consolidated financial statements, effective January 1, 2007, the Company changed its method of accounting for uncertain tax positions to conform to FIN 48, "Accounting for Uncertainty in Income Taxes".
/s/BDO Seidman, LLP Chicago, Illinois March 24, 2008
US 1 INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2007 AND 2006
US 1 INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2007 AND 2006
US 1 INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
US 1 INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2007, 2006, and 2005
US 1 INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2007,2006 AND 2005
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
1. OPERATIONS
US1 Industries, Inc.(the Company), through its subsidiaries, is primarily an interstate truckload carrier of general commodities, which uses independent agents and owner-operators to contract for and haul freight for its customers in 48 states with a concentration in the Southeastern United States. No one agent accounted for more than 10% of the Company's operating revenue for the years ended December 31, 2007, 2006 and 2005. The Company shipped freight for approximately 1,000 customers in 2007, none of which accounted for more than 10% of the Company's revenues.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 2005 and 2006 financial statements to conform with the 2007 presentation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include the accounts of US 1 Industries, Inc. and its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Fair Value of Financial Instruments-The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. The carrying amount of outstanding borrowings approximates fair value as a variable interest rate is charged on the outstanding balance.
Allowance for Doubtful Accounts--The subsidiaries record an allowance for doubtful accounts based on specifically identified amounts that it believes to be uncollectible. The Company also records an additional allowance based on percentages of aged receivables, which are determined based on historical collections experience and an assessment of the general financial conditions affecting its customer base. If actual collections experience changes, revisions to the allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.
Revenue Recognition-- Revenue for freight is recognized upon delivery. The Company accounts for its revenue on a gross basis 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.
Fixed Assets--Fixed assets are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets, which range from three to eight years.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-Lived Assets--The Company assesses the realizability of its long- lived assets in accordance with statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company reviews long-lived assets for impairment when circumstances indicate that the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset.
Accounting Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Income Taxes--Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets. In addition, the amounts of any future tax benefits are reduced by a valuation allowance to the extent such benefits are not expected to be fully utilized.
Earnings Per Common Share ("FASB No. 128") --The Company computes earnings per share under Statement of Financial Accounting Standards No. 128 "Earnings Per Share." The statement required presentation of two amounts, basic and diluted earnings per share. Basic earnings per share are computed by dividing income available to common stockholders by the weighted average common shares outstanding. Dilutive earnings per share would include all dilutive common stock equivalents.
Business Segments--Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires public enterprises to report certain information about reporting segments in financial statements. As the Company's operating segments exhibit similar economic characteristics and meet the aggregation criteria of Statement 131, they are reported in one segment.
Recent Accounting Pronouncements
Effective January 1, 2007, we adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109 and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. As a result of the implementation of FIN 48, we recognized a $575,000 increase in the liability for unrecognized tax benefits related to tax positions taken in prior periods. This increase was accounted for as an adjustment to accumulated deficit in accordance with the provisions of this statement.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. The Company is currently evaluating the impact of the adoption of SFAS No. 157 on its consolidated financial statements and note disclosures.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and will become effective for us beginning with the first quarter of 2008. The Company is currently evaluating the impact of the adoption of SFAS No. 159 on its consolidated financial statements and note disclosures.
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.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") in accordance with FASB No. 128. Following is the reconciliation of the numerators and denominators of the basic and diluted EPS.
(1) Common stock equivalents for convertible debt for all years presented were excluded from weighted-average common shares outstanding for diluted EPS because the effect would be anti-dilutive. This debt was converted into 2,668,918 shares in 2007.
5. NOTES RECEIVABLE
The Company makes advances under notes receivable to certain agents and owner operators in the normal course of its business. These notes bear interest at rates ranging from 9.5% to 17% with weekly payments ranging from approximately $100 - $10,000. Maturity on these notes receivable ranges from January 2008 through July 2011. The balance of these notes was approximately $1,027,000 and $981,000 at December 31, 2007 and December 31, 2006, respectively.
One of the larger notes receivable relates to an advance made to an agent of the Company. Initially this advance was for $500,000, repayable in monthly installments of $8,333, or by credit issued in the same amount against the loan based on an agreement for continued services by the agent to the Company with the final payment due in June 2011. The balance of this note receivable was approximately $362,000 and $471,000 at December 31, 2007 and December 31, 2006, respectively. The current portion of this note receivable was approximately $100,000 at December 31, 2007 and 2006.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. NOTES RECEIVABLE (Continued)
The remainder of the balance of notes receivable consists of 13 notes resulting from advances to agents and owner operators during the normal course of business. The remaining balance on these notes was approximately $665,000 and $111,000 at December 31, 2007 and December 31, 2006, respectively. The current portion of these notes receivable was approximately $470,000 and $226,000 at December 31, 2007 and December 31, 2006, respectively.
6. RELATED PARTY TRANSACTIONS
One of the Company's subsidiaries provides safety, management, and accounting services to companies controlled by the Chief Executive Officer and Chief Financial Officer of the Company. These services are priced to cover the cost of the employees providing the services. Charges related to those services were approximately $67,000, $67,000 and $66,000 in 2007, 2006, and 2005, respectively. Accounts receivable due from entities affiliated through common ownership was $357,000 and $691,000 as of December 31, 2007 and 2006, respectively.
One of the subsidiaries' 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, as of December 31, 2007 and 2006.
The subsidiaries exercised no control over the operations of AIFE. As a result, the Company recorded its investment in AIFE under the cost method of accounting for each of the three years in the period ended December 31, 2007. Under the cost method, the investment in AIFE is reflected at its original amount and income is recognized only to the extent of dividends paid by the investee. There were no dividends declared by AIFE for the years ended December 31, 2007, 2006 and 2005.
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. The subsidiaries currently account 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. At December 31, 2007, AIFE had net worth of approximately $11.3 million.
For the years ended December 31, 2007 and 2006, a subsidiary insurance agency of the Company, recorded commission income of $353,000 and $400,000 related to premiums with AIFE. This commission income is reflected as a reduction of insurance expense in the consolidated financial statement of the company for the years ended December 31, 2007 and 2006, respectively.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. RELATED PARTY TRANSACTIONS (Continued)
In addition, 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 $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.
In 2007 and 2006, the Company paid consulting fees of $33,000 and $19,000, respectively, to Robert Scissors, one of its directors, relating to insurance services.
The Company had notes payable due to its Chief Executive Officer and Chief Financial Officer that were converted into 2,668,918 shares of common stock of the Company in September 2007. (see Note 9).
7. LEASES
The Company leases its administrative offices in Indiana from an independent owner under an operating lease expiring on March 31, 2009.
In addition, the Company's subsidiaries lease office space and land in Mississippi, Texas, Tennessee, South Carolina, Georgia, Missouri, North Carolina, Indiana, California, Arkansas, and Florida under operating leases ranging from one to four years.
Rent expense under these operating leases was $1,272,000, $1,186,000, and $1,064,000 for the years ended December 31, 2007, 2006, and 2005 respectively.
Future commitments under these operating leases are as follows:
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. BANK LINE OF CREDIT
The Company and its subsidiaries have a $15.0 million line of credit that matures on October 1, 2008. Advances under this revolving line of credit are limited to 75% of eligible accounts receivable. Unused availability under this line of credit was $13.4 million at December 31, 2007. The interest rate is based upon certain financial covenants and may range from prime to prime less .75%. At December 31, 2007, the interest rate on this line of credit was at prime less .75% (6.50%). The Company's accounts receivable, property, and other assets collateralize advances under the agreement. Borrowings up to $1.5 million are guaranteed by the Chief Executive Officer and Chief Financial Officer of the Company. At December 31, 2007 and 2006 the outstanding borrowings on this line of credit were $1.6 million and $3.6 million, respectively.
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 December 31, 2007 and 2006, the Company was in compliance with these financial covenants. The balance outstanding under this line-of-credit agreement is classified as a current liability at December 31, 2007 and 2006.
On October 20, 2005, the Company and its subsidiaries entered into an Interest Rate Swap Agreement with U.S. Bank effective November 1, 2005 through November 1, 2008. This agreement is in the notional amount of $3,000,000. The agreement caps the interest rate at 7.71% through the term of the agreement. The fair value of the interest rate swap was minimal at December 31, 2007 and 2006.
9. CONVERTIBLE SUBORDINATED DEBT
In November 2006, the long-term debt Payable to the Chief Executive Officer and Chief Financial Officer was exchanged for new notes payable with revised terms. In addition, the unpaid accrued interest of approximately $1.2 million was rolled into the new notes payable balance. As a result, the principal balance of the new notes payable net of unamortized discount of $0.3 million was approximately $3.6 million as of December 31, 2006. These new notes payable accrued interest at a rate of prime less 1% with interest payable quarterly. These notes payable also had a conversion feature at the option of the holder into common stock of the Company at a conversion price of $1.48 per share. The conversion feature was exercised and the outstanding balance of this debt was converted into 2,668,918 common shares on the maturity date of September 22, 2007. Interest expense on this related party debt was $207,900, $148,000 and $131,000 in 2007, 2006, and 2005, respectively
In 2006, based on the guidance under Emerging Issue Task Force Issue 96-19, "Debtor's Accounting for Modification or Exchange of Debt Instruments", the Company determined the revision of this debt to be a modification of the debt. As a result, the fair value of the conversion option, estimated at $374,000, was reflected as a discount on the debt and accreted as additional interest expense over the term of the debt.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. EQUITY TRANSACTIONS
(a) In September 2007, the Company's Chief Executive Officer and Chief Financial Officer elected to exercise the conversion feature on certain convertible debt held by these individuals. As a result, the debt with a principal value of $3,950,000 was converted into 2,668,918 shares of the Company's common stock.
(b) During 2007, the Company purchased 595,248 shares of its common stock for a total of $952,513. These shares are reflected as treasury stock in the Company's balance sheet and statement of shareholders' equity as of and for the period ended December 31, 2007.
(c) In December 2005, the Company granted 151,515 shares (75,757 each) of common stock to the Company's Chief Executive Officer and Chief Financial Officer based on certain earnings criteria. These shares vested as of January 1, 2006. As a result, the Company incurred $200,000 of compensation expense (based on the quoted market price of the Company's stock on the date of grant) for the year ended December 31, 2005. The shares were issued during the first quarter of 2006.
(d) In March 2003, the Company granted 400,000 shares (200,000 each) of common stock to the Company's Chief Executive Officer and Chief Financial Officer, subjected to the continued employment of these employees through December 2004. Compensation expense (based on the quoted market price of the Company's stock on the date of grant) totaling $220,000 was recognized in 2003 and 2004. The shares were issued in the first quarter of 2005.
11. INCOME TAXES
The composition of income tax expense (benefit) is as follows:
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. INCOME TAXES (Continued)
The following summary reconciles income taxes at the maximum federal statutory rate with the effective rates for 2007, 2006, and 2005:
The Company and its wholly-owned subsidiaries file a consolidated federal income tax return. Carolina National, LLC and US1 Logistics, LLC the Company's 60% owned subsidiaries file separate federal income tax returns.
Deferred income taxes consist of the following:
At December 31, 2007 and 2006, the Company has realized a net deferred tax asset of $1,434,800 as it is more likely than not that this amount will be realized as a result of anticipated future taxable income to be generated by the Company. Due to the uncertainty of realization, a valuation allowance has been maintained for the remaining deferred tax asset at December 31, 2007 and 2006.
The Company has net operating loss carry-forwards of approximately $5.1 million at December 31, 2007. These carry-forwards are available to offset taxable income in future years and 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.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. INCOME TAXES (Continued) In June 2006, FASB issued interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109("FIN 48"), that clarifies the accounting and recognition for income tax positions taken or expected to be taken in the Company's tax returns. The Company adopted FIN 48 on January 1, 2007, and recorded the cumulative effect of a change in accounting principle by recording an increase in the liability for uncertain tax positions of $575,000 that was accounted for as a credit to opening retained earnings. The liability for uncertain tax positions at both December 31, 2007 and January 1, 2007 totaled $520,000, exclusive of interest and penalties of $401,000 and $351,000 at December 31, 2007 and January 1, 2007, respectively. This liability is recorded in the Company's balance sheet in other taxes payable. No uncertain tax position reserves were reversed or settled during 2007. The entire amount of this consolidated liability for uncertain tax positions would affect the Company's effective tax rate upon favorable resolution of the uncertain tax positions. Absent new experience in defending these uncertain tax positions in the various jurisdictions to which they relate, the Company cannot currently estimate a range of possible change of the December 31, 2007 liability over the next twelve months.
The Company files a consolidated U.S. income tax return and tax returns in various state and local jurisdictions. In the U.S., all tax years from 2004 through the present are open. In various states and local jurisdictions all tax years from 2000 through the present are open.
Interest and penalties related to tax positions taken in the Company's tax returns are recorded in income tax expense in the consolidated statements of operations.
12. COMMITMENTS AND CONTINGENCIES
Litigation
On March 16, 2005, a jury entered a verdict against a subsidiary of the Company, Cam Transport, Inc. ("CAM") in the amount of $1.7 million in a personal injury case relating to an auto accident which occurred on March 22, 2001. As a result, the Company recorded a charge of $1.7 million related to this litigation for the year-ended December 31, 2004. During third quarter of 2005 a settlement was reached in the amount of $750,000. The Company's insurer, American Inter-Fidelity Exchange agreed to pay the full amount of the settlement and as a result the Company recorded recovery on this litigation of $1.7 million for the year ended December 31, 2005.
On November 4, 2005, Terrell C. Coleman and Willie B. Crocker ("Plaintiffs") filed a putative class action complaint (the "Complaint") in the United State District Court for the Middle District of Florida (the "Court") in Jacksonville, Florida, against Patriot Logistics, Inc. ("Patriot").
The complaint alleged that certain aspects of Patriot's motor carrier leases with its independent-contractor owner-operators violate certain federal leasing regulations, and sought injunctive relief, an unspecified amount of damages, and attorney' fees. This case was settled for $315,000 in December 2006. The settlement also resulted in Patriot's entering into a new, more detailed independent contractor operating agreement with each of its owner-operators. US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
The Company and its subsidiaries are involved in other litigation in the normal course of its business. Management intends to vigorously defend these cases. In the opinion of management, the other litigation now pending will not have a material adverse affect on the consolidated financial statements of the Company.
Other
In October 2006, the Company and the general manager of Patriot Logistics, Inc., a wholly owned subsidiary of the Company, entered into an agreement under which the Company granted the individual the option to purchase 100% of the outstanding stock of Patriot for a purchase price equal to the book value of Patriot. This option to purchase Patriot was extended in 2007 and now terminates in October 2009 or upon a change in control of the Company. The option is immediately exercisable and maybe exercised in whole (not in part) at anytime prior to October 2009. The fair value of this option was determined to be deminimis. In the event the option were exercised, based upon the actual results of Patriot Logistics, our revenue would have declined by $39,255,861 (a decrease of 21.3%) for the year ended December 31, 2007 and $46,356,069 (a decrease of 24.3%) for the year ended December 31, 2006. Patriot Logistics had pre-tax income (loss) of $501,522 and ($280,799) for the years ended December 31, 2007 and 2006, respectively.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2007 Compared to 2006 (Continued)
US 1 INDUSTRIES, INC. VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2005, 2006, AND 2007
Schedule II
(1) Includes benefit from utilization of net operating losses and change in deferred taxes. (2) Amount represents impact of net operating losses which expired unused.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 10. Directors, Executive Officers and Corporate Governance
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company as of March 10, 2008 were as follows
There are no family relationships between any director or executive officer of the Company.
Code of Ethics
The Company has adopted a Code of Ethics that applies to Mr. Kibler, the Chief Executive Officer and Mr. Antonson, the Chief Financial Officer, a copy of which was filed as Exhibit 14.1 to the Company's 2003 Form 10-K.
Audit Committee and Audit Committee Financial Expert
The Company has an audit committee consisting of Lex Venditti and Robert Scissors. The Company's Board of Directors has determined that Mr. Venditti is an "audit committee financial expert" as defined under SEC rules. However, because of his position as general manager of AIFE and as a shareholder of American Inter-Fidelity Corporation, Mr. Venditti is not considered an independent director as defined under Rule 10A-3(b) of the Exchange Act. In addition, Mr. Scissors receives fees for consulting services provided to the Company and is also not considered an independent director.
The audit committee is responsible for selecting the Company's independent auditors and approving the scope, fees and terms of all audit engagements and permissible non-audit services provided by the independent auditor, as well as assessing the independence of the Company's independent auditor from management. The audit committee also assists the Board in oversight of the Company's financial reporting process and integrity of its financial statements, and also reviews other matters with respect to the Company's accounting, auditing and financial reporting practices as it may find appropriate or may be brought to its attention.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and persons who own more than 10% of the outstanding common stock of the Company to file with the Securities and Exchange Commission reports of changes in ownership of the common stock of the Company held by such persons. Officers, directors and greater than 10% shareholders are also required to furnish the Company with copies of all forms they file under this regulation. During 2007, Mr. Kibler made one late filing and Mr. Antonson made two late filings, otherwise to the Company's knowledge based solely on a review of the copies of such reports furnished to the Company, and representations that no other reports were required, during the year ended December 31, 2007, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% shareholders were complied with.
Director Nomination Procedures
The Company will consider nominations for directors submitted by shareholders of the Company. Shareholders who wish to make a nomination for director should send the name and biographical information with respect to such nominee to the Secretary of the Company along with a certification by such nominee that he or she will serve as a director of the Company if elected. There have not been any changes to this process in the past year.
Item 11.
Item 11. Executive Compensation
Compensation Discussion and Analysis
Overview of Executive Compensation Program
The Company does not have a formalized program for determining executive compensation. Any executive compensation changes are taken before the Board of Directors for approval. In general, our executive officers receive compensation consisting of a salary and on occasion, there have been stock bonuses issued. Executive officers participate in the same group health insurance program as the Company's full-time employees. The Company has not used, nor intends to use an outside consultant in connection with making compensation decisions.
Objectives of Compensation Program
The Company's compensation of executive officers is intended to provide requisite compensation to the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"). Because the CEO and CFO are large shareholders of the Company, the CEO and CFO should be motivated to act in the best interest of the Company's shareholders.
Current Executive Officers
The company currently has two executive officers, Michael Kibler, our Chief Executive Officer "CEO", and Harold Antonson, Chief Financial Officer "CFO".
The following Summary Compensation Table sets forth compensation paid by the Company during the years ended December 31, 2007, 2006 and 2005 to Mr. Michael E. Kibler, Chief Executive Officer and Mr. Harold Antonson, Chief Financial Officer, where applicable. No other executive officer of the Company earned in excess of $100,000.
Item 11. Executive Compensation (Continued)
Summary Compensation Table (Continued)
(1) In March 2003, the Company granted 400,000 shares (200,000 each) of common stock to the Company's Chief Executive Officer and Chief Financial Officer, subject to the continued employment of these employees through December 2004. In December 2004, the Board of Directors extended the vesting period until March 2005. As a result, the Company incurred $0, $125,712, and $94,286 of compensation expense (based on the quoted market price of the Company's stock on the date of grant) for the years ended December 31, 2005, 2004, and 2003, respectively. The shares were issued during the first quarter of 2005.
In December 2005, the Company granted 151,514 shares (75,757 each) of common stock to the Company's Chief Executive Officer and Chief Financial Officer based on certain earnings criteria. These shares vested as of January 1, 2006. As a result, the Company incurred $200,000 of compensation expense (based on the quoted market price of the Company's stock on the date of grant) for the year ended December 31, 2005. The shares were issued in 2006.
Option exercises and option values
No stock options have been issued to Mr. Michael E. Kibler, Chief Executive Officer or Mr. Harold Antonson, Chief Financial Officer for the years ended December 31, 2007, 2006 or 2005 and they hold no such options as f December 31, 2007.
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company receive no additional compensation for their services as directors. In 2007 and 2006, the Company paid consulting fees of $33,000 and $19,000, respectively, to Robert Scissors, relating to insurance services. The Company will reimburse its directors for travel expenses and other out-of-pocket costs incurred in connection with the Company's board of directors' meetings. Because the Company has held its board of directors' meeting via teleconference during the past year, no costs have been incurred associated with these meetings.
DIRECTOR COMPENSATION TABLE
The following table provides compensation information for the year ended December 31, 2007 for each member of our Board of Directors.
COMPENSATION COMMITTEE
The Company does not have a compensation committee.
The current members of the Board of Directors (Harold Antonson, Brad James, Michael Kibler, Robert Scissors and Lex Venditti) participated in deliberation concerning the Company's executive officer compensation, although the Chief Financial Officer, Harold Antonson and Chief Executive Officer, Michael Kibler abstain from all votes. There are no compensation committee inerlocks.
The members of the Board reviewed and discussed the compensation discussion and analysis with management and based on the review and discussions, determined that the compensation discussion and analysis be included in the Company's Form 10-K.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters:
Security Ownership of Management
The following table sets forth the number and percentage of shares of Common Stock that as of March 9, 2008 are deemed to be beneficially owned by each director of the Company and director nominee, by each executive officer of the Company and by all directors and executive officers of the company as a group
Number of Shares of Common Stock
Name and position Beneficially Owned Percentage of Class - ----------------- ------------------ -------------------
All Directors and Executive Officers 7,998,962 56.2% * Indicates less than 1% ownership.
(1) Includes shares held by August Investment Partnership, August Investment Corporation, Eastern Refrigerated Transport, Inc., Enterprise Truck Lines, Inc., Seagate Transportation Services, Inc., and American Inter-Fidelity Exchange, of which Messrs. Kibler and Antonson are either directors, partners, or significant shareholders or otherwise share the voting and dispositive authority with respect to these shares. (2) Includes shares held by Seagate Transportation Services, Inc., of which Mr. James is a director, partner and significant shareholder. or significant shareholder. (3) Includes 11,770 shares held in the Saundra L. Scissors Trust of which Mr. and Mrs. Scissors are joint trustees. (4) Includes shares held by American Inter-Fidelity Exchange, of which Mr. Venditti is a director and significant shareholder of the attorney-in- fact.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters (continued)
Security Ownership of Certain Beneficial Owners
The following table sets forth the number and percentage of shares of Common Stock beneficially owned as of March 9, 2007 by any person who is known to the Company to be the beneficial owner of more than five percent of the outstanding shares of Common Stock:
(1) Includes shares held by August Investment Partnership, August Investment Corporation, Eastern Refrigerated Transport, Inc., Enterprise Truck Lines, Inc., Seagate Transportation Services, Inc., and American Inter-Fidelity Exchange, of which Messrs. Kibler and Antonson are either directors, partners, or significant shareholders or otherwise share the voting and dispositive authority with respect to these shares. Also includes 200,000 shares of restricted stock for each.
Item 13.
Item 13. Certain Relationships, Related Transactions, and Director Independence
One of the Company's subsidiaries provides safety, management, and accounting services to companies controlled by the Chief Executive Officer and Chief Financial Officer of the Company. These services are priced to cover the cost of the employees providing the services. Charges related to those services were approximately $67,000, $67,000, and $66,000 in 2007, 2006, and 2005 respectively. Accounts receivable due from entities affiliated through common ownership was $357,000 and $691,000 as of December 31, 2007 and 2006, respectively.
One of the subsidiaries insurance providers, AIFE, is managed by a Director of the Company and the Company has an investment of $126,461 in the provider. AIFE provides auto liability and cargo insurance to several subsidiaries of the Company as well as other entities related to the Company by common ownership. For the years ended December 31, 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.
Item 13. Certain Relationships, Related Transactions, and Director Independence (Continued)
The subsidiaries exercised no control over the operations of AIFE. As a result, the Company recorded its investment in AIFE under the cost method of accounting for each of the three years in the period ended December 31, 2007. Under the cost method, the investment in AIFE is reflected at its original amount and income is recognized only to the extent of dividends paid by the investee. There were no dividends declared by AIFE for the years ended December 31, 2007, 2006 and 2005.
If AIFE incurs a net loss, the loss may be allocated to the various policyholders based on each policyholder's premium as a percentage of the total premiums of AIFE for the related period. There has been no such loss assessment for each of the three years in the period ended December 31, 2007. The subsidiaries currently account for the majority of the premiums of AIFE. For fiscal 2006, the Company through its subsidiaries accounted for approximately 71% of the total premium revenue of AIFE. At December 31, 2007, AIFE had net worth of approximately $11.3 million.
For the years ended December 31, 2007 and 2006, a subsidiary insurance agency of the Company has recorded commission income of 353,000 and $400,000 related to premiums with 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.
In 2007 and 2006, the Company paid consulting fees of $33,000 and $19,000, respectively to Robert I. Scissors, one of its directors, relating to insurance services.
The Company had notes payable due to its Chief Executive Officer and Chief Financial Officer that were converted into 2,668,918 shares of common stock of the Company in September 2007.
The Company's Board of Directors are advised of all related party transactions and review these transactions as deemed appropriate.
The Company's directors are identified in response to Item 10 above. The Company does not consider any of the directors to be independent.
Item 14.
Item 14. Principal Accountant Fees and Services
The following table shows the fees paid or accrued by the Company for the audit and other services provided by BDO Seidman, LLP
Item 14. Principal Accountant Fees and Services (Continued)
(1) Audit fees include fees associated with the annual audit of our consolidated financial statements and reviews of our quarterly reports on Form 10-Q. (2) There were no audit related services or tax fees. (3) There were no other services or fees.
The Audit Committee must pre-approve audit-related and non-audit services not prohibited by law to be performed by the Company's independent registered public accounting firm.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements:
Report of Independent Registered Public Accounting Firm 21
Consolidated Balance Sheets as of December 31, 2007 and 2006 22-23
Consolidated Statements of Income for the years ended 24 December 31, 2007, 2006, and 2005
Consolidated Statements of Shareholders' Equity 25 for the years ended December 31, 2007, 2006, and 2005
Consolidated Statements of Cash Flows 26 for the years ended December 31, 2007, 2006, and 2005
Notes to Consolidated Financial Statements 27
(a)(2) Financial Statement Schedules:
Schedule of Valuation and Qualifying Accounts 		 37
Other schedules are not included because of the absence of the conditions under which they are required or because the required information is included in the consolidated financial statements or notes thereto.
(a)(3) List of Exhibits
The following exhibits, numbered in accordance with Item 601 of Regulation S-K, are filed as part of this report:
Exhibit 3.1 	Articles of Incorporation of the Company. (incorporated herein by reference to the Company's Proxy Statement of November 9, 1993).
Exhibit 3.2 By-Laws of the Company. (incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994).
Exhibit 10.1 Amended and Restated Loan Agreement with US BANK and Carolina 	 National Transportation Inc., Gulfline Transport Inc.,Five Star Transport, Inc., Cam Transport, Inc., Unity Logistic Services, Inc., ERX, Inc., Friendly Transport, Inc., Transport Leasing, Inc., Harbor Bridge Intermodal, Inc., Patriot Logistics, Inc., Liberty Transport, Inc., Keystone Lines Corporation, and US 1 Industries, Inc. (incorporated by reference to the Company's Form 10-Q for the nine months ended September 30, 2005 filed on November 11, 2005).
Exhibit 10.2 Amendment to Amended and Restated Loan Agreement with US BANK and Carolina National, Transportation Inc., Gulfline Transport Inc., Five Star Transport, Inc., Cam Transport, Inc., Unity Logistic Services, Inc., ERX, Inc., Friendly, Transport, Inc., Transport Leasing, Inc., Harbor Bridge Intermodal, Inc., Patriot Logistics, Inc., Liberty Transport, Inc., Keystone Lines Corporation, and US 1 Industries, Inc. (incorporated by reference to the Company's Form 10-Q for the nine Months ended September 30, 2005 filed on November 11, 2005).
Exhibit 10.3 Second Amendment to Amended and Restated Loan Agreement with US BANK and Carolina National, Transportation Inc., Gulfline Transport Inc., Five Star Transport, Inc., Cam Transport, Inc., Unity Logistic Services, Inc., ERX, Inc., Friendly, Transport, Inc., Transport Leasing, Inc., Harbor Bridge Intermodal, Inc., Patriot Logistics, Inc., Liberty Transport, Inc., Keystone Lines Corporation, and US 1 Industries, Inc. (incorporated by reference to the Company's Form 10-Q for the nine months ended September 30, 2005 filed on November 11, 2005).
Exhibit 10.4 Amendment to Amended and Restated Loan Agreement with US BANK and Carolina National, Transportation LLC, Gulfline Transport Inc.,Five Star Transport, Inc., Cam Transport, Inc., Unity Logistic Services, Inc., ERX, Inc., Friendly, Transport, Inc., Transport Leasing, Inc., Harbor Bridge Intermodal, Inc., Patriot Logistics, Inc., Liberty Transport, Inc., Keystone Lines Corporation, TC Services, Inc., Freedom Logistics, LLC, Thunderbird Logistics, LLC, Thunderbird Motor Express, LLC, US1 Logistics, LLC, and US 1 Industries, Inc.
Exhibit 14.1 US 1 Industries, Inc. Code of Ethics (incorporated by reference to the Company's Form 10-K for the year ended December 31, 2003 filed on March 26, 2005.
Exhibit 21.1 Subsidiaries of the Registrant
Exhibit 31.1 Rule 13a-14(a)\15d-14a(a) Certifications
Exhibit 32.1 Section 1350 Certifications
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.
		US 1 INDUSTRIES, INC.
Date:_________________		By: _________________________ 				 Michael E. Kibler 				 President & Chief Executive Officer 				 (Principal Executive Officer)
Date:_________________		By: _________________________ 				 Harold Antonson 				 Chief Financial Officer & Treasurer (Principal Financial & Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date:_________________	 	 _________________________ 				 Michael E. Kibler, Director
Date:_________________		 _________________________ 				 Robert I. Scissors, Director
Date:_________________	 	 _________________________ 				 Lex L. Venditti, Director
Date:_________________ _________________________ Brad James, Director
Date:_________________ _________________________ Harold Antonson, Director