<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
8100 MITCHELL ROAD, EDEN PRAIRIE, MINNESOTA 55344-2248
(Address of principal executive offices) (Zip Code)
(612) 937-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
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. [_]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 13, 1998 was approximately $735,787,803 (based on the
last sale price of such stock as quoted on The Nasdaq National Market ($22.75)
on such date).
As of March 13, 1998, the number of shares outstanding of the registrant's
Common Stock, par value $.01 per share, was 41,264,621.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 (the "Annual Report"), are incorporated by reference in Parts
II and IV.
Portions of the Registrant's Proxy Statement relating to its Annual Meeting of
Stockholders to be held May 5, 1998 (the "Proxy Statement"), are incorporated by
reference in Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Founded in 1905, C.H. Robinson Worldwide, Inc. (the "Company" or
"Robinson") is the largest third-party logistics company in North America with
1997 gross revenues of $1.8 billion. The Company is a global provider of
multimodal transportation services and logistics solutions through a network of
119 offices in 38 states and Canada, Mexico, Belgium, the United Kingdom,
France, Spain, Italy, Singapore and South Africa. Through contracts with over
14,000 motor carriers, the Company maintains the single largest network of motor
carrier capacity in North America and is one of the largest third-party
providers of intermodal services in the United States. In addition, the Company
regularly provides air, ocean and customs services. As an integral part of the
Company's transportation services, the Company provides a wide range of value-
added logistics services, such as raw materials sourcing, freight consolidation,
cross-docking and contract warehousing. During 1997, the Company handled over
1,000,000 shipments for more than 8,600 customers, ranging from Fortune 100
companies to small businesses in a wide variety of industries.
The Company has developed global multimodal transportation and distribution
networks to provide seamless logistics services worldwide. As a result, the
Company has the capability of managing all aspects of the supply chain on behalf
of its customers. As a non-asset based transportation provider, the Company can
focus on optimizing the transportation solution for its customer rather than on
its own asset utilization, using established relationships with motor carriers,
railroads (primarily intermodal service providers), air freight carriers and
ocean carriers. Through its motor carrier contracts, the Company maintains
access to more than 370,000 dry vans, 128,000 temperature-controlled vans and
containers and 96,000 flatbed trailers. The Company also has intermodal
marketing contracts with 11 railroads, including all of the major North American
railroads, which give the Company access to more than 150,000 additional
trailers and containers.
Throughout its 90-year history, the Company has been in the business of
sourcing fresh produce. Much of the Company's logistics expertise can be traced
to its significant experience in handling perishable commodities. Due to the
time-sensitive nature and quality requirements of the shipments, fresh produce
represents a unique logistics challenge, and the distribution and transportation
costs are significant compared with, and may exceed, the cost of the produce
being shipped. The Company has developed a network of produce sources and
maintains access to specialized equipment and transportation modes designed to
ensure timely delivery of uniform quality produce. In response to demand from
large grocery retailers and food service distributors, the Company has developed
its own brand of produce, The Fresh 1(R), which is sourced through various
relationships and packed to order through contract packing agreements. The
Company has also leveraged its food sourcing and logistics expertise into the
sourcing of food ingredients on behalf of food manufacturers.
The Company's unique business philosophy has accounted for its strong
historical results and has positioned the Company for continued growth. The
Company's principal competitive advantage is its large decentralized branch
network, staffed by approximately 1,400 salespersons who are employees rather
than agents. These branch employees are in close proximity to both customers and
carriers which facilitates quick responses to customers' changing needs. Branch
employees act as a team in both marketing the Company's services and providing
these services to individual customers. The Company compensates its branch
employees principally on the basis of their branch's profitability, which in the
Company's opinion produces a more service-oriented, focused and creative sales
force. The Company believes it is substantially owned by approximately 1,000 of
its employees holding more than 70% of the Company's Common Stock.
<PAGE>
The Company was reincorporated in Delaware in 1997 as the successor to a
business existing, in various legal forms, since 1905. The Company's corporate
office is located at 8100 Mitchell Road, Eden Prairie, Minnesota 55344-2248, and
its telephone number is (612)937-8500. Its web site address is
www.chrobinson.com.
LOGISTIC SERVICES
As a global, third-party logistics company, the Company provides multimodal
transportation and related logistics services, sourcing and fee-based
information services.
The Company seeks to establish long-term relationships with its customers
in order to provide logistics solutions that reduce or eliminate inefficiencies
in customers' supply chains. Whenever appropriate, the Company analyzes the
customer's current transportation rate structures, modes of shipping and carrier
selection. The Company may also examine the customer's warehousing, picking
procedures, loading, unloading and dock scheduling procedures, as well as
packaging and pallet configuration procedures. The Company then evaluates how
these procedures interact with shipping, manufacturing and customer service.
Upon completion of an initial analysis, the Company proposes solutions which
allow the customer to streamline operating procedures and contain costs, while
improving the management of its supply chain. Robinson branch employees remain
involved with the customer throughout the analysis and implementation of the
proposed solution. In the course of providing day-to-day transportation
services, branch employees offer further logistics analysis and solutions as the
employees become more familiar with the customer's daily operations and the
nuances of its supply chain. The Company's ultimate goal is to assist the
customer in managing its entire supply chain while being the customer's key
provider of individual transportation services.
MULTIMODAL TRANSPORTATION SERVICES
On a day-to-day basis, customers communicate their freight needs, typically
on a load-by-load basis, to the Company by means of a telephone call, fax
transmission, e-mail or EDI message to the branch office salesperson responsible
for the particular customer. That salesperson enters all appropriate information
about each load into the Company's computer based Customer Oriented Shipment
Management Operating System ("COSMOS"), determines the appropriate mode of
transportation for the load and selects a carrier or carriers, based upon the
salesperson's knowledge of the carrier's service capability, equipment
availability, freight rates and other relevant factors. The salesperson then
communicates with the carrier's dispatch office to confirm a price for the
transportation and the carrier's commitment to provide the transportation. At
this point, the salesperson provides the carrier information to the customer,
together with the Company's sales price, which is intended to provide a profit
to the Company for the totality of services performed for the customer. By
accepting the customer's order, the Company becomes legally responsible for
transportation of the load from origin to destination, rather than being a mere
freight broker. The carrier's contract is with the Company, not the customer,
and the Company is responsible for prompt payment of carrier charges. The
Company is also responsible to its customer for any claims for damage to freight
while in transit or performance. In most cases, the Company receives
reimbursement from the carrier for these claims.
As a result of the Company's logistics capabilities, many customers now
look to Robinson to handle all, or a substantial portion, of their freight
transportation requirements to or from a particular manufacturing facility or
distribution center. In a number of instances, the Company has contracts with
the customer whereby the Company agrees to handle a specified number of loads
usually to specified destinations, such as from the customer's plant to a
distribution center, at specific rates, but subject to seasonal variation. Most
of the Company's rate commitments are for periods of one year or less. To meet
-2-
<PAGE>
its obligations under these customer contracts, Robinson may obtain advance
commitments from one or more carriers to transport all, or a significant
portion, of the contracted loads, again at specific rates, for the length of
Robinson's customer contract.
As part of its customer focus, Robinson offers a wide range of logistics
services on a worldwide basis to assure timely, efficient and cost effective
delivery through the use of one or more transportation modes. These logistics
services include: transportation management (price and modal comparisons and
selection; shipment consolidation and optimization; improvement of operating and
shipping procedures and claims management); minimization of storage (through
cross-docking and other flow-through operations); logistics network and nodal
location analysis to optimize the entire supply chain; tracking and tracing;
reverse logistics and other special needs; management information; and analysis
of a customer's risk and claims management practices. Robinson will evaluate a
customer's core carrier program by reviewing such factors as carriers' insurance
certificates, safety ratings and financial stability as well as establishing a
program to measure and monitor key quality standards for those core carriers.
These services are bundled with underlying transportation services and are not
typically separately priced, but instead are reflected as a part of the cost of
transportation services provided by the Company on a transactional basis
pursuant to continuing customer relationships. Incident to these transportation
services, the Company may supply sourcing, contract warehousing, consulting and
other services, for which it is separately compensated.
The Company is capable of arranging all modes of transportation services on
a worldwide basis:
. Truck--Through its contracts with over 14,000 motor carriers, the
Company maintains access to more than 370,000 dry vans, 128,000
temperature-controlled units and 96,000 flatbeds. It offers both time-
definite and expedited truck transportation. In many instances,
particularly in connection with its sourcing business, the Company
will consolidate partial loads for several customers into full
truckloads.
. Intermodal--Intermodal transportation involves the shipment of
a coordinated manner. The Company provides intermodal service by both
rail and ship, arranges local pickup and delivery (known as drayage)
through local motor carriers and provides temperature-controlled
double and triple-stacked intermodal containers. The Company currently
owns or leases approximately 650 intermodal containers. The Company
also has intermodal marketing contracts with 11 railroads, which give
the Company access to more than 150,000 additional trailers and
containers.
. Ocean--As an indirect ocean carrier and freight forwarder, the
Company consolidates shipments, determines routing, selects ocean
carriers, contracts for ocean shipments, provides for local pickup and
delivery of shipments and arranges for customs clearance of shipments,
including the payment of duties.
. Air--The Company provides door-to-door service as a full-service air
freight forwarder, both domestically and internationally.
-3-
<PAGE>
The table below shows the Company's net revenue by transportation mode for
the periods indicated:
<TABLE>
<CAPTION>
TRANSPORTATION SERVICES NET REVENUE
(IN THOUSANDS)
Year Ended December 31,
--------------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Truck..................... $63,549 $81,122 $ 97,636 $110,460 $133,110
Intermodal................ 4,411 7,828 6,864 8,014 9,680
Ocean..................... 6,278 6,865 7,212 8,121 9,226
Air....................... 323 550 1,402 1,687 1,954
Miscellaneous (1)......... 2,686 2,922 3,907 4,964 5,290
------- ------- -------- -------- --------
Total.................... $77,247 $99,287 $117,021 $133,246 $159,260
======= ======= ======== ======== ========
</TABLE>
___________
(1) Consists of customs clearance (Automated Brokerage Interface (ABI) and
Automated Clearing House (ACH) capabilities with the U.S. Customs Service)
and warehousing.
As the Company has emphasized integrated logistics solutions, its
relationships with many customers have become broader, with the Company becoming
a business partner responsible for a greater portion of supply chain management.
Customers may be served by specially created Robinson teams and over several
branches.
SOURCING
Throughout its 90-year history, Robinson has been in the business of
sourcing fresh produce. Much of the Company's logistics expertise can be traced
to the Company's significant experience in handling perishable commodities.
Because of its perishable nature, produce must be quickly packaged, transported
within tight timetables in temperature controlled equipment and distributed
quickly to replenish high turnover inventories maintained by wholesalers, food
service companies and retailers. In most instances, the Company consolidates
individual customers' produce orders into truckload quantities at the point of
origin and arranges for transportation of the truckloads, often to multiple
destinations. Approximately one-half of the Company's sourcing business is with
produce wholesalers, who purchase produce in relatively large quantities through
the Company and resell the produce to grocery retailers, restaurants and other
resellers of food. More than one-third of Robinson's sourcing business is with
grocery store chains and other multistore retailers, and most of the Company's
remaining customers are food service companies that distribute a range of food
products to retailers, restaurants and institutions.
During the past five years, the Company has actively sought to expand its
food sourcing customer base by focusing on the larger multistore retailers. As
these retailers have expanded through store openings and industry consolidation,
their traditional methods of produce sourcing and store-level distribution,
which relied principally on regional or even local purchases from wholesalers,
have become inefficient. The Company's logistics and perishable commodities
sourcing expertise can greatly improve the retailers' produce purchasing as well
as assure uniform quality from region to region and store to store. The Company
introduced its proprietary The Fresh 1(R) brand of produce in 1989, which
includes a wide range of uniform quality, top grade fruits and vegetables
purchased from various domestic and international growers.
-4-
<PAGE>
The Company has also sought to leverage its food sourcing and logistics
expertise into the food ingredients market and has focused on the major food
manufacturers that utilize significant quantities of various ingredients in
producing food products. Examples of ingredients sourced for food processors
include fruit juice concentrates, dehydrated onions, chocolate and natural food
colors.
Sourcing accounted for approximately 24%, 22% and 19% of the Company's net
revenues in 1995, 1996 and 1997, respectively.
INFORMATION SERVICES
A subsidiary of the Company, T-Chek Systems LLC provides motor carrier
customers with funds transfer and driver payroll services, fuel management
services, fuel and use tax reporting as well as on-line access to custom-
tailored information management reports, all through the use of its proprietary
automated system. This system enables motor carriers to track equipment, manage
fleets and dictate where and when their drivers purchase fuel. For several
companies and truck stop chains, T-Chek captures sales and fuel cost data,
applies the margin agreed between seller and purchaser, reprices the sale,
invoices the carrier and provides management information to the seller. T-Chek
is also seeking to market other tracking, tracing and communications services
and products, primarily to motor carriers.
Through its subsidiary, Payment and Logistics LLC, the Company provides
freight payment services to shippers using a proprietary system, often linked to
the carriers by EDI, with the ability to process freight payments by electronic
funds transfer. This paperless system also enables the Company to automatically
audit the customer's freight rates, eliminate duplicate payments to carriers and
produce reports containing information about such matters as shipping patterns,
freight volumes and overall transportation costs. The Company and the customer
use these data to better manage the customer's supply chain.
The Company's information services accounted for approximately 3%, 4% and
4% of the Company's net revenues in 1995, 1996 and 1997, respectively.
ORGANIZATION
To allow the Company to stay close to customers and markets, the Company
has created and continues to expand a network of 119 offices, supported by
executives and services in a central office.
BRANCH NETWORK
Branch salespersons are responsible for developing new business, receiving
and processing orders from specific customers located in the area served by the
branch and contracting with carriers to provide the transportation requested. In
addition to routine transportation, salespersons are often called upon to handle
customers' unusual, seasonal and emergency needs. Shipments to be transported by
truck are almost always contracted at the branch level. Some branches may rely
on expertise in other branches when contracting intermodal, international and
air shipments.
Salespersons in the branches both sell and service their customers rather
than rely exclusively on a central office or dedicated sales staff. Sales
opportunities are identified through the Company's database, industry
directories, referrals by existing customers and leads generated by branch
office personnel through knowledge of their local and regional markets. Each
branch is also responsible for locating and contracting with carriers to serve
the branch's customers.
-5-
<PAGE>
The table below shows certain information about the Company's branches for
the periods indicated:
BRANCH DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average employees per branch............... 14.6 15.8 14.6 15.4 16.2
Average net revenues per branch............ $1,392 $1,597 $1,683 $1,717 $1,822
Average net revenues per employee.......... $ 98 $ 105 $ 113 $ 115 $ 115
</TABLE>
As of December 31, 1997, the Company's branch salespersons represented
approximately 70% of the Company's total work force and all branch employees,
including support staff, represented over 90% of the Company's work force. At
December 31, 1997, the number of salespersons per Company branch ranged from
three to 54.
Branch Expansion. The Company expects to continue to add branch offices as
management determines that a new branch may contribute to continued growth and
as branch salespersons develop the capability to manage a new branch. The
Company intends to focus particularly on opening overseas branches as
opportunities arise to serve the local needs of multinational customers.
Additional branches are often opened within a territory previously served by
another branch, such as within major cities, as the volume of business in a
particular area warrants opening a separate branch. Capital required to open a
new branch is modest, involving a lease for a small amount of office space,
communication links and often employee compensation guaranties for a short time.
Unique Branch Network. For almost two decades, new branch salespersons
have been hired through a sophisticated profiling system using standardized
tests to measure an applicant against the traits determined by the Company to be
those of successful Robinson employees. These common traits facilitate
cooperative efforts necessary for the success of each office. Applicants are
recruited nationally from across the United States and Canada, typically have
college degrees and some have business experience, not necessarily within the
transportation industry. The Company is highly selective in determining to whom
it offers employment.
Newly hired branch employees receive extensive on-the-job training at the
branch level, which ranges from six months to a year and emphasizes development
of the necessary skills and attitude to become productive members of a branch
team. The Company believes most salespersons become productive employees in a
matter of weeks. After gaining a year of experience, each salesperson attends a
Company-sponsored national meeting to receive additional training and foster
relationships between branches.
Employees at the branch level form a team, which is enhanced by the
Company's unique incentive compensation system under which a significant part of
the compensation of most branch managers and salespersons is dependent on the
profitability of the particular branch. For any calendar year, branch managers
and salespersons who have been employed for at least one complete year
participate in the branch's earnings for that calendar year, based on a system
of "points" awarded to the employees on the basis of their productivity and
contribution. Most of a branch manager's compensation is provided by this
compensation program. For 1997, incentive-based compensation averaged
approximately 30% of branch salespersons' total compensation, 65% of branch
managers' total compensation and 60% of officers' total compensation. Branch
employees also participate in the
-6-
<PAGE>
Company's Profit Sharing Plan, contributions to which depend on overall Company
profitability. In connection with establishing new branches and other special
circumstances, the Company may guaranty a level of compensation to the branch
manager and key salespersons.
All managers throughout the Company who have significant responsibilities
are eligible to participate in the Company's 1997 Omnibus Stock Plan. Employees
at all levels, after a qualifying period of employment, are eligible to
participate in the Company's Employee Stock Purchase Plan.
Individual salespersons benefit through the growth and profitability of
individual branches and are motivated by the opportunity to become branch
managers, assistant managers or department managers. All branch salespersons are
full time employees.
EXECUTIVE OFFICERS
Under the Company's decentralized operating system, branch managers report
directly to, and receive guidance and support from, a small group of executive
officers at the Company's central office. Customers, carriers, managers and
employees have direct access to the Company's Chief Executive Officer, D.R.
Verdoorn, and all other executive officers. These executives provide training
and education concerning logistics, develop new services and applications to be
offered to customers and provide broad market analysis.
The executive officers of the Company serve at the discretion of the Board
of Directors and are chosen annually by the Board of Directors. Set forth below
are the names, ages and positions of the executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
D.R. Verdoorn 59 President, Chief Executive Officer and Director
Looe Baker III 48 Vice President and Director
Barry W. Butzow 51 Vice President and Director
Gregory D. Goven 46 Vice President
Robert S. Ingram 57 Vice President, Transportation
Michael T. Rempe 44 Vice President, Produce
Thomas M. Jostes 37 Vice President, Transportation
Thomas D. Perdue 48 Vice President, Intermodal
Dale S. Hanson 59 Vice President, Finance, Chief Financial Officer and Director
Owen P. Gleason 46 Vice President, General Counsel, Secretary and Director
Jennifer T. Amys 47 Vice President, Chief Information Officer
John P. Wiehoff 36 Corporate Controller and Treasurer
</TABLE>
D.R. Verdoorn has been the President and Chief Executive Officer of the
Company and its predecessor since 1977 and a director since 1975. He has been
with the Company since 1963. He has served on the Boards of Directors for United
Fresh Fruit and Vegetable Association and the Produce Marketing Association. Mr.
Verdoorn attended Central College in Pella, Iowa.
Looe Baker III has been a Vice President of the Company since 1979 and a
director since 1984. Mr. Baker began his career with the Company in 1971. Mr.
Baker has served on the Board of Directors for the Produce Marketing
Association. He is a director of Orval Kent Holding Co. He holds a Bachelor of
Science degree from Drake University.
-7-
<PAGE>
Barry W. Butzow has been a Vice President of the Company since 1984 and a
director since 1986. He began employment with the Company in 1969. He holds a
Bachelor of Arts degree from Moorhead State University.
Gregory D. Goven has been a Vice President of the Company since 1988. Mr.
Goven joined the Company in 1973. Mr. Goven holds a Bachelor of Science degree
from North Dakota State University. Mr. Goven's wife is the first cousin of Mr.
Verdoorn.
Robert S. Ingram has been Vice President, Transportation since 1996 and
prior to that was Vice President of Intermodal from 1992. Prior to joining the
Company, Mr. Ingram held several executive positions with the Burlington
Northern Railway, the Soo Line Railroad, Sealand Service and several regional
railroads. He holds a Bachelor of Science degree from the University of
Pennsylvania.
Michael T. Rempe has been Vice President, Produce since 1994, after
starting with the Company in 1989 as Director of Produce Merchandising. Prior to
that, he held several senior positions in the retail grocery industry. Mr. Rempe
is currently on the Board of Directors of the Produce Marketing Association and
Produce for Better Health. Mr. Rempe attended Indiana University Purdue
University in Indianapolis.
Thomas M. Jostes has served as Vice President, Transportation since 1995
and has been employed by the Company since 1984. Mr. Jostes holds a Bachelor of
Arts degree from Iowa State University.
Thomas D. Perdue has been Vice President, Intermodal since 1995. From 1992
through 1995, he was Assistant Vice President of Intermodal Operations for the
Burlington Northern Railway, and prior thereto, he held various senior
transportation operations and marketing positions with Burlington Northern
Railway. Mr. Perdue holds a Bachelor of Science degree from Indiana University.
Dale S. Hanson has been Vice President, Finance and Chief Financial Officer
of the Company since 1990 and a director since 1988. Prior to joining the
Company, Mr. Hanson held various executive positions with First Bank System,
Inc. (now U.S. Bancorp), including Executive Vice President of First Bank
System, Inc., President of FBS Merchant Banking Group and President of First
Bank of St. Paul. Mr. Hanson holds a Bachelor of Arts degree from Carleton
College.
Owen P. Gleason has been Vice President and General Counsel of the Company
since 1990 and served as corporate counsel since 1978. Mr. Gleason has been a
director since 1986. Mr. Gleason holds a law degree from Oklahoma City
University and a Bachelor's Degree from Ripon College.
Jennifer T. Amys has been Vice President and Chief Information Officer of
the Company since 1994. From 1989 through 1993, she was Director of Systems
Development and Support for The Quaker Oats Company and prior to that held other
senior MIS positions for several transportation and food companies. She has a
Masters of Business Administration degree from the University of Minnesota and a
Bachelor of Science degree from the University of Taiwan.
John P. Wiehoff has been Treasurer of the Company since May 1997 and
Corporate Controller since 1992. Prior to that, he was employed as an audit
manager by Arthur Andersen LLP. He holds a Bachelor of Science degree from St.
John's University.
-8-
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had a total of 1,925 employees,
substantially all of whom are full-time employees and approximately 1,700 of
whom were located in the Company's branch offices. Corporate services such as
accounting, information systems, legal, credit support and claims support are
provided centrally. The Company believes that its compensation and benefit plans
are among the most competitive in the industry and that its relationship with
employees is excellent.
CUSTOMERS AND MARKETING
The Company seeks to establish long-term relationships with its customers
and to increase the amount of business done with each customer by seeking to
provide the customer with a full range of logistic services. In 1997, the
Company served approximately 8,600 customers, ranging from Fortune 100 companies
to small businesses in a wide variety of industries. During 1997, no customer
accounted for more than 4% of gross revenues. In recent years, revenue growth
has been achieved through the growth and consolidation of customers, expansion
of the services provided by the Company and an increase in the number of
customers served.
The Company believes that decentralization allows salespersons to better
serve the Company's customers by fostering the development of a broad knowledge
of logistics and local and regional market conditions as well as the specific
logistics issues facing individual customers. With the guidance of experienced
branch managers (who have an average tenure of 13 years with the Company),
branches are given significant latitude in pursuing opportunities and committing
the Company's resources to serve customers.
Branches seek additional business from existing customers and pursue new
customers, based on their knowledge of local markets and the range and value of
logistics services that the Company is capable of providing. The Company has
begun placing increased emphasis on national sales and marketing support to
enhance branch capabilities. Increasingly, branches call on central office
executives, a national sales staff and a central logistics group to support them
in the pursuit of multinational corporations and other companies with more
complex logistics requirements.
RELATIONSHIPS WITH CARRIERS
The Company seeks to establish long-term relationships with carriers in
order to assure dependable services, favorable pricing and carrier availability
during peak shipping periods and periods of undercapacity. To strengthen and
maintain these relationships, Company salespersons regularly communicate with
carriers serving their region and seek to assist carriers with equipment
utilization, reduction of empty miles and equipment repositioning. The Company
has a policy of prompt payment and provides centralized claims management on
behalf of various shippers. Many smaller carriers effectively consider Robinson
as their sales and marketing department.
As of December 31, 1997, the Company had contracts with more than 14,000
motor carriers (representing approximately 128,000 temperature controlled vans,
370,000 dry vans and 96,000 flatbeds). Those carriers include owner-operators of
a single truck, small and mid-size fleets, private fleets and the largest
national trucking companies. Consequently, the Company is not dependent on any
one carrier. As of December 31, 1997, the Company also had intermodal marketing
contracts with 11 railroads, including all of the major North American
railroads, giving the Company access to more than 150,000 additional trailers
and containers. The Company qualifies each motor carrier to assure that it is
properly licensed and insured and has the resources to provide the necessary
level of service on a dependable basis. The Company's motor carrier contracts
require that the carrier commit to a
-9-
<PAGE>
minimum number of shipments, issue invoices only to and accept payment solely
from, Robinson and permit Robinson to withhold payment to satisfy previous
claims or shortages. Carrier contracts also establish transportation rates that
can be modified by issuance of an individual load confirmation. The Company's
contracts with railroads govern the transportation services and payment terms by
which the Company's intermodal shipments are transported by rail. Intermodal
transportation rates are typically negotiated between the Company and the
railroad on a customer-specific basis.
COMPETITION
The transportation services industry is highly competitive and fragmented.
The Company competes primarily against a large number of other non-asset based
logistics companies, as well as asset-based logistics companies, third-party
freight brokers, carriers offering logistics services and freight forwarders.
The Company also competes against carriers' internal sales forces and shippers'
own transportation departments. It also buys and sells transportation services
from and to companies with which it competes.
The Company believes that its most significant competitive advantages are:
(i) its large decentralized branch network, staffed by salespersons who are
employees rather than agents, which enables the Company's salespersons to gain
significant knowledge about individual customers and the local and regional
markets they serve, (ii) its ability to provide a broad range of logistics
services and (iii) its ability to provide services on a worldwide basis.
COMMUNICATIONS AND INFORMATION SYSTEMS
To handle the large number of daily transactions and to accommodate its
decentralized branch system, the Company has designed an extensive
communications and information system. Employees are linked with each other and
with customers and carriers by telephone, facsimile, e-mail and/or EDI to
communicate requirements and availability, to confirm and bill orders and,
through the Company's Internet home page, to trace shipments. The Company has
developed its own proprietary computer based system, COSMOS. The most recent
enhancements help salespersons service customer orders, select the optimal modes
of transportation, build and consolidate loads and selects routes, all based on
customer-specific service parameters. COSMOS makes load data visible to the
entire branch sales team, enabling the salespersons to select carriers and track
loads in progress, and automatically provides visible alerts to any arising
problems. The Company's internally developed proprietary decision support system
("BSMART") uses data captured from daily transactions to generate various
management reports which are available to the Company's large logistics
customers to provide information on traffic patterns, product mix and production
schedules. BSMART enables customers to analyze their own customer base,
transportation expenditure trends and the impact on out-of-route and out-of-
stock costs.
The Company continues to assess what impact the year 2000 will have on its
current information systems. A plan is under way to complete the necessary
programming using primarily internal resources. The cost of this programming is
expected to be immaterial to the Company's overall financial position and is
being expensed as incurred.
GOVERNMENT REGULATION
The transportation industry has been subject to legislative and regulatory
changes that have affected the economics of the industry by requiring changes in
operating practices or influencing the demand for, and cost of providing,
transportation services. The Company cannot predict the effect, if any, that
future legislative and regulatory changes may have on the transportation
industry.
-10-
<PAGE>
The Company is subject to licensing and regulation as a transportation
provider. The Company is licensed by the Department of Transportation ("DOT") as
a broker in arranging for the transportation of property by motor vehicle. The
DOT prescribes qualifications for acting in this capacity, including certain
surety bonding requirements. The Company provides motor carrier transportation
services that require registration with the DOT and compliance with certain
economic regulations administered by the DOT, including a requirement to
maintain insurance coverage in minimum prescribed amounts. The Company is
subject to regulation by the Federal Maritime Commission as an ocean freight
forwarder and maintains a non-vessel operating common carrier bond. The Company
operates as an indirect air cargo carrier subject to economic regulation by the
DOT. The Company provides customs brokerage services as a customs broker under a
license issued by the United States Customs Service of the Department of
Treasury. The Company sources fresh produce under a license issued by the United
States Department of Agriculture. Other sourcing and distribution activities may
be subject to various federal and state food and drug statutes and regulations.
Although Congress enacted legislation in 1994 that substantially preexmpts the
authority of states to exercise economic regulation of motor carriers and
brokers of freight, the Company and several of its subsidiaries continue to be
subject to a variety of vehicle registration and licensing requirements. The
Company and the carriers that the Company relies on in arranging transportation
services for its customers are also subject to a variety of federal and state
safety and environmental regulations. Although compliance with the regulations
governing licensees in these areas has not had a materially adverse effect on
the Company's operations or financial condition in the past, there can be no
assurance that such regulations or changes thereto will not adversely impact the
Company's operations in the future. Violation of these regulations could also
subject the Company to fines or, in the event of serious violation, suspension
or revocation of operating authority as well as increased claims liability.
RISK MANAGEMENT AND INSURANCE
In its truck and intermodal operations, the Company assumes full value
cargo risk to its customers. The Company subrogates its losses against the motor
or rail carrier with the transportation responsibilities. The Company requires
all motor carriers participating in its contract program to carry at least
$750,000 in general liability insurance and $25,000 in cargo insurance. Many
carriers carry insurance limits exceeding these minimums. Railroads, which are
generally self-insured, provide limited common carrier liability protection,
generally up to $250,000 per shipment. For both truck and rail transportation,
higher coverage is available to the customer on a load-by-load basis at an
additional price.
In its international freight forwarding, ocean transportation and air
freight businesses, the Company does not assume cargo liability to its customers
above minimum industry standards. The Company offers its customers the option to
purchase ocean marine cargo coverage to insure goods in transit. When the
Company agrees to store goods for its customers for longer terms, it provides
limited warehouseman's coverage to its customers and contracts for warehousing
services from companies which provide the Company the same degree of coverage.
The Company maintains a broad cargo liability policy to protect it against
catastrophic losses that may not be recovered from the responsible carrier with
a deductible of $100,000 per incident. The Company also carries various
liability policies, including auto and general liability, with a $75 million
umbrella.
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
-11-
<PAGE>
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 sales of produce. 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.
FORWARD-LOOKING STATEMENTS
This Form 10-K Annual Report and the Company's financial statements and
other documents incorporated by reference contain forward-looking statements
that involve risk and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those contained above in this Item 1--Business, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 and Exhibit
99.
ITEM 2. PROPERTIES
Principally all of the Company's branch offices and its central office are
leased from third parties under leases with initial terms ranging from three to
ten years. The Company considers its current offices adequate for its current
level of operations. The Company has not had difficulty in obtaining sufficient
office space and believes it can renew existing leases or relocate branches to
new offices as leases expire.
ITEM 3. LEGAL PROCEEDINGS
In 1995, the United States Customs Service began an investigation of
possible duties owed on imports of certain juice concentrates by a subsidiary of
the Company. The Company has been advised by the United States Attorney for the
Eastern District of New York that its subsidiary was not the target or the
subject of a criminal investigation, although the United States Attorney is not
bound by such statements. The Company believes, however, that the United States
Customs Service will seek additional duties of approximately $4.0 million and
may seek civil monetary penalties against the subsidiary of the Company. The
Company believes the disposition of this matter will not have a material adverse
effect on the business, financial condition or results of operations of the
Company, although there can be no assurance that the duties and penalties sought
against the subsidiary will not exceed the Company's reserves for this matter.
The Company is currently not otherwise subject to any pending or threatened
litigation other than routine litigation arising in the ordinary course of
business, none of which is expected to have a material adverse effect on the
business, financial condition or results of operations 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 the year ended December 31, 1997.
-12-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On February 28, 1997, the Company issued an aggregate of 282,086 restricted
shares of Common Stock to 57 employees under the Company's prior stock programs
related to incentive compensation earned for the year ended December 31, 1996
(and determined after the end of the year). The number of shares issued was
based on book value per share of Common Stock on December 31, 1996. Such
issuances were exempt from registration under the Securities Act of 1933
pursuant to Section 3(b) and Rule 701 thereunder inasmuch as (1) the Company was
not subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934 and was not an investment company registered or
required to be registered under the Investment Company Act of 1940 at the time
of issuance, (2) the conditions of Rule 701(b)(1) and (3) were satisfied in that
each such issuance was made pursuant to a written contract with each such
employee, which was furnished to the employee, and (3) the conditions of Rule
701(b)(5) were satisfied in that the aggregate amount of securities offered and
sold (282,086 shares valued at $1,066,285) (x) did not exceed $5,000,000 and (y)
did not exceed the greater of (i) $500,000, (ii) $48,117,000 (15% of the total
assets of the Company at December 31, 1996) or (iii) 6,185,288 shares (15% of
the number of shares outstanding as of February 28, 1997, giving effect to such
sales).
On June 30, 1997, the Company sold 25,000 shares of Common Stock to
Gerald A. Schwalbach, a director of the Company, for cash in the amount of
$103,000, the book value of the stock at May 31, 1997. Such stock was purchased
for investment and not with a view to distribution, and the sale thereof was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof.
The Company's Common Stock began trading on The Nasdaq National Market
under the symbol "CHRW" on October 15, 1997. Certain stockholders of the
Company sold 12,165,155 shares of the Company's Common Stock to the public
pursuant to a registered public offering, the proceeds of which were paid
entirely to the selling stockholders. Prior to such date, there was no
established public trading market for the Company's Common Stock.
The following table sets forth, for the period indicated, the high and low
sales prices of the Company's Common Stock, as quoted on The Nasdaq National
Market.
1997 High Low
- - ---- ------ ------
Fourth quarter (commencing October 15, 1997) $26.50 $19.75
On March 13, 1998, the closing sales price per share of the Company's
Common Stock as quoted on The Nasdaq National Market was $22.75 per share. On
March 13, 1998, there were approximately 1,200 holders of record and
approximately 5,000 beneficial owners of the Company's Common Stock.
For 1996, the Company paid aggregate annual dividends of $0.185 per share.
For 1997, the Company paid quarterly dividends of $0.01 per share for the first
and second quarters. On October 10, 1997, the Company paid an extraordinary cash
dividend of $1.50 per share to stockholders of record on October 10, 1997. The
Company paid a liquidating distribution of the net proceeds of the sale of the
Company's consumer finance services business on October 14, 1997, to
stockholders of record on October 14, 1997 of $0.95 per share. On December 30,
1997, the Company paid a quarterly dividend of $0.06 per share to shareholders
of record as of December 12, 1997. The Company has declared a quarterly dividend
of $0.06 per share payable to shareholders of record as of March 12, 1998
payable on April 1,
-13-
<PAGE>
1998. The declaration of dividends by the Company is subject to the discretion
of the Board of Directors. Any determination as to the payment of dividends will
depend upon the results of operations, capital requirements and financial
condition of the Company, and such other factors as the Board of Directors may
deem relevant. Accordingly, there can be no assurance that the Board of
Directors will declare or continue to pay dividends on the shares of Common
Stock in the future.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data on page 16 of the Annual Report is incorporated by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 17 through 19 of the Annual Report is incorporated by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements for the year ended December
31, 1997 on pages 20 through 30 of the Annual Report are incorporated by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's Board of Directors on pages 2
through 4, and "Section 16(a) Beneficial Ownership Reporting Compliance" on page
12 of the Proxy Statement are incorporated by reference. Information with
respect to the Company's executive officers is provided in Part I, Item 1.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" on pages 4 through 6 of the Proxy Statement is
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners and Management" on page
11 of the Proxy Statement is incorporated by reference.
-14-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Certain Transactions" on page 11 of the Proxy Statement is incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements.
The Company's consolidated financial statements for the year ended
December 31, 1997, listed in the accompanying Index to Consolidated
Financial Statements at page F-1, on pages 20 through 30 of the Annual
Report are incorporated by reference.
(2) Financial Statement Schedules.
Schedule II. Valuation and Qualifying Accounts, is included at the
end of this Report.
(3) Index to Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
3.1 Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-33731)
3.2 Bylaws of the Company (Incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
3.3 Certificate of Designations of Series A Junior Participating
Preferred Stock of the Company (Incorporated by reference to
Exhibit 3.3 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
4.1 Form of Certificate for Common Stock (Incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-33731)
4.2 Form of Rights Agreement between the Company and Norwest Bank
Minnesota, National Association (Incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.1 Form of Central Office Management Incentive Program, including
Deferred Compensation Agreement (Incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
</TABLE>
-15-
<PAGE>
<TABLE>
<C> <S>
10.2 Operational Executive Compensation Program (Incorporated by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-33731)
10.3 Employee Incentive Program (Incorporated by reference to
Exhibit 10.3 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.4 1997 Omnibus Stock Plan (Incorporated by reference to
Exhibit 10.4 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.5 Form of Management--Employee Agreement between the Company and
each of by D.R. Verdoorn, Looe Baker III and Barry Butzow
(Incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-
33731)
10.6 Form of Management--Employee Agreement entered into by Gregory
Goven, Dale Hanson, Thomas Jostes, Bernard Madej and Michael
Rempe (Incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1, Registration
No. 333-33731)
10.7 Form of Management--Employee Agreement between the Company and
by Thomas Perdue (Incorporated by reference to Exhibit 10.7 to
the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
10.8 Amended and Restated Promissory Note, due on demand or June
30, 1998, payable by C.H. Robinson Company to the order of
First Bank National Association, up to an aggregate principal
amount of $10,000,000 (Incorporated by reference to Exhibit
10.8 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
10.9 Guaranty, dated as of November 30, 1992, by C.H. Robinson,
Inc. for the benefit of First Bank National Association
(Incorporated by reference to Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-
33731)
10.10 Master Equipment Lease Agreement, dated August 19, 1994,
between Wagonmaster Transportation Company and AT&T Commercial
Finance Corporation (Incorporated by reference to Exhibit
10.10 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
10.11 Keep-Well Agreement, dated August 19, 1994, between C.H.
Robinson, Inc., Wagonmaster Transportation Company and AT&T
Commercial Finance Corporation (Incorporated by reference to
Exhibit 10.11 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.12 Master Equipment Lease Agreement, dated ________, 1994,
between Wagonmaster Transportation Company and Metlife Capital
Limited
</TABLE>
-16-
<PAGE>
<TABLE>
<C> <S>
Partnership (Incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1, Registration
No. 333-33731)
10.13 Keep-Well Agreement, dated April__, 1994, between C.H.
Robinson, Inc., Wagonmaster Transportation Company and Metlife
Capital Limited Partnership (Incorporated by reference to
Exhibit 10.13 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.14 Form of Management Confidentiality and Noncompetition
Agreement (Incorporated by reference to Exhibit 10.21 to the
Registrant's Registration Statement on Form S-1, Registration
No. 333-33731)
10.15 Form of Stock Option Agreement (Incorporated by reference to
Exhibit 10.22 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.16 Stock Purchase Agreement dated September 9, 1997 by and
between Cityside Holding Company, C.H. Robinson, Inc. and
Norwest Corporation (Incorporated by reference to Exhibit 2.1
to the Registrant's Current Report on Form 8-K dated October
14, 1997)
10.17 Amendment to Stock Purchase Agreement dated October 13, 1997,
by and between Cityside Holding L.L.C., C.H. Robinson, Inc.
and Norwest Corporation (Incorporated by reference to
Exhibit 2.2 to the Registrant's Current Report on Form 8-K
dated October 14, 1997)
10.18 Escrow Agreement dated October 13, 1997, by and between
Cityside Holding L.L.C., C.H.Robinson, Inc. and Norwest Bank
Iowa, N.A. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated October 14,
1997)
*10.19 Long Term Lease Agreement, dated to be effective August 1,
1997, between C.H. Robinson Company and Gemstar Container
Corporation.
*10.20 Long Term Lease Agreement, dated to be effective November 1,
1997, between C.H. Robinson Company and Gemstar Container
Corporation.
*13 Selected pages of the Company's Annual Report to Stockholders
for the year ended December 31, 1997
*21 Subsidiaries of the Company
*23 Consent of Arthur Andersen LLP
24 Powers of Attorney (included on signature page of this Report)
*27 Financial Data Schedule [Filed in electronic format only]
*99 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995
</TABLE>
_________________
* Filed herewith
-17-
<PAGE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated October 14, 1997 to
report the sale by the Company of its consumer finance business to Norwest
Corporation as an Item 2 reportable event.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
-18-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements of the Company and its subsidiaries
required to be included in Item 14(a)(1) are listed below:
C.H. ROBINSON WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Financial Statements (incorporated by reference under Item 8 of
Part II from pages 20 through 30 of the Company's Annual Report to Stockholders
for the year ended December 31, 1997):
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Investment for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
F-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 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, thereunto duly authorized, in the City of Eden
Prairie, State of Minnesota, on March 25, 1998.
C.H. ROBINSON WORLDWIDE, INC.
By: /s/ Owen P. Gleason
---------------------------------------------
Owen P. Gleason
Vice President, General Counsel and Secretary
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 indicated on March 25, 1998.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dale S. Hanson and Owen P. Gleason (with
full power to act alone), as his or her true and lawful attorneys-in-fact and
agents, with full powers of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign an
Annual Report on Form 10-K of C.H. Robinson Worldwide, Inc., and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents full power and authority to do and perform each and every act
and thing requisite or necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, lawfully do or cause to be done by virtue hereof.
Signature Title
--------- -----
/s/ D. R. Verdoorn President, Chief Executive Officer and Director
- - ------------------------ (Principal Executive Officer)
D.R. Verdoorn
/s/ Dale S. Hanson Vice President Finance, Chief Financial Officer
- - ------------------------ and Director (Principal Financial Officer)
Dale S. Hanson
/s/ John P. Wiehoff Corporate Controller and Treasurer (Principal
- - ------------------------ Accounting Officer)
John P. Wiehoff
/s/ Looe Baker III Vice President and Director
- - ------------------------
Looe Baker III
/s/ Barry W. Butzow Vice President and Director
- - ------------------------
Barry W. Butzow
/s/ Owen P. Gleason Vice President, General Counsel, Secretary and
- - ------------------------ Director
Owen P. Gleason
/s/ Robert Ezrilov Director
- - ------------------------
Robert Ezrilov
/s/ Gerald A. Schwalbach Director
- - ------------------------
Gerald A. Schwalbach
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C.H. Robinson Worldwide, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in C.H. Robinson Worldwide, Inc.'s
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 6, 1998. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
accompanying schedule is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange Commission
rules and is not part of the basic financial statements. The schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 6, 1998
<PAGE>
C.H. Robinson Worldwide, Inc.
Schedule II. Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
The transactions in the allowance for doubtful accounts for the years ended
December 31, 1995, and 1996 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
December 31, December 31, December 31,
1995 1996 1997
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of
Year $ 5,719 $ 8,033 $10,079
- - --------------------------------------------------------------------------------------
Provision 4,583 5,139 3,870
- - --------------------------------------------------------------------------------------
Write-off's (2,269) (3,093) (5,013)
- - --------------------------------------------------------------------------------------
Balance, end of year $ 8,033 $10,079 $ 8,936
- - --------------------------------------------------------------------------------------
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description
- - ------ -----------
<C> <S>
3.1 Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
3.2 Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-3373
1)
3.3 Certificate of Designations of Series A Junior Participating Preferred
Stock of the Company (Incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
4.1 Form of Certificate for Common Stock (Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
4.2 Form of Rights Agreement between the Company and Norwest Bank Minnesota,
National Association (Incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.1 Form of Central Office Management Incentive Program, including Deferred
Compensation Agreement (Incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.2 Operational Executive Compensation Program (Incorporated by reference to
Exhibit 10.2 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
10.3 Employee Incentive Program (Incorporated by reference to Exhibit 10.3 to
the Registrant's Registration Statement on Form S-1, Registration No. 333-
33731 )
10.4 1997 Omnibus Stock Plan (Incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.5 Form of Management--Employee Agreement between the Company and each of by
D.R. Verdoorn, Looe Baker III and Barry Butzow (Incorporated by reference
to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
10.6 Form of Management--Employee Agreement entered into by Gregory Goven, Dale
Hanson, Thomas Jostes, Bernard Madej and Michael Rempe (Incorporated by
reference to Exhibit 10.6 to the Registrant's Registration Statement on
Form S-1, Registration No. 333-33731)
10.7 Form of Management--Employee Agreement between the Company and by Thomas
Perdue (Incorporated by reference to Exhibit 10.7 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-33731)
10.8 Amended and Restated Promissory Note, due on demand or June 30, 1998,
payable by C.H. Robinson Company to the order of First Bank National
Association, up to an aggregate principal amount of $10,000,000
(Incorporated by reference to Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1, Registration No. 333-33731)
10.9 Guaranty, dated as of November 30, 1992, by C.H. Robinson, Inc. for the
benefit of First Bank National Association (Incorporated by reference to
Exhibit 10.9 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.10 Master Equipment Lease Agreement, dated August 19, 1994, between
Wagonmaster Transportation Company and AT&T Commercial Finance
Corporation (Incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.11 Keep-Well Agreement, dated August 19, 1994, between C.H. Robinson, Inc.,
Wagonmaster Transportation Company and AT&T Commercial Finance
Corporation (Incorporated by reference to Exhibit 10.11 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.12 Master Equipment Lease Agreement, dated ________, 1994, between
Wagonmaster Transportation Company and Metlife Capital Limited
Partnership (Incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.13 Keep-Well Agreement, dated April __, 1994, between C.H. Robinson, Inc.,
Wagonmaster Transportation Company and Metlife Capital Limited
Partnership (Incorporated by reference to Exhibit 10.13 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
33731)
10.14 Form of Management Confidentiality and Noncompetition Agreement
(Incorporated by reference to Exhibit 10.21 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-33731)
10.15 Form of Stock Option Agreement (Incorporated by reference to Exhibit
10.22 to the Registrant's Registration Statement on Form S-1,
Registration No. 333-33731)
10.16 Stock Purchase Agreement dated September 9, 1997 by and between Cityside
Holding Company, C.H. Robinson, Inc. and Norwest Corporation
(Incorporated by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated October 14, 1997)
10.17 Amendment to Stock Purchase Agreement dated October 13, 1997, by and
between Cityside Holding L.L.C., C.H. Robinson, Inc. and Norwest
Corporation (Incorporated by reference to Exhibit 2.2 to the Registrant's
Current Report on Form 8-K dated October 14, 1997)
10.18 Escrow Agreement dated October 13, 1997, by and between Cityside Holding
L.L.C., C.H.Robinson, Inc. and Norwest Bank Iowa, N.A. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K
dated October 14, 1997)
*10.19 Long Term Lease Agreement, dated to be effective August 1, 1997, between
C.H. Robinson Company and Gemstar Container Corporation.
*10.20 Long Term Agreement, dated to be effective November 1, 1997, between C.H.
Robinson Company and Gemstar Container Corporation.
*13 Selected pages of the Company's Annual Report to Stockholders for the
year ended December 31, 1997
*21 Subsidiaries of the Company
*23 Consent of Arthur Andersen LLP
24 Powers of Attorney (included on signature page of this Report)
*27 Financial Data Schedule [Filed in electronic format only]
*99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
</TABLE>
_________________
* Filed herewith
<PAGE>
EXHIBIT 10.19
C.H. ROBINSON COMPANY
LONG TERM LEASE AGREEMENT
-------------------------
Genstar Container Corporation, either on its own behalf or as agent for others
(hereinafter referred to as "Genstar") a U.S. corporation, with offices at 505
Montgomery Street, 23rd Floor, San Francisco, California, 94111 and C.H.
Robinson Company (hereinafter referred to as "Lessee"), a Delaware corporation,
with offices at 8100 Mitchell Road, Suite 200, Eden Prairie, MN 55344 hereby
enter into this Long Term Lease Agreement this 1st day of August, 1997.
A. EQUIPMENT COVERED
-----------------
This Agreement concerns 200 x 40 foot high cube (HC) refrigerated containers
(the "containers") designated by a variety of prefixes. All containers meet
full I.S.O. standards. Of these containers 100 will be equipped with Thermo
King Model # M37.6 machinery and the balance of 100 units will be equipped
with Thermo King Model # M37.3 machinery.
B. LEASE/BUILD-UP PERIOD
---------------------
(i) Lease Period: All containers shall be leased by Lessee from October 1,
1997 through September 30, 2005 at the rate applicable under Paragraph C. The
Agreement shall be renegotiated 30 days prior to September 30, 2005.
(ii) Build-Up Period: Any containers interchanged prior to November 1, 1997
shall be leased from the date of its interchange through October 31, 2005 at
the per diem rate set out in Paragraph C.
(iii) Early Return: Notwithstanding the above, the Lessee may, subject to 60
days written notice before the yearly anniversary date, opt to terminate any
or all of the containers on lease under this Agreement after either three,
four, five, six, seven or eight years, subject to retroactive rate increases
as set out in Paragraph C. effective from the date of initial interchange to
the date of redelivery of each container.
Such early return option shall lapse unless exercised in accordance with the
above procedure.
In the event the Agreement is not renegotiated, the wind-down terms of this
Agreement will apply, as defined in Paragraph G.
(iv) The containers will be on lease for a minimum of three years.
PLEASE INITIAL:
LESSEE_____ LESSOR_____
<PAGE>
2
C. PER DIEM RENTAL CHARGES
-----------------------
The per diem billing rate for the containers are as follows:
-------------------------------------------------------------
EQUIPMENT TYPE Per Diem
-------------------------------------------------------------
40 Foot HC Refrigerated US $9.39
-------------------------------------------------------------
In the event that a container is redelivered in accordance with paragraph B.
(iii), Lessee will be billed the difference between the per diem billing rate
and the per diem rate below, counting from the date of the initial
interchange to the date of redelivery of each container. Billing will
commence from the date that the containers are accepted at the Union Pacific
Ramp in Los Angeles except that freedays will be granted until the containers
are available for pick-up in Chicago.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
EQUIPMENT TYPE YEAR: THREE FOUR FIVE SIX SEVEN EIGHT
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
40 Foot HC Refrigerated US$ 11.59 11.05 10.59 10.18 9.83 9.39
--------------------------------------------------------------------------------------
</TABLE>
D. CONTAINER DELIVERY
-------------------
The containers will be delivered in the following manner: Genstar will be
responsible to deliver the containers to the Union Pacific Railroad's
intermodal ramp in Los Angeles. Lessee will be responsible to transport the
containers from Los Angeles to the Union Pacific Ramp in Chicago. Genstar
will be responsible to deliver the containers from the Union Pacific's
Chicago Ramp to Genstar's container yard in Chicago from which they will be
picked up by Lessee..
E. LIFT-ON AND LIFT-OFF CHARGES (HANDLING)
---------------------------------------
Genstar will absorb the lift-on charge for all deliveries and a lift-off
charge for all redeliveries.
The lift-on charge shall include a pre-trip inspection and the lift-off
charge shall include a post-trip inspection pursuant to Exhibit [C] attached
hereto.
Any changes to the above charges are subject to sixty (60) days notice from
Genstar to Lessee.
F. TERMINATION FEE
---------------
SEE EXHIBIT B.
--------------
G. FLOOR MODIFICATION
------------------
Each container will be modified to accommodate a sheet of "Ramada" netting to
be laid over the t-bar floor and secured as per the instructions of Lessee.
Lessor offers no warranty as to the suitability of this modification for the
task intended and accepts no liability for any damage to the cargo carried or
incidental damage or contamination of any type arising as a result of the
modification. The per diem quoted in section "C" will include the initial
labor and material costs of
PLEASE INITIAL:
LESSE ______ LESSOR________
<PAGE>
3
the modification. The Lessee will be responsible for any subsequent costs for
replacement, or repair.
H. WIND-DOWN
---------
In the event that this Agreement is not renegotiated prior to September 30,
2005, Lessee shall redeliver the containers to Genstar over a 3 month wind-
down period beginning October 1, 2005 . All terms and conditions of this
Agreement will apply during the 3 month wind-down period. If any container is
not redelivered prior to the end of the 3 month wind-down period, then the
redelivery terms and conditions of the Agreement and the terms and conditions
set forth in the standard Genstar Lease Agreement attached hereto as Exhibit
[A] will apply. A per diem rental charge as stated below shall be effective
from the end of said 3 month wind-down period until the date each such
container is redelivered.
-------------------------------------------------------------
40 Foot HC Refrigerated
-------------------------------------------------------------
I. REDELIVERY
----------
Exhibit (B) specifies the terms and conditions of redelivery together with
any drop-off charges that will be assessed. Upon ninety (90) days notice to
the Lessee from Genstar, redelivery locations and drop-off charges may be
amended.
J. DAMAGED EQUIPMENT/OFF-HIRE PROCEDURE
------------------------------------
Any damage sustained by a container while it is on lease to Lessee will be
the responsibility of Lessee, excluding normal wear and tear as determined by
the then current standards of the Institute of International Container
Lessors or owner's manual. Damage to the container which does not constitute
normal wear and tear and could have been prevented by routine washing,
routine lubrication, spot painting or other normal repair maintenance shall
be for Lessee's account. Damages and/or alterations to the containers
affecting security, water tightness, weatherproof qualities, air flow,
mechanical and/ or electrical function of integral components and/or
affecting the integrity of design or structure, or regulatory, classification
or certification requirements as applicable, or affecting the inside or
outside dimension or cubic content of any container, whether or not such
damages and/or alterations add thereto or subtract therefrom, or damages
and/or alterations which may threaten the safety of persons or property,
shall not constitute normal wear and tear, and Lessee shall be liable
therefor.
Any containers redelivered to an authorized depot will be off-hired on the
date of physical turn-in.
A damaged container shall be approved for repair within 10 days following
receipt of the damage estimate. In the event that the repair authorization is
not received within 10 days following receipt of the estimate, Genstar or its
designated agent may proceed with repairs on behalf of Lessee.
PLEASE INITIAL:
LESSEE _____ LESSOR ____
<PAGE>
4
K. MAINTENANCE
-----------
a) Lessee shall at its own expense while each container is on lease hereunder
maintain each container in good and efficient working order and keep it fully
and properly repaired.
b) Without limitation upon the foregoing, Lessee shall:
(i) Ensure that all such instructions and recommendations in regard to
operation, maintenance, pre-trip inspections and periodic service of the
container as proscribed by the IICL 4 repair criteria, in manuals or other
documents provided to Lessee at the time of delivery, and other instructions
supplied by Genstar thereafter or displayed upon any container are strictly
observed.
(ii) Ensure that all maintenance and repair work is carried out by suitably
skilled labor and under competent supervision and (where applicable) by the
use of components or parts and materials of a standard and type equivalent to
the original;
(iii) Notify Genstar promptly of any accident or breakdown which will involve
major renovation or repair work and in such a case permit Genstar or any
expert on its behalf to inspect the damage and consult with Genstar in regard
to the manner in which the necessary work is to be carried out.
c) Lessee shall upon reasonable notice permit Genstar's representatives or
agents to conduct field inspections of the containers .
d) Lessee shall make no changes or alterations or modifications to any
container unless the making of the same shall first have been agreed in
writing by Genstar.
e) Lessee shall keep the color, identification marks and Genstar's logo upon
each container in good and clean condition and shall not cause or permit
the same to be deleted, altered or supplemented in any way, except with the
written consent of Genstar. Genstar hereby consents to Lessee placing its
"CHAU" mark upon each container. Application and material costs to be
included in the per diem quoted in section "C" Lessee to be responsible the
costs associated with the and removal of the "CHAU" MARKS.
L. REPLACEMENT VALUE IN THE EVENT OF TOTAL CONSTRUCTIVE OR
-------------------------------------------------------
Physical Loss
-------------
(i) In the event of total constructive or physical loss to a container,
Lessee shall pay Genstar the depreciated replacement value of the container.
The depreciated replacement value per container is determined by
depreciating the replacement value stated below at a rate of 5% per annum to
a maximum depreciation of 40% (i.e. a minimum residual value of 60%),
commencing from the date Genstar first placed the container on lease after
manufacture.
-----------------------------------------------------------
40 Foot HC Refrigerated US$ 30,013.00
-----------------------------------------------------------
PLEASE INITIAL:
LESSE ______ LESSOR_______
<PAGE>
5
(ii) Salvage Rights (Total Loss While On Lease)
In the event of total constructive or physical loss of a container while on
lease to Lessee, salvage rights shall be retained by Lessee. Any customs,
sales, transfer, turn-over, value added, excise or other taxes which may be
applicable shall be borne by Lessee.
Lessee shall, on a best effort basis, remove from the container, at its
expense, all markings and lettering pertaining to Genstar and its ownership
of the container (including customs certificate and plate of approval).
(iii) Salvage Rights (Total Loss At Genstar Depot)
In the event of total constructive loss of a container at a Genstar depot,
Genstar will retain all salvage rights.
All terms and conditions as specified in Paragraph K.(ii) shall apply. Lessee
shall have up to ten (10) days to dispose of the container without incurring
additional charges, after which Genstar may instruct the depot to charge
customary storage charges to the Lessee. All handling-out and neutralization
charges (if applicable) shall be borne by Lessee.
(iv) Should Lessee later determine that an event of loss did not occur,
Genstar will reimburse the previously paid replacement value less any
per diem due from the date of the original occurrence until the
reinstatement date plus an administrative fee of US$ 100.00.
(v) In the event that the contract is renewed at the end of the 8 year
lease term the residual value and depreciation schedule will be re-
negotiated to reflect the remaining life of the equipment.
M. BILLING AND PAYMENT
-------------------
Genstar will bill Lessee per diem charges monthly in arrears. Lessee will
remit a wire payment to Genstar within thirty (30) days after the date of the
invoice.
N. INSURANCE
---------
In addition to and in clarification of the insurance requirements described
in Exhibit [A], Lessee must carry insurance with a suitably financially rated
and reputable carrier or carrier's that is/are mutually acceptable to both
parties. Lessee will provide Genstar with a copy of the current insurance
policy. This shall include annual renewal policies and nominate Genstar as
additional payee and co-insured.
O. OTHER LIEN
----------
PLEASE INIITAL:
LESSE ______ LESSOR _____
<PAGE>
6
Lessee shall not permit any lien, encumbrance, charge or similar (security)
right (a "lien") to be created, vested or continued in any container or part
thereof, which is the subject of this Agreement, without prior written
approval of Genstar. Lessee will compensate Genstar upon first request for
all costs, charges, expenses, etc. (including legal fees), payable by Genstar
to have any container or part thereof released from any such lien. Lessee
will promptly, at its own expense, take such action as may be necessary to
discharge or remove any such lien if the same shall arise at any time.
P. LEASING PROCEDURE
-----------------
The terms and conditions set forth in the standard Genstar Lease Agreement
attached hereto as Exhibit (A) are part of this Agreement and apply to all
containers leased under this Agreement. In the event of any conflict
between the terms set forth in the standard Lease Agreement and items A. - Q.
above, then the latter shall prevail.
Some of the Equipment is leased by Genstar from an affiliate of Genstar under
a head-lease. The term of this Lease for that Equipment will be limited to
the term of the head-lease unless Genstar makes arrangements (which Genstar
agrees to make) to maintain lessee's right of quiet possession under Section
6.a. of Exhibit A.
A standard Genstar Lease Agreement will not be issued to and signed by Lessee
covering every container leased by Lessee .
The parties hereto have executed this Agreement to be effective on August
1st, 1997.
GENSTAR CONTAINER CORPORATION LESSEE
By: /s/ Howard Shiebler By: /s/ Thomas D. Perdue
------------------------- -------------------------------
Howard Shiebler Thomas D. Perdue
Title: Vice President Title: Vice President
---------------------- ----------------------------
Date: ______________________ Date: ____________________________
PLEASE INITIAL:
LESSEE ______ LESSOR _______
<PAGE>
7
EXHIBIT A
---------
1. DELIVERY OF EQUIPMENT
Lessee acknowledges receipt of the equipment leased hereunder in good
condition as evidenced conclusively by its execution of the equipment
interchange prescribed by Lessor. Lessee agrees to return the equipment to
Lessor in as good condition as received, normal wear and deterioration
excepted, and obtain an equipment interchange from Lessor upon such return
identifying and acknowledging any changes in the condition of the equipment
subsequent to its delivery to Lessee. Changes which could have been
prevented by normal maintenance shall not constitute normal wear and
deterioration.
2. RENTAL, OTHER CHARGES AND DURATION
a. Lessee agrees to pay the rental charges in the amount set forth on the
face hereof for all equipment described thereon from the day such equipment
is delivered and/or interchanged to Lessee until the day such equipment is
returned to Lessor. However, if the equipment is not returned in good
condition, Lessee agrees to pay for the cost of any repairs and rental
charges pursuant to Paragraph 3.
b. Lessee shall return all equipment to Lessor's terminal at the point(s) of
termination designated on the face hereof, or in the event Lessor so
designates, to another terminal within the same port area. In the event
Lessor consents in writing to a drop-off of equipment by Lessee at a terminal
other than designated on the face hereof, Lessee agrees to pay Lessor the
drop-off charge shown on the Lessor's then current schedule of acceptability.
c. All service charges, including handling and transportation charges
incurred in transferring the equipment or charged by any bank or other
organization in connection with payment to Lessor as aforesaid, shall be paid
by Lessee.
d. All payments due to Lessor shall by payable in United States Dollars,
unless otherwise indicated on the face hereof, and shall be paid within
fifteen (15) days of the date of Lessor's invoice to Lessee at the address on
the face hereof. In the event Lessor's invoice is not paid when due, Lessor
may, without prejudice to any other remedy if may have, charge as additional
rental, a late charge at the rate of eighteen (18) percent per annum on the
unpaid balance.
e. In the event the Lessee is not a United States person (citizen or
resident of the United States, domestic partnership, domestic corporation or
any United States estate or trust), this lease shall terminate with respect
to a unit of equipment on the earlier of: (i) the redelivery of the equipment
pursuant to the terms hereof or (ii) one year and nine months from the On
Lease Date with respect to such unit of equipment.
PLEASE INITIAL:
LESSE ______ LESSOR _______
<PAGE>
8
3. RISK OF LOSS AND DAMAGE
Lessee is liable to Lessor for all damage to or loss or destruction of the
equipment subsequent to delivery and prior to return by Lessor except that
caused by normal wear and deterioration. Normal wear and deterioration shall
not include damage by forklifts or other handling equipment.
a. Damage. In the event Lessee fails to repair damaged equipment prior to
returning it to Lessor, Lessor will present a repair estimate to Lessee's
local agent for acceptance and no equipment will be repaired until
authorization is given by Lessee. Lessee shall be liable to Lessor for the
cost of such repair and for the rental charges which shall continue until the
day on which such damaged equipment has been repaired and is fit for
subsequent rental. Lessee will, at Lessor's request, make payment of repair
costs direct to the repair company designated by Lessor.
b. Loss or Total Damage. In the event of loss, theft, or destruction of the
equipment or damage thereto which Lessor, in its sole discretion, shall
determine is not repairable, rental charges shall terminate upon receipt by
Lessor of written notice thereof from Lessee provided payment of the
replacement value for like equipment as shown on the face hereof is made to
Lessor not more than 30 days after receipt of such notice. If payment is not
made within 30 days, rental charges shall continue unabated until such
payment is received by Lessor. Rental and other payments by Lessee specified
hereunder shall not be applied to charges for the replacement value of
equipment unless so specified by Lessee.
4. OPERATION, MAINTENANCE AND REPAIR
a. Lessee shall use the equipment properly, and shall at its sole cost and
expense, maintain the equipment in good repair and safe operating condition.
Such maintenance shall include, but not be limited to the replacement of all
badly worn or broken parts with new parts of equivalent design and material,
as well as the abrasive cleaning, priming and top coating of all corroded
areas on a routine "as needed basis". Lessee shall be liable for any repairs
wrongly made, or of a quality inferior to Lessor's minimum acceptable
standard as set forth in the Repair Manual issued from time to time by the
Institute of International Container Lessors. Lessee shall be responsible
for removal of all debris and shoring from any containers leased hereunder
prior to their return to Lessor. Lessee shall be liable for all costs and
losses to Lessor arising out of Lessee's failure to maintain the equipment in
good condition or make such repairs or replace such parts as may be necessary
to maintain the equipment in good condition. If the foregoing is performed
by Lessor, the expenses relating thereto will be for the account of Lessee.
b. Lessee shall use the equipment in accordance with good operating
practices and shall comply with all loading limitations, handling procedures
and operating instructions prescribed by the Manufacturer and Lessor, which
include but are not limited to the latest applicable Regulations and
Recommendations of the International Organization of Standardization as well
as any applicable local regulations, and prevent usage which may damage or
shorten the life of the equipment including, without limitation, excessive
impact and unbalanced loading. Lessee shall not use the
PLEASE INITIAL:
LESSE ______ LESSOR _______
<PAGE>
9
equipment for storage or transportation of goods which may damage the
equipment including, without limitation, unprotected corrosive substances,
poorly secured materials, or bulk commodities which may corrode, oxidize,
severely dent, puncture, contaminate, stain or damage the equipment. Lessor
understands that Lessee intends to transport bulk potatoes and other
agricultural commodities in the containers. Lessee is permitted to transport
such bulk agricultural commodities provided that Lessee complies to all other
terms and conditions of this agreement
c. Receipt or delivery of equipment or any other act by an agent or employee
of, or independent contractor engaged by Lessee shall be deemed to be the act
of Lessee and be binding upon Lessee.
d. Lessor's equipment is identified by appropriate lettering and numbering
which Lessee agrees not to change or obliterate, except that at the written
request of Lessor. Lessee shall change or supplement such marks as Lessor
shall request. Lessee may, however, add other markings as may be required,
provided that the equipment so marked, when returned by Lessee to Lessor,
shall be free of all such markings and the surface in the same conditions as
prior to the addition of Lessee's markings. If Lessee fails to remove such
markings, Lessor shall remove such markings for the account of Lessee.
e. Lessee shall, at its expense, comply with all laws, regulations or orders
which in any way affect the equipment or its use, operation or storage.
Lessor shall have no responsibility for compliance with any such laws,
regulations or orders, including without limitation, all such laws,
regulations or orders as may relate to customs, transportation, handling,
safety, and labor regulations.
f. Lessee shall, at its expense, comply with all rules and practices of
ports, depots, storage areas and transportation companies consistent with the
other requirements of this Paragraph 4.
g. If containers are leased hereunder, it shall be the obligation of Lessee
to comply with the International Convention for Safe Containers (CSC) in all
respects and Lessee shall, pursuant to this Lease, have and exercise Lessor's
responsibilities under the CSC including, without limitation: plating
(design-type approval to be obtained and plates to be provided by Lessor),
maintenance, examination, re-examination and marking with re-examination
dates (stickers to be provided by Lessor) of each container. Such
examination, or re-examination, shall be performed in accordance with the
Rules and Regulations for the Safety Approval of Cargo Containers of the
United States Department of Transportation. Lessee shall also comply with
the Customs Conventions on Containers, 1956 and 1972, including, without
limitation, all obligations of the operator relating to temporary admission,
transport of goods under customs seal, maintenance of records and reporting
to governmental or other authorities.
h. Lessee will, upon Lessor's written request, furnish to Lessor a schedule
or schedules showing the locations and dates at such locations that Lessor's
equipment has been used by Lessee.
5. DEFAULT; REMEDIES UPON DEFAULT
PLEASE INITIAL:
LESSE ______ LESSOR _______
<PAGE>
10
Should Lessee default (i) in the payment of any sum due hereunder within
fifteen (15) days of the date Lessee is invoiced by Lessor, (ii) in the
performance of its other obligations under this Lease or (iii) cease doing
business as a going concern, become insolvent, commit an act of bankruptcy,
or become the subject of any proceeding under the United States Bankruptcy
Code or any similar law of another nation or a political subdivision thereof,
then Lessor may, without notice, and without releasing Lessee of its
obligations hereunder, terminate this Lease, declare the balance of the
rental to be due and payable , and retake possession of the equipment free of
any claims of Lessee. In the event of such termination by Lessor, Lessee
shall no longer be in possession of the equipment with Lessor's consent and
Lessee shall return the equipment to Lessor at such place as Lessor shall
direct. Lessee shall continue to pay rental charges for equipment until the
equipment is (i) returned in as good condition as received normal wear and
deterioration excepted, (ii) repaired and made fit for subsequent rental or
(iii) settlement acceptable to Lessor is made. In the event Lessor retakes
possession of all, or any part, of the equipment, Lessee authorizes Lessor to
take possession of any property in, on or attached to such equipment which is
not the property of Lessor, and without liability for its care or
safekeeping, to place such property in storage at the risk and expense of
Lessee. Termination shall not relieve Lessee of any liabilities or
obligations incurred prior to such return, repair or settlement and Lessee
shall in any event remain fully liable for reasonable damages as provided by
law, and for all costs and expenses incurred by Lessor on account of such
default, including all costs and reasonable attorney's fees.
6. EXCLUSION OF WARRANTIES; LESSEE'S OBLIGATIONS ABSOLUTE
a. THE EQUIPMENT IS LEASED AS IS. LESSOR WARRANTS THAT LESSEE SHALL HAVE
QUIET POSSESSION, SAVE AS AFORESAID, NO CONDITION OR WARRANTY WHATSOEVER OF
ANY KIND HAS BEEN OR IS GIVEN BY LESSOR IN RELATION TO THE EQUIPMENT, AND ALL
CONDITIONS AND WARRANTIES WHETHER EXPRESSED OR IMPLIED, WHETHER IN RELATION
TO THE FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE OR COUNTRY, OR
WHETHER IN RELATION TO MERCHANTABILITY OR AS TO DESCRIPTION, STATE, QUALITY
OR CONDITION OF THE EQUIPMENT AT DELIVERY OR AT ANY OTHER TIME ARE HEREBY
WAIVED, EXCLUDED AND EXTINGUISHED. LESSOR SHALL IN NO EVENT BE LIABLE FOR
CONSEQUENTIAL DAMAGES OR LOSS OF PROFITS EVEN IF LESSOR HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
b. LESSEE'S OBLIGATIONS UNDER THIS AGREEMENT ARE ABSOLUTE AND SHALL NOT BE
AFFECTED BY ANY CIRCUMSTANCE OR EVENT BEYOND LESSEE'S CONTROL OF WHATEVER
NATURE.
c.
d. TO THE EXTENT POSSIBLE, AND NOTWITHSTANDING THE DISCLAIMER BY LESSOR OF
ANY WARRANTIES SET FORTH HEREIN, LESSOR SHALL DELIVER TO LESSEE A COPY OF ANY
WARRANTY AGREEMENT LESSOR MAY RECEIVE FROM THERMO KING AND LESSEE SHALL LOOK
SOLELY TO THERMO KING FOR THE ENFORCEMENT OF SUCH WARRANTY, AND LESSEE SHALL
COMPLY WITH ALL THE CONDITIONS OF SUCH WARRANTY IMPOSED BY THERMO KING..
PLEASE INITIAL:
LESSE ______ LESSOR _______
<PAGE>
11
7. NOTICES
All billings and written notices required to be given by either party shall
be in writing and shall be airmailed, telexed or cabled, except as may
otherwise be provided herein, to the other party at its address first
hereinabove specified, or at such other address as such party may hereafter
from time to time designate in writing and shall be deemed received, in the
case of airmail, five days after it is postmarked, and in the case of telex,
upon transmission (with answerback confirmed) to other party's telex
facilities. All payments to Lessor shall be by check to Lessor or by wire
transfer acceptable to Lessor.
8. TAXES, FEES AND FINES
a. Lessee shall pay all taxes (other than taxes on Lessor's net income) and
charges levied on, or in connection with, the equipment subsequent to
delivery, including without limitation, property, sales, use and excise
taxes, duties, customs charges, withholding taxes and all further government
levies, fees or charges. Lessee shall pay all duties, fines and penalties
arising out of use of the equipment including without limitation, any duties,
fines or penalties imposed under the customs laws and regulations of federal,
state, foreign and local governments and agencies.
b. Lessee shall pay all charges incurred in ports, depots, storage areas or
otherwise arising out of the use of the equipment.
9. INDEMNITY AND INSURANCE
a. Indemnity
Lessee shall indemnify, defend and hold Lessor harmless for any and all
claims, losses, expenses, costs or damages, (including without limitation
expenses in defending any claim or suit such as attorney's fees, court costs
and other expenses) arising or alleged to arise directly or indirectly or
incidentally out of (a) any failure of Lessee to comply with its obligations
under this Lease; (b) any claim, whether private or governmental, for
personal injury or death, and for loss or damage to person, including
employees of the Lessee, property, cargo and/or vessels and/or transport
equipment arising out of or incident to the ownership, selection, possession,
leasing, operation, control, use, storage, loading, unloading, stuffing,
unstuffing, moving, maintenance, delivery, handling or return of the
equipment; (c) any forfeiture, seizure, confiscation, nationalization or
impounding of or charge or lien on the equipment. Each party undertakes
promptly to give notice to the other of claims against it or action against
it with respect thereto and Lessee agrees not to settle any action without
the consent of the Lessor.
b. Insurance
The Lessee agrees to procure and maintain in full force and effect during the
term of this lease, at its sole cost and expense with insurers acceptable to
the Lessor, the following insurance:
PLEASE INITIAL:
LESSE ______ LESSOR _______
<PAGE>
12
(1) "All Risks" insurance to cover physical loss or damage to the leased
container(s) for not less than the full stipulated replacement value
thereof.
(2) Broad Form Comprehensive General Liability and Automobile Liability
Insurance to a minimum limit of U.S. $1,000,000 any one occurrence to cover
third party Bodily Injury and property Damage.
Such insurance shall include those policy extensions commonly referred to as
Completed Operations, Blanket Contractual, Personal Injury, Non-Owned
Automobile Liability and Employer's Liability and shall be primary
insurance.
Any and all deductibles under the terms of the foregoing insurance shall be
for Lessee's account. All policies shall name Lessor as additional insured
and contain a waiver of subrogation in favor of the Lessor. All policies
will contain a requirement that the Lessor receive 30 days written notice of
cancellation or material change. Lessee will provide the Lessor with
Certificates evidencing the insurance specified within 10 days of date lease
commences, in a form acceptable to the Lessor.
Should the Lessee fail to procure or maintain any of the required insurance,
or by act or omission vitiate or invalidate any of the insurance, the Lessee
shall indemnify the Lessor to the extent he suffers or incurs loss, damage,
liability or expense in consequence of such failure, act or omission.
10. SUBLEASING AND DIRECT INTERCHANGING
Lessee shall not have the right to assign this Lease or to sublet, rent,
directly interchange or otherwise hire out, or part with possession of the
equipment to any other party without the prior written consent of Lessor and
such consent of Lessor shall not operate to relieve Lessee of any of its
obligations hereunder.
11. DESIGNATION OF OWNERSHIP
If at any time during the term hereunder Lessor supplies Lessee with labels,
plates or other markings stating that the equipment is owned by Lessor or is
subject to any interest of a lender, Lessee shall affix and kept the same
upon a prominent place on the equipment. Lessee agrees to execute and file
Uniform Commercial Code financing statements and any and all other
instruments necessary to perfect Lessor's or its lender's interest in this
lease, the payments due hereunder and the equipment leased hereunder.
12. GENERAL
a. This lease is binding upon the parties, their successors and assigns and
shall be construed and interpreted with the laws of the State of California.
Any dispute, arising under or in connection with this lease will be
exclusively decided by the competent court of San Francisco, California,
U.S.A., or, at the option of Genstar, by any other court that may appear
competent to decide such dispute.
PLEASE INITIAL:
LESSE ______ LESSOR _______
<PAGE>
13
b. The paragraph headings in this Lease are for convenience only and shall
not be deemed to alter or affect any provision hereof.
c. Lessee hereby waives any and all existing and future set-offs and
counterclaims against the rental charges or payments due under this Lease.
d. In the event Lessee has not executed a Master Agreement with Lessor
covering the leasing of this equipment, this Lease shall contain the entire
agreement between the parties with respect to the subject matter hereof and
may be amended, modified or changed only by an agreement in writing executed
by the parties hereto. If the Lessee fails, however, to give to Lessor a
written objection to its contents within seven (7) days after this Lease is
received, or if Lessee takes possession of any of the equipment provided for
hereunder and retains it after receipt of this Lease then this Lease shall
be effective and binding upon Lessee whether or not signed. Notwithstanding
any Master Agreement, this Lease is subject to acceptance by Lessor at its
office in San Francisco, California, and shall be deemed accepted if Lessee
is not notified to the contrary within a reasonable time. If the Lease is
not accepted, Lessee shall return the equipment to any of Lessor's terminals
within sixty (60) days from such notification.
e. Lessee shall conform to the provisions of all statutes bylaws or
regulations in force from time to time in respect of or affecting in any
manner performance under this Lease and shall give all notices required by
the said statutes, bylaws and regulations including, but not limited to,
compliance with the Occupational Health and Safety Act and similar
legislation in force in jurisdictions in which the equipment may be used or
the Lessee may do business and shall pay all fees, assessments, or other
sums payable thereunder or in respect thereof.
PLEASE INITIAL:
LESSE ______ LESSOR _______
<PAGE>
14
EXHIBIT B
REDELIVERY SCHEDULE
-------------------
The following schedule specifies the monthly redelivery limits by port for
container redeliveries together with any one time charges that may apply. All
container redeliveries shall be made only at authorized Genstar depots within
these port areas. These depot charges are subject to change upon ninety (90)
days notice to Lessee from Genstar.
<TABLE>
<CAPTION>
------------------------------------------------------------------
40 HIGH CUBE REFRIGERATED
------------------------------------------------------------------
Port Monthly Port Limits Drop-Off Charge (US$)
------------------------------------------------------------------
<S> <C> <C>
Miami Unlimited 0.00
------------------------------------------------------------------
Chicago Unlimited 450.00
------------------------------------------------------------------
Seattle Unlimited 150.00
------------------------------------------------------------------
Los Angeles Unlimited 0.00
------------------------------------------------------------------
</TABLE>
PLEASE INITIAL:
LESSE ________ LESSOR ______
<PAGE>
15
EXHIBIT C
ADDITIONAL MAINTENANCE REQUIREMENTS FOR REFRIGERATED CONTAINERS
---------------------------------------------------------------
REFRIGERATED CONTAINERS
- - -----------------------
A. With respect to Equipment that constitutes refrigerated containers
("Refrigerated Containers") Lessee shall comply with all the operation
and maintenance requirements contained in this Exhibit, in manuals or
other documents provided to lessee at the time of delivery, in
instructions supplied by Lessor after delivery and any instructions
displayed on any Refrigerated Containers, which requirements are in
addition to all operation and maintenance requirements contained in the
Agreement, this Exhibit or elsewhere in this Schedule.
B. Lessee shall ensure that all maintenance and repair work on the
Refrigerated Containers is carried out by suitably skilled labor and
under competent supervision and (where applicable) by the use of
components or parts and materials of a standard and type equivalent to
the original.
C. Lessee shall notify Lessor within 48 hours of any accident to or
breakdown of any Refrigerated Containers which will require major
renovation or repair work. Lessee will fully cooperate with Lessor to
comply with all procedures required in order for Lessor to preserve and
assert any available warranty claims and will permit Lessor or Lessor's
representative to inspect the damage and will consult with Lessor to
determine with manner in which and by whom the necessary work is to be
carried out.
D. Lessee shall refer to all operations and service manuals covering the
Refrigerated Containers for electrical and refrigeration information,
service instructions recommended by the manufacturer and detailed
replacement parts lists. Lessee shall follow all operation and
maintenance recommendations contained in such manuals.
PLEASE INTIAL:
LESSE _______ LESSOR _____
<PAGE>
16
REFRIGERATED CONTAINERS ONLY
- - ----------------------------
A. Prior to loading any Refrigerated Containers, Lessee shall perform each
of the following:
1. Prior to starting the Refrigerated Containers, Lessee shall:
a. Visually inspect Refrigerated Containers for loose parts and
damaged components.
b. Check evaporator fan motor mounting bolts for proper
securement.
c. Check defrost drain pans and drain lines for obstructions and
clear if necessary. Wash with fresh water and ensure water
flows drain hose.
d. Check condition and position of fresh air makeup vent cover.
e. Inspect moisture sight glass indicators. Replace drier if
needed.
f. Inspect power plugs, receptacles and power cables. Ensure power
supply source for proper voltage.
g. If so equipped, manually wind temperature recording clock and
set desired temperature (set point).
h. Check controller for loose and / or sub-standard wiring and
printed circuit boards if so equipped. Megger test unit.
2. After completing the steps set forth above, Lessee shall start
each Refrigerated Container and shall perform the following steps
(unless the manual provided by the manufacturer requires a
different trip start / datacorder sequence, in which case such
sequence shall be followed as to such Refrigerated Container):
a. Verify that the phase reversal system is working properly and
all fans are rotating in the proper direction.
b. Check that the compressor has the proper amount of oil.
i. Compressor stopped, compressor sight glass should show a
level of 1/2 to 2/3.
ii. Compressor running, should show turbulence from oil spray
in the sight glass.
c. After 15-20 minutes of operation and in the cooling mode, check
for proper charge of refrigerant. Check for condition of
refrigerant (wet/dry) by observing liquid line indicator.
PLEASE INITIAL:
LESSE ______ LESSOR _____
<PAGE>
17
d. Observe system pulldown and verify system cycle sequence
including defrost initiation and termination.
e. While system is pulling down, check AC amperage under load.
Check AC amperage of compressor, evaporator and condenser fan
motors and all heaters (defrost and drain pan) while unit is
heating and in defrost mode.
f. While system is pulling down, check that compressor unloaders
and/or modulation systems are working properly.
g. While system is pulling down, check for proper operational
sequence of the temperature controller/microprocessor.
h. While system is pulling down, check for proper operation of all
indicator displays.
i. Check operation of protection/safety systems.
B. Lessee shall perform the following inspection on each Refrigerated
Container on an annual basis in order to insure that the refrigerator
units are being properly maintained.
1. General Condition of Unit
-------------------------
a. Check for physical damage to the unit such as loose or missing
fasteners, chipped painted and/or handling damage.
b. Check all electrical components and terminal boards for tight
connections, chafing on wires, sufficient wire ties and wire
length on swing out panels.
c. Check for proper sealing of gaskets on all doors.
d. Check water tightness of electrical control panels.
e. Check for leaks in complete refrigeration system.
f. Check evaporate and condenser fan mounting bolts for proper
securement and fan alignment.
g. Check fresh water and clean evaporator and condenser coils.
h. Check defrost initiation/termination.
i. Check for proper operation of fresh air make-up vent.
2. Refrigeration and Electrical Systems.
-------------------------------------
a. Check refrigerant charge and inspect for refrigerant leaks.
b. Check compressor oil level.
c. Check moisture-liquid indicator.
PLEASE INTITAL:
LESSE ____ LESSOR _____
<PAGE>
18
d. Check evaporator and condenser fan rotation and verify
operation of automatic phase correction system.
e. Check/verify system cycle sequence including defrost initiation
and termination. Verify operation of cylinder unloaders,
modulation valve, suction solenoid valve, expansion valve and
liquid line solenoid valve as applicable.
f. Check AC amperage of system under load. Check AC amperage draw
of compressor, electric heaters, condenser fan and evaporator
fans. Megger test.
g. If applicable, inspect recorder. Check operation of manually
wound clock and operation of pen and lifter, stylus and
calibration.
h. Inspect main power plugs, cables and receptacles.
i. If applicable, inspect and verify operation of dual voltage
power transformer.
j. If applicable, inspect water connection fittings for the water-
cooled condenser and verify operation and calibration of safety
device.
PLEASE INTITAL:
LESSE ____ LESSOR _____
<PAGE>
EXHIBIT 10.20
C.H. ROBINSON COMPANY
LONG TERM LEASE AGREEMENT
-------------------------
Genstar Container Corporation, either on its own behalf or as agent for others
(hereinafter referred to as "Genstar") a U.S. corporation, with offices at 505
Montgomery Street, 23rd Floor, San Francisco, California, 94111 and C.H.
Robinson Company (hereinafter referred to as "Lessee"), a Delaware corporation,
with offices at 8100 Mitchell Road, Suite 200, Eden Prarie, MN 55344 hereby
enter into this Long Term Lease Agreement this 1st day of August, 1997.
A. EQUIPMENT COVERED
-----------------
This Agreement concerns 200 Thermo King Model #CGII-M22 generator sets
designated by a GCEU prefix.
B. LEASE/BUILD-UP PERIOD
---------------------
(i) Lease Period: All generator sets shall be leased by Lessee from October
1, 1997 through September 30, 2005 at the rate applicable under Paragraph C.
The Agreement shall be renegotiated 30 days prior to September 30, 2005.
(ii) Build-Up Period: Any generator sets interchanged prior to October 1,
1997 shall be leased from the date of its interchange through September 30,
2005 at the per diem rate set out in Paragraph C.
(iii) Early Return: Notwithstanding the above, the Lessee may, subject to 60
days written notice before the yearly anniversary date, opt to terminate any
or all of the generator sets on lease under this Agreement after either
three, four, five, six, seven or eight years, subject to retroactive rate
increases as set out in Paragraph C. effective from the date of initial
interchange to the date of redelivery of each generator set.
Such early return option shall lapse unless exercised in accordance with the
above procedure.
In the event the Agreement is not renegotiated, the wind-down terms of this
Agreement will apply, as defined in Paragraph G.
(iv) The generator sets will be on lease for a minimum of three years.
C. PER DIEM RENTAL CHARGES
-----------------------
The per diem billing rate for the generator sets are as follows:
PLEASE INITIAL:
LESSEE _____ LESSOR _____
<PAGE>
2
---------------------------------------------------------
EQUIPMENT TYPE PER DIEM BILLING RATE
---------------------------------------------------------
Generator Set US$ 4.95
---------------------------------------------------------
In the event that a generator set is redelivered in accordance with Paragraph
B (iii), Lessee will be billed the difference between the per diem billing
rate and the per diem rate below, counting from the date of the initial
interchange to the date of redelivery of each generator sets.
---------------------------------------------------------------------------
EQUIPMENT TYPE YEAR: YEAR FOUR FIVE SIX SEVEN EIGHT
---------------------------------------------------------------------------
Generator Set US$ 6.10 5.82 5.58 5.37 5.18 4.95
---------------------------------------------------------------------------
D. GENERATOR SET DELIVERY
----------------------
The generator sets will be made available for C.H. Robinson in Chicago.
Other delivery location will be considered upon request.
E. LIFT-ON AND LIFT-OFF CHARGES (HANDLING)
---------------------------------------
Genstar will absorb the lift-on charge for all deliveries and a lift-off
charge for all redeliveries.
The lift-on charge shall include a pre-trip inspection and the lift-off
charge shall include a post-trip inspection pursuant to Exhibit [C] attached
hereto.
F. TERMINATION FEE
---------------
SEE EXHIBIT B.
-------------
G. WIND-DOWN
---------
In the event that this Agreement is not renegotiated prior to September 30,
2005 Lessee shall redeliver the generator sets to Genstar over a 3 month
wind-down period beginning October 1, 2005 . All terms and conditions of this
Agreement will apply during the 3 month wind-down period. If any generator
set is not redelivered prior to the end of the 3 month wind-down period, then
the redelivery terms and conditions of the Agreement and the terms and
conditions set forth in the standard Genstar Lease Agreement attached hereto
as Exhibit [A] will apply. A per diem rental charge as stated below shall be
effective from the end of said 3 month wind-down period until the date each
such generator set is redelivered.
----------------------------------------
Generator Sets US$ 5.50
----------------------------------------
H. REDELIVERY
----------
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
3
Exhibit (B) specifies the terms and conditions of redelivery together with
any drop-off charges that will be assessed. Upon ninety (90) days notice to
the Lessee from Genstar, redelivery locations and drop-off charges may be
amended.
I. DAMAGED EQUIPMENT/OFF-HIRE PROCEDURE
------------------------------------
Any damage sustained by a generator set while it is on lease to Lessee will
be the responsibility of Lessee, excluding normal wear and tear as determined
by the then current standards of the Institute of International Container
Lessors or owner's manual. Damage to the generator set which does not
constitute normal wear and tear and could have been prevented by routine
washing, routine lubrication, spot painting or other normal repair
maintenance shall be for Lessee's account. Damages and/or alterations to the
generator sets affecting security, water tightness, weatherproof qualities,
air flow, mechanical and/ or electrical function of integral components
and/or affecting the integrity of design or structure, or regulatory,
classification or certification requirements as applicable, or affecting the
inside or outside dimension or cubic content of any generator set, whether or
not such damages and/or alterations add thereto or subtract therefrom, or
damages and/or alterations which may threaten the safety of persons or
property, shall not constitute normal wear and tear, and Lessee shall be
liable therefor.
Any generator set redelivered to an authorized depot will be off-hired on
the date of physical turn-in.
A damaged generator set shall be approved for repair within 10 days following
receipt of the damage estimate. In the event that the repair authorization is
not received within 10 days following receipt of the estimate, Genstar or its
designated agent may proceed with repairs on behalf of Lessee.
J. MAINTENANCE
-----------
a) Lessee shall at its own expense while each generator set is on lease
hereunder maintain each generator set in good and efficient working order and
keep it fully and properly repaired.
b) Without limitation upon the foregoing, Lessee shall:
(i) Ensure that all such instructions and recommendations in regard to
operation, maintenance, pre-trip inspections and periodic service of the
generator set as are contained in Exhibit [C], in manuals or other documents
provided to Lessee at the time of delivery, and other instructions supplied
by Genstar thereafter or displayed upon any generator set are strictly
observed.
(ii) Ensure that all maintenance and repair work is carried out by suitably
skilled labor and under competent supervision and (where applicable) by the
use of components or parts and materials of a standard and type equivalent to
the original;
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
4
(iii) Notify Genstar promptly of any accident or breakdown which will involve
major renovation or repair work and in such a case permit Genstar or any
expert on its behalf to inspect the damage and consult with Genstar in regard
to the manner in which the necessary work is to be carried out.
c) Lessee shall upon reasonable notice permit Genstar's representatives or
agents to conduct field inspections of the generator sets.
d) Lessee shall make no changes or alterations or modifications to any
generator set unless the making of the same shall first have been agreed in
writing by Genstar.
e) Lessee shall keep the color, identification marks and Genstar's logo upon
each generator set in good and clean condition and shall not cause or permit
the same to be deleted, altered or supplemented in any way, except with the
written consent of Genstar.
K. REPLACEMENT VALUE IN THE EVENT OF TOTAL CONSTRUCTIVE OR
-------------------------------------------------------
Physical Loss
-------------
(i) In the event of total constructive or physical loss to a generator set,
Lessee shall pay Genstar the depreciated replacement value of the generator
set. The depreciated replacement value per generator set is determined by
depreciating the replacement value stated below at a rate of 5% per annum to
a maximum depreciation of 40% after year 8. (i.e. a minimum residual value
of 60%), commencing from the date Genstar first placed the generator set on
lease after manufacture.
-------------------------------------------------
Generator Set Clip-on US$ 11,500.00
-------------------------------------------------
(ii) Salvage Rights (Total Loss While On Lease)
In the event of total constructive or physical loss of a generator set while
on lease to Lessee, salvage rights shall be retained by Lessee. Any customs,
sales, transfer, turn-over, value added, excise or other taxes which may be
applicable shall be borne by Lessee.
Lessee shall, on a best effort basis, remove from the generator set, at its
expense, all markings and lettering pertaining to Genstar and its ownership
of the generator set (including customs certificate and plate of approval).
(iii) Salvage Rights (Total Loss At Genstar Depot)
In the event of total constructive loss of a generator set at a Genstar
depot, Genstar will retain all salvage rights.
All terms and conditions as specified in Paragraph K.(ii) shall apply. Lessee
shall have up to ten (10) days to dispose of the generator set without
incurring additional charges, after which Genstar
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
5
may instruct the depot to charge customary storage charges to the Lessee. All
handling-out and neutralization charges (if applicable) shall be borne by
Lessee.
(iv) Should Lessee later determine that an event of loss did not occur,
Genstar will reimburse the previously paid replacement value less any
per diem due from the date of the original occurrence until the
reinstatement date plus an administrative fee of US$ 100.00.
(v) In the event that the contract is renewed at the end of the 8 year term
the residual value and depreciation schedule will be renegotiated to
reflect the remaining life of the equipment.
L. BILLING AND PAYMENT
-------------------
Genstar will bill Lessee per diem charges monthly in arrears. Lessee will
remit a wire payment to Genstar within thirty (30) days after the date of the
invoice.
M. INSURANCE
---------
In addition to and in clarification of the insurance requirements described
in Exhibit [A], Lessee must carry insurance with a suitably financially rated
and reputable carrier or carrier's that is/are mutually acceptable to both
parties. Lessee will provide Genstar with a copy of the current insurance
policy. This shall include annual renewal policies and nominate Genstar as
additional payee and co-insured.
O. LEASING PROCEDURE
-----------------
The terms and conditions set forth in the standard Genstar Lease Agreement
attached hereto as Exhibit (A) are part of this Agreement and apply to all
generator set leased under this Agreement. In the event of any conflict
between the terms set forth in the standard Lease Agreement and items A. - N.
above, then the latter shall prevail.
Some of the Equipment is leased by Genstar from an affiliate of Genstar under
a head-lease. The term of this Lease for that Equipment will be limited to
the term of the head-lease unless Genstar makes arrangements (which Genstar
agrees to make) to maintain lessee's right of quiet possession under Section
6.a. of Exhibit A.
A standard Genstar Lease Agreement will not be issued to and signed by Lessee
covering every generator set leased by Lessee .
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
6
The parties hereto have executed this Agreement to be effective on November
1, 1997.
GENSTAR CONTAINER CORPORATION
By: /s/ Howard Shiebler
--------------------------------
Howard Shiebler
Title: Vice President
----------------------------
Date:______________________________
LESSEE: C.H. ROBINSON COMPANY
By: /s/ Thomas D. Perdue
---------------------------------
Thomas D. Perdue
Title: Vice President
------------------------------
Date:_______________________________
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
7
EXHIBIT A
---------
1. DELIVERY OF EQUIPMENT
Lessee acknowledges receipt of the equipment leased hereunder in good
condition as evidenced conclusively by its execution of the equipment
interchange prescribed by Lessor. Lessee agrees to return the equipment to
Lessor in as good condition as received, normal wear and deterioration
excepted, and obtain an equipment interchange from Lessor upon such return
identifying and acknowledging any changes in the condition of the equipment
subsequent to its delivery to Lessee. Changes which could have been
prevented by normal maintenance shall not constitute normal wear and
deterioration.
2. RENTAL, OTHER CHARGES AND DURATION
a. Lessee agrees to pay the rental charges in the amount set forth on the
face hereof for all equipment described thereon from the day such equipment
is delivered and/or interchanged to Lessee until the day such equipment is
returned to Lessor. However, if the equipment is not returned in good
condition, Lessee agrees to pay for the cost of any repairs and rental
charges pursuant to Paragraph 3.
b. Lessee shall return all equipment to Lessor's terminal at the point(s) of
termination designated on the face hereof, or in the event Lessor so
designates, to another terminal within the same port area. In the event
Lessor consents in writing to a drop-off of equipment by Lessee at a terminal
other than designated on the face hereof, Lessee agrees to pay Lessor the
drop-off charge shown on the Lessor's then current schedule of acceptability.
c. All service charges, including handling and transportation charges
incurred in transferring the equipment or charged by any bank or other
organization in connection with payment to Lessor as aforesaid, shall be paid
by Lessee.
d. All payments due to Lessor shall by payable in United States Dollars,
unless otherwise indicated on the face hereof, and shall be paid within
fifteen (15) days of the date of Lessor's invoice to Lessee at the address on
the face hereof. In the event Lessor's invoice is not paid when due, Lessor
may, without prejudice to any other remedy if may have, charge as additional
rental, a late charge at the rate of eighteen (18) percent per annum on the
unpaid balance.
e. In the event the Lessee is not a United States person (citizen or
resident of the United States, domestic partnership, domestic corporation or
any United States estate or trust), this lease shall terminate with respect
to a unit of equipment on the earlier of: (i) the redelivery of the equipment
pursuant to the terms hereof or (ii) one year and nine months from the On
Lease Date with respect to such unit of equipment.
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
8
3. RISK OF LOSS AND DAMAGE
Lessee is liable to Lessor for all damage to or loss or destruction of the
equipment subsequent to delivery and prior to return by Lessor except that
caused by normal wear and deterioration. Normal wear and deterioration shall
not include damage by forklifts or other handling equipment.
a. Damage. In the event Lessee fails to repair damaged equipment prior to
returning it to Lessor, Lessor will present a repair estimate to Lessee's
local agent for acceptance and no equipment will be repaired until
authorization is given by Lessee. Lessee shall be liable to Lessor for the
cost of such repair and for the rental charges which shall continue until the
day on which such damaged equipment has been repaired and is fit for
subsequent rental. Lessee will, at Lessor's request, make payment of repair
costs direct to the repair company designated by Lessor.
b. Loss or Total Damage. In the event of loss, theft, or destruction of the
equipment or damage thereto which Lessor, in its sole discretion, shall
determine is not repairable, rental charges shall terminate upon receipt by
Lessor of written notice thereof from Lessee provided payment of the
replacement value for like equipment as shown on the face hereof is made to
Lessor not more than 30 days after receipt of such notice. If payment is not
made within 30 days, rental charges shall continue unabated until such
payment is received by Lessor. Rental and other payments by Lessee specified
hereunder shall not be applied to charges for the replacement value of
equipment unless so specified by Lessee.
4. OPERATION, MAINTENANCE AND REPAIR
a. Lessee shall use the equipment properly, and shall at its sole cost and
expense, maintain the equipment in good repair and safe operating condition.
Such maintenance shall include, but not be limited to the replacement of all
badly worn or broken parts with new parts of equivalent design and material,
as well as the abrasive cleaning, priming and top coating of all corroded
areas on a routine "as needed basis". Lessee shall be liable for any repairs
wrongly made, or of a quality inferior to Lessor's minimum acceptable
standard as set forth in the Repair Manual issued from time to time by the
Institute of International Container Lessors. Lessee shall be responsible
for removal of all debris and shoring from any containers leased hereunder
prior to their return to Lessor. Lessee shall be liable for all costs and
losses to Lessor arising out of Lessee's failure to maintain the equipment in
good condition or make such repairs or replace such parts as may be necessary
to maintain the equipment in good condition. If the foregoing is performed
by Lessor, the expenses relating thereto will be for the account of Lessee.
b. Lessee shall use the equipment in accordance with good operating
practices and shall comply with all loading limitations, handling procedures
and operating instructions prescribed by the Manufacturer and Lessor, which
include but are not limited to the latest applicable Regulations and
Recommendations of the International Organization of Standardization as well
as any applicable local regulations, and prevent usage which may damage or
shorten the life of the equipment including, without limitation, excessive
impact and unbalanced loading. Lessee shall not use the
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
9
equipment for storage or transportation of goods which may damage the
equipment including, without limitation, unprotected corrosive substances,
poorly secured materials, or bulk commodities which may corrode, oxidize,
severely dent, puncture, contaminate, stain or damage the equipment. Genstar
understands that the Lessee intends to use this equipment to transport bulk
potatoes and other agricultural commodities. Lessee is permitted to transport
these bulk agricultural commodities provided that Lessee complies with all
other terms and conditions of this agreement.
c. Receipt or delivery of equipment or any other act by an agent or employee
of, or independent contractor engaged by Lessee shall be deemed to be the act
of Lessee and be binding upon Lessee.
d. Lessor's equipment is identified by appropriate lettering and numbering
which Lessee agrees not to change or obliterate, except that at the written
request of Lessor. Lessee shall change or supplement such marks as Lessor
shall request. Lessee may, however, add other markings as may be required,
provided that the equipment so marked, when returned by Lessee to Lessor,
shall be free of all such markings and the surface in the same conditions as
prior to the addition of Lessee's markings. If Lessee fails to remove such
markings, Lessor shall remove such markings for the account of Lessee.
e. Lessee shall, at its expense, comply with all laws, regulations or orders
which in any way affect the equipment or its use, operation or storage.
Lessor shall have no responsibility for compliance with any such laws,
regulations or orders, including without limitation, all such laws,
regulations or orders as may relate to customs, transportation, handling,
safety, and labor regulations.
f. Lessee shall, at its expense, comply with all rules and practices of
ports, depots, storage areas and transportation companies consistent with the
other requirements of this Paragraph 4.
g. If containers are leased hereunder, it shall be the obligation of Lessee
to comply with the International Convention for Safe Containers (CSC) in all
respects and Lessee shall, pursuant to this Lease, have and exercise Lessor's
responsibilities under the CSC including, without limitation: plating
(design-type approval to be obtained and plates to be provided by Lessor),
maintenance, examination, re-examination and marking with re-examination
dates (stickers to be provided by Lessor) of each container. Such
examination, or re-examination, shall be performed in accordance with the
Rules and Regulations for the Safety Approval of Cargo Containers of the
United States Department of Transportation. Lessee shall also comply with
the Customs Conventions on Containers, 1956 and 1972, including, without
limitation, all obligations of the operator relating to temporary admission,
transport of goods under customs seal, maintenance of records and reporting
to governmental or other authorities.
h. Lessee will, upon Lessor's written request, furnish to Lessor a schedule
or schedules showing the locations and dates at such locations that Lessor's
equipment has been used by Lessee.
5. DEFAULT; REMEDIES UPON DEFAULT
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
10
Should Lessee default (i) in the payment of any sum due hereunder within
fifteen (15) days of the date Lessee is invoiced by Lessor, (ii) in the
performance of its other obligations under this Lease or (iii) cease doing
business as a going concern, become insolvent, commit an act of bankruptcy,
or become the subject of any proceeding under the United States Bankruptcy
Code or any similar law of another nation or a political subdivision thereof,
then Lessor may, without notice, and without releasing Lessee of its
obligations hereunder, terminate this Lease, declare the balance of the
rental to be due and payable , and retake possession of the equipment free of
any claims of Lessee. In the event of such termination by Lessor, Lessee
shall no longer be in possession of the equipment with Lessor's consent and
Lessee shall return the equipment to Lessor at such place as Lessor shall
direct. Lessee shall continue to pay rental charges for equipment until the
equipment is (i) returned in as good condition as received normal wear and
deterioration excepted, (ii) repaired and made fit for subsequent rental or
(iii) settlement acceptable to Lessor is made. In the event Lessor retakes
possession of all, or any part, of the equipment, Lessee authorizes Lessor to
take possession of any property in, on or attached to such equipment which is
not the property of Lessor, and without liability for its care or
safekeeping, to place such property in storage at the risk and expense of
Lessee. Termination shall not relieve Lessee of any liabilities or
obligations incurred prior to such return, repair or settlement and Lessee
shall in any event remain fully liable for reasonable damages as provided by
law, and for all costs and expenses incurred by Lessor on account of such
default, including all costs and reasonable attorney's fees.
6. EXCLUSION OF WARRANTIES; LESSEE'S OBLIGATIONS ABSOLUTE
a. THE EQUIPMENT IS LEASED AS IS. LESSOR WARRANTS THAT LESSEE SHALL HAVE
QUIET POSSESSION, SAVE AS AFORESAID, NO CONDITION OR WARRANTY WHATSOEVER OF
ANY KIND HAS BEEN OR IS GIVEN BY LESSOR IN RELATION TO THE EQUIPMENT, AND ALL
CONDITIONS AND WARRANTIES WHETHER EXPRESSED OR IMPLIED, WHETHER IN RELATION
TO THE FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE OR COUNTRY, OR
WHETHER IN RELATION TO MERCHANTABILITY OR AS TO DESCRIPTION, STATE, QUALITY
OR CONDITION OF THE EQUIPMENT AT DELIVERY OR AT ANY OTHER TIME ARE HEREBY
WAIVED, EXCLUDED AND EXTINGUISHED. LESSOR SHALL IN NO EVENT BE LIABLE FOR
CONSEQUENTIAL DAMAGES OR LOSS OF PROFITS EVEN IF LESSOR HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
b. LESSEE'S OBLIGATIONS UNDER THIS AGREEMENT ARE ABSOLUTE AND SHALL NOT BE
AFFECTED BY ANY CIRCUMSTANCE OR EVENT BEYOND LESSEE'S CONTROL OF WHATEVER
NATURE .
c. TO THE EXTENT POSSIBLE AND NOT WITHSTANDING THE DISCLAIMER BY LESSOR OF
-----------------------------------------------------------------------
ANY WARRANTIES SET FORTH HEREIN, LESSOR SHALL DELIVER TO LESSEE A COPY OF
-------------------------------------------------------------------------
ANY WARRANTY AGREEMENT LESSOR MAY RECEIVE FROM THERMO KING AND LESSEE
---------------------------------------------------------------------
SHALL LOOK SOLEY TO THERMO KING FOR THE ENFORCEMENT OF SUCH WARRANTY, AND
-------------------------------------------------------------------------
LESSEE SHALL COMPLY
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
11
WITH ALL THE CONDITIONS OF SUCH WARRANTY IMPOSED BYTHE SUPPLIER OR
------------------------------------------------------------------
MANUFACTURER.
-------------
7. NOTICES
All billings and written notices required to be given by either party shall
be in writing and shall be airmailed, telexed or cabled, except as may
otherwise be provided herein, to the other party at its address first
hereinabove specified, or at such other address as such party may hereafter
from time to time designate in writing and shall be deemed received, in the
case of airmail, five days after it is postmarked, and in the case of telex,
upon transmission (with answerback confirmed) to other party's telex
facilities. All payments to Lessor shall be by check to Lessor or by wire
transfer acceptable to Lessor.
8. TAXES, FEES AND FINES
a. Lessee shall pay all taxes (other than taxes on Lessor's net income) and
charges levied on, or in connection with, the equipment subsequent to
delivery, including without limitation, property, sales, use and excise
taxes, duties, customs charges, withholding taxes and all further government
levies, fees or charges. Lessee shall pay all duties, fines and penalties
arising out of use of the equipment including without limitation, any duties,
fines or penalties imposed under the customs laws and regulations of federal,
state, foreign and local governments and agencies.
b. Lessee shall pay all charges incurred in ports, depots, storage areas or
otherwise arising out of the use of the equipment.
9. INDEMNITY AND INSURANCE
a. Indemnity
Lessee shall indemnify, defend and hold Lessor harmless for any and all
claims, losses, expenses, costs or damages, (including without limitation
expenses in defending any claim or suit such as attorney's fees, court costs
and other expenses) arising or alleged to arise directly or indirectly or
incidentally out of (a) any failure of Lessee to comply with its obligations
under this Lease; (b) any claim, whether private or governmental, for
personal injury or death, and for loss or damage to person, including
employees of the Lessee, property, cargo and/or vessels and/or transport
equipment arising out of or incident to the ownership, selection, possession,
leasing, operation, control, use, storage, loading, unloading, stuffing,
unstuffing, moving, maintenance, delivery, handling or return of the
equipment; (C) ANY FORFEITURE, SEIZURE, CONFISCATION, NATIONALIZATION OR
-------------------------------------------------------------
IMPOUNDING OF OR CHARGE OR LIEN ON THE EQUIPMENT. EACH PARTY UNDERTAKES
-----------------------------------------------------------------------
PROMPTLY TO give notice to the other of claims against it or action against
-----------
it with respect thereto and Lessee agrees not to settle any action without
the consent of the Lessor.
b. Insurance
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
12
The Lessee agrees to procure and maintain in full force and effect during
the term of this lease, at its sole cost and expense with insurers
acceptable to the Lessor, the following insurance:
(1) "All Risks" insurance to cover physical loss or damage to the leased
container(s) for not less than the full stipulated replacement value
thereof.
(2) Broad Form Comprehensive General Liability and Automobile Liability
Insurance to a minimum limit of U.S. $1,000,000 any one occurrence to cover
third party Bodily Injury and property Damage.
Such insurance shall include those policy extensions commonly referred to as
Completed Operations, Blanket Contractual, Personal Injury, Non-Owned
Automobile Liability and Employer's Liability and shall be primary
insurance.
Any and all deductibles under the terms of the foregoing insurance shall be
for Lessee's account. All policies shall name Lessor as additional insured
and contain a waiver of subrogation in favor of the Lessor. All policies
will contain a requirement that the Lessor receive 30 days written notice of
cancellation or material change. Lessee will provide the Lessor with
Certificates evidencing the insurance specified within 10 days of date lease
commences, in a form acceptable to the Lessor.
Should the Lessee fail to procure or maintain any of the required insurance,
or by act or omission vitiate or invalidate any of the insurance, the Lessee
shall indemnify the Lessor to the extent he suffers or incurs loss, damage,
liability or expense in consequence of such failure, act or omission.
10. SUBLEASING AND DIRECT INTERCHANGING
Lessee shall not have the right to assign this Lease or to sublet, rent,
directly interchange or otherwise hire out, or part with possession of the
equipment to any other party without the prior written consent of Lessor and
such consent of Lessor shall not operate to relieve Lessee of any of its
obligations hereunder.
11. DESIGNATION OF OWNERSHIP
If at any time during the term hereunder Lessor supplies Lessee with labels,
plates or other markings stating that the equipment is owned by Lessor or is
subject to any interest of a lender, Lessee shall affix and kept the same
upon a prominent place on the equipment. Lessee agrees to execute and file
Uniform Commercial Code financing statements and any and all other
instruments necessary to perfect Lessor's or its lender's interest in this
lease, the payments due hereunder and the equipment leased hereunder.
12. GENERAL
a. This lease is binding upon the parties, their successors and assigns and
shall be construed and interpreted with the laws of the State of California.
Any dispute, arising under or in connection with
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
13
this lease will be exclusively decided by the competent court of San
Francisco, California, U.S.A., or, at the option of Genstar, by any other
court that may appear competent to decide such dispute.
b. The paragraph headings in this Lease are for convenience only and shall
not be deemed to alter or affect any provision hereof.
c. Lessee hereby waives any and all existing and future set-offs and
counterclaims against the rental charges or payments due under this Lease.
d. In the event Lessee has not executed a Master Agreement with Lessor
covering the leasing of this equipment, this Lease shall contain the entire
agreement between the parties with respect to the subject matter hereof and
may be amended, modified or changed only by an agreement in writing executed
by the parties hereto. If the Lessee fails, however, to give to Lessor a
written objection to its contents within seven (7) days after this Lease is
received, or if Lessee takes possession of any of the equipment provided for
hereunder and retains it after receipt of this Lease then this Lease shall be
effective and binding upon Lessee whether or not signed. Notwithstanding any
Master Agreement, this Lease is subject to acceptance by Lessor at its office
in San Francisco, California, and shall be deemed accepted if Lessee is not
notified to the contrary within a reasonable time. If the Lease is not
accepted, Lessee shall return the equipment to any of Lessor's terminals
within sixty (60) days from such notification.
e. Lessee shall conform to the provisions of all statutes bylaws or
regulations in force from time to time in respect of or affecting in any
manner performance under this Lease and shall give all notices required by
the said statutes, bylaws and regulations including, but not limited to,
compliance with the Occupational Health and Safety Act and similar
legislation in force in jurisdictions in which the equipment may be used or
the Lessee may do business and shall pay all fees, assessments, or other sums
payable thereunder or in respect thereof.
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
14
EXHIBIT B
REDELIVERY SCHEDULE
-------------------
The following schedule specifies the monthly redelivery limits by port for
generator sets redeliveries together with any one time charges that may apply.
All generator sets redeliveries shall be made only at authorized Genstar depots
within these port areas. These depot charges are subject to change upon ninety
(90) days notice to Lessee from Genstar.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
GENERATOR SETS
---------------------------------------------------------------------------
PORT MONTHLY PORT DROP-OFF CHARGE (US$)
---- ------------ --------------------
LIMITS
------
---------------------------------------------------------------------------
<S> <C> <C>
Chicago Unlimited $150.00
---------------------------------------------------------------------------
Seattle Unlimited $150.00
---------------------------------------------------------------------------
New York Unlimited 0.00
---------------------------------------------------------------------------
Miami Unlimited 0.00
---------------------------------------------------------------------------
Jacksonville Up to 25 100.00
---------------------------------------------------------------------------
Houston Unlimited 0.00
---------------------------------------------------------------------------
Charleston Up to 25 0.00
---------------------------------------------------------------------------
Los Angeles Unlimited 0.00
---------------------------------------------------------------------------
</TABLE>
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
15
EXHIBIT C
Additional Maintenance Requirements for
---------------------------------------
Generator Sets
--------------
Generator Sets
- - --------------
A. With respect to Equipment that constitutes generator sets ("Generator
Sets"), Lessee shall comply with all the operation and maintenance requirements
contained in this Exhibit, in manuals or other documents provided to Lessee at
the time of delivery, in instructions supplied by Lessor after delivery and any
instructions displayed on any Refrigerated Equipment, which requirements are in
addition to all operation and maintenance requirements contained in the
Agreement, this Exhibit or elsewhere in this Schedule.
B. Lessee shall ensure that all maintenance and repair work on the
Refrigerated Equipmentis carried out by suitably labor and under competent
supervision and (where applicable) by the use of components or parts and
materials of a standard and type equivalent to the original.
C. Lessee shall notify Lessor WITHIN 48 HOURS of any accident to or
---------------
breakdown of any Refrigerated Equipment which will require major renovation or
repair work. Lessee will fully cooperate with Lessor to comply with all
procedures required in order for Lessor to preserve and assert any available
warranty claims and will permit Lessor or Lessor's representative to inspect the
damage and will consult with Lessor to determine with manner in which and by
whom the necessary work is to be carried out.
D. Lessee shall refer to all operations and service manuals covering the
Refrigerated Equipment for electrical and refrigeration information, service
instructions recommend by the manufacturer and detailed replacement parts lists.
Lessee shall follow all operation and maintenance recommendations contained in
such manuals.
A. Prior to loading any Generator Sets, Lessee shall perform each of the
following:
1. Before starting the Generator Sets, Lessee shall:
a. Visually inspect unit for loose parts and damaged components.
b. Check for oil/fuel leaks.
c. Check engine oil level.
<PAGE>
16
d. Check engine V-belt tension and idler pulley, condition and replace as
necessary.
e. Check starter connections.
f. Check condition of radiator hoses.
g. Verify coolant level.
h. Inspect radiator coil, clean as necessary.
i. Check fuel system for contamination.
j. Fill tank with diesel fuel.
k. Check battery terminal/cables for cleanliness and secure connections.
l. Inspect for loose electrical connections.
m. Inspect the exhaust system.
n. Check the torque of the mounting bolts and operation of the locking
devices.
o. Check the condition/torque of the engine/generator mounting bolts.
p. Inspect air cleaner for cleanliness and replace if necessary.
q. Connect the reefer plug. Ensure the generator/reefer circuit breakers
are off.
2. After completing the steps set forth above, Lessee shall start each
Generator Set and shall perform the following steps:
a. Start the generator after holding the glow plug switch in the UP
position for 30 seconds. Verify glow plug amperage prior to starting.
b. Verify proper oil pressure.
c. Observe the ammeter for a positive reading. A positive reading
indicates proper battery charger operation. If negative reading,
troubleshoot charging system.
d. Listen for any abnormal bearing noise (main alternator).
e. Check fuel lines, lube oil lines and filters for leaks.
f. Check radiator and cooling system hoses for leaks.
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
17
g. Check exhaust system for leaks.
h. Energize generator and reefer circuit breakers.
i. Verify output voltage.
j. Turn reefer and generator off.
B. Lessee shall perform the following maintenance on each Generator Set
following the first 500 hours of use by Lessee:
1. Change lube oil and filter.
2. Perform pretrip inspection.
C. Lessee shall perform the following maintenance on each Generator Set
after every 1000-hour interval of use by Lessee:
1. Replace fuel filters.
2. Complete steps for first 500-hour maintenance above.
3. Tighten engine, generator, snubber bolts (6 months).
4. Tighten all electrical connections in control box and verify the female
plug tension.
5. Replace air cleaner.
6. Check waterpump bearing end play.
7. Inspect cooling/fuel system.
8. Spray fuel cap threads with anti-seize lubricant.
9. Verify engine RPM's under load.
10. Verify battery electrolyte levels (for serviceable batteries only).
11. Change engine oil and filer (hot).
12. Inspect/clean transfer pup inlet strainer.
PLEASE INITIAL:
LESSEE ____ LESSOR ____
<PAGE>
18
13. Check operation of protection shutdown circuits.
14. Inspect wire harness for chafing or damage.
D. Lessee shall perform the following maintenance on each Generator Set
after every 5000-hour interval of use by Lessee, but not less often
than annually.
1. Complete steps for 1000-hour maintenance above.
2. Clean crankcase breather.
3. Check condition of engine/generator/snubber shockmounts.
4. Drain and flush the engine coolant system.
<PAGE>
EXHIBIT 13
Selected Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts) 1997
For the years ended December 31, 1993 1994 1995 1996 1997 as adjusted
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Gross revenues $1,095,815 $1,257,946 $1,445,975 $1,605,905 $1,790,785 $ 1,790,785
Net revenues/1/ 108,713 135,599 160,094 179,069 206,020 206,020
Income from operations 27,683 40,511 44,980 50,029 32,079 56,735/2/
Net income from continuing operations 17,844 24,141 29,455 32,442 11,492 36,148/2/
Net income from continuing operations
per share $ .36 $ .52 $ .67 $ .78 $ .28 $ .88/2/
Weighted average number of shares
outstanding (in thousands) 48,980 46,296 43,934 41,799 41,285 41,285
Dividends and distributions per share $ .087 $ .108 $ .130 $ .185 $ 2.530 $ .210/3/
- - -------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (at end of period):
Working capital $ 64,600 $ 86,122 $ 97,144 $ 114,070 $ 109,042 $ 109,042
Total assets 202,282 246,528 285,517 320,780 340,628 340,628
Total long-term debt - - - - - -
Stockholders' investment 95,899 112,784 133,339 154,428 138,981 138,981
- - -------------------------------------------------------------------------------------------------------------------------
Operating Data (at end of period):
Branches 81 89 99 108 119 119
Employees 1,183 1,403 1,436 1,665 1,925 1,925
Average net revenues per branch $ 1,392 $ 1,597 $ 1,683 $ 1,717 $ 1,822 $ 1,822
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Net revenues are determined by deducting cost of transportation and
products from gross revenues. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
/2/ Excludes unusual charges and expenses of $24,656 related to the Company's
initial public offering.
/3/ Excludes special dividends and distributions related to the Company's
initial public offering.
16
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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.
In the transportation industry, results of operations generally 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 from
continuing operations 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 on the Company's cash flow or results
of operations in recent years, the Company cannot fully predict the impact it
may have in the future. Inflation has not materially affected the Company's
operations due to the short-term, transactional basis of its business.
Results of Operations
The following table summarizes net revenues by service line:
<TABLE>
<CAPTION>
For the years ended December 31, 1995 1996 change 1997 change
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues (in thousands)
Transportation $117,021 $133,246 13.9% $159,260 19.5%
Sourcing 38,207 39,252 2.7 38,060 (3.0)
Information services 4,866 6,571 35.0 8,700 32.4
- - ---------------------------------------------------------------------------------
Total $160,094 $179,069 11.9 $206,020 15.1
=================================================================================
</TABLE>
The following table represents certain statement of operations data shown as
percentages of the Company's net revenues:
<TABLE>
<CAPTION>
1997
For the years ended December 31, 1995 1996 1997 as adjusted/1/
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Selling, general and administrative expenses 71.9 72.1 72.5 72.5
Public offering charges and expenses - - 12.0 -
- - --------------------------------------------------------------------------------------------------
Income from operations 28.1 27.9 15.5 27.5
Investment and other income 1.8 1.7 1.4 1.4
- - --------------------------------------------------------------------------------------------------
Income from continuing operations
before provision for income taxes 29.9 29.6 16.9 28.9
Provision for income taxes 11.5 11.5 11.4 11.4
- - --------------------------------------------------------------------------------------------------
Net income from continuing operations 18.4% 18.1% 5.5% 17.5%
==================================================================================================
</TABLE>
/1/ Adjusted to exclude public offering charges and expenses.
17
<PAGE>
1997 Compared to 1996
Revenues - Gross revenues for 1997 were $1.8 billion, an increase of 11.5% over
gross revenues of $1.6 billion for 1996. Net revenues for 1997 were $206.0
million, an increase of 15.1% over net revenues of $179.1 million for 1996,
resulting from an increase in transportation services net revenues of 19.5% to
$159.3 million, a decrease in sourcing net revenues of 3.0% to $38.1 million,
and an increase in information services net revenues of 32.4% to $8.7 million.
The increase in transportation net revenues resulted from an increase in
transaction volume offset by a slight decline in the net revenue per
transaction. The increase in transaction volume was driven by significant
expansion of business with current customers and from new domestic and
international customers. The decrease in net revenue per transaction was due
primarily to a high demand for trucks in the marketplace during the fourth
quarter of 1997, which increased the cost of these transportation services.
Sourcing net revenues decreased by 3.0% due to a reduction in net revenue from
the Company's ingredient divisions, a decline in net revenues from sales to
produce wholesalers, and the elimination in December 1996 of a program to source
and distribute various seafood and other products. These reductions were
partially offset by net revenue growth from sourcing produce for the Company's
large retail chain customers, and by various expansions of warehouse sourcing
services.
The increase in information services net revenues was the result of significant
growth in transaction volume. Net revenue per transaction decreased slightly due
to the increase in less expensive electronic transactions that have been growing
faster than manual transactions.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for 1997 were $149.3 million, an increase of 15.7% over
$129.0 million for 1996. Selling, general and administrative expenses as a
percent of net revenues were 72.5% and 72.1% in 1997 and 1996, respectively.
These increases were primarily due to increased personnel and warehouse costs
associated with the Company's growth.
Public Offering Charges and Expenses - During the fourth quarter of 1997, the
Company recorded charges and expenses of $24.7 million for unusual items related
to the Company's initial public offering. This amount includes a non-recurring,
non-cash charge of $21.6 million to conform with Securities and Exchange
Commission requirements to account for stock issued to employees and for
outstanding stock purchased by certain employees from retiring employees at
prices below the initial public offering price of $18 under the Company's
previous book value plans during the 12 months preceding the Company's initial
public offering ("cheap stock"). These book value plans were terminated and have
been replaced by stock-based incentive plans more typical of a publicly held
company including a stock incentive plan and an employee stock purchase program.
Income from Operations - Income from operations, excluding the nonrecurring
public offering charges and expenses, was $56.7 million for 1997, an increase of
13.4% over $50.0 million for 1996. Income from operations, excluding the public
offering charges and expenses, as a percent of net revenues was 27.5% and 27.9%
for 1997 and 1996, respectively. Income from operations, including the public
offering charges and expenses, was $32.1 million for the year ended December 31,
1997, a decrease of 35.9%.
Investment and Other Income - Investment and other income was $2.9 million for
1997, a decrease of 5.4% from $3.1 million for 1996. This decrease was the
result of a special dividend paid on October 10, 1997, which lowered the amount
of cash available for investment.
Provision for Income Taxes - The majority of the $24.7 million in public
offering charges and expenses is not deductible for income tax purposes.
Excluding these charges and expenses, the effective income tax rates for
continuing operations were 39.4% and 38.9% for 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,
excluding the public offering charges and expenses, was $36.1 million for 1997,
an increase of 11.4% over $32.4 million for 1996. Net income from continuing
operations per share, excluding the public offering charges and expenses,
increased by 12.8% to $.88 per share (basic and diluted) for 1997 compared to
$.78 per share (basic and diluted) for 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. Net income from continuing operations for 1997,
including the public offering charges and expenses, was $11.5 million, a
decrease of 64.6%, or $.28 per share (basic and diluted), a decrease of 64.1%.
1996 Compared to 1995
Revenues - Gross revenues for 1996 were $1.6 billion, an 11.1% increase over
gross revenues of $1.4 billion for 1995. Net revenues for 1996 were $179.1
million, an 11.9% increase over net
18
<PAGE>
revenues of $160.1 million for 1995. Transportation net revenues were $133.2
million, an increase of 13.9% over net revenues in 1995 of $117.0 million.
Sourcing net revenues were $39.3 million, an increase of 2.7% over net revenues
in 1995 of $38.2 million. Information services net revenues were $6.6 million,
an increase of 35.0% over net revenues in 1995 of $4.9 million.
The transportation net revenue increase resulted primarily from an increase in
the number of transactions. The volume increase came from both existing
customers (particularly large accounts) and new customers. This volume increase
was offset by a slight reduction in average net revenue per transaction. Net
revenues per transaction in 1995 had been unusually high due to excess motor
carrier capacity resulting in lower costs of purchased transportation.
The increase in net revenues from sourcing primarily resulted from an increase
in the number of transactions, partially offset by a decline in net revenues per
transaction. Net revenues per transaction were adversely affected by a write-off
of approximately $1.0 million in connection with the elimination of a sourcing
and distribution program for seafood and other products that had been initiated
in early 1996.
Information service net revenues increased primarily due to a large increase in
transaction volume for all services. An increasingly higher percentage of lower-
priced electronic transactions resulted in a decrease in net revenues per
transaction.
Selling, General and Administrative Expenses -- Selling, general and
administrative expenses were $129.0 million for 1996, an increase of 12.1% over
1995. Selling, general and administrative expenses as a percent of net revenues
were 72.1% and 71.9% for 1996 and 1995, respectively. These increases were due
primarily to higher personnel costs from additional staffing and new warehouse
expenses to support the Company's growth.
Income from Operations -- Income from operations was $50.0 million for 1996, an
increase of 11.2% over $45.0 million for 1995. Income from operations as a
percent of net revenues was 27.9% and 28.1% for 1996 and 1995, respectively.
Investment and Other Income -- Investment and other income was $3.1 million for
1996, an increase of 5.8% over 1995, as the average amount of funds available
for short-term investment increased in 1996.
Provision for Income Taxes -- The effective income tax rates for continuing
operations were 38.9% in 1996 and 38.5% in 1995. The effective income tax rate
for 1996 and the effective income tax rate for 1995 are higher than the
statutory federal income tax rate primarily due to state income taxes, net of
the federal benefit.
Net Income from Continuing Operations -- Net income from continuing operations
for 1996 was $32.4 million, an increase of 10.1% from $29.5 million in 1995. Net
income from continuing operations per share for 1996 was $.78 per share (basic
and diluted) versus $.67 per share (basic and diluted) for 1995.
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 $62.5 million and available-for-sale
securities totaled $10.4 million as of December 31, 1997. Working capital at
December 31, 1997 totaled $109.0 million. The Company has had no long-term debt
for the last five years.
During the fourth quarter of 1997, several transactions occurred related to the
initial public offering including the sale of the Company's financial services
business. On October 10, 1997, the Company paid a special cash dividend of $1.50
per share ($61.9 million in total). The Company removed restrictions on October
13, 1997 on shares previously awarded to employees which generated a $40.5
million tax benefit. On October 14, 1997 the Company sold its financial services
business for $40.3 million. The Company declared and paid a liquidating
distribution to stockholders of record on October 14, 1997 of $39.2 million
($.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 nonrecurring transactions. The Company has declared a $.06 per share
dividend payable to stockholders of record as of March 12, 1998, payable on
April 1, 1998.
Management believes that the Company's available cash, together with expected
future cash generated from operations, is 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 6.7% each as of
December 31, 1997. The lines of credit do not restrict the payment of dividends.
There were no borrowings under these lines of credit during 1995, 1996 and 1997.
The Company continues to assess what impact the year 2000 will have on
its current information systems. A plan is under way to complete the necessary
programming using primarily internal resources. The cost of this programming is
expected to be immaterial to the Company's overall financial position and is
being expensed as incurred.
19
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In thousands, except per share data)
December 31, 1997 1996
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 62,497 $ 42,567
Available-for-sale securities 10,428 42,711
Receivables, net of allowance for doubtful accounts of $8,936 and $10,079 206,743 170,935
Inventories 3,109 5,276
Deferred tax benefit 4,781 6,698
Prepaid expenses and other 5,797 2,088
Income taxes receivable 17,334 -
Net assets of discontinued operations (Note 5) - 10,147
- - ----------------------------------------------------------------------------------------------------
Total current assets 310,689 280,422
Property and equipment:
Land, building and improvements 1,500 2,773
Furniture, fixtures and equipment 39,363 33,835
Accumulated depreciation and amortization (18,637) (13,561)
- - ----------------------------------------------------------------------------------------------------
Net property and equipment 22,226 23,047
Intangible assets, net of accumulated amortization of $13,400 and $10,331 6,674 7,811
Other assets 1,039 9,500
- - ----------------------------------------------------------------------------------------------------
$340,628 $320,780
====================================================================================================
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable $166,789 $140,376
Accrued expenses -
Compensation and profit-sharing contribution 22,107 17,991
Income taxes and other 12,751 7,985
- - ----------------------------------------------------------------------------------------------------
Total current liabilities 201,647 166,352
- - ----------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 3 and 7)
Stockholders' investment:
Preferred Stock, $.10 par value, 20,000 shares authorized;
no shares outstanding - -
Common Stock, $.10 par value, 130,000 shares authorized;
41,265 and 41,375 shares issued and outstanding 4,126 4,137
Additional paid-in capital 62,108 -
Retained earnings 73,465 150,637
Foreign currency translation adjustment (718) (346)
- - ----------------------------------------------------------------------------------------------------
Total stockholders' investment 138,981 154,428
- - ----------------------------------------------------------------------------------------------------
$340,628 $320,780
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
20
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(In thousands, except per share data)
For the years ended December 31, 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues $1,790,785 $1,605,905 $1,445,975
Cost of transportation and products 1,584,765 1,426,836 1,285,881
- - -----------------------------------------------------------------------------------------------------------------------------
Net revenues 206,020 179,069 160,094
Selling, general and administrative expenses 149,285 129,040 115,114
Public offering charges and expenses (Note 1) 24,656 - -
- - -----------------------------------------------------------------------------------------------------------------------------
Income from operations 32,079 50,029 44,980
Investment and other income 2,927 3,095 2,925
- - -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision for income taxes 35,006 53,124 47,905
Provision for income taxes 23,514 20,682 18,450
- - -----------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 11,492 32,442 29,455
- - -----------------------------------------------------------------------------------------------------------------------------
Net income from discontinued operations,
net of taxes of $951, $1,474 and $1,395 1,589 2,158 2,086
Gain on sale of discontinued operations, net of taxes of $10,440 14,506 - -
- - -----------------------------------------------------------------------------------------------------------------------------
Net income $ 27,587 $ 34,600 $ 31,541
=============================================================================================================================
Basic net income per share:
From continuing operations $ .28 $ .78 $ .67
From discontinued operations .39 .05 .05
- - -----------------------------------------------------------------------------------------------------------------------------
Basic net income per share $ .67 $ .83 $ .72
=============================================================================================================================
Dilutive net income per share:
From continuing operations $ .28 $ .78 $ .67
From discontinued operations .39 .05 .05
- - -----------------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ .67 $ .83 $ .72
=============================================================================================================================
Basic weighted average shares outstanding 41,285 41,799 43,934
Dilutive effect of outstanding stock options 17 - -
- - -----------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,302 41,799 43,934
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
Consolidated Statements of Stockholders' Investment
<TABLE>
<CAPTION>
(In thousands, except per share data)
For the years ended December 31, 1997, 1996 and 1995
- - -------------------------------------------------------------------------------------------------------------------
Foreign
Common Additional Currency Total
Shares Paid-in Retained Translation Stockholders'
Outstanding Amount Capital Earnings Adjustment Investment
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 45,690 $4,568 $ 5,870 $ 102,703 $(357) $ 112,784
Net income - - - 31,541 - 31,541
Foreign currency translation
adjustment - - - - 52 52
Cash dividends, $.13 per share - - - (5,644) - (5,644)
Incentive shares of common
stock issued, net 878 88 2,387 - - 2,475
Repurchase of common stock (3,161) (316) (7,553) - - (7,869)
- - -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 43,407 4,340 704 128,600 (305) 133,339
Net income - - - 34,600 - 34,600
Foreign currency translation
adjustment - - - - (41) (41)
Cash dividends, $.185 per share - - - (7,655) - (7,655)
Incentive shares of common
stock issued, net 200 20 1,031 - - 1,051
Repurchase of common stock (2,232) (223) (1,735) (4,908) - (6,866)
- - -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 41,375 4,137 - 150,637 (346) 154,428
Net income - - - 27,587 - 27,587
Foreign currency translation
adjustment - - - - (372) (372)
Cash dividends and distributions,
$2.53 per share - - - (104,400) - (104,400)
Incentive shares of common
stock issued, net 239 24 919 - - 943
Sale of common stock 25 3 100 - - 103
Cheap stock charge (Note 1) - - 21,596 - - 21,596
Tax benefit on vesting of stock awards - - 40,539 - - 40,539
Repurchase of common stock (374) (38) (1,046) (359) - (1,443)
- - -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 41,265 $4,126 $62,108 $ 73,465 $(718) $ 138,981
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
22
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands)
For the years ended December 31, 1997 1996 1995
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 27,587 $ 34,600 $ 31,541
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 8,684 7,604 5,998
Cheap stock charge and incentive stock expense 21,596 943 1,051
Deferred income taxes 4,842 (2,464) (2,293)
Gain on sale of discontinued operations, net of tax (14,506) - -
Loss (gain) on sale of assets 82 10 (190)
Changes in operating elements -
Receivables (35,808) (22,019) (13,175)
Inventories 2,167 2,050 (3,925)
Prepaid expenses and other (3,709) 344 (648)
Accounts payable 26,413 14,482 15,729
Accrued compensation and profit sharing 5,059 159 1,007
Accrued income taxes and other 27,971 (359) 3,121
- - --------------------------------------------------------------------------------------------
Net cash provided by operating activities 70,378 35,350 38,216
- - --------------------------------------------------------------------------------------------
Investing Activities
Purchases of property and equipment (6,305) (4,784) (14,448)
Sales of property and equipment 1,446 80 2,486
Cash paid for acquisitions, net - - (2,908)
Sales of long-term investments 5,536 115 508
Purchases of long-term investments - (5,267) (33)
Sales/maturities of available-for-sale securities 113,576 33,719 17,971
Purchases of available-for-sale securities (81,293) (39,318) (35,827)
Cash provided by (used for) discontinued operations 24,653 3,707 (2,600)
Changes in other assets, net (2,321) (966) (692)
- - --------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 55,292 (12,714) (35,543)
- - --------------------------------------------------------------------------------------------
Financing Activities
Sale of common stock 103 - -
Repurchase of common stock (1,443) (6,866) (7,869)
Cash dividends and distributions (104,400) (7,655) (5,644)
- - --------------------------------------------------------------------------------------------
Net cash used for financing activities (105,740) (14,521) (13,513)
- - --------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 19,930 8,115 (10,840)
Cash and cash equivalents, beginning of year 42,567 34,452 45,292
- - --------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 62,497 $ 42,567 $ 34,452
============================================================================================
Cash paid for income taxes $ 9,678 $ 22,662 $ 21,525
============================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
23
<PAGE>
Notes to Consolidated Financial Statements
(Including data applicable to unaudited periods.)
C.H. Robinson Worldwide, Inc. and Subsidiaries
1. Summary Of Significant Accounting Policies
Basis of Presentation--C.H. Robinson Worldwide, Inc. and Subsidiaries (the
Company) is a global provider of multimodal transportation services and
logistics solutions through a network of 119 branch offices in 38 states
throughout the United States, along with offices in Canada, Mexico, Belgium, the
United Kingdom, France, Italy, Poland, Singapore, Brazil and South Africa. The
consolidated financial statements include the accounts of C.H. Robinson
Worldwide, Inc. and its majority owned and controlled subsidiaries. All
significant intercompany transactions and balances have been eliminated in the
consolidated financial statements.
Initial Public Offering--On October 15, 1997, the Company completed an initial
public offering (the Offering) of 10,578,396 shares of its common stock which
were previously held by its employees. Pursuant to Securities and Exchange
Commission rules related to stock issued or sold to employees at prices below
the initial public offering price for the 12 months preceding the date that the
initial offering becomes effective ("cheap stock"), the Company recorded a
$21,596,000 charge to expense at the effective date of the Offering. This charge
relates to approximately 1,519,000 shares previously sold to employees or issued
under incentive plans no longer in effect and represents the difference between
the book value of shares sold and issued to employees and the offering price per
share.
Use of 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
Revenue Recognition--Gross revenues consist of the total amount of goods and
services purchased by customers. The Company acts principally as the service
provider for these transactions and recognizes revenue as these services are
rendered and goods are delivered.
Foreign Currency--All balance sheet accounts of foreign subsidiaries are
translated at the current exchange rate as of the end of the year. Statement of
operations items are translated at average exchange rates during the year. The
resulting translation adjustment is recorded as a separate component of
stockholders' investment.
The Company provides products and services to numerous international customers.
At times, the Company enters into forward contracts to hedge against foreign
currency exposure related to these transactions. Upon settlement, resultant
gains or losses on such contracts offset the impact of foreign currency rates on
cash collected from accounts receivable. There are no open contracts at December
31, 1997.
Cash and Cash Equivalents--Cash and cash equivalents consist primarily of highly
liquid investments with an original maturity of three months or less. The
carrying amount approximates fair value due to the short maturity of the
instruments.
Available-For-Sale Securities--Available-for-sale securities consist of various
debt and equity securities. The fair value of the Company's available-for-sale
securities equals the quoted market price where available or quoted market
prices for similar securities, if a quoted market price is not available.
Inventories--Inventories consist primarily of produce, fruit concentrates and
related products held for resale and are stated at the lower of cost or market.
Property and Equipment--Property and equipment additions are recorded at cost.
Maintenance and repair expenditures are charged to expense as incurred.
Depreciation is computed using straight-line and accelerated methods over the
following estimated lives of the assets:
<TABLE>
<CAPTION>
Years
- - -------------------------------------------
<S> <C>
Building and improvements 3 - 37
Furniture, fixtures and equipment 5 - 10
</TABLE>
Amortization of leasehold improvements is computed over the shorter of the lease
term or the estimated useful lives of the improvements.
24
<PAGE>
Intangible Assets--Intangible assets consist of customer lists, trade names,
contracts, noncompete agreements, software and goodwill. Intangible assets are
being amortized over their estimated economic lives, ranging from three to 20
years. The Company periodically evaluates whether events and circumstances have
occurred that indicate the remaining balance of intangible assets may not be
recoverable.
Income Per Share--The Company has adopted the provisions of 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. Basic earnings per common share are computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the period. No dilution for potentially dilutive securities is included.
Diluted earnings per share are computed under the treasury stock method and are
calculated to compute the dilutive effect of outstanding options, warrants and
other securities. The adoption had no effect on previously reported income per
share.
Recently Issued Accounting Pronouncements--The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) in June 1997. SFAS No. 130 requires the
disclosure of other comprehensive income in the Company's financial statements
and is effective for reporting periods beginning after December 15, 1997. The
adoption of SFAS No. 130 is not expected to have a material impact on the
Company's financial statements or the disclosures contained therein.
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) in June 1997. SFAS No. 131 establishes
accounting standards for segment reporting and is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 131 is not expected
to affect the Company's financial statements or the disclosures contained
therein.
2. Marketable Securities
The Company has classified all of its marketable securities as available-for-
sale as of December 31, 1997 and 1996. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses reported net of tax as a
separate component of stockholders' investment when material. The unrealized
gains and losses are immaterial as the fair value approximates amortized cost.
The gross realized gains and losses on sales of available-for-sale securities
were not material for the years ended December 31, 1997, 1996 and 1995.
The following is a summary of marketable securities at December 31 (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1998
- - --------------------------------------------------------
U.S. government and government
agency obligations $ 767 $ 1,033
State and local agency obligations 2,686 27,373
Corporate bonds 53,992 40,858
Other debt securities 742 700
Equity securities 97 87
- - --------------------------------------------------------
Total 58,284 70,051
Less--Cash equivalents (47,856) (27,340)
- - --------------------------------------------------------
Available-for-sale securities $ 10,428 $ 42,711
========================================================
</TABLE>
The fair value of marketable securities by contractual maturity at December 31
are stated below (in thousands):
<TABLE>
1997 1996
- - -----------------------------------------------------------
<S> <C> <C>
Debt securities:
Due within one year $ 933 $20,596
Due after one year through five years 4,465 8,506
Due after five years 4,933 13,522
- - -----------------------------------------------------------
$10,331 $42,624
===========================================================
</TABLE>
25
<PAGE>
3. Lines of Credit
The Company has two unsecured lines of credit with banks which provide for
borrowings of up to $17,500,000 and expire on May 1, 1998. Interest on
borrowings under these lines is at 1 percent above the banks' cost of funds
(6.7% as of December 31, 1997). There were no borrowings under the lines of
credit during 1997, 1996 or 1995.
The Company's credit agreements contain certain financial covenants. The Company
was in compliance with such covenants at December 31, 1997.
4. Income Taxes
The Company and its 80% (or more) owned U.S. subsidiaries file a consolidated
federal income tax return. The Company files unitary or separate state returns
based on state filing requirements.
The components of the provision for income taxes consisted of the
following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $14,688 $19,060 $17,367
State 3,619 3,423 2,956
Foreign 365 663 420
......................................................................
18,672 23,146 20,743
Deferred provision/
(benefit) 4,842 (2,464) (2,293)
......................................................................
Total provision $23,514 $20,682 $18,450
======================================================================
</TABLE>
A reconciliation from the provision for income taxes using the statutory federal
income tax rate to the Company's effective income tax rate at December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net
of federal benefit 3.3 3.9 3.8
Public offering charges
and expenses 27.8 - -
Foreign and other 1.1 - (0.3)
......................................................................
67.2% 38.9% 38.5%
======================================================================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at December 31
(in thousands):
<TABLE>
<CAPTION>
1997 1996
- - -------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Allowance for
doubtful accounts $ 4,035 $ 5,305
Accrued expenses 703 1,353
Amortization 2,468 1,518
Accrued compensation 59 3,581
Other 830 1,092
Deferred income tax liabilities:
Long-lived assets (2,406) (2,279)
Other (17) (56)
.......................................................
Net deferred income tax asset $ 5,672 $10,514
=======================================================
</TABLE>
5. Discontinued Operations
On October 14, 1997, the Company sold its finance businesses. As a result, the
Company recorded a gain on the sale of $14,506,000, net of income taxes. These
operations are reported as discontinued operations in the accompanying
consolidated financial statements. Summary condensed financial information for
the discontinued segment for the years ended and as of December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $12,996 $12,870 $12,117
Expenses 10,456 9,238 8,636
......................................................................
Income from discontinued
operations $ 2,540 $ 3,632 $ 3,481
======================================================================
1996
- - ----------------------------------------------------------------------
Cash and investments $ 6,885
Finance receivables 46,213
Other assets 2,650
......................................................................
Total assets $55,748
Thrift deposits $33,457
Long-term debt 7,635
Accounts payable and accrued expenses 4,509
......................................................................
Total liabilities $45,601
......................................................................
Net assets of discontinued operations $10,147
======================================================================
</TABLE>
26
<PAGE>
6. Capital Stock and Stock Award Plans
Preferred Stock - The Company's Certificate of Incorporation (Certificate)
authorizes the issuance of 20,000,000 shares of Preferred Stock, par value $.10
per share, none of which is outstanding. The Preferred Stock may be issued by
resolution of the Company's board of directors from time to time without any
action of the stockholders. The Preferred Stock may be issued in one or more
series and the board of directors may fix the designation and relative powers,
including voting powers, preferences, rights, qualifications, limitations and
restrictions of each series, so authorized. The Company has no present intention
to issue shares of any series of Preferred Stock.
Common Stock - The Certificate authorizes 130,000,000 shares of Common Stock,
par value $.10 per share. Subject to the prior rights of any series of Preferred
Stock which may from time to time be authorized and outstanding, holders of
Common Stock are entitled to receive dividends out of funds legally available
therefore when, and if declared by the board of directors and to receive pro
rata the net assets of the Company legally available for distribution upon
liquidation or dissolution.
Holders of Common Stock are entitled to one vote for each share of Common Stock
held on each matter to be voted on by the holders of Common Stock, including the
election of directors. All outstanding shares of Common Stock are fully paid and
nonassessable.
Stock Award Plans - The Company maintains an Omnibus Stock Plan to grant certain
stock awards, including stock options and restricted shares, to key employees of
the Company. A maximum of 2,000,000 shares can be granted under this plan;
1,524,333 shares were available for future stock awards as of December 31, 1997.
The following schedule summarizes activity in the plans:
<TABLE>
<CAPTION>
Stock Grant Contractual
Options Price Lives
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at
Dec. 31, 1996 - - -
Granted in 1997 475,667 $18.00 10 years
- - --------------------------------------------------------------------------------
Outstanding at
Dec. 31, 1997 475,667 $18.00 10 years
================================================================================
Exercisable at
Dec. 31, 1997 - - -
================================================================================
</TABLE>
During 1996, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123) which encourages,
but does not require, a fair value based method of accounting for employee stock
options of similar equity instruments. As permitted under SFAS No. 123, the
Company has continued to account for employee stock options using the intrinsic
value method outlined in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, no compensation expense has been
recognized by the Company for its stock options. Had compensation expense for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates consistent with the method of SFAS No. 123, the
Company's net income and income per share for the year ended December 31, 1997
would have been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
<S> <C> <C>
Net income As reported $27,587
Adjusted $26,978
================================================================================
Basic and diluted income per share As reported $ .67
Adjusted $ .65
================================================================================
</TABLE>
The adjusted effects to net income presented reflect compensation costs for all
outstanding options which were granted in 1997. The compensation cost is being
reflected over the options' vesting period of five years. Therefore, the full
impact of calculating compensation costs of options granted during 1997 under
SFAS No. 123 is not reflected.
The fair value per option at the date of grant for options granted in 1997 was
$6.09. The fair value was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions for 1997:
<TABLE>
<CAPTION>
<S> <C>
Risk-free interest rate 5.72%
- - -------------------------------------------------------------------------------
Expected dividend yield 1.00%
- - -------------------------------------------------------------------------------
Expected volatility factor 25.00%
- - -------------------------------------------------------------------------------
Expected option term 7 years
- - -------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
7. Commitments and Contingencies
Employee Benefit Plans - The Company participates in a defined contribution
profit-sharing plan and a savings plan which qualifies under section 401(k) of
the Internal Revenue Code and covers all full-time employees with one or more
years of continuous service. Annual profit-sharing contributions are determined
by each company's board of directors, in accordance with the provisions of the
plan. Profit-sharing plan expense aggregated approximately $4,030,000 in 1997,
$3,611,000 in 1996 and $3,608,000 in 1995. The Company can elect to make
contributions to the 401(k) plan at the discretion of the Company's board of
directors. There were no Company contributions during 1997, 1996 or 1995.
Lease Commitments - The Company leases certain facilities and equipment under
operating leases. Lease expense was $13,356,000 for 1997, $8,318,000 for 1996
and $7,088,000 for 1995.
Future minimum lease commitments under noncancelable lease agreements in excess
of one year as of December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 8,352
1999 6,873
2000 4,747
2001 3,944
2002 3,111
Thereafter 4,739
- - --------------------------------------------------------------------------------
$31,766
================================================================================
</TABLE>
Litigation - In 1995, the United States Customs Service began an investigation
of possible duties owed on imports of certain juice concentrates by a subsidiary
of the Company. The Company has been advised by the United States Attorney for
the Eastern District of New York that its subsidiary was not the target or the
subject of a criminal investigation, although the United States Attorney is not
bound by such statements. The Company believes, however, that the United States
Customs Service will seek additional duties of approximately $4,000,000 and may
seek civil monetary penalties against the subsidiary of the Company. The Company
believes the disposition of this matter will not have a material adverse effect
on the financial condition or results of operations of the Company, although
there can be no assurance that the duties and penalties sought against the
subsidiary will not exceed the Company's reserves for this matter.
The Company is subject to other routine litigation arising in the ordinary
course of business, none of which is expected to have a material adverse effect
on the financial condition or results of operations of the Company.
28
<PAGE>
8. Supplementary Data (Unaudited)
The Company's results of operations for each of the quarters in the years ended
December 31, 1997 and 1996 are summarized below (in thousands, except per share
data).
<TABLE>
<CAPTION>
Quarters ended (unaudited)
1997 March 31 June 30 September 30 December 31
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenues $403,705 $451,447 $466,408 $469,225
Cost of transportation and products 356,819 399,177 412,944 415,825
- - --------------------------------------------------------------------------------------------------------------------
Net revenues 46,886 52,270 53,464 53,400
Income (loss) from operations 11,415 15,276 15,318 (9,930)
Net income (loss) from continuing operations 7,426 9,807 9,885 (15,626)
Net income from discontinued operations 439 461 550 139
Gain on sale of discontinued operations, net - - - 14,506
- - --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,865 $ 10,268 $ 10,435 $ (981)
====================================================================================================================
Basic net income (loss) per share:
From continuing operations $ .18 $ .24 $ .24 $ (.37)
From discontinued operations .01 .01 .01 .35
- - --------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share $ .19 $ .25 $ .25 $ (.02)
====================================================================================================================
Basic weighted average shares outstanding 41,359 41,253 41,265 41,265
====================================================================================================================
Diluted net income (loss) per share:
From continuing operations $ .18 $ .24 $ .24 $ (.37)
From discontinued operations .01 .01 .01 .35
- - --------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share $ .19 $ .25 $ .25 $ (.02)
====================================================================================================================
Diluted weighted average shares outstanding 41,359 41,253 41,265 41,330
====================================================================================================================
Quarters ended (unaudited)
1996 March 31 June 30 September 30 December 31
- - --------------------------------------------------------------------------------------------------------------------
Gross revenues $361,936 $413,088 $413,585 $417,296
Cost of transportation and products 320,100 368,004 368,474 370,258
- - --------------------------------------------------------------------------------------------------------------------
Net revenues 41,836 45,084 45,111 47,038
Income from operations 10,474 13,875 13,509 12,171
Net income from continuing operations 6,719 8,966 8,673 8,084
Net income from discontinued operations 543 540 566 509
- - --------------------------------------------------------------------------------------------------------------------
Net income $ 7,262 $ 9,506 $ 9,239 $ 8,593
====================================================================================================================
Basic net income per share:
From continuing operations $ .16 $ .22 $ .21 $ .20
From discontinued operations .01 .01 .01 .01
- - --------------------------------------------------------------------------------------------------------------------
Basic net income per share $ .17 $ .23 $ .22 $ .21
====================================================================================================================
Basic weighted average shares outstanding 42,929 41,434 41,425 41,406
====================================================================================================================
Diluted net income per share:
From continuing operations $ .16 $ .22 $ .21 $ .20
From discontinued operations .01 .01 .01 .01
- - --------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ .17 $ .23 $ .22 $ .21
====================================================================================================================
Diluted weighted average shares outstanding 42,929 41,434 41,425 41,406
====================================================================================================================
</TABLE>
29
<PAGE>
Report of Independent Public Accountants
To C.H. Robinson Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of C.H. Robinson
Worldwide, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of C.H. Robinson Worldwide, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
February 6, 1998
Report of Management
The management of C.H. Robinson Worldwide, Inc., is responsible for the
integrity and objectivity of the consolidated financial statements and other
financial information contained in this annual report. The consolidated
financial statements and related information were prepared in accordance with
generally accepted accounting principles and include some amounts that are based
on management's best estimates and judgments.
To meet its responsibility, management depends on its accounting systems and
related internal accounting controls. These systems are designed to provide
reasonable assurance, at an appropriate cost, that financial records are
reliable for use in preparing financial statements and that assets are safe-
guarded. Qualified personnel throughout the organization maintain and monitor
these internal accounting controls on an ongoing basis.
The Audit Committee of the Board of Directors, composed entirely of directors
who are not employees of the Company, meets periodically and privately with the
Company's independent public accountants as well as management to review
accounting, auditing, internal control, financial reporting and other matters.
/s/ D.R. "Sid" Verdoorn /s/ Dale S. Hanson
D.R. "Sid" Verdoorn Dale S. Hanson
President and Chief Executive Officer Chief Financial Officer
30
<PAGE>
Exhibit 21
SUBSIDIARIES OF C.H. ROBINSON WORLDWIDE, INC.
The Company's consolidated subsidiaries are shown below together with the
percentage of voting securities owned and the state or jurisdiction of
organization of each subsidiary. The names have been omitted for subsidiaries
which, if considered in the aggregate as a single subsidiary, do not constitute
a significant subsidiary. Subsidiaries of subsidiaries are indented in the
following table:
<TABLE>
<CAPTION>
Percentage of
Outstanding Voting
Subsidiaries Securities Owned
- - ------------ ----------------
<S> <C>
CHRW Holdings, Inc. 100%
(Minnesota)
C.H. Robinson International, Inc. 100%
(Minnesota)
CHR Greene International Company 100%
(Minnesota)
C.H. Robinson Venezuela, C.A. 51%
(Venezuela)
C.H. Robinson de Mexico, S.A. de C.V. 100%
(Mexico)
CHR Aviation, Inc. 100%
(Minnesota)
C.H. Robinson Company (Canada) Ltd. 100%
(Ontario, Canada)
Combined Transport Group, Inc. 100%
(Minnesota)
C.H. Robinson Company 100%
(Delaware)
Daystar-Robinson, Inc. 100%
(Delaware)
CTSI Robinson, Inc. 100%
(Georgia)
Fresh 1 Marketing, Inc. 100%
(Minnesota)
Wagonmaster Transportation Co. 100%
(Minnesota)
Brown-Robinson Ingredient, Inc. 100%
(Minnesota)
Robinson Europe, S.A. 100%
(France)
Transeco S.A. 100%
(France)
Robinson Italia SRL 95%
(Italy)
C.H. Robinson (UK) Limited 100%
(United Kingdom)
Payment & Logistics Services LLC 100%
(Minnesota)
T-Chek Systems LLC 100%
(Minnesota)
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement Nos. 333-41027 and 333-41899.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 25, 1998
<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 YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 62,497
<SECURITIES> 10,428
<RECEIVABLES> 215,679
<ALLOWANCES> 8,936
<INVENTORY> 3,109
<CURRENT-ASSETS> 310,689
<PP&E> 39,363
<DEPRECIATION> 18,637
<TOTAL-ASSETS> 340,628
<CURRENT-LIABILITIES> 201,647
<BONDS> 0
0
0
<COMMON> 4,126
<OTHER-SE> 134,855
<TOTAL-LIABILITY-AND-EQUITY> 340,628
<SALES> 0
<TOTAL-REVENUES> 1,790,785
<CGS> 0
<TOTAL-COSTS> 1,734,050
<OTHER-EXPENSES> 24,656
<LOSS-PROVISION> 3,870
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,006
<INCOME-TAX> 23,514
<INCOME-CONTINUING> 11,492
<DISCONTINUED> 16,095
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,587
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
<PAGE>
Exhibit 99
CAUTIONARY STATEMENT
The statements contained in this Form 10-K include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "PSLRA"). When used in this Form 10-K 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, in oral statements
made by or with the approval of an executive officer of the Company, the words
or phrases "believes," "may," "will," "expects," "should," "continue,"
"anticipates," "intends," "will likely result," "estimates," "projects" or
similar expressions and variations thereof are intended to identify such
forward-looking statements. Any forward-looking statement involves risks and
uncertainties that may have a material adverse effect on the business, results
of operation, financial condition or prospects, financial or other, of the
Company and may cause the Company's actual results to differ materially from
historical results or 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.
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 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
<PAGE>
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 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.
<PAGE>
IMPORTANCE OF MAJOR CLIENTS. The Company derives a significant portion of
its gross revenues from its largest clients. 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. Prior to the Company's initial public
offering, employees broadly participated in the ownership of the Company, and
more than 700 employees owned substantially all of its outstanding Common Stock.
Consequently, employees considered 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.
