<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE TRANSITION PERIOD FROM ___________ TO ____________
Commission File Number
000-23189
C.H. ROBINSON WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1883630
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 Mitchell Road, Suite 200, Eden Prairie, Minnesota 55344-2248
(Address of principal executive offices) (Zip Code)
(612) 937-8500
(Registrant's telephone number, including area code)
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 No /x/
As of November 13, 1997, the number of outstanding shares of the registrant's
common stock was 41,264,621.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
C.H. ROBINSON WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1997 1996
(Unaudited)
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $104,685 $ 42,567
Available-for-sale securities 12,944 42,711
Receivables, net of allowance for doubtful
accounts of $10,436 and $10,079 201,895 170,935
Inventories 3,338 5,276
Deferred tax benefit 4,915 6,698
Prepaid expenses and other 6,700 2,088
Net Assets of discontinued operations 14,082 10,147
----------------- -----------------
Total current assets $348,559 $280,422
PROPERTY AND EQUIPMENT, net 21,766 23,047
INTANGIBLE & OTHER ASSETS, net 12,795 17,311
----------------- -----------------
$383,120 $320,780
================= =================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $163,494 $140,376
Accrued expenses-
Compensation and profit-sharing contribution 17,711 17,991
Income taxes & other 20,234 7,985
----------------- -----------------
Total current liabilities 201,439 166,352
STOCKHOLDERS' INVESTMENT
Preferred stock, $0.10 par value,
20,000 shares authorized;
none outstanding - -
Common stock, $0.10 par value;
130,000 shares authorized, 41,265
and 41,375 issued and outstanding 4,126 4,137
Foreign currency translation adjustment (466) (346)
Retained earnings 178,021 150,637
----------------- -----------------
Total stockholders' investment 181,681 154,428
----------------- -----------------
$383,120 $320,780
================= =================
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
-2-
<PAGE>
C.H. ROBINSON WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In Thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ------------------------------------
1997 1996 1997 1996
-------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
GROSS REVENUES $466,408 $413,585 $1,321,560 $1,188,609
COST OF TRANSPORTATION AND
PRODUCTS 412,944 368,474 1,168,940 1,056,578
-------------- -------------- ---------------- ----------------
NET REVENUES 53,464 45,111 152,620 132,031
SELLING GENERAL AND ADMINISTRATIVE
EXPENSES 38,146 31,602 110,611 94,173
-------------- -------------- ---------------- ----------------
INCOME FROM OPERATIONS 15,318 13,509 42,009 37,858
INVESTMENT AND OTHER INCOME 936 723 2,817 2,114
-------------- -------------- ---------------- ----------------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 16,254 14,232 44,826 39,972
PROVISION FOR INCOME TAXES 6,369 5,559 17,708 15,614
-------------- -------------- ---------------- ----------------
NET INCOME FROM CONTINUING
OPERATIONS 9,885 8,673 27,118 24,358
NET INCOME FROM DISCONTINED
OPERATIONS, net of income taxes 550 566 1,450 1,649
-------------- -------------- ---------------- ----------------
NET INCOME $ 10,435 $ 9,239 $ 28,568 $ 26,007
============== ============== ================ ================
NET INCOME PER SHARE:
Net income from continuing operations $ 0.24 $ 0.21 $ 0.66 $ 0.58
Net income from discontinued operations 0.01 0.01 0.03 0.04
-------------- -------------- ---------------- ----------------
Net income $ 0.25 $ 0.22 $ 0.69 $ 0.62
============== ============== ================ ================
WEIGHTED AVERAGE SHARES
OUTSTANDING 41,265 41,425 41,292 41,930
============== ============== ================ ================
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated statements.
-3-
<PAGE>
C.H. ROBINSON WORLDWIDE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $28,568 $26,007
Adjustments to reconcile net income to net cash provided
by operations-
Depreciation and amortization 6,293 5,556
Incentive stock expense - 859
Deferred income taxes (992) (1,303)
Changes in operating elements-
Receivables (30,960) (31,528)
Inventories 1,938 635
Prepaid expenses and other current assets (4,612) 468
Accounts payable 23,118 20,339
Accrued compensation and profit sharing 663 (1,872)
Accrued income taxes and other 12,249 (33)
----------------- -----------------
Net cash provided by operating activities 36,265 19,128
----------------- -----------------
INVESTING ACTIVITIES:
Additions of property and equipment (4,078) (3,674)
Disposals of property and equipment 1,311 55
Sales of long-term investments 4,349 115
Purchases of long-term investments - (1,040)
Sale of available-for-sale securities 78,670 25,419
Purchase of available-for-sale securities (48,903) (32,525)
Cash provided/(used) by discontinued operations (3,935) 2,130
Other, net 577 481
----------------- -----------------
Net cash provided by (used for) investing
activities 27,991 (9,039)
----------------- -----------------
FINANCING ACTIVITIES:
Sale of common stock 103 -
Repurchase of common stock (1,416) (6,853)
Cash dividends (825) (621)
----------------- -----------------
Net cash used for financing activities (2,138) (7,474)
----------------- -----------------
Net increase in cash and cash equivalents 62,118 2,615
CASH AND CASH EQUIVALENTS, beginning of period $42,567 $34,452
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period $104,685 $37,067
================= =================
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
-4-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL:
C.H. Robinson Worldwide, Inc. and Subsidiaries (the Company) is a global
provider of multimodal transportation services and logistic solutions through a
network of branch offices throughout the United States, Canada, Mexico and
Europe. The condensed consolidated financial statements include the accounts of
C.H. Robinson Worldwide, Inc. and its majority owned and controlled
subsidiaries. The Company's financial services segment is presented in the
accompanying consolidated financial statements as discontinued operations.
Minority interest in subsidiaries are not significant. All significant
intercompany transactions and balances have been eliminated in the condensed
consolidated financial statements.
The condensed consolidated financial statements which are unaudited have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In management's opinion, these financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations for
the interim periods presented. The results of operations for the three months
and nine months ended September 30, 1997 are not necessarily indicative
of results to be expected for the entire year. Pursuant to SEC rules and
regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these statements. The condensed
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the Company's
final Prospectus dated October 15, 1997, as well as the Company's Registration
Statement on Form S-1 and all amendments thereto (Registration No. 333-33731).
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT:
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128).
SFAS No. 128 establishes accounting standards for computing and presenting
earnings per share and is effective for periods ending after December 15,
1997. The adoption of SFAS No. 128 will not have a material impact on the
Company's calculation of income per share.
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS
No. 130). SFAS No. 130 establishes accounting standards requiring presentation
of comprehensive income, which includes unrealized gains and losses on
securities and foreign currency translation adjustments, on the face of the
financial statements effective for periods beginning after December 15, 1997.
The adoption of SFAS No. 130 will not have a material impact on the Company's
results of operations or financial position.
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes
accounting standards for segment reporting effective for periods beginning
after December 15, 1997. The adoption of SFAS No. 131 will have no effect on
the company's financial statements.
3. SUBSEQUENT EVENTS:
On October 10, 1997 the Company paid a special cash dividend of $1.50 per
share ($61.9 million in the aggregate) to stockholders of record as of October
10, 1997. On October 13, 1997 the Company removed restrictions on shares
previously awarded to employees which will generate an estimated $40.3 million
tax benefit.
-5-
<PAGE>
Certain stockholders of the Company sold 12,165,155 shares of the Company's
stock to the public pursuant to a registered public offering on October 15,
1997. The proceeds of the offering were paid entirely to selling stockholders.
Pursuant to SEC rules related to stock issued or sold
to employees at prices below the initial public offering price for the twelve
months preceding the initial public offering effective date, the Company
recorded a charge to expense of $21.6 million on October 15, 1997. During the
fourth quarter of 1997, the Company will also charge to expense approximately
$3.0 million for other expenses related to the initial public offering.
The Company sold its financial services business on October 14, 1997 for
$40.3 million. The Company paid a liquidating distribution to stockholders of
record on October 14, 1997 of $39.2 million ($0.95 per share), the net
proceeds resulting from this sale.
On August 14, 1997 the Company adopted incentive stock award and stock
purchase plans. Under the incentive stock award plan, officers, directors,
employees, consultants and independent contractors may receive options, stock
appreciation rights, restricted stock and other stock-based awards for not
more than 2,000,000 shares of common stock. On October 14, 1997, certain
employees were granted 471,917 stock options at a grant price of $18.00 (the
offering price per share). The stock purchase plan, under which employees may
purchase up to 2,000,000 shares of common stock, will commence on January 1,
1998.
-6-
<PAGE>
ITEM 2. Managements' Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto.
Cautionary Statement Relevant to Forward-Looking Information
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These forward-
looking statements represent the Company's expectations or beliefs, including,
but not limited to, statements concerning the Company's operations and financial
performance and condition. For this purpose, any statements contained in this
Form 10-Q that are not statements of historical fact may be deemed to be
forward-looking statements. The Company cautions that these statements by their
nature involve risks and uncertainties, certain of which are beyond the
Company's control, and actual results may differ materially depending on a
variety of important factors, including those described in Exhibit 99 hereto.
GENERAL
Gross revenues represent the total amount of services and goods sold by the
Company to its customers. Costs of transportation and products include direct
costs of transportation contracted by the Company, including motor carrier,
intermodal, ocean, air, and other costs, and the purchase price of products
sourced by the Company. The Company acts principally as a service provider to
add value and expertise in the execution and procurement of these services for
its customers. The net revenues of the Company (gross revenues less cost of
transportation and products) are the primary indicator of the Company's ability
to source, add value and resell services and products that are provided by third
parties, and are considered by management to be the primary measurement of
growth for the Company. Accordingly, the discussion of results of operations
below focuses on the changes in the Company's net revenues.
RESULTS OF OPERATIONS
The following table summarizes net revenue by service line:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
1997 1996 % change 1997 1996 % change
<S> <C> <C> <C> <C> <C> <C>
Net Revenue (in thousands)
Transportation $41,205 $33,853 21.7% $116,887 $ 96,446 21.2%
Sourcing 9,997 9,533 4.9% 29,659 30,915 -4.1%
Information services 2,262 1,725 31.1% 6,074 4,670 30.1%
------------------------------------ ------------------------------------
Total $53,464 $45,111 18.5% $152,620 $132,031 15.6%
==================================== ====================================
</TABLE>
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Revenues. Gross revenues for the three months ended September 30, 1997
were $466.4 million, an increase of 12.8% over gross revenues of $413.6
million for the three months ended September 30, 1997. Net revenues for the
three months ended September 30, 1996 were $53.5 million, an increase of 18.5%
over net revenues of $45.1 million for the three months ended September 30,
1997 resulting from an increase in transportation services net revenues of
21.7% to $41.2 million, an increase in sourcing net revenues of 4.9% to $10.0
million, and an increase in information services net revenues of 31.1% to $2.3
million.
The increase in transportation net revenue resulted from an increase in
transaction volume offset by a slight decline in the net revenue per
transaction. This increase in transaction volume and net revenues was driven by
significant expansion of business with current customers, primarily larger
accounts, and from new domestic and international customers.
The sourcing net revenues increase of 4.9% was driven by net revenue growth
from a branch that sources produce for the Company's large retail chain
customers, by other branches expanding their warehouse and crossdock sourcing
services and offset by a decline in net revenues resulting from the elimination
in December 1996 of a program at a large branch to source and distribute various
seafood and other products.
The increase in information services net revenue was the result of
significant growth in transaction volume. Net revenue per transaction decreased
slightly due to the increase in less expensive electronic transactions which
have been growing faster than manual transactions.
-7-
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1997 were $38.1
million, an increase of 20.7% over $31.6 million for the three months ended
September 30, 1997. This increase was primarily due to increased personnel and
warehouse costs associated with the Company's growth.
Income from Operations. Income from operations was $15.3 million for the
three months ended September 30, 1997, an increase of 13.4% over $13.5 million
for the three months ended September 30,1996.
Investment and Other Income. Investment and other income was $0.9 million
for the three months ended September 30, 1997, an increase of 29.6% over $0.7
million for the three months ended September 30,1996
Provision for Income Taxes. The effective income tax rates for continuing
operations were 39.2% and 39.1% for the three months ended September 30, 1997
and 1996, respectively. The effective income tax rate for both periods is
greater than the statutory federal income tax rate primarily due to state income
taxes, net of federal benefit.
Net Income from Continuing Operations. Net income from continuing
operations was $9.9 million for the three months ended September 30, 1997, an
increase of 14.0% over $8.7 million for the three months ended September 30,
1996. Net income from continuing operations per share increased by 14.3% to
$0.24 for the three months ended September 30, 1997 compared to $0.21 for the
three months ended September 30, 1996.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Revenues. Gross revenues for the nine months ended September 30, 1997 were
$1.3 billion, an increase of 11.2% over gross revenues of $1.2 billion for the
nine months ended September 30, 1996. Net revenues for the nine months ended
September 30, 1997 were $152.6 million, an increase of 15.6% over net
revenues of $132.0 million for the nine months ended September 30, 1997
resulting from an increase in transportation services net revenues of 21.2% to
$116.9 million, a decrease in sourcing net revenues of 4.1% to $29.7 million,
and an increase in information services net revenues of 30.1% to $6.1 million.
The increase in transportation net revenue resulted from an increase in
transaction volume offset by a slight decline in the net revenue per
transaction. This increase in transaction volume and net revenues was driven by
significant expansion of business with current customers, primarily larger
accounts, and from new domestic and international customers.
Sourcing net revenues decreased by 4.1% primarily due to the elimination in
December 1996 of a program at a large branch to source and distribute various
seafood and other products, offset partially by net revenue growth from a branch
that sources produce for the Company's large retail chain customers, and by
various branches expanding their warehouse and crossdock sourcing services.
The increase in information services net revenue was the result of
significant growth in transaction volume. Net revenue per transaction decreased
slightly due to the increase in less expensive electronic transactions which
have been growing faster than manual transactions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1997 were $110.6
million, an increase of 17.5% over $94.2 million for the nine months ended
September 30, 1997. This increase was primarily due to increased personnel and
warehouse costs associated with the Company's growth.
Income from Operations. Income from operations was $42.0 million for the
nine months ended September 30, 1997, an increase of 11.0% over $37.9 million
for the nine months ended September 30,1996.
-8-
<PAGE>
Investment and Other Income. Investment and other income was $2.8 million
for the nine months ended September 30, 1997, an increase of 33.3% over $2.1
million for the nine months ended September 30,1996.
Provision for Income Taxes. The effective income tax rates for continuing
operations were 39.5% and 39.1% for the nine months ended September 30, 1997
and 1996, respectively. The effective income tax rate for both periods is
greater than the statutory federal income tax rate primarily due to state income
taxes, net of federal benefit.
Net Income from Continuing Operations. Net income from continuing
operations was $27.1 million for the nine months ended September 30, 1997, an
increase of 11.3% over $24.4 million for the nine months ended September 30,
1996. Net income from continuing operations per share increased by 13.8% to
$0.66 for the nine months ended September 30, 1997 compared to $0.58 for the
nine months ended September 30, 1996, primarily due to an increase in net income
and partly as a result of a decrease in shares outstanding due to the Company's
share repurchases.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated substantial cash from operations
which has enabled it to fund its growth while paying cash dividends and
repurchasing stock. Cash and cash equivalents totaled $104.7 million and
available-for-sale securities totaled $12.9 million as of September 30, 1997.
Working capital at September 30, 1997 totaled $147.1 million. The Company has
had no long-term debt for the last five years.
On October 13, 1997, the Company removed restrictions on shares previously
awarded to employees which will generate an estimated $40.3 million tax benefit.
In addition, the Company paid a special cash dividend of $1.50 per share ($61.9
million in total) on October 10, 1997. As disclosed in the Company's Form
8-K dated October 29,1997, the Company sold its financial services business on
October 14, 1997 for $40.3 million. The Company declared and paid a
liquidating distribution to stockholders of record on October 14, 1997 of
$39.2 million ($0.95 per share), the net proceeds resulting from this sale.
Management does not anticipate any significant effects on the Company's
operations as a result of these non-recurring transactions. The Company has
declared a $0.06 per share dividend payable to shareholders of record as of
December 12, 1997 payable on December 30, 1997.
Management believes that the Company's available cash, together with
expected future cash generated from operations, are expected to be sufficient to
satisfy its anticipated needs for working capital, capital expenditures, cash
dividends and stock repurchases. In addition, the Company has $17.5 million
available under its two existing lines of credit at interest rates of 6.34% and
6.58%, respectively, as of September 30, 1997. The lines of credit do not
restrict the payment of dividends.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
-9-
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
At a special meeting held on August 14, 1997, stockholders approved
reincorporation of the Company in Delaware, an Omnibus Stock Plan and a Stock
Purchase Plan. Votes were cast as follows:
FOR AGAINST WITHHELD
Reincorporation 36,947,795 0 4,316,826
Omnibus Stock Plan 36,947,795 0 4,316,826
Stock Purchase Plan 36,947,795 0 4,316,826
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
99 Cautionary Statement
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1997.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1997
C.H.ROBINSON WORLDWIDE, INC.
By /s/ D.R. Verdoorn
------------------------------
D.R. Verdoorn
Chief Executive Officer
By /s/ John Wiehoff
------------------------------
John Wiehoff
Controller
(principal accounting officer)
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF C.H. ROBINSON WORLDWIDE, INC. AND
SUBSIDIARIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 104,685
<SECURITIES> 12,944
<RECEIVABLES> 212,331
<ALLOWANCES> 10,436
<INVENTORY> 3,338
<CURRENT-ASSETS> 348,559
<PP&E> 38,933
<DEPRECIATION> 17,167
<TOTAL-ASSETS> 383,240
<CURRENT-LIABILITIES> 201,439
<BONDS> 0
0
0
<COMMON> 4,126
<OTHER-SE> 177,675
<TOTAL-LIABILITY-AND-EQUITY> 383,240
<SALES> 0
<TOTAL-REVENUES> 1,321,560
<CGS> 0
<TOTAL-COSTS> 1,279,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,361
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 44,826
<INCOME-TAX> 17,708
<INCOME-CONTINUING> 27,118
<DISCONTINUED> 1,450
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,568
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
<PAGE>
EXHIBIT 99
CAUTIONARY STATEMENT
The statements contained in this Form 10-Q include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "PSLRA"). When used in this Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, presentations to securities analysts or investors, and in oral
statements made by or with the approval of an executive officer of the Company,
the words or phrases "believes," "anticipates," "intends," "will likely result,"
"estimates," "projects" or similar expressions are intended to identify such
forward-looking statements. Any of these forward-looking statements involve
risks and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in the forward-looking statements.
The following discussion contains cautionary statements regarding the
Company's business that investors and others should consider. This discussion
is intended to take advantage of the "safe harbor" provisions of the PSLRA. In
making these cautionary statements, the Company is not undertaking to address or
update each factor in future filings or communications regarding the Company's
business or results, and is not undertaking to address how any of these factors
may have caused results to differ from discussions or information contained in
previous filings or communications. In addition, any of the matters discussed
below may have affected the Company's past, as well as current, forward-looking
statements about future results, so that the Company's actual results in the
future may differ materially from those expressed in prior communications.
RISKS OF ADVERSE ECONOMIC DEVELOPMENTS AND DOWNTURN IN BUSINESS CYCLE. The
transportation industry historically has been cyclical as a result of economic
recession, customers' business cycles, increases in prices charged by third
party carriers, interest rate fluctuations, and other economic factors over
which the Company has no control. Increased operating expenses incurred by third
party carriers can be expected to result in higher transportation costs, and the
Company's net revenues and income from operations would be adversely affected if
it were unable to pass through to its customers the full amount of increased
transportation costs. Economic recession or a downturn in customers' business
cycles, particularly among certain national retailers or in the food, beverage
or printing industries in which the Company has a large number of customers,
also could have a material adverse effect on the Company's operating results if
the volume of freight shipped by those customers were also reduced.
DEPENDENCE ON EQUIPMENT AND SERVICES AVAILABILITY. The Company is dependent
in part on the availability of truck, rail, ocean and air services provided by
independent third parties. There have historically been periods of equipment
shortages in the transportation industry, particularly among truckload carriers.
If the
<PAGE>
Company were unable to secure sufficient equipment or other transportation
services to meet its customers' needs, its results of operations could be
materially adversely affected, and customers could seek to have their
transportation and logistics needs met by other third parties on a temporary
or permanent basis.
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS. An increasing portion of the
Company's business is providing services within and between continents. Doing
business outside of the United States is subject to various risks, including
changing economic and political conditions in the United States and abroad,
major work stoppages, exchange controls, currency fluctuations, armed conflicts,
unexpected changes in United States and foreign laws relating to tariffs, trade
restrictions, transportation regulations, foreign investments and taxation.
Significant expansion in foreign countries will expose the Company to increased
risk of loss from foreign currency fluctuations and exchange controls as well as
longer accounts receivable payment cycles. The Company has no control over most
of these risks and may be unable to anticipate changes in international economic
and political conditions and, therefore, unable to alter its business practices
in time to avoid the adverse effect of any such changes.
RISKS ASSOCIATED WITH MANAGING A GROWING BUSINESS. The Company's continued
success depends upon its ability to attract and retain a large group of
motivated salespersons and other logistics professionals. If the Company were
unable to recruit and retain a sufficient number of personnel, it would be
forced to limit its growth. There can be no assurance that the Company will be
able to continue to hire and retain a sufficient number of qualified personnel.
The Company's rapid expansion of operations has placed demands on its management
and operating systems. Continued expansion will depend in large part on the
Company's ability to develop successful salespersons into managers and to
implement enhancements to its information systems and adapt those systems to the
changes in its business and the requirements of its customers.
COMPETITION. The transportation services industry is highly competitive and
fragmented. The Company competes against other non-asset based logistics
companies as well as asset-based logistics companies, third-party freight
brokers and carriers offering logistics services. The Company also competes
against carriers' internal sales forces and shippers' transportation
departments. It also buys and sells transportation services from and to many
companies with which it competes. Historically, competition has created downward
pressure on freight rates, and continuation of this rate pressure may adversely
affect the Company's net revenues and income from operations.
SEASONALITY. In the transportation industry generally, results of
operations show a seasonal pattern as customers reduce shipments during and
after the winter holiday season. In recent years, the Company's operating income
and earnings have been higher in the second and third quarters than in the
first and fourth quarters. Although seasonality in the transportation industry
has not had a significant impact
<PAGE>
on the Company's cash flow or results of operations in recent years, the
Company expects this seasonality to continue and cannot fully predict the
impact it may have in the future.
AVAILABILITY AND PRICING OF PRODUCE. The Company's sourcing business is
dependent upon the availability and price of fresh produce, which is affected by
government food safety regulation, growing conditions, such as drought, insects
and disease, and other conditions over which the Company has no control.
Shortages or overproduction of fresh produce affect the pricing of fresh
produce, and prices are often highly volatile.
RISKS ASSOCIATED WITH FRESH PRODUCE. The Company sources and resells fresh
produce. Agricultural chemicals used on agricultural commodities intended for
human consumption are subject to various approvals, and the commodities
themselves are subject to regulations on cleanliness and contamination. Concern
about particular chemicals and alleged contamination has led to recalls of
products, and tort claims have been brought by consumers of allegedly affected
produce. Because the Company is a seller of produce, it may have legal
responsibility arising from sale. While the Company carries product liability
coverage of $75 million, settlement of class action claims is often costly, and
the Company cannot assure that its liability coverage will be adequate and will
continue to be available. In addition, in connection with any recall, the
Company may be required to bear the cost of repurchasing, transporting and
destroying any allegedly contaminated product, for which it is not insured. Any
recall or allegation of contamination could affect the Company's reputation,
particularly of its The Fresh 1(R) brand. Loss due to spoilage (including the
need for disposal) is also a routine part of the sourcing business.
GOVERNMENT REGULATION. The Company is licensed by the Department of
Transportation (the "DOT") as a broker in arranging for the transportation of
general commodities by motor vehicle. The DOT prescribes qualifications for
acting in this capacity, including certain insurance and surety bond
requirements. The Company is also licensed by the Federal Maritime Commission as
an ocean freight forwarder and maintains a non-vessel operating common carrier
bond, and is licensed by the United States Customs Service of the Department of
the Treasury. The Company sources fresh produce under a license issued by the
Department of Agriculture. The Company's failure to comply with the laws and
regulations applicable to entities holding these licenses could have a material
adverse effect on the Company's results of operations or financial condition.
The transportation industry is subject to legislative or regulatory changes that
can affect the economics of the industry by requiring changes in operating
practices or influencing the demand for, and the cost of providing,
transportation services.
IMPORTANCE OF MAJOR CLIENTS. The Company derives a significant portion of
its gross revenues from its largest clients. The Company's 10, 20 and 50
largest clients accounted for approximately 15%, 20% and 29% of the Company's
gross revenues,
<PAGE>
respectively, in 1996. The sudden loss of a number of the Company's major
clients could have a material adverse effect on the Company.
CHANGE IN CORPORATE CULTURE. For many years, employees have broadly
participated in the ownership of the Company, and more than 700 employees and a
few retired employees currently own substantially all of its outstanding Common
Stock. Consequently, employees consider themselves the owners of the Company.
As a result of the Company's initial public offering completed in October 1997
and the subsequent lapse of restrictions on employees' ability to resell their
shares of Common Stock, a larger portion of the Common Stock will be in the
hands of the public, and the Company's employees will have significant liquid
assets. This change in structure and liquidity may adversely affect employee
motivation. The Company has also issued restricted stock as an incentive, and
employees owning Common Stock have profited from the growth in the book value of
the Common Stock. The Company has replaced its previous stock program with new
stock-based programs, but is unable to predict whether the substitution of the
new plans will be perceived as being a less valuable form of compensation,
thereby adversely affecting employee performance. If the Company finds that it
must initiate new incentive programs, its results of operations could be
adversely affected.
DEPENDENCE ON MANAGEMENT. The Company is highly dependent upon the
continued services of its senior management team, none of whom has an employment
agreement with the Company. The sudden loss of the services of several members
of senior management, as opposed to one or two individuals, could have a
material adverse effect on the Company.
STOCK PRICE VOLATILITY. The market price of the Common Stock may be
volatile and be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of new services
by the Company or its competitors, developments with respect to conditions and
trends in the logistics or transportation industries served by the Company,
changes in governmental regulation, changes in estimates by securities analysts
of the Company's future financial performance, general market conditions and
other factors. In addition, the stock markets have from time to time experienced
significant price and volume fluctuations that have adversely affected the
market prices of securities of companies for reasons often unrelated to their
operating performance.
