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, 2004.
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) 977-5225
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. [ ]
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 2, 2005, there were 11,618,224 shares of registrant's common stock
outstanding.
On June 30, 2004, 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 $7,146,126. For purposes of the
forgoing statement, directors, officers and greater than 5% shareholders of
the registrant have been assumed to be affiliates.
TABLE OF CONTENTS
PART I
Item 1. Description of Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis 8
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 17
Item 8 Financial Statements 18
Item 9 Changes in and Disagreements with Accountant's on
Accounting and Financial Disclosure 34
Item 9a. Controls and Procedures 35
PART III
Item 10 Directors and Executive Officers of the Registrant 36
Item 11 Executive Compensation 38
Item 12 Security Ownership of Certain Beneficial Owners
and Management 39
Item 13 Certain Relationships and Related Transactions 40
Item 14 Principal Accounting Fees and Services 42
PART IV
Item 15 Exhibits and Financial Statement Schedules 43
SIGNATURES
PART 1
Item 1. Business.
The registrant, US 1 Industries, Inc. is a holding company that owns
subsidiary operating companies most, of which are interstate trucking
companies operating in all 48 states. For descriptive purposes herein the
registrant, US 1 Industries, Inc may hereinafter be referred to, together with
its subsidiaries, as "US 1" or the "Company". The Company's business consists
principally of truckload operations, for which the Company obtains a
significant percentage of its business through independent agents, who then
arrange with independent truckers to haul the freight to the desired
destination.
US 1 was incorporated in California under the name Transcon Incorporated
on March 3, 1981. In March 1994, the Company changed its name to US 1
Industries, Inc. In February 1995, the Company was merged with an Indiana
corporation for purposes of re-incorporation under the laws of the state of
Indiana. The Company's principal subsidiaries consist of Antler Transport,
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, officers
and directors, and are run independently of the parent and each other.
Operations
The Company, through its subsidiaries, carries virtually all forms of
freight transported by truck, including specialized trucking services such
as containerized, refrigerated, and flatbed transportation.
The Company, through its subsidiaries, is primarily a non-asset based
business, contracting with independent truckers who generally own the trucks
they drive and independent agents who own the terminals from which they
operate. The Company pays the independent truckers and agents a percentage
of the revenue received from customers for the transportation of goods. The
expenses related to the operation of the trucks are the responsibility of
the independent contractors and the expenses related to the operation of the
terminals are the responsibility of the agents. Certain operations of the
Company also subcontract ("broker") freight loads to other unaffiliated
transportation companies. Consequently, short-term fluctuations in operating
activity have less of an impact on the Company's net income than they have on
the net income of truck transportation companies that bear substantially all
of the fixed cost associated with the ownership of the trucks. Like other
truck transportation companies, however, US 1 Industries' revenues are affected
by competition and the state of the economy.
During 2001, the Company began Keystone Intermodal, which utilizes
employees to staff the terminals rather than independent sales agents. During
2002 the Company began Transport Leasing Georgia, which also utilizes
employees rather than independent agents. In 2003, the operation formally
known as Keystone Intermodal was renamed Patriot Logistics, Inc. These
operations accounted for approximately 29% and 23% of the Company's
consolidated revenues in 2004 and 2003, respectively.
Marketing and Customers
The Company, through its subsidiaries, conducts the majority of its
business through a network of independent agents who are in regular contact
with shippers at the local level. The agents have facilities and personnel
to monitor and coordinate shipments and respond to shippers' needs in a timely
manner.
These agents are typically paid a commission of 6% to 10% of the
Company's revenues from the agents' trucking operations.
During 2004, the Company utilized the services of approximately 98 agents.
One agent accounted for 10.3%, 11.3%, and 6.9% of the Company's revenue for
the years ended December 31, 2004, 2003, and 2002, respectively. Otherwise,
no other agent accounted for more than 10% of revenue during any of these
years. The Company shipped freight for approximately 1,000 customers in 2004,
none of which accounted for more than 10% of the Company's revenues.
Independent Contractors
The independent contractors (persons who own the trucks) used by the
Company must enter into standard equipment operating agreements. The
agreements provide that independent contractors must bear many of the costs
of operations, including drivers' compensation, maintenance costs, fuel
costs, collision insurance, taxes related to the ownership and operation of
the vehicle, licenses, and permits. These independent contractors are paid
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, 2004, the Company, through its subsidiaries, had
approximately 78 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 US 1 subsidiary trucking companies purchase liability insurance
coverage of up to $1 million per occurrence with a $5,000 deductible for
the operation of the trucks. They also buy cargo insurance coverage of up
to $1,000,000 per occurrence with up to a $50,000 deductible. The companies
also purchase a commercial general liability policy with a limit of
$2,000,000 combined single limit and no deductible. The current insurance
market is volatile with significant rate changes that could adversely affect
the cost and availability of coverage. In addition, the insurance coverage
that the companies purchase may, given the recent trend toward exorbitant
jury verdicts, not be sufficient to cover losses experienced by the companies,
as was the case with a recent verdict against Cam Transport, Inc. See "Item 3.
Legal Proceedings."
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 and cargo
insurance to several subsidiaries of the Company as well as other entities,
some of which are related to the Company by common ownership. For the
years ended December 31, 2004, 2003 and 2002, cash paid to AIFE for
insurance premiums and deductibles was approximately $5,673,000, $5,373,000,
and $3,923,000, respectively.
The Company exercises no control over the operations of AIFE. As a
result, the Company recorded its investment in AIFE under the cost method
of accounting for each of the three years ending December 31, 2002, 2003,
and 2004. 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, 2004, 2003 and 2002.
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, 2002, 2003, and
2004. For fiscal 2004, the Company accounted for approximately 85% of the
total premium revenue of AIFE. At December 31, 2003, AIFE had net worth of
approximately $5.6 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 another director of the Company, are the sole shareholders of American
Inter-Fidelity Corporation (AIFC), which serves as the attorney in fact of
AIFE. AIFC is entitled to receive a management fee from AIFE. AIFE paid
management fees of $277,000 and $282,000 to AIFC during 2004 and 2003,
respectively, which AIFC then paid as dividends 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
Independent Contractor Status (continued)
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, through its subsidiaries 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 and its subsidiaries are subject to various federal, state,
and local environmental laws and regulations, implemented principally by the
Environmental Protection Agency (EPA) and similar state regulatory agencies,
governing the management of hazardous wastes, other discharge of pollutants
into the air and surface and underground waters, and the disposal of certain
substances. Management believes that its operations are in compliance with
current laws and regulations and does not know of any existing condition
(except as noted in the Environmental Regulation section below) that would
cause compliance with applicable environmental regulations to have a material
effect on the Company's earnings or competitive position.
Environmental Regulation
The Company's subsidiary, TC Services, Inc. owns property in Phoenix,
Arizona that was formerly leased to Transcon Lines as a terminal facility,
where soil contamination problems existed or are known to exist currently.
State environmental authorities notified the Company of potential soil
contamination from underground storage tanks, and management has been
working with the regulatory authorities to implement the required remediation.
The underground storage tanks were removed from the Phoenix facility in
February 1994. Currently the Arizona environmental authorities are requiring
further testing of the property. The Company believes it is in substantial
compliance with state and federal environmental regulations relative to the
trucking business. However, the Company is working with regulatory officials
to eliminate any sources of contamination and determine the extent of 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, 2004 and 2003.
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 2005 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 5,000 square
feet on a month-to-month basis for $3,000 per month. Patriot Logistics, Inc.
leases office space in Fort Smith, AK 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
Subsidiary City, State Square Feet Lease/Rent Expiration
Carolina National Transportation,Inc. Mt. Pleasant, SC 6,280 $ 9,229 June 30, 2011
Keystone Logistics, Inc. South bend, IN 4,015 2,987 month to month
CAM Transport, Inc. Gulfport, MS 3,000 1,600 month to month
Patriot Logistics, Inc Atlanta, GA 57,420 1,997 Aug. 31, 2005
Patriot Logistics, Inc Houston, TX 33,000 9,000 Dec. 31, 2005
Patriot Logistics, Inc. Laredo, TX 1,520 1,250 Sept 30, 2005
Patriot Logistics, Inc. Jacksonville, FL 1,500 5,664 Sept 30, 2007
Patriot Logistics, Inc. Lathrop, CA 1,000 1,200 month to month
Patriot Logistics, Inc. Lynwood, CA 18,704 8,416 July 7, 2007
Patriot Logistics, Inc. Milpitas, CA 1,278 2,275 June 30, 2005
Patriot Logistics, Inc. Houston, TX 4,050 2,005 Dec. 14, 2007
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 1,500 March 1, 2005
Patriot Logistics, Inc Charlotte, NC 500 2,500 May 31, 2005
Patriot Logistics, Inc Irving, TX 1,196 1,196 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
On March 16, 2005, a jury entered a verdict against a subsidiary of the
Company, Cam Transport, Inc. ("CAM") in the amount of $1.7 million in a
personal injury case relating to an auto accident which occurred on March 22,
2001 entitled Lina Bennett vs. Toby M. Ridgeway and Cam Transport, Inc. in
the Court of Common Pleas of Allendale County, South Carolina. As a result,
the Company recorded a charge of $1.7 million related to this litigation for
the year-ended December 31, 2004. This amount is included in accrued legal
settlements at December 31, 2004.
CAM maintains auto liability insurance up to a maximum of $1 million per
occurrence for litigation related to such accidents. However, CAM's insurer,
American Inter-fidelity Exchange, has filed a declaratory judgment action
asserting that it is not obligated to provide insurance coverage on this
matter. As a result of the uncertainty regarding the insurance coverage for
his claim, the expense recorded for this litigation has not been reduced by
any expected amounts to be recovered from the insurance company and there is
no receivable established at December 31, 2004 for the amount which could
possibly be covered under the auto liability policy. As a result, Cam
Transport, Inc. does not have sufficient net worth or assets to satisfy the
verdict, and substantially all of Cam Transport, Inc.'s assets are pledged
to its lender.
The Company and its subsidiaries are involved in other litigation in the
normal course of its business. Management intends to vigorously defend these
cases. In the opinion of management, the other litigation now pending will
not have a material adverse affect on the consolidated financial statements
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No Matters were submitted to a vote of Security Holders during the
fourth quarter of 2004.
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.OB".
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
___________________________________________________________________________
2004
First Quarter 1.25 .81
Second Quarter 1.23 .71
Third Quarter .84 .47
Fourth Quarter 1.07 .59
2003
First Quarter .60 .42
Second Quarter 1.15 .36
Third Quarter 1.45 .79
Fourth Quarter 2.85 .93
As of March 2, 2005, there were approximately 3,104 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, 2004,
2003 and 2002 have been audited by the Company's registered 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 shares and per share data)
Fiscal Year Ended December 31,
2004 2003 2002 2001 2000
STATEMENT OF OPERATIONS DATA:
Operating revenues $143,313 $121,747 $104,186 $72,068 $48,284
Purchased transportation 105,538 89,699 77,071 55,609 37,627
Commissions 14,294 12,348 10,278 6,597 4,344
Other operating costs and
expenses 23,425 17,977 14,435 8,051 4,498
Operating income 56 1,723 2,402 1,811 1,325
Interest expense 466 493 550 712 623
Minority interest expense 28 155 118 0 0
Income before income taxes 101 1,393 1,684 1,168 802
Income tax (expense) benefit (86) 0 0 400 800
Net income 15 1,393 1,684 1,568 1,602
Net Income available to common
shares 15 1,393 2,237 1,465 1,509
Income per common share
Net Income
Basic $0.00 $0.12 $0.20 $0.14 $0.14
Diluted $0.00 $0.11 $0.20 $0.14 $0.14
Weighted average shares outstanding:
Basic 11,618,224 11,618,224 11,075,758 10,618,224 10,618,224
Diluted 11,964,174 11,852,507 11,075,758 10,618,224 10,618,224
BALANCE SHEET DATA:
Total assets 26,120 22,077 21,444 11,891 11,891
Long-term debt, including
current portion 2,890 3,371 4,311 4,660 4,259
Working capital 5,145 4,888 2,966 2,039 1,720
Shareholders' equity
(deficiency) 3,593 3,410 1,857 ( 995) (2,459)
(in thousands)
Fiscal Year Ended December 31,
2004 2003 2002 2001 2000
OTHER DATA:
Cash (used in) provided by
operating activities (271) 2,419 831 (1,364) (2,656)
Cash provided by (used in)
investing activities 274 (128) (157) (1,210) (84)
Cash provided by (used in)
financing activities (3) (2,291) (996) 2,895 2,740
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 similarly 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. One of the Company's subsidiaries recently had a substantial verdict
entered against it. See "Item 3. Legal Proceeding".
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,
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
--------------------------
2004 2003 2002
------ ------ ------
Revenue 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation 73.6 73.7 74.0
Commissions 10.0 10.1 9.9
Insurance and claims 4.2 4.4 4.2
Litigation judgment 1.2 0.0 0.0
Salaries, wages and fringe benefits 6.3 5.6 4.9
Other operating expenses 4.6 4.8 4.8
Total operating expenses 99.9 98.6 97.8
Operating income 0.1 1.4 2.2
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 un-collectable and (2) an additional
allowance based on certain percentages of our aged receivables, which are
determined based on historical experience and (3) our assessment of the
general financial conditions affecting our customer base. At December 31,
2004, the allowance for doubtful accounts was $1,023,000 or approximately 4%
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 un-collectable.
Revenue for freight is recognized upon delivery. Amounts payable for
purchased transportation, commissions and insurance are accrued when incurred.
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 loss can be reasonably
estimated, the loss is recognized in the Company's financial statements. If a
potential loss is not determined to be both probable and reasonably estimated,
Critical Accounting Policies and Estimates (continued)
but there is at least a reasonable possibility that a loss may be incurred,
the litigation is not recorded in the Company's financial statements but this
litigation is disclosed in the footnotes of the financial statements.
The Company's subsidiaries carry insurance for auto liability, property
damage, and cargo loss and damage through various programs. 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, 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, 2004, 2003 and 2002, cash paid
to AIFE for insurance premiums and deductibles were approximately $5,673,000,
$5,373,000, and $3,923,000, respectively.
The Company exercises no control over the operations of AIFE. As a
result, the Company recorded its investment in AIFE under the cost method of
accounting for each of the three years in the period ended December 31, 2004.
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,
2004, 2003 and 2002.
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, 2002, 2003, and
Critical Accounting Policies and Estimates (continued)
2004. The Subsidiaries of the Company currently account for the majority of
the premiums of AIFE. For fiscal 2004, the Company accounted for
approximately 85% of the total premium revenue of AIFE. At December 31,
2003, AIFE had net worth of approximately $5.6 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,
2004, the Company's deferred tax asset of approximately $20.4 million
consists principally of net operating loss carry-forwards. The Company's
deferred tax asset has been reduced by a valuation allowance to the extent
such benefits are not expected to be fully utilized. The Company has based
its estimate of the future utilization of the net operating loss upon its
estimate of future taxable income as well as the timing of expiration of the
Company's net operating loss carry-forwards. Approximately 86% of the
Company's net operating loss carry-forwards will expire in 2005 and 2006,
with substantially all of the net operating loss carry forwards expiring by
2010. At December 31, 2004, the valuation allowance for deferred tax assets
was approximately $19.2 million. If actual future taxable income differs,
revisions to the valuation allowance and net deferred tax asset
may be required.
2004 Compared to 2003
Revenue for the 2004 fiscal year was $143.3 million, an increase of
$21.6 million, or 17.7%, over revenue for the 2003 fiscal year. The
increase was attributable to the continued growth of Patriot Logistics,
Inc. (f/k/a Keystone Intermodal, Inc.) and Keystone Logistics, Inc.
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 83.6% of revenue in fiscal 2004 versus 83.8%
of revenue in fiscal 2003.
In late 2001, the Company began a subsidiary motor carrier, Patriot
Logistics, Inc. that 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 29% and 23% of
consolidated revenue in fiscal 2004 and 2003, 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, along
with an increase in salaries. However, the Company's subsidiaries 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 decreased in 2004 to 4.2% of revenue compared to 4.4%
of revenue for 2003. 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 decrease of 0.2% of revenue can
be attributed to the decrease of certain operations' claim activity for the
year ended December 31, 2004 in comparison to that of the same period for
2003. The Company obtains a significant amount of its auto liability and
cargo insurance from AIFE, an affiliated entity (see Note 5 to consolidated
financial statements).
Litigation judgment increased $1.7 million in 2004. This increase is
the result of a verdict entered on March 16, 2005 against a subsidiary of the
Company, Cam Transport, Inc., in the amount of $1.7 million for a personal
injury case relating to an auto accident which occurred in March 2001. This
case is discussed in detail under Item 3.
Salaries, wages and fringe benefits were 6.2% of revenue in 2004 and 5.6%
in 2003. This increase of 0.6% can primarily be attributed to the addition
of personnel hired to accommodate the growth of expanding terminals that have
not yet begun to or did not produce at their full revenue potential.
2004 Compared to 2003 (continued)
Other operating expenses decreased slightly as a percentage of revenue
to 4.7% in 2004 from 4.8% in 2003. While not all operating expenses are
directly variable with revenues, the increased revenue directly impacts
several components of operating expenses such as bad debt expense. In
addition, the Company's subsidiaries have 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
$0.8 million from $5.9 million in 2003 to $6.7 million in 2004. The increase
is primarily attributable to (1) a $0.73 million increase in operating expense
due specifically to the growth of two significant operations, (2) $0.16
million increase in rent expense due to the expansion of locations, (3)$0.06
million increase in bad debt expense, and (4) overall increase in operating
expenses at other locations as volume continued to grow during 2004.
Based on the changes in revenue and expenses discussed above, operating
income decreased by $1,667,034 from $1,723,381 in 2003 to $56,347 in 2004.
Interest expense decreased slightly to $0.47 million in 2004 from $0.49
million in 2003. This decrease in interest expense is primarily attributable
to a decrease in the funds the Company borrowed against its line of credit
during 2004. 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, 2004 the Company's interest rate on the
loan with its lender was at prime (5.25%).
Other income includes income from rental property, storage fees, and
gain on the sale of fixed assets. Other income increased $.22 million in 2004
from 2003. This increase is due primarily to the gain on the sale of
equipment.
The Company also recognized minority interest expense of $27,748 and
$154,529 relating to the minority shareholders' portion of its subsidiary,
Carolina National Transportation, Inc., net income for the years ended
December 31, 2004 and 2003, respectively. Carolina National Transportation,
Inc., is a 60% owned subsidiary of the Company.
The Company has net operating loss carry-forwards of approximately $50
million at December 31, 2004. 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 86% of the
Company's net operating loss carry-forwards will expire in 2005 & 2006. At
December 31, 2004, 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, 2004.
As a result of the factors outlined above, net income in 2004 was $14,522
compared with $1,392,986 in 2003.
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 a subsidiary motor carrier, Patriot
Logistics, Inc. that 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 subsidiaries 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 subsidiaries 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. The subsidiaries obtain a significant
amount of their auto liability and cargo insurance from AIFE, an affiliated
entity (see Note 5 to consolidated financial statements).
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, the increased revenue directly impacts several components of
operating expenses such as bad debt expense. 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.
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 its subsidiary,
Carolina National Transportation, Inc.'s, net income for the years ended
December 31, 2003 and 2002, respectively. Carolina National Transportation,
Inc. is a 60% owned subsidiary of the company.
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.
Liquidity and Capital Resources
During fiscal 2004, the Company's financial position continued to improve.
The Company had shareholders' equity of $3.6 million at December 31, 2004
compared with $3.4 million at December 31, 2003. Working capital at December
31, 2004 was $5.1 million compared to $4.9 million at the end of 2003. This
increase in working capital is due to continuing profitability.
Net cash provided by (used in) operating activities decreased $2,690,254
from $2,419,335 for the year ended December 31, 2003 to ($270,919) for the year
ended December 31, 2004. The decrease in net cash provided by operating
activities is attributable to an increase in accounts receivable of
$4,866,657 due to increased revenue at several of the Company's subsidiaries.
This increase is somewhat offset by an increase in accounts payable and accrued
expenses of $1,362,471 and an increase in litigation accrual of $1,700,000.
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.
Net cash provided by (used in) investing activities was $274,470 for the
year ended December 31, 2004 compared to ($127,806) for the year ended
December 31, 2003. This increase is primarily the result of proceeds from the
sale of fixed assets from a subsidiary of the Company closed in the middle of
2004.
Net cash provided by (used in) financing activities increased $2,287,978
from ($2,291,529) for the year ended December 31, 2003 to ($3,551) for the year
ended December 31, 2004. The increase resulted from the increase in the
Company's line of credit balance due to the funding needed for the growth of
existing terminals. For the year ended December 31, 2003, the Company used cash
in financing activities for the repayments of shareholder and equipment loans
in the amount of $477,624 and a reduction in the outstanding borrowing under the
line of credit of $628,602.
The Company has a $10 million revolving line-of-credit. The maturity date
of the Company's revolving line of credit is 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, 2004, the
interest rate on this line of credit was at prime (5.25%). The Company's
accounts receivable, property, and other assets collateralize advances under
the agreement. Availability under this line of credit was approximately
$4.5 million at December 31, 2004. The Chief Executive Officer and
Liquidity and Capital Resources (continued)
Chief Financial Officer of the Company guarantee borrowings of up to $1.5
million. At December 31, 2004, the outstanding borrowings on this line of
credit were $5.5 million.
The Company is dependent upon the funds available under its line of
Credit agreement for liquidity. As long as the Company can fund the
equivalent of 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 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. 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.
At December 31, 2004, the Company was in violation of certain financial
covenants. The Company is currently working with the bank to obtain waivers
for these violations. The Company believes it will be able to obtain waivers
for these financial covenant violations. In addition, the Company believes it
will be able to extend this line-of-credit agreement or obtain similar
financing from an alternative source prior to the maturity date of this line
of credit in October 2005. The balance outstanding under this line-of-credit
agreement is classified as a current liability at December 31, 2004.
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. Repayment of the subordinate debt
would require approval from the lender of the revolving credit facility.
The subordinated debt has historically been extended prior to maturity.
The following is a table of our contractual obligations and other commercial
commitments as of December 31, 2004:
Less than 2-3 4-5 After
Total 1 year Years Years 5 years
Contractual Obligations
Revolving Line of Credit 5,513,360 5,513,360
Long-Term Debt 2,889,708 0 2,889,708
Operating Leases 1,790,037 667,875 734,553 221,491 166,118
Total Contractual
Obligations 10,193,105 6,181,235 3,624,261 221,491 166,118
(payments include principal only)
The Company does not have any long-term purchase commitments as of December
31, 2004.
Environmental Liabilities
Neither the Company nor its subsidiaries is a party to any Super-fund
litigation and does not have any known environmental claims against it except
for the one property owned by its subsidiary TC Services, Inc. where soil
contamination problems existed or are known to exist currently. The Company
has conducted a preliminary evaluation of its potential liability at this site
and believes that it has reserved appropriately for remediation of the site or
that the fair market value of the property exceeds its net book value by an
Environmental Liabilities (continued)
amount in excess of any remediation cost. There can be no assurance, however,
that the cost of remediation would not exceed the expected amounts. The
Company continues to monitor soil contamination and may be required to
remediate the property in the near future.
Inflation
Changes in freight rates charged by the Company to their customers are
generally reflected in the cost of purchased transportation and commissions
paid by the subsidiaries to independent contractors and agents, respectively.
Therefore, management believes that future-operating results will be affected
primarily by changes in the volume of business. Rising fuel prices are
generally offset by a fuel surcharge they pass onto their customers. However,
due to the highly competitive nature of the truckload motor carrier industry,
it is possible that future freight rates, cost of purchased transportation,
as well as fuel prices may fluctuate, affecting the Company's consolidated
profitability.
Recently Issued Accounting Standards
In December 2004, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123(R), "Share-Based Payment". This statement revises
FASB Statement No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS No. 123(R) focuses primarily on the accounting for transactions in which
an entity obtains employee services in share-based payment transactions. SFAS
No. 123(R) requires companies to recognize in the statement of operations the
cost of employee services received in exchange for awards of equity
instruments based on the grant-date fair value of those awards (with limited
exceptions). This Statement is effective as of the first reporting period that
begins after June 15, 2005. Accordingly, we will adopt SFAS 123(R) in the
third quarter of fiscal 2005. We are currently evaluating the provisions of
SFAS 123(R) and have not yet determined the impact that this Statement will
have on our results of operations or financial position.
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN 46"), 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. In December 2003, the FASB issued FIN 46R with respect to variable
interest entities created before January 31, 2003, which among other things,
revised the implementation date to the first fiscal year or interim period
ending after March 15, 2004, with the exception of Special Purpose Entities
("SPE).
Recently Issued Accounting Standards (continued)
The consolidation requirements apply to all SPE's in the first fiscal year
or interim period ending after December 15, 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 some of which are related to the Company
by common ownership. AIFE currently receives a majority of its premiums
from the Company's subsidiaries. Management has determined that AIFE does
not qualify as a VIE and as a result the adoption of FIN 46R 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 46R and other
accounting guidance on consolidation.
Off-Balance Sheet Arrangements
The Company's subsidiaries obtain the majority of their auto liability and
cargo insurance from AIFE. For the years ended December 31, 2004, 2003, and
2002, cash paid to AIFE for insurance premiums and deductibles was
approximately $5,673,000, $5,372,000, and $3,923,000, respectively. If AIFE
incurs a net loss, the loss may be allocated to the various policyholders
based on each policyholder's premium as a percentage of the total premiums of
AIFE for the related period. There has been no such loss assessment for each
of the years ended December 31, 2004, 2003, and 2002, respectively. The
Company currently accounts for the majority of the premiums of AIFE. For fiscal
2004, the Subsidiaries of the Company account for approximately 85% of the
total premium revenue of AIFE.
At December 31, 2003, AIFE had net worth of approximately $5.6 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 (5.25% at December 31, 2004) to prime less .50%. At December 31, 2004,
the interest rate on this line of credit was at prime. The outstanding balance
on this line of credit at December 31, 2004 was $5.5 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 1.0%. Based on the Company's outstanding borrowings
at December 31, 2004, a 1% increase in the prime rate would result in
approximately $84,000 of additional interest expense annually.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and 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, 2004 and 2003 and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2004.
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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and schedule are free of material
misstatement. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements 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, 2004 and 2003, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 2004, 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 9, 2005, except for Note 12,
which is as of March 16, 2005
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
ASSETS
2004 2003
CURRENT ASSETS:
Accounts receivable-trade, including
receivables due from affiliated entities of
$395,000 and $882,000, respectively and
less allowance for doubtful accounts of
$1,023,000 and $844,000 respectively $22,051,059 $17,910,027
Other receivables, including receivables due
from affiliated entities of $175,000 and
$51,000 in 2004 and 2003, respectively 1,362,631 1,254,243
Prepaid expenses and other current assets 513,069 289,776
Current deferred tax asset 600,000 600,000
------------ ----------
Total current assets 24,526,759 20,054,046
FIXED ASSETS:
Equipment 1,315,233 1,765,979
Less accumulated depreciation and amortization (768,821) (794,676)
------------ ----------
Net fixed assets 546,412 971,303
------------ ----------
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 392,357 397,745
------------- -----------
TOTAL ASSETS $26,119,528 $22,077,094
============= ===========
The accompanying notes are an integral part of the consolidated financial statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
LIABILITIES AND SHAREHOLDERS' EQUITY
2004 2003
CURRENT LIABILITIES:
Revolving line of credit $ 5,513,360 $ 4,884,758
Current portion of long-term debt 0 194,911
Accounts payable 8,092,664 7,009,625
Other accrued expenses 684,068 377,475
Insurance and claims 1,341,855 788 954
Accrued compensation 296,681 47,863
Accrued interest 1,274,510 1,134,787
Fuel and other taxes payable 95,467 28,138
Accrued Legal Settlements 2,083,333 700,000
----------- -----------
Total current liabilities 19,381,938 15,166,511
----------- -----------
LONG-TERM DEBT(RELATED PARTY),
LESS CURRENT PORTION 2,889,708 3,176,153
MINORITY INTEREST 254,946 324,927
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, 2004
and December 31, 2003.
42,396,639 42,227,725
Accumulated deficit (38,803,703) (38,818,225)
----------- -----------
Total shareholders' equity 3,592,936 3,409,500
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 26,119,528 $ 22,077,094
=========== =============
The accompanying notes are an integral part of the consolidated financial statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
2004 2003 2002
OPERATING REVENUES $143,312,604 $121,747,394 $104,186,132
OPERATING EXPENSES:
Purchased transportation 105,537,666 89,698,731 77,070,624
Commissions 14,293,663 12,348,082 10,278,481
Insurance and claims 6,067,748 5,292,548 4,342,330
Litigation Judgment 1,700,000 0 0
Salaries, wages, and other 8,994,178 6,827,806 5,050,396
Other Operating expenses 6,663,002 5,856,846 5,042,476
Total operating expenses 143,256,257 120,024,013 101,784,307
OPERATING INCOME 56,347 1,723,381 2,401,825
NON OPERATING INCOME (EXPENSE):
Legal Settlement 0 0 (550,857)
Interest income 21,981 15,301 28,937
Interest expense (465,903) (493,411) (550,248)
Other income, net 516,583 302,244 472,114
Total non operating income
(expense) 72,661 (175,866) (600,054)
NET INCOME BEFORE MINORITY INTEREST 129,008 1,547,515 1,801,771
Minority Interest (27,748) (154,529) (117,552)
NET INCOME BEFORE INCOME TAXES 101,260 1,392,986 1,684,219
Income Taxes 86,738 0 0
NET INCOME BEFORE DIVIDENDS 14,522 1,392,986 1,684,219
Dividends on Preferred Shares 0 0 ( 56,573)
Redemption of Redeemable
Preferred Stock 0 0 609,541
NET INCOME AVAILABLE TO COMMON SHARES $ 14,522 $ 1,392,986 $ 2,237,187
Basic Net Income
Per Common Share $0.00 $0.12 $0.20
Diluted Net Income $0.00 $0.11 $0.20
Per Common Share
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING -BASIC 11,618,224 11,618,224 11,075,758
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING DILUTED 11,964,174 11,852,507 11,075,758
The accompanying notes are an integral part of the consolidated financial statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003, and 2002
Common Stock Accumulated
Shares Amount Deficit Total
Balance at
December 31, 2001 10,618,224 $40,844,296 $(41,838,857) $(994,561)
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
Grant of restricted
Common Stock (Note 10) 125,714 125,714
Minority interest in
Subsidiary (Note 11) 43,200 43,200
Net Income 14,522 14,522
Balance at
December 31, 2004 11,618,224 $42,396,639 $(38,803,703) 3,592,936
The accompanying notes are an integral part of the consolidated financial statements.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004,2003 AND 2002
2004 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,522 $ 1,392,986 $1,684,219
Adjustments to reconcile net income to net
cash provided by(used in) operating activities:
Depreciation and amortization 316,875 301,303 287,642
Compensation expense resulting from
Issuance of equity in subsidiary 100,000 150,000 150,000
Compensation expense resulting from
restricted stock grant to officers 125,714 94,286 0
Provision for bad debt 726,000 765,000 648,768
Minority interest 27,748 154,529 117,552
(Gain) Loss on disposal of fixed assets (166,454) 12,575 4,060
Changes in operating assets and liabilities:
Accounts receivable-trade (4,867,032) (2,206,115) (5,171,298)
Other receivables (108,388) 394,356 (273,764)
Prepaid expenses and other
current assets (217,905) 227,380 57,228
Accounts payable 1,079,304 1,381,716 2,158,243
Accrued expenses 306,593 (25,821) 151,437
Insurance and claims 552,901 (255,268) 414,426
Accrued interest 139,723 125,394 35,355
Accrued compensation 248,818 (39,410) 7,728
Fuel and other taxes payable 67,329 (53,576) (514)
Accrued legal settlements 1,383,333 0 560,000
Net cash (used in) provided by operating
activities (270,919) 2,419,335 831,082
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (149,950) (155,706) (219,739)
Proceeds from sale of fixed assets 424,420 27,900 62,655
Net cash provided by (used in) investing
activities 274,470 (127,806) (157,084)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)
under line of credit 628,602 (1,233,722) (647,519)
Proceeds from long term debt 0 0 282,216
Principal payments of long-term debt (477,624) (484,453) (400,754)
Net repayments of shareholder loans 0 (455,801) (230,001)
Distribution to minority interest (154,529) (117,553) 0
Net cash used in
financing activities (3,551) (2,291,529) (996,058)
NET CHANGE IN CASH 0 0 (322,060)
CASH, BEGINNING OF YEAR 0 0 322,060
CASH, END OF YEAR $ 0 $ 0 $ 0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid during year for interest $326,180 $469,050 $574,361
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
The Company recorded $56,573 in 2002 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 $100,000, $150,000 and $150,000 of compensation
expense for the years ended December 31, 2004, 2003, and 2002, respectively
for the issuance of common stock of a subsidiary, which was issued to key
employees as further discussed in Note 11.
The company recognized $125,712 and $94,286 of compensation expense for
the years ended December 31, 2004 and 2003 respectively, for restricted stock
granted to executives.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004,2003 AND 2002
The accompanying notes are an integral part of the consolidated financial
statements.
1. OPERATIONS
The Company, through its subsidiaries, is primarily an interstate
truckload carrier of general commodities, which uses independent agents and
owner-operators to contract for and haul freight for its customers in 48
states with a concentration in the Southeastern United States. One agent
accounted for 10.3%, 11.3%, and 6.9% of the Company's revenue for the
years ended December 31, 2004, 2003, and 2002 respectively.
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 Subsidiaries record an allowance for
doubtful accounts based on specifically identified amounts that it believes
to be uncollectible. The Company also records an additional allowance based
on percentages of aged receivables, which are determined based on historical
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.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes--Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets. In addition,
the amounts of any future tax benefits are reduced by a valuation allowance
to the extent such benefits are not expected to be fully utilized.
Earnings Per Common Share--The Company computes earnings per share under
Statement of Financial Accounting Standards No. 128 "Earnings Per Share."
The statement required presentation of two amounts, basic and diluted
earnings per share. Basic earnings per share are computed by dividing income
available to common stockholders by the weighted average common shares
outstanding. Dilutive earnings per share would include all common stock
equivalents. There are 400,000 common stock equivalents at December 31,
2004 and 2003. There were no common stock equivalents at December 31, 2002.
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.
Recent Accounting Pronouncements
In December 2004, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123(R), "Share-Based Payment". This statement revises
FASB Statement No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS No. 123(R) focuses primarily on the accounting for transactions in which
an entity obtains employee services in share-based payment transactions. SFAS
No. 123(R) requires companies to recognize in the statement of operations the
cost of employee services received in exchange for awards of equity
instruments based on the grant-date fair value of those awards (with limited
exceptions). This Statement is effective as of the first reporting period that
begins after June 15, 2005. Accordingly, we will adopt SFAS 123(R) in the
third quarter of fiscal 2005. We are currently evaluating the provisions of
SFAS 123(R) and have not yet determined the impact that this Statement will
have on our results of operations or financial position.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46 ("FIN 46"), 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. In December 2003, the FASB issued FIN 46R
with respect to variable interest entities created before January 31, 2003,
which among other things, revised the implementation date to the first fiscal
year or interim period ending after March 15, 2004, with the exception of
Special Purpose Entities ("SPE). The consolidation requirements apply to all
SPE's in the first fiscal year or interim period ending after December 15,
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 some of which are related to the Company by
common ownership. AIFE currently receives a majority of its premiums from the
Company's subsidiaries. Management has determined that AIFE does not qualify
as a VIE and as a result the adoption of FIN 46R 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 46R and other accounting
guidance on consolidation.
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 2004 2003 2002
Net income $ 14,550 $ 1,392,986 $ 1,684,219
Dividends on preferred shares 0 0 ( 56,573)
Redemption of redeemable preferred stock 609,541
--------- ---------- ----------
Net income available to common
shareholders for basic EPS 14,550 1,392,986 2,237,187
Net income attributable to unvested minority
interest shares in subsidiary 0 (51,509) 0
--------- ---------- ----------
Net income available to common
shareholders for diluted EPS 14,550 1,341,477 2,237,187
Denominator
Weighted average common shares
outstanding for basic EPS 11,618,224 11,618,224 11,075,758
Effect of diluted securities
Unvested restricted stock granted
to employees 345,950 234,283 0
------------------------------------
Weighted average shares outstanding
for diluted EPS 11,964,174 11,852,507 11,075,758
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 was approximately $119,000, $104,000 and $69,000 in 2004,
2003, and 2002, 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 statement of income for the year ended
December 31, 2002. Accounts receivable due from entities affiliated through
common ownership was $175,000 and $51,000 as of December 31, 2004 and 2003,
respectively.
One of the Subsidiaries insurance providers, American Inter-Fidelity
Exchange (AIFE), is managed by a Director of the Company and the Company has
an investment of $126,461 in the provider. AIFE provides auto liability and
cargo insurance to several subsidiaries of the Company as well as other
entities related to the Company by common ownership. For the years ended
December 31, 2004, 2003 and 2002, cash paid to AIFE for insurance premiums
and deductibles was approximately $5,673,000, $5,373,000, and $3,923,000,
respectively.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. RELATED PARTY TRANSACTIONS (continued)
The Subsidiaries exercised no control over the operations of AIFE. As a
result, the Company recorded its investment in AIFE under the cost method of
accounting for each of the three years in the period ended December 31,
2004. 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, 2004, 2003 and 2002.
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, 2004.
The Subsidiaries currently account for the majority of the premiums of AIFE.
For fiscal 2004, the Company thru its subsidiaries accounted for
approximately 85% of the total premium revenue of AIFE. At December 31,
2003, AIFE had net worth of approximately $5.6 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 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. During
2004, AIFE paid management fees of $277,387 to AIFC which AIFC then paid as
dividends totaling $277,387 to these officers and directors of the Company.
No such amounts were paid during fiscal 2002.
In 2004 the company paid consulting fees of $24,000 to one of its
directors relating to insurance services. The consulting fee paid for 2003
was $8,000.
One of the Companies subsidiaries conducts business with freight
companies under the control of a director of the Company. Accounts
receivable at December 31, 2004 and 2003 include $395,000 and $882,000, 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 8.
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.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. LEASES (continued)
In addition, the Company's subsidiaries lease office space and land
in Mississippi, Texas, South Carolina, Louisiana, Georgia, Missouri, North
Carolina, Indiana, California, Arkansas, and Florida under operating
leases ranging from one to six years.
Rent expense under these operating leases was $837,000, $672,000 and
$507,000 for the years ended 2004, 2003, and 2002 respectively.
Future commitments under these operating leases are as follows:
2005 668,000
2006 437,000
2007 297,000
2008 111,000
2009 111,000
2010 111,000
2011 55,000
__________
$1,790,000
7. BANK LINE OF CREDIT
The Company and its subsidiaries have 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 $4,486,640 at December 31, 2004. The interest
rate is based upon certain financial covenants and may range from prime to
prime less .50%. At December 31, 2004, the interest rate on this line of
credit was at prime (5.25%). The Company's accounts receivable, property,
and other assets collateralize advances under the agreement. Borrowings up
to $1.5 million are guaranteed by the Chief Executive Officer and Chief
Financial Officer of the Company. The outstanding borrowings on this line
of credit were $5.5 and $4.9 million at December 31, 2004 and 2003,
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. At December 31, 2004, the Company was in violation of certain
financial covenants. The Company is currently working with its Lender to
obtain waivers for these violations. The balance outstanding under this
line-of-credit agreement is classified as a current liability at December
31, 2004.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. BANK LINE OF CREDIT (continued)
In October 2003, the Company's lender granted them an equipment line of
credit in the amount of $500,000. Although the Company has not utilized this
equipment line of credit, the interest rate will range from prime to prime
less 0.50% per annum based on certain financial covenants. This equipment
line of credit expires on October 1, 2005. In March 2005, the Company and
its lender agreed to terminate this equipment line of credit. There were
no outstanding borrowings under this equipment line of credit from December
31, 2004 through the date of termination.
8. LONG-TERM DEBT
Long-term debt at December 31, 2004 and 2003 comprises:
2004 2003
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. $2,039,708 $2,039,707
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 $2,889,708 $2,889,707
Equipment loans repaid in 2004 0 469,482
Other 0 11,878
__________ _________
Total debt 2,889,708 3,371,067
Less current portion 0 194,911
Total long-term debt $ 2,889,708 $3,176,156
========== =========
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. LONG-TERM DEBT (continued)
Interest expense on related party notes was approximately $131,000,
$137,000, and $176,000 for the years ended December 31, 2004, 2003, and
2002, respectively.
The related party notes are subordinate to the lender of the revolving
line of credit facility and repayment of this debt would require the
lender's approval. Historically this debt has been extended prior to
maturity.
Scheduled maturities of the long-term debt at December 31, 2004 are due as
follows:
2005 $ 0
2006 $2,889,708
$2,889,708
==========
9. INCOME TAXES
The following summary reconcile income taxes at the maximum federal
statutory rate with the effective rates for 2004,2003, and 2002
(in thousands):
December 31, 2004 2003 2002
_______________________________
Income tax expense at statutory rate 34,000 474,000 573,000
State income tax expense, net of federal 20,000 70,000 91,000
tax benefit
Other (45,262) 97,000
Adjustment of valuation allowance 78,000 (641,000) (664,000)
86,738 - -
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. INCOME TAXES (continued)
The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return. Carolina National, the Company's 60% owned subsidiary
files a separate federal income tax return.
Deferred income taxes consist of the following:
December 31, 2004 2003 2002
________________________________________
Total deferred tax assets, relating
principally to net operating
loss carry-forwards $21,228,000 $21,150,000 $21,597,000
Less valuation allowance (20,028,000) (19,950,000) (20,397,000)
_______________________________________
Total net deferred tax asset $ 1,200,000 $ 1,200,000 $ 1,200,000
At December 31, 2004 and 2003, 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, 2004.
The Company has net operating loss carry-forwards of approximately $50
million at December 31, 2004. 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 86% of the
Company's net operating loss carry forwards 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. In December 2004, the Board of Directors extended the
vesting period until March 2005. As a result, the Company incurred
$125,712 and $94,286 of compensation expense (based on the quoted market
price of the Company's stock on the date of grant) for the years ended
December 31, 2004 and 2003, respectively. These shares of common stock vest
on March 31, 2005.
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 earned a 40% ownership interest in Carolina over a three
year period, beginning in the year following which Carolina achieved positive
retained earnings, contingent upon certain restrictions, including continued
employment at Carolina. In 2001, Carolina achieved positive retained
earnings. As a result, the Company incurred total compensation expense of
$400,000 over the three-year vesting period. The Company incurred
compensation expense of $100,000 for the year ended December 31 2004, and
$150,000 for each of the years ended December 31, 2003 and 2002. The excess
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. MINORITY INTEREST (continued)
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 $43,200, $64,800, and $64,802 for fiscal 2004, 2003, and 2002,
respectively. The Company also recognized minority interest expense of
$27,748, $154,529, and $117,552 relating to the employees' portion of
Carolina's net income for the years ended December 31, 2004, 2003, and 2002,
respectively. Carolina paid dividends of $154,529 and $117,553 to the
minority shareholders for the years ended December 31, 2004 and 2003,
respectively. Net income for Carolina was $69,370, $515,096, and $783,677,
for the years ended 2004, 2003, and 2002, respectively.
12. COMMITMENTS AND CONTINGENCIES
Litigation
On March 16, 2005, a jury entered a verdict against a subsidiary of the
Company, Cam Transport, Inc. ("CAM") in the amount of $1.7 million in a
personal injury case relating to an auto accident which occurred on March 22,
2001 entitled Lina Bennett vs. Toby M. Ridgeway and Cam Transport, Inc. in
the Court of Common Pleas of Allendale County, South Carolina. As a result,
the Company recorded a charge of $1.7 million related to this litigation for
the year-ended December 31, 2004. This amount is included in accrued legal
settlements at December 31, 2004.
CAM maintains auto liability insurance up to a maximum of $1 million per
occurrence for litigation related to such accidents. However, CAM's insurer,
American Inter-fidelity Exchange, has filed a declaratory judgment action
asserting that it is not obligated to provide insurance coverage on this
matter. As a result of the uncertainty regarding the insurance coverage for
this claim, the expense recorded for this litigation has not been reduced by
any expected amounts to be recovered from the insurance company and there is
no receivable established at December 31, 2004 for the amount which could
possibly be covered under the auto liability policy. As a result, Cam
Transport, Inc. does not have sufficient net worth or assets to satisfy the
verdict, and substantially all of Cam Transport, Inc.'s assets are pledged
to its lender.
The Company and its subsidiaries are involved in other litigation in the
normal course of its business. Management intends to vigorously defend these
cases. In the opinion of management, the other litigation now pending will
not have a material adverse affect on the consolidated financial statements
of the Company.
13. ENVIRONMENTAL MATTERS
The Company's subsidiary, TC Services, Inc 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, 2004 and 2003.
US 1 INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
2004
$143,313 $56 $15 $0.00 $0.00
Quarters:
Fourth 39,614 (998) (825) (0.07) (0.07)
Third 36,994 578 508 0.04 0.04
Second 35,975 176 100 0.01 0.01
First 30,730 300 232 0.02 0.02
2003
$121,747 $1,723 $1,393 $0.12 $0.12
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
US 1 INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2003 AND 2004
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, 2003
Allowance for Doubtful Accounts
Receivable $460,000 $765,000 $381,000 $844
,000
Year Ended December 31, 2004
Allowance for Doubtful Accounts
Receivable $844,000 $726,000 $547,000 $1,023,000
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, 2004 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.
Item. 9B. Other Information
None.
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 11, 2005
were as follows
NAME AGE POSITION
- ---- --- --------
Michael E. Kibler 64 President, Chief Executive Officer,
and Director
Harold E. Antonson 65 Chief Financial Officer, Treasurer,
and Director
Lex Venditti 52 Director
Robert I. Scissors 71 Director
Brad James 49 Director
William Sullivan 57 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 and has been
a director since 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 Inter-fidelity Corporation, the
attorney-in-fact of AIFE, 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 AIFE. 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 AIFE, an affiliated entity that provides auto
liability and cargo insurance to the Company.
Item 10. Directors and Executive Officers of the Registrant (continued)
Name Office and Experience
Lex Venditti Mr. Venditti has served as a director of the
Company since 1993. Mr. Venditti is the
General Manager of AIFE, an insurance reciprocal
located in Indiana. Mr. Venditti is also a
shareholder of AIFE, the attorney-in-fact of
AIFE, an affiliated entity that provides
auto liability and cargo insurance to the
Company.
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.
There are no family relationships between any director or executive officer
of the Company.
Code of Ethics
The Company has adopted a Code of Ethics that applies to the Chief
Executive Officer and the Chief Financial Officer a copy of which was filed
as Exhibit 14.1 to the 2003 Form 10-K.
Audit Committee and Audit Committee Financial Expert
The Company has an audit committee consisting of Lex Venditti and Robert
Scissors. The Company's Board of Directors has determined that Mr. Venditti
is an "audit committee financial expert" as defined under SEC rules. However,
because of his position as general manager of AIFE and as a shareholder of
American Inter-Fidelity Corporation, Mr. Venditti is not considered an
independent director as defined under Rule 10A-3(b) of the Exchange Act. In
addition, Mr. Scissors receives fees for consulting services provided to the
Company and is also not considered an independent director.
The audit committee is responsible for selecting the Company's independent
auditors and approving the scope, fees and terms of all audit engagements and
permissible non-audit services provided by the independent auditor, as well
as assessing the independence of the Company's independent auditor from
management. The audit committee also assists the Board in oversight of the
company's financial reporting process and integrity of its financial
statements, and also reviews other matters with respect to the Company's
accounting, auditing and financial reporting practices as it may find
appropriate or may be brought to its attention.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of
the outstanding common stock of the Company to file with the Securities and
Exchange Commission reports of changes in ownership of the common st6ock of
the Company held by such persons. Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all
forms they file under this regulation. To the Company's knowledge based
solely on a review of the copies of such reports furnished to the Company
and representations that no other reports were required, during the year
ended December 31, 2004, except for a Form 4 that was filed late by Mr.
Scissors, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% shareholders were complied with.
Director Nomination Procedures
The Company will consider nominations for directors submitted by
shareholders of the Company. Shareholders who wish to make a nomination for
director should send the name and biographical information with respect to
such nominee to the Secretary of the Company along with a certification by
such nominee that he or she will serve as a director of the Company if elected.
Item 11. Executive Compensation
The following Summary Compensation Table sets forth compensation paid by
the Company during the years ended December 31, 2004, 2003 and 2002 to Mr.
Michael E. Kibler, Chief Executive Officer and Mr. Harold Antonson, Chief
Financial Officer, where applicable. No other officer of the Company earned
in excess of $100,000.
Summary Compensation Table
Annual Compensation
Name and Position Year Salary Bonus Other(1)
- ----------------- ---- ------ ----- --------
Michael Kibler 2004 99,840 34,308 0
President 2003 106,580 0 110,000
2002 90,186 0 0
Harold Antonson 2004 57,600 34,308 0
Chief Financial Officer 2003 106,580 0 110,000
2002 90,186 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 March 31, 2005.
Option exercises and option values
No stock options were issued to Mr. Michael E. Kibler, Chief Executive
Officer and Mr. Harold Antonson, Chief Financial Officer, in 2004 and no stock
options were outstanding as of December 31, 2004.
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 9, 2005 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
- ----------------- ------------------ -------------------
Harold E. Antonson 3,311,746 (1) 28.5%
Chief Financial Officer,
Treasurer and Director
Michael E Kibler 3,252,301 (1) 28%
Director, President and
Chief Executive Officer
Brad A. James 1,317,927 (2) 11.3%
Director
Robert I. Scissors, 64,770 (3) *
Director
William Sullivan 18,000 (4) *
Director
Lex L. Venditti 217,500 (2) 1.9%
Director
All Directors and Executive Officers 4,326,259 41.1%
* Indicates less than 1% ownership.
(1) Includes shares held by August Investment Partnership, August Investment
Corporation, Eastern Refrigerated Transport, Inc., Enterprise Truck
Lines, Inc., Seagate Transportation Services, Inc., and American
Inter-Fidelity Exchange, of which Messrs. Kibler and Antonson are either
directors, partners, or significant shareholders or otherwise share the
voting and dispositive authority with respect to these shares. Also
includes 200,000 shares of restricted stock for each.
(2) Includes shares held by Seagate Transportation Services, Inc. and
August Investment Partnership, of which Mr. James is a director, partner
or significant shareholder.
(3) Includes 11,770 shares held in the Saundra L. Scissors Trust of which
Mr. and Mrs. Scissors are joint trustees.
(4) Includes 18,000 shares owned by ERX, Inc. of which Mr. Sullivan is a
controlling owner.
(5) Includes shares held by American Inter-Fidelity Exchange, of which Mr.
Venditti is a director and significant shareholder of the attorney-in-
fact.
Security Ownership of Certain Beneficial Owners
The following table sets forth the number and percentage of shares of
Common Stock beneficially owned as of March 9, 2004 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 3,311,746 (1) 28.5%
8400 Louisiana Street
Merrillville, IN 46410
August Investment Partnership 1,150,946 9.9%
8400 Louisiana Street
Merrillville, IN 46410
Brad A. James 1,317,927 (2) 11.3%
Director
Michael Kibler 3,252,301 (1) 28.0%
8400 Louisiana Street
Merrillville, IN 46410
(1) Includes shares held by August Investment Partnership, August Investment
Corporation, Eastern Refrigerated Transport, Inc., Enterprise Truck
Lines, Inc., Seagate Transportation Services, Inc., and American
Inter-Fidelity Exchange, of which Messrs. Kibler and Antonson are either
directors, partners, or significant shareholders or otherwise share the
voting and dispositive authority with respect to these shares. Also
includes 200,000 shares of restricted stock for each.
(2) Includes shares held by Seagate Transportation Services, Inc. and
August Investment Partnership, of which Mr. James is a director, partner
or significant shareholder.
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 5,000 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 $119,000, $104,000, and $69,000 in 2004, 2003, and
2002, 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 statement of income for the year ended December 31,
2002. Accounts receivable due from entities affiliated through common
Certain Relationships and Related Transactions (continued)
ownership was $174,763 and $51,000 as of December 31, 2004 and 2003,
respectively.
One of the Subsidiaries insurance providers, 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, 2004, 2003 and 2002, cash paid to AIFE for insurance
premiums and deductibles was approximately $5,673,000, 5,373,000, and
$3,923,000, respectively.
The Company exercises no control over the operations of AIFE. As a
result, the Company recorded its investment in AIFE under the cost method of
accounting for each of the three years ending December 31, 2002, 2003, and
2004. 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, 2002, 2003 and 2004.
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, 2002, 2003, and 2004. The
Subsidiaries currently accounts for the majority of the premiums of AIFE. For
fiscal year 2004, the Subsidiaries accounted for approximately 85% of the
total premium revenue of AIFE. At December 31, 2003, AIFE had net worth of
approximately $5.6 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 2004,
AIFE paid management fees of $277,387 to AIFC which AIFC then paid as
dividends totaling $277,000 to these officers and directors of the Company
who own shares of AIFC. During 2003, AIFE paid management fees $282,000 to
AIFE then paid as dividends totaling $282,000 to these officers and directors
of the company.
A Subsidiary of 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, 2004 and 2003 include $395,000
and 882,000, respectively.
In 2004 the company paid $24,000 in consulting fees to a director of the
company relating to insurance services. In 2003, the Company paid $8,000 in
consulting fees.
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 8 to the consolidated
financial statements.
Item 14. Principal Accounting Fees and Services
The following table shows the fees paid or accrued (in thousand) by the
Company for the audit and other services provided by BDO Seidman
2004 2003
Audit Fees (1) $144,000 $128,195
Audit-Related Fees(2) $ 0 $ 0
Tax Fees(2) $ 0 $ 0
All Other Fees(3) $ 0 $ 0
Total $ 144,000 $128,195
(1) Audit fees include fees associated with the annual audit of our
consolidated financial statements and reviews of our quarterly reports on
Form 10-Q.
(2) There were no audit related services or tax fees.
(3) There were no other services or fees.
The Audit Committee must pre-approve audit-related and non-audit services
not prohibited by law to be performed by the Company's independent certified
public accountants. There were no audit-related, tax or other fees during
2004.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements:
Reports of Independent Registered Public Accountant Firm 18
Consolidated Balance Sheets as of December 31, 2004 and 2003 19-20
Consolidated Statements of Income for the years ended 21
December 31, 2004, 2003, and 2002
Consolidated Statements of Shareholders' Equity 22
for the years ended December 31, 2004, 2003, and 2002
Consolidated Statements of Cash Flows 23
for the years ended December 31, 2004, 2003, and 2002
Notes to Consolidated Financial Statements 25-33
(a)(2) Financial Statement Schedules:
Schedule of Valuation and Qualifying Accounts 34
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 10.11 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.
Exhibit 14.1 US 1 Industries, Inc. Code of Ethics (by reference to the
Company's Form 10-K for the year ended December 31, 2003 filed
on March 26, 2005.
Exhibit 21.1 Subsidiaries of the Registrant
Exhibit 31.1 Rule 13a-14(a)\15d-14a(a) Certifications
Exhibit 32.1 Section 1350 Certifications
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned there unto duly authorized.
US 1 INDUSTRIES, INC.
Date:_________________ By: _________________________
Michael E. Kibler
President & Chief Executive Officer
(Principal Executive Officer)
Date:_________________ By: _________________________
Harold Antonson
Chief Financial Officer & Treasurer
(Principal Financial & Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date:_________________ _________________________
Michael E. Kibler, Director
Date:_________________ _________________________
Robert I. Scissors, Director
Date:_________________ _________________________
Lex L. Venditti, Director
Date:_________________ _________________________
William Sullivan, Director
Date:_________________ _________________________
Brad James, Director
Date:_________________ _________________________
Harold Antonson, Director