FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2003.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File No. 1-8129.
US 1 INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Indiana 95-3585609
(State of Incorporation) (I.R.S. Employer Identification No.)
1000 Colfax, Gary, Indiana 46406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 944-6116
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, no par value None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes ___ No _X_
On March 19, 2004, there were 11,618,224 shares of registrant's common stock
outstanding.
On June 30, 2003, there were 11,618,224 shares of registrant's common stock
outstanding, and the aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $7,630,525. For purposes
of the forgoing statement, directors, officers and greater than 5% shareholders
of the registrant have been assumed to be affiliates.
PART 1
Item 1. Business.
The registrant, US 1 Industries, Inc. (hereinafter referred to, together
with its subsidiaries, as "US 1" or the "Company"), through its subsidiaries, is
an interstate trucking company operating in 48 states. The Company's business
consists principally of a truckload operation, 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 principal subsidiaries consist of Accuscan Drug Testing, Inc., Blue
and Grey Transport, Inc., Blue and Grey Brokerage, Inc., Carolina National
Logistics, Inc., Carolina National Transportation, Inc., Friendly Transport,
Inc., Five Star Transport, Inc., Keystone Logistics, Inc., Unity Logistics Inc.,
Gulf Line Brokerage, Inc., Gulf Line Transportation, Inc., Keystone Lines, Inc.,
Cam Transport, Inc., Transport Leasing, Inc., Harbor Bridge Intermodal, Inc.,
Patriot Logistics, Inc. (f/k/a Keystone Intermodal Services, Inc.), and TC
Services, Inc. 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, offices, and directors, and are run
independently of the parent and each other.
The Company entered into an agreement with certain key employees of Carolina
National Transportation Inc. ("Carolina")in which these employees will earn up
to a 40% ownership interest in Carolina over a three year period, beginning in
the year following the year in which Carolina achieves positive retained
earnings, contingent upon certain restrictions, including continued employment
at Carolina. In 2001, Carolina achieved positive retained earnings. As a
result, the Company will incur total compensation expense of $400,000 over the
three-year vesting period. These employees received a 15% ownership in Carolina
at December 31, 2002 and received an additional 15% at December 31, 2003. These
employees will receive an additional 10% ownership interest at December 31,
2004. As a result of this agreement, the company incurred compensation expense
of $150,000 for each of the years ended December 31, 2003 and 2002. The Company
also recognized minority interest expense of $154,529 and $117,552 relating to
the employees' portion of Carolina's net income for the year ended December 31,
2003 and 2002, respectively. Net income for Carolina was $515,096, $783,677,
and $486,000, for the years ended 2003, 2002, and 2001, respectively.
Operations
The Company carries virtually all forms of freight transported by truck,
including specialized trucking services such as containerized, refrigerated, and
flatbed transportation.
The Company is primarily a non-asset based business, contracting with
independent truckers who generally own the trucks they drive and independent
agents. 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. Certain operations of the Company also subcontract
("broker") freight loads to other unaffiliated transportation companies.
Operations (continued)
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's revenues are affected by competition and the state of
the economy.
During 2001, the Company also began Keystone Intermodal, which utilizes
employees rather than independent sales agents to monitor and coordinate
shipments. During 2002 the Company began Transport Leasing Georgia which also
utilized employees rather than independent agents. In 2003, the operation
formally known as Keystone Intermodal, was renamed Patriot Logistics, Inc. These
operations accounted for approximately 23% and 15% of the Company's consolidated
revenues in 2003 and 2002, respectively.
Marketing and Customers
The Company 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 10% of the Company's
revenues from its trucking operations.
During 2003, the Company utilized the services of approximately 74 agents.
One agent accounted for 10%, 6%, and 0% of the Company's revenue for the years
ended December 31, 2003, 2002, and 2001, respectively. In fiscal 2002 and 2001,
no single agent accounted for more than 10% of the Company's revenue. The
Company shipped freight for approximately 1,000 customers in 2003, none of which
accounted for more than 10% of the Company's total 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 for which they are paid 65% to 78% of the charges billed
to the customer. The Company requires independent contractors to maintain their
equipment to standards established by the U.S Department of Transportation
(DOT), and the drivers are subject to qualification and training procedures
established by the DOT. The Company is also required to have random drug
testing, enforce hours of service requirements, and monitor maintenance of
vehicles.
Employees
At December 31, 2003, the Company, through its subsidiaries, had
approximately one hundred fifty-six 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
The Company insures the trucks with liability insurance coverage of up to $1
million per occurrence with a $5,000 deductible. The Company has cargo
insurance coverage of up to $1,000,000 per occurrence with a $50,000 deductible.
The Company also maintains a commercial general liability policy with a limit of
$1,000,000 per occurrence and no deductible. The current insurance market is
volatile with significant rate increases expected that could adversely affect
the cost and availability of coverage.
One of the Company's insurance providers, American Inter-Fidelity Exchange
(AIFE), is managed by a Director of the Company. The Company has an investment
of $126,461 in AIFE. AIFE provides auto liability 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, 2003, 2002 and 2001, cash
paid to AIFE for insurance premiums and deductibles amount to $5,372,548,
3,922,764, and $1,597,168, respectively.
The Company 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 ended December 31, 2001, 2002, and 2003.
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,
2003, 2002 and 2001.
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 ended December 31, 2001, 2002, and 2003.
The Company currently accounts for the majority of the premiums of AIFE.
For fiscal 2002, the Company accounted for approximately 90% of the total
premium revenue of AIFE. At December 31, 2002, AIFE had net worth of
approximately $4.3 million, a portion of which is attributable to other
policyholders of AIFE.
Insurance (Continued)
In addition, the Chief Executive Officer and Chief Financial Officer, as
well as 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. During 2003, AIFE paid
management fees of $282,000 to AIFC which AIFC then paid as dividends totaling
$282,000 to these officers and directors of 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
Internal Revenue Service regulations. 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 is a common and contract motor carrier regulated by the DOT and
various state agencies. Management does not believe that regulation by the DOT
or by the states will have a material effect on the Company's operations. 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's operations are subject to various federal, state, and local
environmental laws and regulations, implemented principally by the 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 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 State environmental
authorities are requiring further testing of the property. The Company believes
Environmental Regulation (Continued)
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
extent of existing problems. Estimates of the costs to complete the future
remediation of approximately $141,000 are considered in the land valuation
allowance in the Company's consolidated financial statements at December 31,
2003 and 2002.
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
The statements contained in Item 1 (Description of Business) and Item 7
(Management Discussion and Analysis of Financial Condition and Results of
Operation), particularly the statements under "Future Prospects", contain
forward-looking statements that are subject to a variety of risks and
uncertainties. The Company cautions readers that these risks and uncertainties
could cause the Company's actual results in and beyond to differ materially from
those suggested by any forward-looking statements. These risks and
uncertainties include, without limitation, a lack of historic information for
new operations on which expectations regarding their future performance can be
based, general economic and business conditions affecting the trucking industry,
competition from, among others, national and regional trucking companies that
have greater financial and marketing resources than the Company, claims relating
to accidents and cargo theft, the availability of sufficient capital, and the
Company's ability to successfully attract and retain qualified owner operators
and agents.
Item 2. Properties
The Company's administrative offices are at 1000 Colfax, Gary, Indiana.
The Company leases its administrative offices of approximately 9,000 square feet
on a month-to-month basis for $3,000 per month. Patriot Logistics, Inc. leases
office space in Fort Smith, Arkansas of approximately 13,250 square feet on a
month-to-month basis for $3,216. Both Companies lease their space from Mr.
Michael E. Kibler, President, Chief Executive Officer and a director of the
Company, and Mr. Harold Antonson, Treasurer, Chief Financial Officer and a
director of the Company.
In addition, the Company's subsidiaries lease office space and land in
several locations throughout the United States, as summarized below:
Approximate Monthly Lease
Subsidiary City,State Square Feet Rent Expiration
Carolina National Mt. Pleasant, SC 6,280 $ 8,960 April 30, 2004
Transportation, Inc.
Keystone Logistics, Inc. South Bend, IN 2,431 1,808 month to month
CAM Transport, Inc. Gulfport, MS 3,000 1,600 Nov. 1, 2004
Patriot Logistics, Inc. Atlanta, GA 57,420 1,914 Aug. 31, 2005
Patriot Logistics, Inc. Port Allen, LA 60,800 3,700 month to month
Patriot Logistics, Inc. Houston, TX 33,000 2,000 Dec. 31, 2004
Patriot Logistics, Inc. Laredo, TX 1,200 3,500 month to month
Transport Leasing, Inc. Ft. Smith, AK 1,000 350 month to month
Transport Leasing, Inc. Calhoun, GA 8.4 acres 7,500 July 14, 2007
Patriot Logistics, Inc. Kansas City, MO 432 1,300 month to month
Patriot Logistics, Inc. Charlotte, NC 500 2,500 May 31, 2005
Patriot Logistics, Inc. Irving, TX 1,440 870 month to month
Patriot Logistics, Inc. Ontario, CA 4,000 5,200 April 16, 2006
Patriot Logistics, Inc. Ft. Smith, AK 13,250 3,216 month to month
Patriot Logistics, Inc. Dallas, TX 5.0 acres 4,000 Aug. 1, 2006
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. Legal Proceedings
CAM Regional Transport and Laurel Mountain Leasing, Inc. filed a complaint
against the Company in 1994 which alleges breach of contract, claiming that
Trailblazer Transportation, Inc., a subsidiary of the Company which filed
bankruptcy, failed to abide by a purchase agreement entered into with CAM
Regional Transport, Inc. and Laurel Mountain Leasing, Inc. In addition, two
individuals affiliated with these companies claimed breach of employment
contracts against the Company.
In May 2002, judgment was rendered on these claims in favor of the
plaintiffs in the amount of $720,000. As a result, the Company increased its
accrual for this litigation to $700,000 by recording a charge of $560,000
relating to this litigation for the year ended December 31, 2002. The Company
is currently awaiting the decision of the appeals court in this matter.
In February 2002, one of the Company's subsidiaries, Carolina National
Transportation, was named as a defendant in a suit entitled Hoover
Transportation Services, Inc. vs. Tim A. Frye, Sr. In essence, the suit alleged
that the primary defendant, Mr. Frye, violated a non-competition agreement with,
and confidentiality obligations to, the plaintiff by providing freight related
services in the metropolitan Charlotte area. Mr. Frye's business contracted with
the Company's subsidiary for shipping, and, accordingly, the plaintiff alleged
that the Company's subsidiary is liable for damages as well. In March 2004, the
Company and Mr. Frye orally agreed to settle the claim for $113,355, with each
paying $56,678 of these settlements. The Company has agreed to lend $56,678 of
that amount to Mr. Frye to enable him to pay his portion of the settlement.
In September 2002, CGU International Insurance, PLC filed a complaint in
the United States District Court for the Northern District of California
against Keystone Lines Inc., a subsidiary of the Company, which asserted
allegations of breach of contract regarding alleged damage to cargo which
occurred during interstate transportation. On November 18, 2002, Keystone
Legal Proceedings (Continued)
Lines Inc. filed an answer to the complaint generally denying liability for
the $392,000 loss asserted by the complaint. Keystone filed a cross-complaint
against other parties, which it believed are liable for any losses
established by the plaintiff. At this time, the Company and its legal
counsel are unable to assess the outcome of this complaint. The Company
has insurance coverage for this matter, which provides for both defense
and indemnity payments. The Company intends to vigorously defend itself in
this matter.
The Company is involved in other 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 position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No Matters were submitted to a vote of Security Holders in 2003.
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.
The following table sets forth for the period indicating 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.
Calendar Year High Low
2003
First Quarter .60 .42
Second Quarter 1.15 .36
Third Quarter 1.45 .79
Fourth Quarter 2.85 .93
2002
First Quarter .80 .42
Second Quarter .60 .35
Third Quarter .66 .22
Fourth Quarter .68 .40
As of March 19, 2004, there were approximately 3,173 holders of record of
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.
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, 2003, 2002 and 2001 have
been audited by the Company's independent certified public accountants, whose
report on such consolidated financial statements is 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."
(in thousands, except per share data)
Fiscal Year Ended December 31,
2003 2002 2001 2000 1999
STATEMENT OF OPERATIONS DATA:
Operating revenues $121,747 $104,186 $72,068 $48,284 $32,334
Purchased transportation 89,699 77,071 55,609 37,627 24,846
Commissions 12,348 10,278 6,597 4,344 3,052
Other operating costs and
expenses 17,977 14,435 8,051 4,988 3,481
Operating income 1,723 2,402 1,811 1,325 954
Interest expense 493 550 712 623 661
Minority interest expense 155 118 0 0 0
Income before income taxes 1,393 1,684 1,168 802 412
Income tax benefit 0 0 400 800 0
Net income 1,393 1,684 1,568 1,602 412
Net Income available to common
shares 1,393 2,237 1,465 1,509 330
Income per common share
Net Income
Basic $0.12 $0.20 $0.14 $0.14 $0.03
Diluted $0.11 $0.20 $0.14 $0.14 $0.03
Weighted average shares outstanding:
Basic 11,618,224 11,075,758 10,618,224 10,618,224 10,618,224
Diluted 11,940,416 11,075,758 10,618,224 10,618,224 10,618,224
BALANCE SHEET DATA:
Total assets 22,077 21,444 17,161 11,891 5,352
Long-term debt, including
current portion 3,371 4,311 4,660 4,259 2,547
Working capital (deficiency) 4,888 2,966 2,039 1,720 (712)
Shareholders' equity 3,410 1,857 (995) (2,459) (3,968)
Selected Financial Data (continued)
(in thousands, except per share data)
Fiscal Year Ended December 31,
2003 2002 2001 2000 1999
OTHER DATA:
Cash provided by (used in)
operating activities 2,419 831 (1,364) (2,656) (370)
Cash (used in) provided by
investing activities ( 128) (157) (1,210) (84) 74
Cash (used in) provided by
financing activities (2,291) (996) 2,895 2,740 296
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. Purchased transportation is the largest component of
operating expenses and increases or decreases in proportion to the revenue
generated through independent contractors. Commissions to agents and brokers
are primarily based on contractually agreed-upon percentages of revenue.
A majority of the 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.
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, during 2002 and 2001, the
Company added certain operations, which utilize employees rather than
independent agents, which distorts direct comparisons somewhat.
The following table set forth the percentage relationships of expense items
to revenue for the periods indicated:
Fiscal Years
--------------------------
2003 2002 2001
------ ------ ------
Revenue 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation 73.7 74.0 77.2
Commissions 10.1 9.9 9.2
Insurance and claims 4.4 4.2 3.2
Salaries, wages and fringe benefits 5.6 4.9 3.5
Other operating expenses 4.8 4.8 4.5
------- ------ ------
Total operating expenses 98.6 97.8 97.6
------- ------ ------
Operating income 1.4 2.2 2.4
General
The Company entered into an agreement with certain key employees of its
subsidiary, Carolina National Transportation, Inc. ("Carolina"), in which these
employees will earn up to a 40% ownership interest in Carolina over a three year
period, beginning in the year following which Carolina achieves positive
retained earnings, contingent upon certain restrictions, including continued
employment at Carolina. In 2001, Carolina achieved positive retained earnings.
As a result, the Company will incur total compensation expense of $400,000 over
the three-year vesting period. These employees received a 15% ownership in
Carolina at December 31, 2002 and received an additional 15% at December 31,
2003. These employees will receive an additional 10% ownership interest at
December 31, 2004. As a result of this agreement, the company incurred
compensation expense of $150,000 for each of the years ended December 31, 2003
and 2002. The Company also recognized minority interest expense of $154,529
and $117,552, relating to the minority shareholders' portion of Carolina's net
income for the years ended December 31, 2003 and 2002, respectively. Net income
for Carolina was $515,096, $783,677, and $486,000, for the years ended 2003,
2002, and 2001, respectively.
Critical Accounting Policies and Estimates
Our financial statements reflect the selection and application of accounting
policies, which require management to make significant estimates and
assumptions. We believe that the following are some of the more critical
judgment areas in the application of our accounting policies that currently
affect our financial condition and results of operations.
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.
We record an allowance for doubtful accounts based on (1) specifically
identified amounts that we believe to be uncollectible and (2) an additional
allowance based on certain percentages of our aged receivables, which are
determined based on historical experience and our assessment of the general
financial conditions affecting our customer base to be uncollectable. At
December 31, 2003, the allowance for doubtful accounts was $844,000 or
approximately 5% of total trade accounts receivable. If actual collections
experience changes, revisions to our allowance may be required. After reasonable
attempts to collect a receivable have failed, the receivable is written off
against the allowance. In addition, we review the components of other
receivables, consisting primarily of advances to drivers and agents, and write
off specifically identified amounts that we believe to be uncollectible.
Revenue for freight is recognized upon delivery. Amounts payable for
purchased transportation, commissions and insurance expense are accrued when the
related revenue is recognized. We are 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
Critical Accounting Policies and Estimates (continued)
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 estimatable, 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 carries insurance for auto liability, property damage, and
cargo loss and damage through various programs. A significant portion of the
Company's liability insurance is obtained from American Inter-Fidelity Exchange
("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.
AIFE is managed by a Director of the Company. The Company has an investment
of $126,461 in AIFE. AIFE provides auto liability insurance, 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, 2003, 2002 and 2001, cash paid to AIFE for
insurance premiums and deductibles amount to $5,372,548, 3,922,764, and
$1,597,168, respectively.
The Company 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, 2003. 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, 2003, 2002 and 2001.
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, 2003. The Company
currently accounts for the majority of the premiums of AIFE. For fiscal 2002,
the Company accounted for approximately 90% of the total premium revenue of
AIFE. At December 31, 2002, AIFE had net worth of approximately $4.3 million, a
portion 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, 2003, the Company's
deferred tax asset of approximately $21.2 million consists principally of net
operating loss carryforwards.
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 upon
its estimate of future taxable income as well as the timing of expiration of the
Company's net operating loss carryforwards. Approximately 80% of the Company's
net operating loss carryforwards will expire in 2005 and 2006. At December 31,
2003, the valuation allowance for deferred tax assets was approximately $20
million. If actual future taxable income differs, revisions to the valuation
allowance and net deferred tax asset may be required.
2003 Compared to 2002
Revenue for the 2003 fiscal year was $121.7 million, an increase of $17.6
million, or 16.9%, over revenue for the 2002 fiscal year. The increase was
attributable to the continued growth of Patriot Logistics, Inc. (f/k/a Keystone
Intermodal, Inc.), Keystone Lines, Inc., and Harbor Bridge Transportation. The
growth of these subsidiaries is primarily attributable to the addition of new
terminals and/or independent agents and independent truckers.
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. The mix between the amounts of purchased transportation paid
versus commissions paid may vary slightly based on agent negotiations with
independent owner operators. However, in total, commissions and purchased
transportation would typically be expected to remain relatively consistent as a
percentage of revenue. Purchased transportation and commissions in total
averaged 83.8% of revenue in fiscal 2003 verses 83.9% of revenue in fiscal 2002.
In late 2001, the Company began Patriot Logistics, Inc. which utilized
employees rather than independent agents to monitor and coordinate shipments.
The Company added a similar operation in 2002 and these operations continue to
grow. Operations using employees rather than independent agents to coordinate
shipments were 23% and 15% of consolidated revenue in fiscal 2003 and 2002,
respectively. With the continued growth of such operations, a decrease in the
average percentage of total commissions and purchased transportation to revenues
would be expected. However, the Company also continued to add new operations
utilizing independent agents, some negotiated with higher purchased
transportation and commission percentages, which has offset the expected
decrease in the total of purchased transportation and commission as a percentage
of revenue.
Insurance and claims increased in 2003 to 4.4% of revenue compared to 4.2%
of revenue for 2002. 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 increase of 0.2% of revenue can be attributed
to the increase of certain operations' liability and cargo insurance rates due
to adverse loss experience and the continued increase of insurance rates in
today's economy (see Item3--Legal Proceedings--for discussion of currently
pending litigation that has had or could have a material impact on the Company).
The Company obtains a significant amount of its auto liability and cargo
insurance from American Inter-Fidelity Exchange("AIFE"), an affiliated entity
(see Note 5 to consolidated financial statements). 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 fiscal 2003 or 2002.
The Company currently accounts for a majority of the premiums of AIFE.
Salaries, wages and fringe benefits were 5.6% of revenue in 2003 and 4.9% in
2002. This increase of 0.7% can be attributed to (1) the growth of divisions
that utilize employees who are paid a salary instead of agents who would be paid
commissions,(2) hiring of other sales and management personnel, such as agent
recruiters whose work did not benefit the Company sufficiently to offset the
cost of their compensation during 2003 and (3) an increase in compensation of
the executive officers of the Company.
2003 Compared to 2002 (Continued)
Other operating expenses remained consistent at 4.8% of revenue in both 2003
and 2002. While not all operating expenses are directly variable with revenues,
several components of operating expenses such as bad debt expense are directly
impacted by the increased revenue. In addition, the Company has expanded by
adding new terminals and operations resulting in the addition of new locations
resulting in an increase in operating expenses such as rent. Operating expenses
increased $0.9 million from $5.0 million in 2002 to $5.9 million in 2003. The
increase is primarily attributable to (1) a $0.46 million increase in operating
expense due specifically to the growth of two significant operations, (2) $0.17
million increase in rent expense due to the expansion of locations, (3)$0.12
million increase in bad debt expense, and (4) overall increase in operating
expenses at other locations as volume continued to grow during 2003.
Based on the changes in revenue and expenses discussed above, operating
income decreased by $678,444 from $2,401,825 in 2002 to $1,723,381 in 2003.
During fiscal 2002, the company incurred a charge of $550,857 relating to a
court ruling on litigation against the Company. See Item 3 - Legal Proceedings
for further discussion of this matter.
Interest expense decreased to $0.49 million in 2003 from $0.55 million in
2002. This decrease in interest expense is attributable to a continued decrease
in the prime rate, as well as the decrease in the Company's line of credit
balance. The rate on the Company's revolving line of credit is currently based
on certain financial covenants and may range from prime to prime less .50%. At
December 31, 2003 the Company's interest rate on the loan with its lender was at
prime less .25% (3.75%).
Other income includes income from rental property, storage fees, and
management fees. Other income decreased $.2 million in 2003 from 2002. This
decrease is due primarily to a non-recurring management fee in the amount of
$0.2 million earned in 2002 for management and administrative services the
Company provided to Eastern Refrigerated Express, an entity partially owned by
the Chief Executive Officer and Chief Financial Officer of the Company.
The Company also recognized minority interest expense of $154,529 and
$117,552 relating to the minority shareholders' portion of Carolina's net
income for the years ended December 31, 2003 and 2002, respectively.
The Company has net operating loss carry-forwards of approximately $52
million at December 31, 2003. These carry-forwards are available to offset
taxable income in future years and substantially all of these carry-forwards
will expire in the years 2005 through 2010. At December 31, 2003, the Company
has realized a net deferred tax asset of $1,200,000. Based on anticipated
future taxable income and anticipated future usage of the net operating loss,
the Company believes it is more likely than not that the net deferred tax asset
will be realized. Due to the uncertainty of the remaining tax asset, a
valuation allowance has been maintained for the remaining deferred tax asset at
December 31, 2003.
As a result of the factors outlined above, net income in 2003 was $1,392,986
compared with $1,684,219 in 2002.
2003 Compared to 2002 (Continued)
On July 18, 2002, the Company redeemed all of its outstanding Series A
preferred stock plus all accrued dividends in exchange for 1,000,000 shares of
the Company's common stock. The carrying value of the preferred stock exceeded
the fair value of the common stock issued. As a result, in fiscal 2002, the
Company has reflected the $609,541 excess of the carrying value of the preferred
stock over the fair value of the common shares as an addition to net income
available to shareholders. Series A preferred stock dividends of $56,573 were
accrued up to the date of redemption and have been reflected as a reduction in
net income available to common shareholders.
As a result of the preferred stock transaction, net income available to
common shareholders was $1,392,986 in 2003 compared to $2,237,187 in 2002.
2002 Compared to 2001
Revenue for the 2002 fiscal year was $104.2 million, an increase of $32.1
million, or 44.5%, over revenue for the 2001 fiscal year. The increase was
attributable to continued growth at Carolina National Transportation, Keystone
Lines, and Transport Leasing, Inc. and the opening of a new operation, Harbor
Bridge Inc. The growth at Carolina National Transportation, Keystone Lines, and
Transport Leasing is primarily attributable to the addition of independent
agents and drivers, which has resulted in an increase in the volume of business
conducted.
Purchased transportation was 74.0% of revenue in 2002 compared with 77.2% in
2001. Purchased transportation has decreased 3.2% as a percentage of revenue
for the year ended December 31, 2002, compared to the year ended December
31,2001. Purchased transportation and commission expense generally increase or
decrease in proportion to the revenue generated through independent contractors.
The 3.2% decrease in purchased transportation as a percentage of revenue in 2002
compared with 2001 is attributable to the following. (1) Insurance surcharges
have been billed at several operations. 100% of this revenue is retained by the
Company to help offset increased insurance costs. Since there is no purchased
transportation paid on the surcharge revenue, purchased transportation, as a
percentage of revenue, will decline. (2) At certain new terminals and existing
terminals where the insurance surcharge is not billed, the Company has been able
to negotiate lower purchased transportation to assist in offsetting increasing
insurance costs. (3) A new intermodal division at Keystone, which began
operations in November 2001, operated for a full year. This intermodal division,
now referred to as Patriot Logistics, pays drivers based on mileage rather than
a fixed percentage of revenue and as a result typically has a lower purchased
transportation cost. (4) Many agents negotiate a combined percentage payable for
purchased transportation and commission. The mix between the amount of purchased
transportation paid versus commissions paid may vary slightly based on agent
negotiations with independent owner operators.
As discussed above, the mix between the amount paid for purchased
transportation versus commissions may vary slightly from year to year. However,
in total, commissions and purchased transportation would typically be expected
to remain relatively consistent as a percentage of revenues. Commissions to
agents were 9.9% of revenue in 2002 compared with 9.2% in 2001. The increase in
commissions is offset partially by the decrease in purchased transportation.
Overall, purchased transportation and commissions in total decreased as a
percentage of revenue due to an increase of divisions that utilize employees
rather than agents. These divisions tend to pay lower purchased transportation
and commission.
2002 Compared to 2001 (continued)
Also contributing to the overall decrease in purchased transportation and
commissions as a percentage of revenue are the reasons provided above for the
decrease in purchased transportation as a percentage of revenues.
Insurance and claims increased in 2002 to 4.2% of revenue compared to 3.2%
of revenue for 2001. A majority of the insurance is based on a percentage
of revenue and, as a result, will increase or decrease on a consolidated
basis with the Company's revenue. The increase of 1.0% of revenue can
be attributed to the increase of certain operations' liability and cargo
insurance rates due to adverse loss experience and the continued increase of
insurance rates in today's economy (see Item3--Legal Proceedings--for discussion
of currently pending litigation that has had or could have a material impact on
the Company).
Salaries, wages and fringe benefits were 4.9% of revenue in 2002 and 3.5% in
2001. This increase of 1.4% can primarily be attributed to the newer divisions
that utilize employees who are paid a salary instead of agents who would be paid
commissions.
Other operating expenses increased slightly to 4.8% of revenue in 2002
compared to 4.5% in 2001. While not all operating expenses are directly
variable with revenues, several components of operating expenses such as bad
debt expense are directly impacted by the increased revenue. In addition, the
Company has expanded by adding new terminals and operations resulting in the
addition of new locations resulting in an increase in operating expenses such as
rent. Operating expenses increased $1.7 million from $3.3 million in 2001 to
$5.0 million in 2002. The increase is primarily attributable to (1) a $1.0
million increase (excluding rent) due to first full year of operation for two
operations which began in the fourth quarter of 2001, (2) $0.3 million increase
in rent expense due to the addition of new locations, (3)$0.1 million increase
in bad debt expense, and (4) overall increase in operating expenses at other
locations as volume continued to grow during 2002.
Based on the changes in revenue and expenses discussed above, operating
income increased by $590,357 from $1,811,468 in 2001 to $2,401,825 in 2002.
During fiscal 2002, the company incurred a charge of $550,857 relating to a
court ruling on litigation against the Company. See Item 3 - Legal Proceedings
for further discussion of this matter.
Interest expense decreased to $0.55 million in 2002 from $0.71 million in
2001. This decrease in interest expense is attributable to a continued decrease
in the prime rate, as well as the decrease in the Company's line of credit
balance. The rate on the Company's revolving line of credit is based on certain
financial covenants and may range from prime to prime plus .5%. At December 31,
2002 the Company's interest rate on the loan with its lender was at prime
(4.25%).
Other income increased $.41 million in 2002 from 2001. The majority of this
increase was due to a non-recurring management fee in the amount of $0.2 million
due to the Company from Eastern Refrigerated Express, an entity partially owned
by the Chief Executive Officer and Chief Financial Officer of the Company. This
fee was earned as a result of management and administrative services which the
Company provided to Eastern during fiscal 2002.
The Company also recognized minority interest expense of $117,552
relating to the employees' portion of Carolina's net income for the year
ended December 31, 2002.
2002 Compared to 2001 (continued)
As a result of the factors outlined above, income before income tax benefit
was $1,684,219 in 2002 compared to $1,167,517 in 2001.
The Company had net operating loss carry-forwards of approximately $54
million at December 31, 2002. These carry-forwards are available to offset
taxable income in future years and substantially all of these carry-forwards
will expire in the years 2005 through 2010. The Company recognized no income tax
benefit in 2002 compared to $400,000 in 2001. At December 31, 2002, the Company
has realized a net deferred tax asset of $1,200,000. Based on anticipated future
taxable income and anticipated future usage of the net operating loss, the
Company believes it is more likely than not the net deferred tax asset will be
realized. Due to the uncertainty of the remaining tax asset, a valuation
allowance has been maintained for the remaining deferred tax asset.
As a result of the factors outlined above, net income in 2002 was $1,684,219
compared with $1,567,517 in 2001.
On July 18, 2002, the Company redeemed all of its outstanding Series A
preferred stock plus all accrued dividends in exchange for 1,000,000 shares of
the Company's common stock. The carrying value of the preferred stock exceeded
the fair value of the common stock issued. As a result, the Company has
reflected the $609,541 excess of the carrying value of the preferred stock over
the fair value of the common shares as an addition to net income available to
shareholders. Series A preferred stock dividends of $56,573 were accrued up to
the date of redemption and have been reflected as a reduction in net income
available to common shareholders.
Net income available to common shareholders was $2,237,187 in 2002 compared
to $1,464,661 in 2001.
Liquidity and Capital Resources
During fiscal 2003, the Company's financial position continued to improve.
The Company had shareholders' equity of $3.4 million at December 31, 2003
compared with $1.9 million at December 31, 2002. Working capital at December
31, 2003 was $4.9 million compared to $3.0 million at the end of 2002. This
increase in working capital is due to continuing profitability.
Net cash provided by operating activities increased $1,588,253 from $831,082
for the year ended December 31, 2002, to $2,419,335 for the year ended December
31, 2003. Net income decreased to $1,392,986 for the year ended December 31,
2003 from $1,684,219 for the year ended December 31, 2002. As a result of the
continued growth of existing terminals and new operations for the year ended
December 31, 2003, accounts receivable increased $2,206,115 in 2003. This
increase in accounts receivable was only partially offset by a corresponding
increase in accounts payable of $1,381,716. This is due to the fact that the
Company's customers typically pay 30 - 45 days from the invoice date while
payment terms to many agents and independent owner operators are typically less
than 15 days. While the Company's operations continued to grow, the overall
rate of growth was less in 2003 than experienced in 2002. As a result, less of
the Company's profits were utilized to fund growth (i.e. working capital needs),
resulting in an increase in the cash provided by operations.
Net cash used in investing activities was ($127,806) for the year ended
December 31, 2003 compared to ($157,084) for the year ended December 31, 2002.
Net cash used in investing activities for both periods related primarily to the
purchase of equipment such as trailers.
Liquidity and Capital Resources (continued)
Net cash used in financing activities increased $1,295,471 from $996,058 for
the year ended December 31, 2002 to $2,291,529 for the year ended December 31,
2003. The cash used in financing activities for 2003 is primarily due to
repayments of shareholder and equipment loans in the amount of $940,253 and a
reduction in the outstanding borrowing under the line of credit of $1,233,722.
During 2003, the Company's subsidiary Carolina National also distributed
$117,553 to minority shareholders.
Effective October 1, 2003, the Company's Lender agreed to amend the existing
bank agreement to increase the Company's revolving line of credit from $8.5
million to $10.0 million. The maturity date of the Company's revolving line of
credit was also extended from October 1, 2003 to October 1, 2005. Advances
under this revolving line of credit are limited to 75% of eligible accounts
receivable. The interest rate is based upon certain financial covenants and may
range from prime to prime less 0.50%. At December 31, 2003, the interest rate
on this line of credit was at prime less .25% (3.75%). The Company's accounts
receivable, property, and other assets collateralize advances under the
agreement. Availability under this line of credit was approximately $5.1
million at December 31, 2003. The Chief Executive Officer and Chief Financial
Officer of the Company guarantee borrowings of up to $1 million. At December
31, 2003, the outstanding borrowings on this line of credit were $4.9 million.
The Company is dependent upon the funds available under its line of credit
agreement for liquidity. As long as the Company can fund 25% of its accounts
receivable from funds generated internally from operations or otherwise, this
facility has historically provided the Company sufficient liquidity to meet its
needs on an ongoing basis.
The Company also has two additional equipment loans with its primary lender
used to fund equipment purchases. The outstanding balances on these loans bear
interest at the prime rate in effect less 0.25% per annum (3.75% at December 31,
2003) based on certain financial covenants. The principal balance of these
equipment loans is payable based on a five-year amortization of the outstanding
balances. The outstanding balances under these equipment loans totaled $469,482
at December 31, 2003. The related equipment funded by these borrowings
collateralizes the loans. These loans were renewed in October 2003 and now
carry maturity dates of October 1, 2005.
In October 2003, the Company's lender granted them a new equipment line of
credit in the amount of $500,000. Although the Company has not utilized this new
line of credit, the interest rate will range from prime to prime less 0.50% per
annum based on certain financial covenants. This new equipment line of credit
carries a maturity date of October 1, 2005.
The line of credit and equipment loans are 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. The required financial
covenants include: minimum net worth requirements, total debt service coverage
ratio, capital expenditure limitations, and prohibition of additional
indebtedness without prior authorization.
The Company also has approximately $2.9 million of debt payable to the
Chief Executive Officer and Chief Financial Officer or entities under their
control. This debt is subordinate to the lender of the revolving credit
facility and matures on October 10, 2006.
Liquidity and Capital Resources (continued)
The following is a table of our contractual obligations and other
commercial commitments as of December 31, 2003:
Less than 2-3 4-5 After
Total 1 year Years Years 5
years
-------------------------------------------------
Contractual Obligations
Revolving Line of Credit 4,884,758 4,884,758
Long-Term Debt 481,359 194,911 286,448
Operating Leases 817,000 407,000 410,000 - -
--------------------------------------------------
Total Contractual Obligations 6,183,117 601,911 5,581,206
The Company does not have any long-term purchase commitments as of
December 31, 2003
Environmental Liabilities
The Company is not a party to any Super-fund litigation and otherwise does
not have any known environmental claims against it. However, the Company does
have one property 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 its customers are
generally reflected in the cost of purchased transportation and commissions paid
by the Company to independent contractors and agents, respectively. Therefore,
management believes that future operating results of the Company will be
affected primarily by changes in volume of business. Rising fuel prices are
generally offset by a fuel surcharge the Company passes onto its customers.
However, due to the highly competitive nature of the truckload motor carrier
industry, it is possible that future freight rates, cost of purchased
transportation, as well as fuel prices may fluctuate, affecting the Company's
profitability.
Recently Issued Accounting Standards
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46 ("FIN46"), Consolidation of Variable Interest
Entities, an interpretation of ARB 51. The primary objectives of FIN 46 are to
provide guidance on the identification of entities for which control is achieved
through means other than through voting rights ("variable interest entities" or
"VIEs") and how to determine when and which business enterprise should
consolidate the VIE (the "primary beneficiary"). This new model for
consolidation applies to an entity in which either (1) the equity investors (if
any) do not have a controlling financial interest or (2) the equity investment
Recently Issued Accounting Standards (continued)
at risk is insufficient to finance that entity's activities without receiving
additional subordinated financial support from other parties. In addition, FIN
46 requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. The
provisions of FIN 46 were effective immediately for VIEs created after January
31, 2003. The provisions are effective for the first period beginning after
June 15, 2003 for VIEs held prior to February 1, 2003. The Company has not
acquired an interest in any VIEs subsequent to January 31, 2003.
The Company has evaluated American Inter-Fidelity Exchange ("AIFE"), a
reciprocal insurance company, to determine if this entity qualifies as a VIE.
AIFE provides auto liability insurance to several subsidiaries of the
Company as well as other entities related to the Company by common ownership.
AIFE currently receives a majority of its premiums from the Company. The
Company has determined that AIFE does not qualify as a VIE and as a result the
adoption of FIN 46 did not have a material impact on our consolidated financial
statements. However, the Company will continue to evaluate its relationship
with AIFE upon any change in circumstances to evaluate the applicability of FIN
46 and other accounting guidance on consolidation.
In April 2003, FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities ("SFAS 149"). SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS 133. SFAS 149 is
effective for contracts and hedging relationships entered into or modified
after June 30, 2003. The Company adopted the provisions of SFAS 149
effective June 30, 2003 and such adoption did not have a material impact on
its consolidated financial statements since the Company has not entered into
any derivative or hedging transactions.
In May 2003, FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity ("SFAS 150"). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both debt and equity and requires an issuer to classify the
following instruments as liabilities in its balance sheet:
* a financial instrument issued in the form of shares that is
mandatorily redeemable and embodies an unconditional obligation that
requires the issuer to redeem it by transferring its assets at a
specified or determinable date or upon an event that is certain to
occur;
* a financial instrument, other than an outstanding share, that embodies
an obligation to repurchase the issuer's equity shares, or is indexed
to such an obligation, and requires the issuer to settle the
obligation by transferring assets; and
* a financial instrument that embodies an unconditional obligation
that the issuer must settle by issuing a variable number of its
equity shares if the monetary value of the obligation is based
solely or predominantly on (1) a fixed monetary amount, (2)
variations in something other than the fair value of the issuer's
equity shares, or (3) variations inversely related to changes in the
fair value of the issuer's equity shares.
Recently Issued Accounting Standards (continued)
In November 2003, FASB issued FASB Staff Position No. 150-3 ("FSS 150-3")
which deferred the effective dates for applying certain provisions of SFAS 150
related to mandatorily redeemable financial instruments of certain non-public
entities and certain mandatorily redeemable non-controlling interests for public
and non-public companies. For public entities, SFAS 150 is effective for
mandatorily redeemable financial instruments entered into or modified after May
31, 2003 and is effective for all other financial instruments as of the first
interim period beginning after June 15, 2003. For mandatorily redeemable non-
controlling interests that would not have to be classified as liabilities by a
subsidiary under the exception in paragraph 9 of SFAS 150, but would be
classified as liabilities by the parent, the classification and measurement
provisions of SFAS 150 are deferred indefinitely. The measurement Recently
provisions of SFAS 150 are also deferred indefinitely for other mandatorily
redeemable non-controlling interests that were issued before November 4, 2003.
For those instruments, the measurement guidance for redeemable shares and
non-controlling interests in other literature shall apply during the deferral
period. The adoption of FAS 150 did not have a material impact on the
consolidated financial statements of the Company.
Off-Balance Sheet Arrangements
The Company obtains the majority of its auto liability and cargo insurance
from American Inter-Fidelity Exchange ("AIFE"). For the years ended December 31,
2003, 2002, and 2001, cash paid to AIFE for insurance premiums and deductibles
amounted to $5,372,548, $3,922,764, and $1,597,168, 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, 2003, 2002, and 2001, respectively. The Company currently
accounts for the majority of the premiums of AIFE. For fiscal 2002, the Company
accounted for approximately 90% of the total premium revenue of AIFE. At
December 31, 2002, AIFE had net worth of approximately $4.3 million, a portion
of which is attributable to other policyholders of AIFE.
The Company has no other off-balance sheet arrangements.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes. The Company has a $10
million line of credit with a variable interest rate which may ranges from prime
(4.00% at December 31, 2003) to prime less .50%. At December 31, 2003, the
interest rate on this line of credit was at prime less .25% and the outstanding
balance on this line of credit was $4.9 million. The Company also has
approximately $2.9 million of debt payable to the Chief Executive Officer and
Chief Financial Officer or entities under their control which bears interest at
prime plus .75%. Lastly, the Company has equipment loans totaling $469,482 which
bear interest at the prime rate less .25%. Based on the Company's outstanding
borrowings at December 31, 2003, a 1% increase in the prime rate would result in
approximately $83,000 of additional interest expense annually.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
US 1 Industries, Inc.
Gary, Indiana
We have audited the accompanying consolidated balance sheets of US 1
Industries, Inc. and Subsidiaries as of December 31, 2003 and 2002 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 2003. We have also
audited the 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and the schedule are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and schedule. An audit also includes
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, 2003 and 2002, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
Also in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Chicago, Illinois
March 5, 2003
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
ASSETS
2003 2002
CURRENT ASSETS:
Accounts receivable-trade, including
receivables due from affiliated entities of
$882,000 and $232,000, respectively and
less allowance for doubtful accounts of
$844,000 and $460,000 respectively $17,910,027 $16,468,912
Other receivables, including receivables due
from affiliated entities of $51,000 and
$261,000 in 2003 and 2002, respectively 1,254,243 1,648,599
Deposits and other current assets 289,776 518,374
Current deferred tax asset 600,000 600,000
------------ ----------
Total current assets 20,054,046 19,235,885
FIXED ASSETS:
Equipment 1,765,979 1,669,781
Less accumulated depreciation and amortization (794,676) (512,406)
------------ ----------
Net fixed assets 971,303 1,157,375
------------ ----------
ASSETS HELD FOR SALE:
Land 195,347 195,347
Valuation allowance (141,347) (141,347)
------------- -----------
Net assets held for sale 54,000 54,000
Non-current deferred tax asset 600,000 600,000
Other assets 397,745 396,527
------------- -----------
TOTAL ASSETS $22,077,094 $21,443,787
============= ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
LIABILITIES AND SHAREHOLDERS' EQUITY
2003 2002
CURRENT LIABILITIES:
Revolving line of credit $ 4,884,758 $ 6,118,480
Current portion of long-term debt 194,911 1,197,667
Accounts payable 7,009,625 5,627,909
Other accrued expenses 377,475 403,296
Insurance and claims 788,954 1,044,222
Accrued compensation 47,863 87,273
Accrued interest 1,134,787 1,009,394
Fuel and other taxes payable 28,138 81,714
Accrued Legal Settlement 700,000 700,000
----------- -----------
Total current liabilities 15,166,511 16,269,955
----------- -----------
LONG-TERM DEBT, LESS CURRENT PORTION 3,176,156 3,113,653
MINORITY INTEREST 324,927 202,751
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, authorized 20,000,000 shares;
no par value; 11,618,224 shares issued
and outstanding as of both December 31, 2003
and December 31, 2002.
42,227,725 42,068,639
Accumulated deficit (38,818,225) (40,211,211)
----------- -----------
Total shareholders' equity 3,409,500 1,857,428
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 22,077,094 $ 21,443,787
=========== =============
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
2003 2002 2001
OPERATING REVENUES $121,747,394 $104,186,132 $72,068,300
------------ ------------ -----------
OPERATING EXPENSES:
Purchased transportation 89,698,731 77,070,624 55,609,408
Commissions 12,348,082 10,278,481 6,596,625
Insurance and claims 5,292,548 4,342,330 2,279,313
Salaries, wages, and other 6,827,806 5,050,396 2,502,848
Other Operating expenses 5,856,846 5,042,476 3,268,638
----------- ----------- ----------
Total operating expenses 120,024,013 101,784,307 70,256,832
----------- ----------- ----------
OPERATING INCOME 1,723,381 2,401,825 1,811,468
----------- ----------- ----------
NON OPERATING INCOME (EXPENSE):
Legal Settlement 0 (550,857) 0
Interest income 15,301 28,937 6,058
Interest expense (493,411) (550,248) (712,381)
Other income, net 302,244 472,114 62,372
----------- ----------- -----------
Total non operating (expense) (175,866) (600,054) (643,951)
NET INCOME BEFORE MINORITY INTEREST 1,547,515 1,801,771 1,167,517
Minority Interest (154,529) (117,552) 0
---------- ----------- -----------
NET INCOME BEFORE INCOME TAXES 1,392,986 1,684,219 1,167,517
Income tax benefit 0 0 400,000
---------- ----------- -----------
NET INCOME BEFORE DIVIDENDS 1,392,986 1,684,219 1,567,517
Dividends on Preferred Shares 0 (56,573) (102,856)
Redemption of Redeemable Preferred Stock 0 609,541 0
----------- ----------- ----------
NET INCOME AVAILABLE TO COMMON SHARES $ 1,392,986 $ 2,237,187 $1,464,661
=========== =========== ==========
Basic Net Income
Per Common Share $0.12 $0.20 $0.14
Diluted Net Income $0.11 $0.20 $0.14
Per Common Share
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC 11,852,507 11,075,758 10,618,224
=========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING- 11,940,416 11,075,758 10,618,224
DILUTED =========== =========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
YEARS ENDED DECEMBER 31, 2003, 2002, and 2001
Common Stock Accumulated
Shares Amount Deficit Total
Balance at 10,618,224 $40,844,296 $(41,838,857) $ (994,561)
December 31, 2001
Cumulative Dividends
On Preferred Stock (56,573) (56,573)
Conversion of Redeemable
Preferred Stock into
Common Stock 1,000,000 1,159,541 1,159,541
Minority interest in
subsidiary (Note 11) 64,802 64,802
Net Income 1,684,219 1,684,219
Balance at ----------- ------------ ----------- ----------
December 31, 2002 11,618,224 $42,068,639 $(40,211,211) $1,857,428
Grant of restricted
Common Stock (Note 10) 94,286 94,286
Minority interest in
subsidiary (Note 11) 64,800 64,800
Net Income 1,392,986 1,392,986
Balance at ----------- ------------ ----------- ----------
December 31, 2003 11,618,224 $42,227,725 $(38,818,225) $3,409,500
=========== ============ =========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,392,986 $ 1,684,219 $1,567,517
Adjustments to reconcile net income to
net cash provided by(used in) operating
activities:
Depreciation and amortization 301,303 287,642 184,608
Compensation expense resulting from
Issuance of equity in subsidiary 150,000 150,000 0
Compensation expense resulting from
restricted stock grant to officers 94,286 0 0
Provision for bad debt 765,000 648,768 519,949
Minority interest 154,529 117,552 0
Deferred income tax benefit 0 0 (400,000)
Loss on disposal of fixed assets 12,575 4,060 0
Changes in operating assets and liabilities:
Accounts receivable-trade (2,206,115) (5,171,298) (2,554,895)
Other receivables 394,356 (273,764) (992,778)
Prepaid expenses and other current
assets 227,380 57,228 (495,321)
Accounts payable 1,381,716 2,158,243 466,358
Accrued expenses (25,821) 151,437 7,413
Insurance and claims (255,268) 414,426 211,346
Accrued interest 125,394 35,355 138,020
Accrued compensation (39,410) 7,728 45,654
Fuel and other taxes payable (53,576) (514) (61,568)
Accrued legal settlement 0 560,000 0
---------- ---------- ----------
Net cash provided by(used in)operating
activities 2,419,335 831,082 (1,363,697)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (155,706) (219,739) (1,209,994)
Proceeds from sale of fixed assets 27,900 62,655 0
Net cash used in investing ---------- ---------- ----------
activities (127,806) (157,084) (1,209,994)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments)borrowings
under line of credit (1,233,722) (647,519) 2,494,895
Proceeds from long term debt 0 282,216 1,049,094
Principal payments of long-term debt (484,453) (400,754) (331,672)
Net repayments of shareholder loans (455,801) (230,001) (316,566)
Distribution to minority interest (117,553) 0 0
Net cash (used in) Provided by ---------- ---------- ----------
financing activities (2,291,529) (996,058) 2,895,751
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH 0 (322,060) 322,060
CASH, BEGINNING OF YEAR 0 322,060 0
---------- ---------- ----------
CASH, END OF YEAR $ 0 $ 0 $322,060
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid during year for interest $469,050 $574,361 $400,538
The Company recorded $56,573 and $102,856 in 2002 and 2001 respectively, for
dividends on preferred stock.
On July 18, 2002, the Company redeemed all of the outstanding Series A
redeemable preferred stock (1,094,224 shares) plus all accrued dividends through
the issuance of 1,000,000 shares of the Company's common stock as further
discussed in Note 3.
The Company recognized $150,000 of compensation expense for each of the years
ended December 31, 2003 and 2002 for the issuance of common stock of a
subsidiary, which was issued to key employees as further discussed in Note 11.
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
US1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
1. OPERATIONS
The Company 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 and Canada with a concentration
in the Southeastern United States. One agent accounted for 10% and 6% of the
Company's revenue for the years ended December 31, 2003 and 2002. No agents
represented more than 10% of sales for the years ended December 31, 2003, 2002
and 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation-The consolidated financial statements include
the accounts of US 1 Industries, Inc. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Allowance for Doubtful Accounts-The Company records 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
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 in transit is recognized upon
delivery. Amounts payable for purchased transportation, commissions and
insurance expense are accrued when the related revenue is recognized.
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.
Assets Held for Sale-Such assets comprise real estate, not required for the
Company's operations, which is carried at the lower of historical cost or
estimated net realizable value. See Note 13.
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".
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 and liabilities. In addition, the amount of
any future tax benefits are reduced by a valuation allowance to the extent such
benefits are not expected to be fully utilized.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 2003, AND 2002
Earnings Per Common Share-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 loss available to
common stockholders by the weighted average common shares outstanding. Dilutive
earnings per share would include all common stock equivalents. There are
400,000 common stock equivalents at December 31, 2003 and none at December 31,
2002 or 2001.
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. The Company presents its operations in one business
segment.
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN46"), Consolidation of Variable Interest Entities, an
interpretation of ARB 51. The primary objectives of FIN 46 are to provide
guidance on the identification of entities for which control is achieved through
means other than through voting rights ("variable interest entities" or "VIEs")
and how to determine when and which business enterprise should consolidate the
VIE (the "primary beneficiary"). This new model for consolidation applies to an
entity in which either (1) the equity investors (if any) do not have a
controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that both the primary beneficiary and all other enterprises with a significant
variable interest in a VIE make additional disclosures. The provisions of FIN
46 were effective immediately for VIEs created after January 31, 2003. The
provisions are effective for the first period beginning after June 15, 2003 for
VIEs held prior to February 1, 2003. The Company has not acquired an interest
in any VIEs subsequent to January 31, 2003. The Company has evaluated American
Inter-Fidelity Exchange ("AIFE"), a reciprocal insurance company, to determine
if this entity qualifies as a VIE. AIFE provides auto liability insurance to
several subsidiaries of the Company as well as other entities related to the
Company by common ownership. AIFE currently receives a majority of its premiums
from the Company. The Company has determined that AIFE does not qualify as a
VIE and as a result the adoption of FIN 46 did not have a material impact on our
consolidated financial statements. However, the Company will continue to
evaluate its relationship with AIFE upon any change in circumstances to evaluate
the applicability of FIN 46 and other accounting guidance on consolidation.
In April 2003, FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities ("SFAS 149"). SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS 133. SFAS 149 is
effective for contracts and hedging relationships entered into or modified
after June 30, 2003. The Company adopted the provisions of SFAS 149
effective June 30, 2003 and such adoption did not have a material impact
on its consolidated financial statements since the Company has not
entered into any derivative or hedging transactions.
In May 2003, FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity ("SFAS 150"). SFAS 150 establishes standards for how
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 31, 2003, AND 2002
an issuer classifies and measures certain financial instruments with
Characteristics of both debt and equity and requires an issuer to classify the
following instruments as liabilities in its balance sheet:
* a financial instrument issued in the form of shares that is
mandatorily redeemable and embodies an unconditional obligation that
requires the issuer to redeem it by transferring its assets at a
specified or determinable date or upon an event that is certain to
occur;
* a financial instrument, other than an outstanding share, that embodies
an obligation to repurchase the issuer's equity shares, or is indexed
to such an obligation, and requires the issuer to settle the
obligation by transferring assets; and
* a financial instrument that embodies an unconditional obligation that
the issuer must settle by issuing a variable number of its equity
shares if the monetary value of the obligation is based solely or
predominantly on (1) a fixed monetary amount, (2) variations in
something other than the fair value of the issuer's equity shares, or
(3) variations inversely related to changes in the fair value of the
issuer's equity shares.
In November 2003, FASB issued FASB Staff Position No. 150-3 ("FSS 150-3")
which deferred the effective dates for applying certain provisions of SFAS 150
related to mandatorily redeemable financial instruments of certain non-public
entities and certain mandatorily redeemable non-controlling interests for public
and non-public companies. For public entities, SFAS 150 is effective for
mandatorily redeemable financial instruments entered into or modified after May
31, 2003 and is effective for all other financial instruments as of the first
interim period beginning after June 15, 2003. For mandatorily redeemable non-
controlling interests that would not have to be classified as liabilities by a
subsidiary under the exception in paragraph 9 of SFAS 150, but would be
classified as liabilities by the parent, the classification and measurement
provisions of SFAS 150 are deferred indefinitely. The measurement provisions of
SFAS 150 are also deferred indefinitely for other mandatorily redeemable non-
controlling interests that were issued before November 4, 2003. For those
instruments, the measurement guidance for redeemable shares and non-controlling
interests in other literature shall apply during the deferral period. The
adoption of FAS 150 did not have a material impact on the consolidated financial
statements of the Company.
3. REDEMPTION OF REDEEMABLE PREFERRED STOCK
On February 19, 2002, the Company's Board of Directors approved the
redemption of all of the outstanding Series A redeemable preferred stock
(1,094,224 shares) plus all accrued dividends through the issuance of 1,000,000
shares of the Company's common stock. The conversion was finalized on July 18,
2002.
The carrying value of the preferred stock exceeded the fair value of the
common stock issued by $609,541. As a result, the Company recorded this amount
as an addition to net income available to common shareholders by offsetting
charges and credits to common stock without any effect in total shareholders'
equity.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. EARNINGS PER COMMON SHARE
The Company calculates earnings per share ("EPS") in accordance with SFAS
No. 128. Following is the reconciliation of the numerators and denominators of
the basic and diluted EPS.
Numerator 2003 2002 2001
Net income $ 1,392,986 $ 1,684,219 $1,567,517
Dividends on preferred shares 0 ( 56,573) (102,856)
Redemption of redeemable preferred stock 609,541
--------- ---------- ----------
Net income available to common
shareholders for basic EPS 1,392,986 2,237,187 1,464,661
Net income attributable to unvested minority
interest shares in subsidiary (51,509) 0 0
--------- ---------- ----------
Net income available to common
shareholders for diluted EPS 1,341,477 2,237,187 1,464,661
Denominator
Weighted average common shares
outstanding for basic EPS 11,618,224 11,075,758 10,618,224
Effect of diluted securities
Unvested restricted stock granted
to employees 234,283 0 0
--------------------------------------
Weighted average shares outstanding
for diluted EPS 11,852,507 11,075,758 10,618,224
5. 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. Revenues related to those
services were approximately $104,000, $69,000 and $68,000 in 2003, 2002, and
2001, respectively. Also during 2002, the Company earned a management fee of
approximately $200,000 for non-recurring management services provided to Eastern
Refrigerated Express, Inc., an entity partially owned by the CEO and CFO of the
Company. These management fees have been classified as other income in the
consolidated statements of income for the year ended December 31, 2003.
Accounts receivable due from entities affiliated through common ownership was
$51,000 and $261,000 as of December 31, 2003 and 2002, respectively.
One of the Company's insurance providers, American Inter-Fidelity Exchange
(AIFE), is managed by a Director of the Company and the Company has an
investment of $126,461 in the provider. AIFE provides auto liability 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, 2003, 2002 and
2001, cash paid to AIFE for insurance premiums and deductibles amount to
$5,372,548, $3,922,764, and $1,597,168, respectively.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
RELATED PARTY TRANSACTIONS (continued)
The Company 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, 2003. 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, 2003, 2002
and 2001.
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, 2003. The Company
currently accounts for the majority of the premiums of AIFE. For fiscal 2002,
the Company accounted for approximately 90% of the total premium revenue of
AIFE. At December 31, 2002, AIFE had net worth of approximately $4.3 million, a
portion of which is attributable to other policyholders of AIFE.
In addition, the Chief Executive Officer and Chief Financial Officer, as
well as a director of the Company, are shareholders of American Inter-Fidelity
Corporation (AIFC), which serves as the attorney in fact of AIFE. AIFC is
entitled to receive a management fees from AIFE. During 2003, AIFE paid
management fees of $282,000 to AIFC which AIFC then paid as dividends totaling
$282,000 to these officers and directors of the Company.
In 2003 the company paid consulting fees of $8,000 to one of its directors
relating to insurance services.
The Company conducts business with freight companies under the control of a
director of the Company. Accounts receivable at December 31, 2003 and 2002
include $882,000 and $237,000, due from or guaranteed by these companies.
The Company has notes payable due to its Chief Executive Officer, Chief
Financial Officer, and August Investment Partnership, an entity affiliated
through common ownership, as described in Note 7.
6. LEASES
The Company leases its administrative offices in Gary, Indiana on a
month-to-month basis for $3,000 per month. Patriot Logistics, Inc. leases
office space in Fort Smith, Arkansas on a month-to-month basis for $3,216. Both
offices lease their space from The Company's President/Chief Executive Officer,
and Treasurer/Chief Financial Officer who are both directors of the Company.
In addition, the Company's subsidiaries lease office space and land in
Mississippi, Texas, South Carolina, Louisiana, Georgia, Missouri, North
Carolina, Indiana, California, and Arkansas under operating leases ranging from
one to three years.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
LEASES (Continued)
Rent expense under these operating leases was $672,000, $507,000 and
$227,000 for the years ended 2003, 2002, and 2001 respectively.
Future commitments under these operating leases are as follows:
2004 407,000
2005 228,000
2006 134,000
2007 48,000
---------
$ 817,000
=========
7. BANK LINE OF CREDIT
The Company has a $10.0 million line of credit that matures on October 1,
2005. Advances under this revolving line of credit are limited to 75% of
eligible accounts receivable. Availability under this line of credit was
$5,115,000 at December 31, 2003. The interest rate is based upon certain
financial covenants and may range from prime to prime less .50%. At December
31, 2003, the interest rate on this line of credit was at prime less .25%
(3.75%). The Company's accounts receivable, property, and other assets
collateralize advances under the agreement. Borrowings up to $1 million are
guaranteed by the Chief Executive Officer and Chief Financial Officer of the
Company. The outstanding borrowings on this line of credit were $4.9 and $6.1
million at December 31, 2003 and 2002, 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, total debt service coverage ratio, capital expenditure
limitations, and prohibition of additional indebtedness without prior
authorization. During 2003, the Company exceeded the capital expenditure
limitation. However, the lender waived this violation and increased the capital
expenditure limitation for fiscal 2003.
In October 2003, the Company's lender granted them a new equipment line of
credit in the amount of $500,000. Although the Company has not utilized this new
line of credit, the interest rate will range from prime to prime less 0.50% per
annum based on certain financial covenants. This new equipment line of credit
carries a maturity date of October 1, 2005.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. LONG-TERM DEBT
Long-term debt at December 31, 2003 and 2002 comprises:
2003 2002
Note payable to the Chief Executive Officer
And Chief Financial Officer, interest at
prime + .75%, interest only payments
required, with principal balance due October 2006. $2,039,707 $2,495,508
Mortgage note payable to the Chief Executive
Officer and Chief Financial Officer
collateralized by land, interest at
prime + .75%, interest only payments
required, principal balance due
October 2006 500,000 500,000
Note payable to August Investment
Partnership, interest at prime + .75%,
interest only payments required, principal
balance due October 2006 250,000 250,000
Mortgage note payable to August Investment
Partnership, interest at prime + .75%, interest
only payments required, principal balance due
October 2006 100,000 100,000
------------ -----------
Subtotal - related party debt $2,889,707 $3,345,508
Equipment loan, collateralized by equipment,
monthly payments of $12,537 including interest
at prime less .25% (3.75% at December 31, 2003)
through October 2005 with a balloon payment of
$87,800 due in October 2005. This loan is
subject to financial covenants discussed in Note 7 363,589 514,039
Equipment loan, collateralized by equipment,
interest rate at prime less .25%, principal payment
of $2,715(based on five year amortization
of principal balance) through October 2005
with a balloon payment of $46,000 due in
October 2005. This loan is subject to financial
covenants discussed in Note 7 105,893 138,476
Note Payable, FIFC Cargo Insurance
monthly payments of $30,945 including interest
at 5.7% through September 2003 0 272,000
Note payable, collateralized by equipment,
monthly payments of $2,077 including
interest at 9.55% through April 2004 8,143 31,080
Note payable, IPF Cargo Insurance
monthly payment of $2,374.00 including
interest at 6.5% through February 2004 2,363 0
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
LONG-TERM DEBT (Continued)
Other 1,372 10,217
--------- --------
Total debt 3,371,067 4,311,320
Less current portion 194,911 1,197,667
--------- ---------
Total long-term debt $ 3,176,156 $3,113,653
========== ==========
Interest expense on related party notes was approximately $137,000, $176,000,
and $280,000 for the years ended December 31, 2003, 2002, and 2001,
respectively.
Scheduled maturities of the long-term debt at December 31, 2003 are due as
follows:
2004 $ 194,911
2005 286,448
2006 2,889,708
-----------
$3,371,067
===========
9. INCOME TAXES
The following summary reconcile income taxes at the maximum federal statutory
rate with the effective rates for 2003,2002, and 2001 (in thousands):
December 31, 2003 2002 2001
Income tax expense at statutory rate 474,000 573,000 397,000
State income tax expense, net of federal 70,000 91,000 58,000
tax benefit
Other 97,000
Adjustment of valuation allowance (641,000) (664,000) (455,000)
--------------------------------
- - -
The Company and its subsidiaries file a consolidated federal income tax
return.
Deferred income taxes consist of the following:
December 31, 2003 2002 2001
- ---------------------------------------------------------------------------
Total deferred tax assets, relating
principally to net operating
loss carry-forwards $21,150,000 $21,597,000 $22,261,000
Less valuation allowance (19,950,000) (20,397,000) (21,061,000)
------------------------------------------
Total net deferred tax asset $ 1,200,000 $ 1,200,000 $ 1,200,000
------------------------------------------
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
TAXES (Continued)
At December 31, 2003 and 2002, the Company has realized a net deferred tax
asset of $1,200,000 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, 2003.
The Company has net operating loss carry-forwards of approximately $52
million at December 31, 2003. These carry-forwards are available to offset
taxable income in future years and substantially all of these carry-forwards
will expire in the years 2005 through 2010. Approximately 80% of the Company's
net operating loss carryforwards will expire in 2005 and 2006.
10. STOCK COMPENSATION
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. As
a result, the Company will incur approximately $220,000 of compensation expense
(based on the quoted market price of the Company's stock on the date of grant)
over the vesting period of this grant. These shares of common stock vest on
December 31, 2004.
11. MINORITY INTEREST
The Company entered into an agreement with certain key employees of its
subsidiary, Carolina National Transportation, Inc. ("Carolina"), in which these
employees will earn up to a 40% ownership interest in Carolina over a three year
period, beginning in the year following which Carolina achieves positive
retained earnings, contingent upon certain restrictions, including continued
employment at Carolina. In 2001, Carolina achieved positive retained earnings.
As a result, the Company will incur total compensation expense of $400,000 over
the three-year vesting period. These employees received a 15% ownership in
Carolina at December 31, 2002 and received an additional 15% at December
31,2003. These employees will receive an additional 10% ownership interest at
December 31, 2004. As a result of this agreement, the Company incurred
compensation expense of $150,000 for each of the years ended December 31, 2003
and 2002. The excess of the fair value of the Carolina common stock issued over
the book value of this common stock is reflected as a credit to common stock in
the amount of $64,800 and $64,802 for fiscal 2003 and 2002, respectively. The
Company also recognized minority interest expense of $154,529 and $117,552,
relating to the employees' portion of Carolina's net income for the years ended
December 31, 2003 and 2002, respectively. During fiscal 2003, Carolina paid
dividends of $117,553 to the minority shareholders. Net income for Carolina was
$515,096, $783,677, and $486,000, for the years ended 2003, 2002, and 2001,
respectively.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. COMMITMENTS AND CONTINGENCIES
Litigation
CAM Regional Transport and Laurel Mountain Leasing, Inc. filed a complaint
against the Company in 1994 which alleges breach of contract, claiming that
Trailblazer Transportation, Inc., a subsidiary of the Company which filed
bankruptcy, failed to abide by a purchase agreement entered into with Cam
Regional Transport, Inc. and Laurel Mountain Leasing, Inc. In addition, two
individuals affiliated with these companies claimed breach of employment
contracts against the Company.
In May 2002, judgment was rendered on these claims in favor of the
plaintiffs in the amount of $720,000. As a result, the Company increased
its accrual for this litigation to $700,000 by recording a charge of
$560,000 relating to this litigation for the year ended December 31, 2002.
The Company is currently awaiting the decision of the appeals court in
this matter.
In February 2002, one of the Company's subsidiaries, Carolina National
Transportation, was named as a defendant in a suit entitled Hoover
Transportation Services, Inc. vs. Tim A. Frye, Sr. In essence, the suit alleged
that the primary defendant, Mr. Frye, violated a non-competition agreement with,
and confidentiality obligations to, the plaintiff by providing freight related
services in the metropolitan Charlotte area. Mr. Frye's business contracted with
the Company's subsidiary for shipping, and, accordingly, the plaintiff alleged
that the Company's subsidiary is liable for damages as well. In March 2004, the
Company and Mr. Frye orally agreed to settle the claim for $113,355, with each
paying $56,678 of these settlements. The Company has agreed to lend $56,678 of
that amount to Mr. Frye to enable him to pay his portion of the settlement.
In September 2002, CGU International Insurance, PLC filed a complaint in the
United States District Court for the Northern District of California against
Keystone Lines Inc., a subsidiary of the Company, which asserted allegations of
breach of contract regarding alleged damage to cargo which occurred during
interstate transportation. On November 18, 2002, Keystone Lines Inc. filed an
answer to the complaint generally denying liability for the $392,000 loss
asserted by the complaint. Keystone filed a cross-complaint against other
parties, which it believed are liable for any losses established by the
plaintiff. At this time, the Company and its legal counsel are unable to
assess the outcome of this complaint. The Company has insurance coverage
for this matter, which provides for both defense and indemnity payments.
The Company intends to vigorously defend itself in this matter.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company is involved in other 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 position of the Company.
13. ENVIRONMENTAL MATTERS
The Company owns a piece of property in Phoenix where soil contamination
problems exist. The Company has been working with regulatory officials to
eliminate new contamination sources and determine the extent of existing
problems. Estimates of the cost to complete the future remediation of
approximately $141,000 are considered in the land valuation allowance at
December 31, 2003 and 2002.
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data) Net Net
Net Income Income
Operating Operating Income per share per share
Revenue Income basic diluted
2003
$121,747 $1,723 $1,393 $0.12 $0.11
-------------------------------------------------------------------------
Quarters:
Fourth 30,608 246 128 0.01 0.01
Third 30,877 324 238 0.02 0.02
Second 31,709 626 540 0.05 0.04
First 28,553 527 487 0.04 0.04
-------------------------------------------------------------------------
2002
$104,186 $2,402 $1,684 $0.20 $0.20
-------------------------------------------------------------------------
Quarters:
Fourth 27,957 633 574 0.05 0.05
Third 28,649 652 543 0.10 0.10
Second 26,644 644 559 0.05 0.05
First 20,936 473 8 0.00 0.00
------------------------------------------------------------------------
US 1 INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
Schedule II
Balance At Charged to Write-Offs,
Beginning of Costs and Retirements & Balance At
Year Expenses Recoveries End of Year
Description
-----------
Year Ended December 31, 2001
Allowance for Doubtful Accounts
Receivable $209,000 $519,949 $204,949 $524,000
Year Ended December 31, 2002
Allowance for Doubtful Accounts
Receivable $524,000 $648,768 $712,768 $460,000
Year Ended December 31, 2003
Allowance for Doubtful Accounts
Receivable $460,000 $765,000 $381,000 $844,000
Item 9. Changes in and Disagreements with Accountants' on Accounting and
Financial Disclosure.
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management,
under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures, as such terms are defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as of the end of the period covered by this report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective and are reasonably designed to ensure that all material
information relating to the Company that is required to be included in reports
filed or submitted under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission.
Internal Control Over Financial Reporting. There were no changes in the
Company's internal control over financial reporting during the quarter ended
December 31, 2003 identified in connection with the evaluation thereof by the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the company as of February 19, 2004 were
as follows:
NAME AGE POSITION
- ---- --- --------
Michael E. Kibler 63 President, Chief Executive Officer,
and Director
Harold E. Antonson 64 Chief Financial Officer, Treasurer,
and Director
Lex Venditti 51 Director
Robert I. Scissors 70 Director
Brad James 48 Director
William Sullivan 56 Director
Name Office and Experience
Michael E. Kibler Mr. Kibler is President and Chief Executive
Officer of the Company and has held these
positions since September 13, 1993. He also has
been President of Enterprise Truck Lines, Inc.,
an interstate trucking company engaging in
operations similar to the Company's, since 1972.
Mr. Kibler is a partner of August Investment
Partnership and is also a shareholder of
American Interfidelity Corporation, the
attorney-in-fact of American Inter-Fidelity
Exchange, an affiliated entity that provides
auto liability and cargo insurance to the
Company.
Harold E. Antonson Mr. Antonson is Chief Financial Officer of the
Company, a position he has held since March
1998. Mr. Antonson is a certified public
accountant. Prior to joining the Company, he
was Secretary/Treasurer of American
Inter-fidelity Exchange. Mr. Antonson is also a
partner in August Investment Partnership. Mr.
Antonson was elected a director and Treasurer of
the Company in November 1999. Mr. Antonson is
also a shareholder of American Interfidelity
Corporation, the attorney-in-fact of American
Inter-Fidelity Exchange, an affiliated entity
that provides auto liability and cargo insurance
to the Company.
Lex Venditti Mr. Venditti has served as a director of the
Company since 1993. Mr. Venditti has been the
General Manager of American Interfidelity
Exchange, an insurance reciprocal located in
Indiana. Mr. Venditti is also a shareholder of
American Interfidelity Corporation, the
attorney-in-fact of American Inter-Fidelity
Exchange, an affiliated entity that provides
auto liability and cargo insurance to the
Company.
Directors and Executive Officers of the Registrant (continued)
Name Office and Experience
- ---- ------------------------
Robert Scissors Mr. Scissors has been a Director of the Company
since 1993. Mr. Scissors began his career in
the Insurance Industry in 1957. In 1982, Mr.
Scissors joined a brokerage firm called
Alexander/Alexander where he worked until
retiring in 1992. Mr. Scissors currently works
as an insurance consultant and broker.
Brad James Mr. James is the President of Seagate
Transportation Services, Inc. Mr. James
graduated from Bowling Green University with a
Bachelors Degree in Business
Administration. He has been in the trucking
industry since 1977. Mr. James was elected
a director of the Company in 1999.
William Sullivan Mr. Sullivan has been the president of One Call
Motor Freight Inc. since 1981. He is also the
President of Unity Logistic Services, Inc. since
June 2000. Mr. Sullivan was elected a director
Of the Company in 2003. Mr. Sullivan has over
30 years experience in the trucking industry.
Code of Ethics
The Company has adopted a Code of Ethics that applies to the Chief Executive
Officer and the Chief Financial Officer a copy of which is filed as Exhibit 14.1
to this 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 American Inter-Fidelity Exchange
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.
Item 11. Executive Compensation
The following Summary Compensation Table sets forth compensation paid by the
Company during the years ended December 31, 2003, 2002, and 2001 to its Chief
Executive Officer and Chief Financial Officer, where applicable. No other
officer earned in excess of $ 100,000.
Summary Compensation Table
Annual Compensation
Name and Position Year Salary Bonus Other(1)
- ----------------- ---- ------ ----- --------
Michael Kibler 2003 106,580 0 110,000
President 2002 90,186 0 0
2001 33,048 0 0
Harold Antonson 2003 106,580 0 110,000
Chief Financial Officer 2002 90,186 0 0
2001 33,048 0 0
(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. As a result, the Company will incur approximately $220,000 of
compensation expense (based on the quoted market price of the Company's stock
on the date of grant) over the vesting period of this grant. These shares of
common stock vest on December 31, 2004.
Option exercises and option values
No stock options were issued to management employees in 2003 and no stock
options were outstanding as of December 31, 2003.
Restricted Stock Grant
During 2003, we granted a total of 400,000 shares (200,000 each) of common
stock to our Chief Executive Officer and Chief Financial Officer. These shares
will vest on December 31, 2004 contingent upon the continued employment of the
individuals. This restricted stock grant was not approved by the stockholders
of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Management
The following table sets forth the number and percentage of shares of Common
Stock that as of March 19, 2003 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
- ----------------- ------------------ -------------------
Michael E Kibler 2,830,790 (1,2) 24%
Director, President and
Chief Executive Officer
Robert I. Scissors, 51,770 (4) *
Director
Lex L. Venditti 20,000 *
Director
Brad A. James 166,981 *
William Sullivan 18,000 (5) *
Harold E. Antonson 2,890,235 (1,2,3) 25%
Chief Financial Officer,
Treasurer and Director
All Directors and Executive Officers 3,135,863 27%
* Indicates less than 1% ownership.
(1) As general partner of August Investment Partnership, August Investment
Corporation may be deemed to be the beneficial owner of the shares of
common stock of the Company owned by August Investment Partnership.
Messrs. Kibler and Antonson own August Investment Corporation in equal
shares and, as a result, may be deemed to be the beneficial owner of the
shares of common stock of the Company owned by August Investment
Partnership.
(2) As Director of Eastern Refrigerated Express Inc, an entity under
common control) Messrs. Kibler and Antonson may be deemed to be
beneficial owner of 522,439 Shares of Common Stock owned by Eastern.
(3) Mr. Antonson disclaims beneficial ownership of 197,500 shares of Common
Stock owned by American Inter-Fidelity Exchange, of which Mr. Antonson is
Secretary and Treasurer
(4) Includes 11,770 shares held in the Saundra L. Scissors Trust of which Mr.
and Mrs. Scissors are joint trustees.
(5) Includes 18,000 shares owned by
ERX, Inc. of which Mr. Sullivan is a controlling owner.
Security Ownership of Certain Beneficial Owners
The following table sets forth the number and percentage of shares of Common
Stock beneficially owned as of December 31, 2003 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:
Number of Shares of
Name and Address of Common Stock Percentage
Beneficial Owner Beneficially Owned of Class
- ---------------- ------------------ --------
Harold E. Antonson 2,890,235 (1,2,3) 25%
8400 Louisiana Street
Merrillville, IN 46410
August Investment Partnership 1,150,946 10%
8400 Louisiana Street
Merrillville, IN 46410
Michael Kibler 2,830,790 (1,3) 24%
8400 Louisiana Street
Merrillville, IN 46410
(1) As general partner of August Investment Partnership, August Investment
Corporation may be deemed to be the beneficial owner of the shares of common
stock of the Company owned by August Investment Partnership. Messrs. Kibler and
Antonson own August Investment Corporation in equal shares and, as a result, may
be deemed to be the beneficial owner of the shares of common stock of the
Company owned by August Investment Partnership.
(2) Mr. Antonson disclaims beneficial ownership of 197,500 shares of Common
Stock owned by American Inter-Fidelity Exchange, of which Mr. Antonson is
Secretary and Treasurer.
(3) As directors of Eastern Refrigerated Express, Inc., Messrs. Antonson and
Kibler may be deemed to be beneficial owners of 522,439 shares of Common Stock
owned by Eastern.
Item 13. Certain Relationships and Related Transactions.
The Company's administrative offices are at 1000 Colfax, Gary, Indiana. The
Company leases its administrative offices of approximately 9,000 square feet on
a month-to-month basis for $3,000 per month. Patriot Logistics, Inc. leases
office space in Fort Smith, Arkansas of approximately 13,250 square feet on a
month-to-month basis for $3,216. Both companies lease their space from Mr.
Michael E. Kibler, President, Chief Executive Officer, and a director of the
Company, and Mr. Harold E. Antonson, Treasurer, Chief Financial Officer, and a
director of the Company.
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. Revenues related to those
services were approximately $104,000, $69,000, and $68,000 in 2003, 2002, and
2001, respectively. Also during 2002, the Company earned a management fee of
approximately $200,000 for non-recurring management services provided to Eastern
Certain Relationships and Related Transactions (continued)
Refrigerated Express, Inc., an entity partially owned by the CEO and CFO of the
Company. These management fees have been classified as other income in the
consolidated statement of income for the year ended December 31, 2002. Accounts
receivable due from entities affiliated through common ownership was $51,000 and
$261,000 as of December 31, 2003 and 2002, respectively.
One of the Company's insurance providers, American Inter-Fidelity Exchange
(AIFE), is managed by a Director of the Company. The Company has an investment
of $126,461 in AIFE. AIFE provides auto liability 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, 2003, 2002 and 2001, cash
paid to AIFE for insurance premiums and deductibles amount to $5,372,548,
3,922,764, and $1,597,168, respectively.
The Company 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 ending December 31, 2001, 2002, and 2003. 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, 2001, 2002 and 2003.
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, 2001, 2002, and 2003.
The Company currently accounts for the majority of the premiums of AIFE.
For fiscal year 2002, the Company accounted for approximately 90% of the
total premium revenue of AIFE. At December 31, 2002, AIFE had net worth of
approximately $4.3 million, a portion of which is attributable to other
policyholders of AIFE.
In addition, the Chief Executive Officer and Chief Financial Officer, as
well as 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. During 2003, AIFE paid
management fees of $282,000 to AIFC which AIFC then paid as dividends totaling
$282,000 to these officers and directors of the Company who own shares of AIFC.
The Company conducts business with freight companies under the control of a
director of the Company. Accounts receivable due from or guaranteed by these
companies at December 31, 2003 and 2002 include $882,000 and 237,000,
respectively.
In 2003 the company paid $8,000 in consulting fees to a director of the
company relating to insurance services.
The Company has notes payable due to its Chief Executive Officer, Chief
Financial Officer, and August Investment Partnership, an entity affiliated
through common ownership, as described in Note 7 to the consolidated financial
statements.
Item 14. Principal Accounting Fees and Services
The following table shows the fees paid or accrued (in thousand) by US1 for
the audit and other services provided by BDO Seidman
2003 2002
Audit Fees (1) $128,195 $136,650
Audit-Related Fees(2) $ 0 $ 0
Tax Fees(3) $ 0 $ 400
All Other Fees(4) $ 0 $ 0
-------- --------
Total $128,195 $137,050
======== ========
(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 fees.
(3) Tax fees include fees for tax consultation.
(4) 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 certified
public accountants. The Audit Committee pre-approved all audit-related services
in 2003. There were no other fees during 2003.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
Reports of Independent Certified Public Accountants 17
Consolidated Balance Sheets as of December 31, 2003 and 2002 18 and 19
Consolidated Statements of Income for the years ended 20
December 31, 2003, 2002, and 2001
Consolidated Statements of Shareholders' Equity 21
for the years ended December 31, 2003, 2002, and 2001
Consolidated Statements of Cash Flows 22
for the years ended December 31, 2003, 2002, and 2001
Notes to Consolidated Financial Statements 23 - 31
(a)(2) Financial Statement Schedules:
Schedule of Valuation and Qualifying Accounts 32
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 Loan and Security Agreement with FIRSTAR and Carolina National
Transportation Inc., Keystone Lines, Inc., Gulfline Transport
Inc., and US 1 Industries, Inc.(by reference to the Company's Form
10-Q for the quarterly period ended March 31, 2000 filed on May
22, 2000).
Exhibit 10.2 Loan agreements with August Investment Partnership and US 1
Industries, Inc.
Exhibit 10.3 Loan agreements with Michael Kibler, Harold Antonson, and US 1
Industries, Inc.
Exhibit 10.4 First Amendment of Loan and Security Agreement with FIRSTAR and
Carolina National Transportation Inc., Keystone Lines, Gulfline
Transport Inc., and US1 Industries, Inc. (by reference to the
Company's Form 10-Q for the quarterly period ended June 30, 2000
filed on August 14, 2000) Loan agreements with AIFE/ITE and US 1
Industries.
Exhibit 10.5 Second Amendment of Loan and Security Agreement with FIRSTAR and
Carolina National Transportation Inc., Keystone Lines, Gulfline
Transport Inc., Five Star Transport, Inc., Cam Transport, Inc.,
and US1 Industries, Inc. (by reference to the Company's Annual
report on Form 10-K for the year ended December 31, 2000).
Exhibit 10.6 Third Amendment of Loan and Security Agreement with FIRSTAR and
Carolina National Transportation Inc., Keystone Lines, Gulfline
Transport Inc., Five Star Transport, Inc. Cam Transport, Inc., and
US1 Industries, Inc. (by reference to the Company's Form 10-Q for
the quarterly period ended March 31, 2001 filed on May 15, 2001).
Exhibit 10.7 Fourth Amendment of Loan and Security Agreement with FIRSTAR and
Carolina National Transportation Inc., Keystone Lines, Gulfline
Transport Inc., Five Star Transport, Inc., Cam Transport, Inc.,
and US1 Industries, Inc. (by reference to the Company's Form 10-Q
for the quarterly period ended September 30, 2001 filed on
November 9, 2001).
Exhibit 10.8 Sixth Amendment of Loan and Security Agreement with FIRSTAR and
Carolina National Transportation Inc., Keystone Lines, Gulfline
Transport Inc., Five Star Transport, Inc., Cam Transport, Inc.,
and US1 Industries, Inc. (by reference to the Company's Form 10-Q
for the quarterly period ended June 30, 2003 filed on August 16,
2002).
List of Exhibits (continued)
Exhibit 10.9 Fifth Amendment of Loan and Security Agreement with FIRSTAR and
Carolina National Transportation Inc., Keystone Lines, Gulfline
Transport Inc., Five Star Transport, Inc., Cam Transport, Inc.,
and US 1 Industries, Inc. (by reference to the Company's Form
10-K for the year ended December 31, 2002 filed on April 7,
2003).
Exhibit 10.10 Seventh Amendment of Loan and Security Agreement with US BANK
and Carolina National Transportation Inc., Keystone Lines,
Gulfline Transport Inc., Five Star Transport, Inc., Cam Transport,
Inc., and US 1 Industries, Inc. (by reference to the Company's
Form 10-Q for the quarterly period ended September 30, 2003 filed
on November 13, 2003).
Exhibit 14.1 US 1 Industries, Inc. Code of Ethics.
Exhibit 21.1 Subsidiaries of the Registrant
Exhibit 31.1 Rule 13a-14(a)\15d-14a(a) Certifications
Exhibit 32.1 Section 1350 Certifications
b) Reports on Form 8-K
Form 8-K filed on January 21, 2004, furnishing information from a press release
of the Company commenting on its expected fourth quarter results.
Form 8-K filed March 12, 2004, furnishing information from a press release
of the Company announcing its fourth quarter and full year results.
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:_________________ _________________________
William Sullivan, Director
Date:_________________ _________________________
Brad James, Director
Date:_________________ _________________________
Harold Antonson, Director