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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 000-23189
C.H. ROBINSON WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1883630
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 12, 1999 was approximately $878,140,625 (based on the
last sale price of such stock as quoted on The Nasdaq National Market ($26.875)
on such date).
As of March 12, 1999, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 41,187,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1998 (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 4, 1999 (the "Proxy Statement"), are
incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
Overview
Founded in 1905, C.H. Robinson Worldwide, Inc. (the "Company" or
"Robinson") is one of the largest third-party logistics companies in North
America with 1998 gross revenues of $2 billion. The Company is a global provider
of multimodal transportation services and logistics solutions through a network
of 120 offices in 38 states and Canada, Mexico, Belgium, the United Kingdom,
France, Spain, Italy, Poland, Brazil, Argentina, Venezuela and South Africa.
Through contracts with over 17,000 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 fresh produce sourcing,
freight consolidation and cross-docking. During 1998, the Company handled over
1,000,000 shipments for 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 450,000 dry vans, 140,000 temperature-controlled
vans and containers and 100,000 flatbed trailers. The Company also has
intermodal marketing contracts with 12 railroads, including all of the major
North American railroads, which give the Company access to more than 180,000
additional trailers and containers.
Throughout its 94-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. 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's 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 1,600 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 owned by more than 1,000 of its employees
holding a majority of the Company's Common Stock.
The Company was reincorporated in Delaware in 1997 as the successor to
a business existing, in various legal forms, since 1905. 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.
In December of 1998, the Company acquired Comexter Group. Comexter
Group provides transportation, freight forwarding, customs brokerage and trading
services in Argentina, the Mercosur and between South America,
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the United States and Europe. Comexter Group has offices in Sao Paulo, Brazil;
Buenos Aires, Argentina; and Miami, Florida, and had combined annual net
revenues of approximately $1,000,000 in 1998.
In January 1999, the Company acquired Norminter S.A., a European third
party logistics company, and its subsidiaries. Norminter, headquartered in Caen,
France, provides transportation and logistics services within Europe to shippers
in a variety of industries. Norminter had combined annual net revenues of
approximately $5,000,000 in 1998. In addition to Caen, Norminter has offices
located in Pau, Metz and Lyon, France; Madrid and Barcelona, Spain; and
Birmingham, U.K, adding seven more offices to the Company's 120 offices
worldwide.
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, Internet, 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
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periods of one year or less. To meet 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:
o Truck--Through its contracts with over 17,000 motor carriers,
the Company maintains access to more than 450,000 dry vans,
140,000 temperature-controlled units and 100,000 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.
o Less Than Truckload ("LTL") -- LTL transportation involves the
shipment of small package, single or multiple pallet, up to
and including full trailer-load freight. The Company focuses
on pallet to partial load freight, although it handles any
size shipment. Through contracts with motor carriers and its
proprietary Internet-based software system, Robinson
consolidates both freight and freight information to provide
shippers with single source tracking and tracing capability,
and the economic benefits of consolidating partial loads into
full truckloads.
o Intermodal--Intermodal transportation involves the shipment of
trailers or containers by a combination of truck, rail and/or
ship in 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 500 intermodal containers. The Company also has
intermodal marketing contracts with 12 railroads, which give
the Company access to more than 180,000 additional trailers
and containers.
o 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.
o Air--The Company provides door-to-door service as a
full-service air freight forwarder, both domestically and
internationally.
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The table below shows the Company's net revenue by transportation mode
for the periods indicated:
Transportation Services Net Revenue
(in thousands)
Year Ended December 31,
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1994 1995 1996 1997 1998
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Truck(1)........... $ 81,122 $ 97,636 $110,460 $133,110 $164,186
Intermodal ........ 7,828 6,864 8,014 9,680 6,671
Ocean ............. 6,865 7,212 8,121 9,226 10,215
Air ............... 550 1,402 1,687 1,954 3,427
Miscellaneous(2)... 2,922 3,907 4,964 5,290 5,298
Total ....... $ 99,287 $117,021 $133,246 $159,260 $189,797
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(1) Includes LTL net revenue.
(2) Consists of customs clearance (Automated Brokerage Interface (ABI) and
Automated Clearing House (ACH) capabilities with the U.S. Customs
Service), warehousing, and other miscellaneous services.
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. Robinson's multimodal transportation services are provided to numerous
international customers through its domestic branch offices as well as through
branch offices in Canada, Mexico, Belgium, the United Kingdom, France, Spain,
Italy, Poland, Brazil, Argentina, Venezuela and South Africa. The Notes to the
Company's Consolidated Financial Statements present the Company's gross revenues
from international customers for the years ended December 31, 1996, 1997 and
1998, and the Company's long-lived assets as of December 31, 1997 and 1998, in
the United States and in foreign locations.
Sourcing
Throughout its 94-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. 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, and
with grocery store chains and other multistore retailers. 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. During
1998, the Company entered into new sourcing programs that have expanded the
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Company's market presence and sourcing capabilities with respect to both product
lines and nationally recognized brand names.
Sourcing accounted for approximately 22%, 19% and 18% of the Company's
net revenues in 1996, 1997 and 1998, 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.
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 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 4%, 4%
and 5% of the Company's net revenues in 1996, 1997 and 1998, respectively.
Organization
To allow the Company to stay close to customers and markets, the
Company has created and continues to expand a network of 127 offices (including
the seven offices added in January 1999 through the acquisition of Norminter
S.A.), 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.
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The table below shows certain information about the Company's branches
for the periods indicated:
Branch Data
(Dollars in thousands)
Year Ended December 31,
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1994 1995 1996 1997 1998
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Average employees per branch .... 15.8 14.6 15.4 16.2 18.4
Average net revenues per branch . $1,597 $1,683 $1,717 $1,822 $2,047
Average net revenues per employee $ 105 $ 113 $ 115 $ 115 $ 120
As of December 31, 1998, the Company's branch salespersons represented
approximately 70% of the Company's total work force and all branch employees,
including support staff, represented approximately 90% of the Company's work
force. At December 31, 1998, the number of salespersons per Company branch
ranged from three to 59.
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 continue to open 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.
Branch Employees. 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 incentive compensation system under which a significant part of the
cash 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 cash compensation is provided by this
compensation program. For 1998, incentive-based cash compensation averaged
approximately 33% of branch salespersons' total cash compensation, 65% of branch
managers' total cash compensation and 57% of officers' total cash compensation.
Branch employees also participate in the 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.
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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.
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Name Age Position
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D.R. Verdoorn 60 Chairman of the Board, President and Chief Executive Officer
Barry W. Butzow 52 Senior Vice President, Office of the President and Director
Gregory D. Goven 47 Senior Vice President, Office of the President
John P. Wiehoff 37 Senior Vice President, Office of the President and Chief Financial Officer
Micheal T. Rempe 45 Vice President, Produce
Thomas M. Jostes 38 Vice President, Transportation
Owen P. Gleason 47 Vice President, General Counsel, Secretary and Director
Jennifer T. Amys 48 Vice President, Chief Information Officer
Joseph J. Mulvehill 45 Vice President, International
Chad M. Lindbloom 34 Corporate Controller
Troy A. Renner 34 Treasurer and Tax Director
</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. In 1998, Mr.
Verdoorn was also named Chairman of the Board. 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.
Barry W. Butzow has been a director since 1986. Mr. Butzow has been a
Vice President of the Company since 1984 and was recently named a Senior Vice
President in the Office of the President. 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
and was recently named a Senior Vice President in the Office of the President.
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.
John P. Wiehoff was recently named Senior Vice President in the Office
of the President. He has been Chief Financial Officer since June 1998, after
starting with the Company in 1992 as Corporate Controller and also serving as
Treasurer of the Company from May 1997. 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.
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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.
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.
Joseph J. Mulvehill was appointed Vice President, International in
1998, and has been employed by the Company since 1975. Mr. Mulvehill holds a
Bachelor of Arts degree from the University of St. Thomas.
Chad M. Lindbloom has been the Corporate Controller of the Company
since June 1998. Mr. Lindbloom joined the Company in 1990 as a staff accountant.
Mr. Lindbloom holds a Bachelor of Science degree and a Masters of Business
Administration from the Carlson School of Management at the University of
Minnesota.
Troy A. Renner has been the Treasurer of the Company since June 1998,
and Tax Director since 1995. Prior to that, he was employed as a tax manager by
Arthur Andersen LLP. Mr. Renner holds a Bachelor of Science and a law degree
from the University of Minnesota.
Employees
As of December 31, 1998, the Company had a total of 2,205 employees,
substantially all of whom are full-time employees and approximately 2,000 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. The
Company serves customers ranging from Fortune 100 companies to small businesses
in a wide variety of industries. During 1998, no customer accounted for more
than 6% 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 12 years with the
Company), branches are given significant latitude in pursuing opportunities and
committing the Company's resources to serve customers.
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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, 1998, the Company had contracts with more than
17,000 motor carriers (representing approximately 140,000 temperature controlled
vans, 450,000 dry vans and 100,000 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, 1998, the Company also had
intermodal marketing contracts with 12 railroads, including all of the major
North American railroads, giving the Company access to more than 180,000
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 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 often competes with respect to price, scope of services or
a combination thereof, but 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 door-to-door 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, Internet, 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
- 9 -
<PAGE>
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.
As discussed in more detail in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7, the Company completed
an assessment of its compliance with Year 2000 issues and will modify or replace
portions of its hardware and software so that its computer systems will function
properly with respect to dates after December 31, 1999. The Company has
completed a majority of the modifications and is currently in the testing phase
of its Year 2000 compliance process. This testing includes running test
transactions with dates beyond December 31, 1999 through its systems to ensure
its daily, monthly and yearly processes accept the transactions, process and
store them, and allow for extraction of the transaction data as needed to
operate its business and generate its internal and external financial
information. The Company is in the process of completing all such testing on its
systems, with a majority of its testing on its information services line to be
completed by June 30, 1999.
In addition, the Company does not believe any material relationships
exist with any customer, produce supplier or transportation carrier that would
have a material impact on its business, results of operations or financial
condition in the instance that these third parties would have material systems
interruptions as a result of the Year 2000 situation. The Company has no single
third party relationship that accounts for more than 6% of its business.
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.
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 preempts 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.
- 10 -
<PAGE>
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
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
All of the Company's 127 offices (including the seven offices added in
January 1999 through the acquisition of Norminter S.A.) are leased from third
parties under leases with initial terms ranging from three to ten years. The
Company leases approximately 65,000 square feet of office space in Eden Prairie,
Minnesota as its corporate headquarters. The Company's corporate headquarters
lease expires in 2000, with a renewal option for five years. The following table
sets forth certain information with respect to the Company's largest branch
offices:
- 11 -
<PAGE>
City/State Approximate Square Feet
- ------------------------------ ------------------------------
Oak Brook, IL 9,861
Southfield, MI 9,118
Tampa, FL 8,721
Burr Ridge, IL 7,328
Des Plaines, IL 6,324
Watertown, MA 6,000
Paulsboro, NJ 5,910
Sugarland, TX 5,548
College Park, MD 5,500
Independence, OH 5,475
Secaucus, NJ 5,253
Omaha, NE 5,160
Dallas, TX 5,157
Coralville, IA 5,143
Cheektowga, NY 5,000
Plano, TX 4,932
Knoxville, TN 4,890
St. Louis, MO 4,884
Louisville, KY 4,835
Ashland, VA 4,680
The Company also leases 55,665 square feet of warehouse space in
Aurora, Colorado, and 53,000 square feet of warehouse space in Medley, Florida.
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
Daystar-Robinson, Inc., a subsidiary of the Company ("Daystar"). The Company has
been advised by the United States Attorney for the Eastern District of New York
that Daystar was not the target or the subject of a criminal investigation,
although the United States Attorney is not bound by such statements. When
indictments were issued in the matter in 1998, Daystar was not named as a
defendant. 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 Daystar. 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 Daystar 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, 1998.
- 12 -
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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 periods indicated, the high and
low sales prices of the Company's Common Stock, as quoted on The Nasdaq National
Market.
1998 High Low
----------- -----------
First Quarter $26.00 $21.375
Second Quarter 26.75 21.75
Third Quarter 25.813 17.50
Fourth Quarter 26.00 14.75
1997 High Low
----------- -----------
Fourth Quarter (commencing October 15, 1997) $26.50 $19.75
On March 12, 1999, the closing sales price per share of the Company's
Common Stock as quoted on The Nasdaq National Market was $26.875 per share. On
March 12, 1999, there were approximately 1,400 holders of record and
approximately 5,200 beneficial owners of the Company's Common Stock. On February
10, 1999, the Company announced that its Board of Directors authorized a stock
repurchase program under which up to 2,000,000 shares of the Company's Common
Stock may be repurchased from time to time through open market transactions,
block purchases, tender offers, private transactions, accelerated share
repurchase programs or otherwise. The Company intends to fund such repurchases
with internally generated funds.
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 declared
quarterly dividends during 1998 for an aggregate of $0.25 per share. The Company
has declared a quarterly dividend of $0.07 per share payable to shareholders of
record as of March 8, 1999 payable on April 1, 1999. 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 consolidated financial and operating data on page 16 of the
Annual Report is incorporated by reference.
- 13 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis on pages 17 through 20 of the
Annual Report is incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure about Market Risk on page 20 of the Annual Report is
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements on pages 21 through 31
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
10 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 and 5 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 9 of the Proxy Statement is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Certain Transactions" on page 9 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 listed in the
accompanying Index to Consolidated Financial Statements at page F-1, on
pages 21 through 31 of the Annual Report are incorporated by reference.
- 14 -
<PAGE>
(2) Financial Statement Schedules.
Schedule II. Valuation and Qualifying Accounts, is included at
the end of this Report.
(3) Index to Exhibits
Number Description
------ -----------
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)
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 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, Thomas Jostes
and Michael Rempe (Incorporated by reference
to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1,
Registration No. 333-33731)
- 15 -
<PAGE>
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, 1999, payable by C.H.
Robinson Company to the order of U.S. 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 U.S.
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 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)
- 16 -
<PAGE>
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 Genstar Container
Corporation (Incorporated by reference to
Exhibit 10.19 to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1997)
10.20 Long Term Lease Agreement, dated to be
effective November 1, 1997, between C.H.
Robinson Company and Genstar Container
Corporation (Incorporated by reference to
Exhibit 10.20 to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1997)
*10.21 C.H. Robinson Worldwide, Inc. Directors'
Stock Plan
*13 Selected pages of the Company's Annual
Report to Stockholders for the year ended
December 31, 1998
*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
-----------------
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
- 17 -
<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 21 through 31 of the Company's Annual Report to Stockholders
for the year ended December 31, 1998):
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Investment for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
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 26, 1999.
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 26, 1999.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John P. Wiehoff 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 any and
all amendments to the 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 Chairman of the Board, President and Chief
- ---------------------------- Executive Officer (Principal Executive
D.R. Verdoorn Officer)
/s/ John P.Wiehoff Senior Vice President, Office of the President,
- ---------------------------- and Chief Financial Officer (Principal
John P. Wiehoff Financial Officer)
/s/ Chad M. Lindbloom Corporate Controller (Principal Accounting
- ---------------------------- Officer)
Chad M. Lindbloom
/s/ Dale S. Hanson Director
- ----------------------------
Dale S. Hanson
/s/ Looe Baker III Director
- ----------------------------
Looe Baker III
/s/ Barry W. Butzow Senior Vice President, Office of the 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 4, 1999. 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 4, 1999
<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, 1996, and 1997 and 1998 were as follows (in thousands):
December 31, December 31, December 31,
1996 1997 1998
Balance, beginning of year $ 8,033 $ 10,079 $ 8,936
Provision 5,139 3,870 6,902
Write-offs (3,093) (5,013) (3,426)
-------- -------- --------
Balance, end of year $ 10,079 $ 8,936 $ 12,412
S-1
<PAGE>
Index to Exhibits
Number Description
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)
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 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,
Thomas Jostes 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, 1999,
payable by C.H. Robinson Company to the order of U.S. 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 U.S. 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)
<PAGE>
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 Genstar Container Corporation
(Incorporated by reference to Exhibit 10.19 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997)
10.20 Long Term Lease Agreement, dated to be effective November 1, 1997,
between C.H. Robinson Company and Genstar Container Corporation
(Incorporated by reference to Exhibit 10.20 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997)
*10.21 C.H. Robinson Worldwide, Inc. Directors' Stock Plan
*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
- -----------------
* Filed herewith
<PAGE>
EXHIBIT 10.21
C.H. ROBINSON WORLDWIDE, INC.
DIRECTORS' STOCK PLAN
1. Purpose of the Plan. This Directors' Stock Plan (the "Plan") allows C.H.
Robinson Worldwide, Inc., a Delaware corporation (the "Company"), to pay the
directors' fees in shares of common stock of the Company.
2. Issuance of Shares.
(a) At the Company's election, it may issue to any director who is not
an employee common stock of the Company in lieu of fees payable for his or
her service as a member of the board of directors, including annual and
meeting fees for attendance at meetings of the board of directors or
committees thereof.
(b) The number of shares of common stock issued shall equal the cash
fee otherwise payable divided by the fair market value per share as of the
date of the meeting for which such payment is being made or in the case of
annual or quarterly fees on the date on which final payment would
ordinarily be made. Any fractional share shall be rounded up or down to the
nearest whole share. The fair market value of a share shall mean, in the
event the common stock is traded on The Nasdaq National Market or listed on
a stock exchange, the closing sale price on the date for which a price
determination is to be made (or, if there has not been a sale on such date,
on the first preceding business day on which there was such a sale) as
reported in The Wall Street Journal. In the event the common stock is not
so traded or listed, the board of directors shall determine the fair market
value.
(c) Directors shall not have any rights as shareholders of the Company
with respect to any common stock awarded or awardable under this Plan until
such common stock has been issued.
3. Shares Subject to the Plan. Subject to Section 5, the maximum aggregate
number of shares of common stock that may be issued under the Plan is 25,000
shares.
4. Administration. The board of directors shall administer the Plan and
shall have plenary authority, in its discretion, but subject to the express
provisions of this Plan, to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan.
5. Adjustment Upon Changes in Capitalization, Dissolution or Merger. In the
event that the number of outstanding shares of common stock is changed by a
stock dividend, stock split, reverse stock split, combination, reclassification
or similar change in the capital structure of the Company, the number of shares
available under this Plan shall be proportionately adjusted. Such adjustment
shall be made by the board of directors, whose determination in that respect
shall be conclusive.
<PAGE>
6. Amendment and Termination of the Plan. The Board may amend this Plan at
any time, but no amendment may affect a director's rights under any previous
award of common stock under this Plan. The board of directors may suspend or
discontinue this Plan in whole or in part, but any such suspension or
discontinuance shall not affect the issuance of shares of common stock granted
under this Plan prior thereto.
7. Compliance with Applicable Legal Requirements. No common stock issuable
pursuant to this Plan shall be issued and delivered unless the issuance of
common stock complies with all applicable legal requirements.
-2-
<PAGE>
EXHIBIT 13
Selected Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
(Dollars in thousands, 1997
except per share data) 1994 1995 1996 1997 as adjusted 1998
Statement of Operations Data (for the years ended December 31)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues $1,257,946 $1,445,975 $1,605,905 $1,790,785 $1,790,785 $2,038,139
Net revenues(1) 135,599 160,094 179,069 206,020 206,020 245,666
Income from operations 40,511 44,980 50,029 32,079 56,735(2) 68,443
Net income from continuing
operations 24,141 29,455 32,442 11,492 36,148(2) 43,015
Net income from continuing
operations per share
(basic and diluted) $ .52 $ .67 $ .78 $ .28 $ .88(2) $ 1.04
Weighted average number of shares
outstanding (in thousands)
Basic 46,296 43,934 41,799 41,285 41,285 41,216
Diluted 46,296 43,934 41,799 41,302 41,302 41,309
Dividends and distributions per share $ .108 $ .130 $ .185 $ 2.530 $ .210(3) $ .250
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Balance Sheet Data (as of December 31)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Working capital $ 86,122 $ 97,144 $ 114,070 $ 109,042 $ 109,042 $ 135,245
Total assets 246,528 285,517 320,780 340,628 340,628 409,116
Total long-term debt - - - - - -
Stockholders' investment 112,784 133,339 154,428 138,981 138,981 169,518
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Operating Data (as of December 31)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Branches 89 99 108 119 119 120
Employees 1,403 1,436 1,665 1,925 1,925 2,205
Average net revenues per branch $ 1,597 $ 1,683 $ 1,717 $ 1,822 $ 1,822 $ 2,082
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net revenues are determined by deducting cost of transportation and
products from gross revenues. See "Management's Discussion and Analysis."
(2) Excludes unusual charges and expenses of $24,656 related to our initial
public offering.
(3) Excludes special dividends and distributions related to our initial public
offering in October 1997.
16
<PAGE>
Management's Discussion & Analysis
General
Gross revenues represent the total dollar value of services and goods we sell to
our customers. Our costs of transportation and products include the contracted
direct costs of transportation, including motor carrier, intermodal, ocean, air,
and other costs, and the purchase price of the products we source. We act
principally as a service provider to add value and expertise in the execution
and procurement of these services for our customers. Our net revenues (gross
revenues less cost of transportation and products) are the primary indicator of
our ability to source, add value and resell services and products that are
provided by third parties, and are considered by management to be our primary
measurement of growth. Accordingly, the discussion of results of operations
below focuses on the changes in our 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, our operating income and income from continuing
operations have been higher in the second and third quarters than in the first
and fourth quarters. Seasonality in the transportation industry has not had a
significant impact on our results of operations or cash flows in recent years.
Also, inflation has not materially affected our operations due to the
short-term, transactional basis of our business. However, we cannot fully
predict the impact seasonality and inflation may have in the future.
1998 Compared to 1997
Revenues - Gross revenues for 1998 were $2.04 billion, an increase of 13.8% over
$1.79 billion for 1997. Net revenues for 1998 were $245.7 million, an increase
of 19.2% over $206.0 million for 1997, resulting from an increase in
transportation services net revenues of 19.2% to $189.8 million, an increase in
sourcing net revenues of 16.2% to $44.2 million, and an increase in information
services net revenues of 33.8% to $11.6 million. Our net revenues are increasing
at a faster rate than our gross revenues due to the different growth rates in
the mix of our service lines. Our information services net revenues as a
percentage of their gross revenues is the highest of our three lines, followed
by our transportation business and finally our sourcing business.
The increase in transportation services net revenues resulted primarily from an
increase in transaction volume. Net revenue per transaction on our truck
business also increased slightly in 1998. During the fourth quarter of 1997, a
high demand for trucks in the marketplace increased our cost of these
transportation services, reducing our net revenue per transaction. The increase
in transaction volume and net revenues was driven by significant expansion of
business with current customers and from new domestic and international
customers.
Sourcing net revenues increased by 16.2% due principally to net revenue growth
from sourcing produce for our large retail chain customers and temporary
opportunities created by adverse weather conditions in major produce growing
Results of Operations
The following table summarizes our net revenues by service line:
<TABLE>
<CAPTION>
For the years ended December 31, (in thousands) 1996 1997 change 1998 change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues
Transportation $ 133,246 $ 159,260 19.5% $ 189,797 19.2%
Sourcing 39,252 38,060 (3.0) 44,229 16.2
Information services 6,571 8,700 32.4 11,640 33.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 179,069 $ 206,020 15.1% $ 245,666 19.2%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table represents certain statement of operations data shown as
percentages of our net revenues:
<TABLE>
<CAPTION>
1997
For the years ended December 31, 1996 1997 as adjusted(1) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Selling, general and administrative expenses 72.1 72.5 72.5 72.1
Public offering charges and expenses - 12.0 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 27.9 15.5 27.5 27.9
Investment and other income 1.7 1.4 1.4 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision for income taxes 29.6 16.9 28.9 29.0
Provision for income taxes 11.5 11.4 11.4 11.5
- ------------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 18.1% 5.5% 17.5% 17.5%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted to exclude unusual charges and expenses of $24,656 related to our
initial public offering in October 1997.
17
<PAGE>
areas. Our branch network and relationships with produce growers worldwide
provided us with sources of produce in this challenging market and provided
growth to both the number of transactions and the profit per transaction. In
addition, we entered into a new program with an international banana shipper in
the first quarter of 1998, which added to our sourcing net revenue growth.
The increase in information services net revenues was the result of significant
growth in transaction volume from new and existing customers.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for 1998 were $177.2 million, an increase of 18.7% over
$149.3 million for 1997. Selling, general and administrative expenses as a
percentage of net revenues were 72.1% and 72.5% in 1998 and 1997. The decrease
in selling, general and administrative expenses as a percentage of net revenues
was due primarily to the elimination and consolidation of warehouse facilities
in 1998.
Public Offering Charges and Expenses - On October 15, 1997, we recorded charges
and expenses of $24.7 million for unusual items related to our 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 under our previous book value plans during the 12 months preceding our
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 was $68.4 million for 1998, an
increase of 20.6% over $56.7 million for 1997, excluding the non-recurring
public offering charges and expenses. Income from operations, excluding the
public offering charges and expenses, as a percentage of net revenues was 27.9%
and 27.5% for 1998 and 1997. Income from operations, including the public
offering charges and expenses incurred in 1997, increased 113.4% from 1997 to
1998.
Investment and Other Income - Investment and other income was $2.8 million for
1998, a decrease of 2.8% from $2.9 million for 1997.
Provision for Income Taxes - The effective income tax rates for continuing
operations were 39.7% and 39.4% for 1998 and 1997, excluding the public offering
charges and expenses incurred in 1997. 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. The majority of the $24.7 million in
public offering charges and expenses in 1997 is not deductible for income tax
purposes.
Net Income from Continuing Operations - Net income from continuing operations
was $43.0 million for 1998, an increase of 19.0% over $36.1 million for 1997,
excluding the public offering charges and expenses. Net income from continuing
operations per share, excluding the public offering charges and expenses,
increased by 18.2% to $1.04 (basic and diluted) for 1998 compared to $.88 (basic
and diluted) for 1997. Net income from continuing operations for 1998 increased
274.3% from 1997 to 1998, including the effects of our 1997 public offering
charges and expenses.
1997 Compared to 1996
Revenues - Gross revenues for 1997 were $1.79 billion, an increase of 11.5% over
$1.61 billion for 1996. Net revenues for 1997 were $206.0 million, an increase
of 15.1% over $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. Our net revenues are increasing
at a faster rate than our gross revenues due to the different growth rates in
the mix of our service lines. Our information services net revenues as a
percentage of their gross revenues is the highest of our three lines, followed
by our transportation business and finally our sourcing business.
The increase in transportation services net revenues resulted primarily from an
increase in transaction volume offset by a slight decline in the net revenue per
transaction. The increase in transaction volume and net revenues 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 revenues from
our 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 our 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.
18
<PAGE>
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
percentage of net revenues were 72.5% and 72.1% in 1997 and 1996. These
increases were primarily due to increased personnel and warehouse costs
associated with our growth.
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 percentage of net revenues was 27.5% and 27.9%
for 1997 and 1996. Income from operations, including the public offering charges
and expenses, was $32.1million for 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 in conjunction with our
initial public offering, 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. 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 (basic and diluted) for 1997 compared to $.78 (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 our 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%.
Liquidity and Capital Resources
We have historically generated substantial cash from operations which has
enabled us to fund our growth while paying cash dividends and repurchasing
stock. Cash and cash equivalents totaled $99.3 million and $62.5 million and
available-for-sale securities totaled $30.7 million and $10.4 million as of
December 31, 1998 and 1997. Working capital at December 31, 1998 and 1997
totaled $135.2 million and $109.0 million. We have had no long-term debt for the
last five years and currently have no material commitments for future capital
expenditures. We do not believe that the conversion to the euro will have a
material business or financial impact on us.
During the fourth quarter of 1997, several transactions occurred related to the
initial public offering, including the sale of our finance businesses. On
October 10, 1997, we paid a special cash dividend of $1.50 per share ($61.9
million in the aggregate). We removed restrictions on October 13, 1997 on shares
previously awarded to employees which generated a $40.5 million tax benefit. On
October 14, 1997, we sold our finance businesses for $40.3 million and we
declared and paid a liquidating distribution to stockholders of record on
October 14, 1997 of $.95 per share ($39.2 million in the aggregate), the net
proceeds resulting from this sale. Management does not anticipate any
significant effects on our operations as a result of these non-recurring
transactions.
We generated $77.6 million of positive cash flow from operations for 1998. This
was unusually high due partly to the collection of our $17.3 million tax
receivable resulting from transactions related to our initial public offering.
We used $31.6 million of cash and cash equivalents for investing activities,
including $20.3 million for net purchases of available-for-sale securities, $6.8
million for acquisitions, net of cash acquired, and $5.1 million to fund capital
expenditures necessary for continued growth. We also used $9.2 million of cash
and cash equivalents for financing activities, primarily to pay quarterly cash
dividends. We have declared a $.07 per share dividend payable to shareholders of
record as of March 8, 1999, payable on April 1, 1999.
Assuming no change in our current business plan, management believes that our
available cash, together with expected future cash generated from operations,
are expected to be sufficient to satisfy our anticipated needs for working
capital, capital expenditures and cash dividends for all future periods. In
addition, we have $17.5 million available under our two existing lines of credit
both with interest rates of 6.1%, as of December 31, 1998. The lines of credit
renew annually and do not restrict the payment of dividends. There were no
borrowings under the lines of credit during 1998 or 1997. We expect to be able
to renew these lines of credit in the future.
Impact of Year 2000
We have completed an assessment of our compliance with Year 2000 issues and will
modify or replace portions of our hardware and software so that our computer
systems will function properly with respect to dates after December 31, 1999. We
have completed a majority of the modifications and are currently in the testing
phase of our Year 2000 compliance process. This testing includes running test
transactions with dates beyond December 31, 1999 through
19
<PAGE>
our systems to ensure that our daily, monthly and yearly processes accept the
transactions, process and store them, and allow for extraction of the
transaction data as needed to operate our business and generate our internal and
external financial information. We are in the process of completing all such
testing on our systems, with a majority of our testing to be completed by June
30, 1999.
Our existing general ledger, fixed assets and payroll systems are not Year 2000
compliant. We are in the process of replacing these systems. Our new general
ledger system and fixed assets system are currently operational and running
parallel to our existing systems, with expected full conversion to occur before
June 30, 1999. Our expected completion date for the payroll system is June 30,
1999.
We do not anticipate any disruptions to be caused by embedded circuitry in our
operational systems. Our information services line also has a commercial
application from the Federal Reserve which is not Year 2000 compliant. A new
version is expected by June 30, 1999. We do not anticipate that this will create
any implementation problems on our scheduled timeline.
In addition, we are not aware of any material relationships with any customer,
transportation carrier or produce supplier that would have a material impact on
our business, results of operations or financial condition in the instance that
these third parties would have material systems interruptions as a result of the
Year 2000 situation. We have no single third-party relationship that accounts
for more than 6% of our business.
Although we believe we have internally addressed our risks and have not
discovered any material exposure with our third-party relationships, there are
inherent risks that we may not meet our objectives by December 31, 1999 or that
unforeseen circumstances may arise. We could experience business interruption in
the event our systems would be unable to process information or would process
information incorrectly. Additionally, we could suffer loss of business if a
number of our third-party relationships, taken together, would have similar
problems. It is impossible to fully assess the potential consequences in the
event there are disruptions in such infrastructure areas as utilities,
communications, transportation, banking and government. Any such business
interruption could have a material adverse effect on our results of operations,
liquidity, and financial condition depending on the severity and duration of the
interruption. We are developing contingency plans in the event we are unable to
complete remediation efforts or unidentified problems develop. We expect to have
these plans in place by June 30, 1999.
We are using primarily internal resources for system modifications and testing.
Total costs we have incurred, plus costs we plan to incur for programming,
testing, purchase of Year 2000 testing software, and outside consultant costs
are expected to be in the range of $500,000 to $600,000. The actual cost could
exceed this estimate. These costs, however, are not expected to have a material
effect on our financial condition, results of operations, or cash flows. We have
incurred and expensed approximately $300,000 as of December 31, 1998. Our costs
to replace the noncompliant systems mentioned above are not included in the
range, as these replacements were planned to occur and we have not accelerated
the replacement due to Year 2000 requirements. All other costs are being
expensed as incurred.
Market Risk
We had approximately $130.0 million of cash and investments on December 31,
1998, approximately $99.3 million of which were cash and cash equivalents and
$30.7 million of which were available for sale (non-trading) securities.
Substantially all of the cash equivalents and available for sale securities are
investment grade, fixed income securities from domestic issuers. Because of the
credit risk criteria of our investment policies, the primary market risk
associated with these investments is interest rate risk. We do not use
derivative financial instruments to manage interest rate risk or to speculate on
future changes in interest rates. A rise in interest rates could negatively
affect the fair value of our investments; however, because we consider it
unlikely that we would need or choose to substantially liquidate our
investments, we believe that such an increase in interest rates would not have a
material impact on our future earnings or cash flows. We also conduct business
in foreign currencies and at times we enter into forward contracts to hedge
against foreign currency exposure. There were no such contracts outstanding
during 1998. We also have inventory which is subject to certain commodity price
volatility, and we sometimes choose to hedge our positions with futures and
options. We believe a reasonable near-term change in foreign currency exchange
rates or commodity prices would not have a material impact on our future
earnings or cash flows because the amount of our inventory and foreign currency
exposure is not material.
Our discussion and analysis of our financial condition and results of
operations, including our Year 2000 and market risk discussions, contain
forward-looking statements, including our current assumptions about future
financial performance, anticipated problems, estimated Year 2000 costs and our
plans for future operations, which are subject to various risks and
uncertainties. Our actual results may differ significantly. Further discussion
of factors that may cause a difference may be found in an exhibit to the
Company's Form 10-K filed with the Securities and Exchange Commission.
20
<PAGE>
Consolidated Balance Sheets
(In thousands, except per share data)
As of December 31,
<TABLE>
<CAPTION>
1998 1997
Assets
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 99,341 $ 62,497
Available-for-sale securities 30,730 10,428
Receivables, net of allowance for doubtful accounts of $12,412 and $8,936 221,021 206,743
Deferred tax benefit 12,821 4,781
Prepaid expenses and other 7,442 5,797
Inventories 3,488 3,109
Income taxes receivable - 17,334
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 374,843 310,689
Property and equipment:
Land, building and improvements - 1,500
Furniture, fixtures and equipment 41,285 39,363
Accumulated depreciation and amortization (21,801) (18,637)
- ------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 19,484 22,226
Intangible assets, net of accumulated amortization of $8,576 and $13,400 12,613 6,674
Other assets 2,176 1,039
- ------------------------------------------------------------------------------------------------------------------------------
$ 409,116 $ 340,628
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Investment
- --------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 192,908 $ 166,789
Accrued expenses -
Compensation and profit-sharing contribution 27,481 22,107
Income taxes and other 19,209 12,751
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 239,598 201,647
- ------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 3 and 7)
Stockholders' investment:
Preferred stock, $0.10 par value, 20,000 shares authorized;
no shares issued or outstanding - -
Common stock, $0.10 par value, 130,000 shares authorized;
41,265 shares issued, 41,190 and 41,265 shares outstanding 4,119 4,126
Additional paid-in capital 62,054 62,108
Retained earnings 106,178 73,465
Cumulative other comprehensive loss (1,145) (718)
Treasury stock at cost (75 and 0 shares) (1,688) -
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' investment 169,518 138,981
- ------------------------------------------------------------------------------------------------------------------------------
$ 409,116 $ 340,628
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
21
<PAGE>
Consolidated Statements of Operations
(In thousands, except per share data)
For the years ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Gross revenues $2,038,139 $1,790,785 $1,605,905
Cost of transportation and products 1,792,473 1,584,765 1,426,836
- -------------------------------------------------------------------------------------------------------------------------------
Net revenues 245,666 206,020 179,069
Selling, general and administrative expenses 177,223 149,285 129,040
Public offering charges and expenses (Note 1) - 24,656 -
- -------------------------------------------------------------------------------------------------------------------------------
Income from operations 68,443 32,079 50,029
Investment and other income 2,844 2,927 3,095
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision
for income taxes 71,287 35,006 53,124
Provision for income taxes 28,272 23,514 20,682
- -------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 43,015 11,492 32,442
- -------------------------------------------------------------------------------------------------------------------------------
Net income from discontinued operations,
net of taxes of $951 in 1997 and $1,474 in 1996 - 1,589 2,158
Gain on sale of discontinued operations,
net of taxes of $10,440 in 1997 - 14,506 -
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 43,015 $ 27,587 $ 34,600
- -------------------------------------------------------------------------------------------------------------------------------
Basic net income per share:
From continuing operations $ 1.04 $ .28 $ .78
From discontinued operations - .39 .05
- -------------------------------------------------------------------------------------------------------------------------------
Basic net income per share $ 1.04 $ .67 $ .83
- -------------------------------------------------------------------------------------------------------------------------------
Diluted net income per share:
From continuing operations $ 1.04 $ .28 $ .78
From discontinued operations - .39 .05
- -------------------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ 1.04 $ .67 $ .83
- -------------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 41,216 41,285 41,799
Dilutive effect of outstanding stock options 93 17 -
- -------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,309 41,302 41,799
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
Consolidated Statements of Stockholders' Investment
<TABLE>
<CAPTION>
(In thousands, except per share data)
For the years ended December 31, 1998, 1997 and 1996
Cumulative
Common Additional Other Com- Total
Shares Paid-In Retained prehensive Treasury Stockholders'
Outstanding Amount Capital Earnings Loss Stock Investment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 43,407 $ 4,340 $ 704 $ 128,600 $ (305) $ - $ 133,339
Net income - - - 34,600 - - 34,600
Other comprehensive income:
Foreign currency
translation adjustment - - - - (41) - (41)
---------
Comprehensive income - - - - - - 34,559
---------
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
Other comprehensive income:
Foreign currency translation
adjustment - - - - (372) - (372)
---------
Comprehensive income - - - - - - 27,215
---------
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
Net income - - - 43,015 - - 43,015
Other comprehensive income:
Foreign currency translation
adjustment - - - - (427) - (427)
---------
Comprehensive income - - - - - - 42,588
---------
Cash dividends, $.25 per share - - - (10,302) - - (10,302)
Sale of common stock 63 6 (115) - - 1,430 1,321
Tax benefit on deferred
compensation plans - - 61 - - - 61
Repurchase of common stock (138) (13) - - - (3,118) (3,131)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 41,190 $ 4,119 $ 62,054 $ 106,178 $ (1,145) $ (1,688) $ 169,518
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
Consolidated Statements of Cash Flows
(In thousands)
For the years ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
Operating Activities
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 43,015 $ 27,587 $ 34,600
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 8,521 8,684 7,604
Cheap stock charge and incentive stock expense - 21,596 943
Deferred income taxes (9,272) 4,842 (2,464)
Gain on sale of discontinued operations, net of tax - (14,506) -
Loss on sale of assets 141 82 10
Changes in operating elements -
Receivables (11,056) (35,808) (22,019)
Inventories (374) 2,167 2,050
Prepaid expenses and other (1,379) (3,709) 344
Accounts payable 20,027 26,413 14,482
Accrued compensation and profit sharing contribution 5,275 5,059 159
Accrued income taxes and other 22,750 27,971 (359)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 77,648 70,378 35,350
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
- ---------------------------------------------------------------------------------------------
Purchases of property and equipment (5,071) (6,305) (4,784)
Sales of property and equipment 1,981 1,446 80
Cash paid for acquisitions, net of cash acquired (6,799) - -
Sales of long-term investments - 5,536 115
Purchases of long-term investments - - (5,267)
Sales/maturities of available-for-sale securities 37,594 113,576 33,719
Purchases of available-for-sale securities (57,900) (81,293) (39,318)
Cash provided by discontinued operations - 24,653 3,707
Changes in other assets, net (1,380) (2,321) (966)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (31,575) 55,292 (12,714)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
- ---------------------------------------------------------------------------------------------
Sale of common stock 1,321 103 -
Repurchase of common stock (3,131) (1,443) (6,866)
Cash dividends and distributions (7,419) (104,400) (7,655)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (9,229) (105,740) (14,521)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 36,844 19,930 8,115
Cash and cash equivalents, beginning of year 62,497 42,567 34,452
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 99,341 $ 62,497 $ 42,567
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid for income taxes $ 34,848 $ 9,678 $ 22,662
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
Notes to Consolidated Financial Statements
(Including data applicable to unaudited periods)
1. Summary of Significant Accounting Policies
Basis of Presentation - C.H. Robinson Worldwide, Inc. and its Subsidiaries ("the
Company," "we," "us," and "our") is a global provider of multimodal
transportation services and logistics solutions through a network of 120 branch
offices in 38 states throughout the United States, along with offices in Canada,
Mexico, South America, Europe and Africa. The consolidated financial statements
include the accounts of C.H. Robinson Worldwide, Inc. and its majority owned and
controlled subsidiaries. Our finance businesses are presented in the
accompanying consolidated statements of operations as discontinued operations
(See Note 5). Minority interests in subsidiaries are not significant. All
significant intercompany transactions and balances have been eliminated in the
consolidated financial statements.
Initial Public Offering - On October 15, 1997, we completed an initial public
offering of 10,578,396 shares of our common stock which were previously held by
our employees. Pursuant to Securities 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"), we recorded a $21,596,000 charge to expense at the effective
date of the offering. This charge related to approximately 1,519,000 shares
previously sold to employees or issued under incentive plans no longer in effect
and represented 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 dollar value of goods
and services purchased by customers. We act principally as the service provider
for these transactions and recognize 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
comprehensive income in our statement of stockholders' investment.
We provide products and services to numerous international customers. At times,
we enter 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, 1998.
Geographic Information - The following table presents our gross revenues (based
on location of the customer) for the years ended December 31 and our long-lived
assets as of December 31 by geographic regions (in thousands):
1998 1997 1996
- ----------------------------------
Gross revenues
United States $1,935,191 $1,700,802 $1,527,278
Other locations 102,948 89,983 78,627
- ------------------------------------------------------------
$2,038,139 $1,790,785 $1,605,905
- ------------------------------------------------------------
1998 1997
- ------------------------------------------------
Long-lived assets
United States $27,203 $26,399
Other locations 7,070 3,540
- ------------------------------------------------------------
$34,273 $29,939
- ------------------------------------------------------------
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 our 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.
25
<PAGE>
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:
Years
- --------------------------------------------------------------------------------
Building and improvements 3 - 37
Furniture, fixtures and equipment 3 - 10
Amortization of leasehold improvements is computed over the shorter of the lease
term or the estimated useful lives of the improvements.
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. We periodically evaluate whether events and circumstances have occurred
that indicate the remaining balance of intangible assets may not be recoverable.
Income Per Share - Basic net income 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 net income per share are computed under the treasury stock method and
are calculated to compute the dilutive effect of outstanding options, warrants
and other securities.
Comprehensive Income - We have adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130).
SFAS No. 130 requires the disclosure of other comprehensive income in our
financial statements. Comprehensive income includes any changes in the equity of
an enterprise from transactions and other events and circumstances from
non-owner sources. Our foreign currency translation adjustment is currently our
only component of other comprehensive income and is presented on our
consolidated statements of stockholders' investment.
Segment Reporting - We have adopted the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 establishes new accounting
standards for segment reporting. No operational segment or customer information
is required for us.
Recently Issued Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
No. 133). SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
imbedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. We do not expect the adoption of SFAS No. 133 to
have a material impact on our financial statements or disclosures contained
therein.
2. Marketable Securities
We have classified all of our marketable securities as available-for-sale as of
December 31, 1998 and 1997. Available-for-sale securities are carried at
amortized cost, which approximates market value. 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, 1998 and 1997.
The following is a summary of marketable securities at December 31 (in
thousands):
1998 1997
- ----------------------------------------------------------
U.S. government and government
agency obligations $ 1,803 $ 767
State and local agency obligations 16,641 -
Corporate bonds 11,183 8,822
Other debt securities 999 742
Equity securities 104 97
- --------------------------------------------------------------------------------
Available-for-sale securities $30,730 $10,428
- --------------------------------------------------------------------------------
26
<PAGE>
The contractual maturities of marketable securities at December 31 are stated
below (in thousands):
1998 1997
- ---------------------------------------------------------------
Debt securities:
Due within one year $ 6,763 $ 933
Due after one year through five years 21,278 4,465
Due after five years 2,585 4,933
- --------------------------------------------------------------------------------
Total debt securities with
contractual maturities 30,626 10,331
Equity securities 104 97
- --------------------------------------------------------------------------------
$30,730 $10,428
- --------------------------------------------------------------------------------
3. Lines of Credit
We have unsecured lines of credit with banks which provide for borrowings of up
to $17,500,000 and expire on May 1, 1999. Interest on borrowings under the lines
is at 1% above the banks' cost of funds (6.1% as of December 31, 1998). There
were no borrowings under the lines of credit during 1998, 1997 or 1996.
Our credit agreements contain certain financial covenants. We were in compliance
with such covenants at December 31, 1998.
4. Income Taxes
C.H. Robinson Worldwide, Inc. and its 80% (or more) owned U.S. subsidiaries file
a consolidated federal income tax return. We file 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):
1998 1997 1996
- ----------------------------------------------------
Tax provision:
Federal $ 29,974 $ 14,688 $ 19,060
State 5,862 3,619 3,423
Foreign 1,708 365 663
- --------------------------------------------------------------------------------
37,544 18,672 23,146
Deferred provision
(benefit) (9,272) 4,842 (2,464)
- --------------------------------------------------------------------------------
Total provision $ 28,272 $ 23,514 $ 20,682
- --------------------------------------------------------------------------------
A reconciliation from the provision for income taxes using the statutory federal
income tax rate to our effective income tax rate at December 31 is as follows:
1998 1997 1996
- ---------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net
of federal benefit 4.1 3.3 3.9
Public offering charges
and expenses - 27.8 -
Foreign and other .6 1.1 -
- --------------------------------------------------------------------------------
39.7% 67.2% 38.9%
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) are comprised of the following at December 31
(in thousands):
1998 1997
- ---------------------------------------------------------------
Deferred income tax assets:
Receivables $ 5,000 $ 4,035
State taxes 2,423 359
Accrued expenses 5,401 344
Amortization 3,026 2,468
Accrued compensation 771 59
Other 830 830
Deferred income tax liabilities:
Long-lived assets (2,488) (2,406)
Other (19) (17)
- --------------------------------------------------------------------------------
Net deferred income tax asset $ 14,944 $ 5,672
- --------------------------------------------------------------------------------
5. Discontinued Operations
On October 14, 1997, we sold our finance businesses. As a result, we recorded a
gain on the sale of $14,506,000, net of income taxes. These operations were
reported as discontinued operations in the accompanying consolidated financial
statements. Summary condensed financial information for the discontinued segment
for the years ended December 31 is as follows (in thousands):
1997 1996
- ---------------------------------------------------------------
Revenues $ 12,996 $ 12,870
Expenses 10,456 9,238
- --------------------------------------------------------------------------------
Income from discontinued
operations $ 2,540 $ 3,632
- --------------------------------------------------------------------------------
27
<PAGE>
6. Capital Stock and Stock Award Plans
Preferred Stock - Our Certificate of Incorporation (Certificate) authorizes the
issuance of 20,000,000 shares of Preferred Stock, par value $.10 per share, none
of which are issued or outstanding. The Preferred Stock may be issued by
resolution of our 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 issuance of any such series may have an adverse
effect on the rights of holders of Common Stock or impede the completion of a
merger, tender offer or other takeover attempt. We have 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
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. Holders of Common Stock are not entitled to cumulative
voting, which means that the holders of more than 50% of the outstanding Common
Stock can elect all of the directors of any class if they choose to do so. The
stockholders do not have preemptive rights. All outstanding shares of Common
Stock are fully paid and nonassessable.
Share Repurchase Program - In conjunction with our initial public offering, our
board of directors authorized the repurchase of 1,000,000 common shares for
reissuance upon the exercise of employee stock options and other stock award
plans. During 1998, we purchased approximately 138,000 shares of our common
stock for the treasury at an aggregate cost of $3,131,000.
Stock Award Plans - We have an Omnibus Stock Plan to grant certain stock awards,
including stock options at fair market value and restricted shares, to our key
employees and outside directors. A maximum of 2,000,000 shares can be granted
under this plan; 1,567,954 shares were available for stock awards as of December
31, 1998.
The following schedule summarizes activity in the plans:
Stock Grant Contractual
Options Price Lives
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1996 - - -
Granted in 1997 475,667 $18.00 10 years
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1997 475,667 $18.00 10 years
Terminated in 1998 (43,621) $18.00 10 years
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1998 432,046 $18.00 10 years
- --------------------------------------------------------------------------------
Exercisable at
December 31, 1998 - - -
- --------------------------------------------------------------------------------
We follow the provisions of 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 or similar equity instruments. As permitted under SFAS No. 123, we have
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, we have not recognized any compensation
expense for our stock options. Had compensation expense for our stock-based
compensation plans been determined based on the fair value at the grant dates
consistent with the method of SFAS No. 123, our net income and income per share
would have been as follows (in thousands, except per share amounts):
1998 1997
- -----------------------------------------------------------
Net income As reported $43,015 $27,587
Adjusted $42,460 $26,978
- --------------------------------------------------------------------------------
Basic and diluted net
income per share As reported $ 1.04 $ .67
Adjusted $ 1.03 $ .65
- --------------------------------------------------------------------------------
28
<PAGE>
The adjusted effects to net income presented reflect compensation costs for all
outstanding options which were granted during 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 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:
Risk-free interest rate 5.72%
- --------------------------------------------------------------------------------
Expected dividend yield 1.00%
- --------------------------------------------------------------------------------
Expected volatility factor 25.00%
- --------------------------------------------------------------------------------
Expected option term 7 years
- --------------------------------------------------------------------------------
7. Commitments and Contingencies
Employee Benefit Plans - We participate 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 $4,560,000 in 1998,
$4,030,000 in 1997 and $3,611,000 in 1996. We can elect to make contributions to
the 401(k) plan at the discretion of our board of directors. There were no
Company contributions during 1998, 1997 or 1996.
Lease Commitments - We lease certain facilities, equipment and automobiles under
operating leases. Lease expense was $14,376,000 for 1998, $13,356,000 for 1997
and $8,318,000 for 1996.
Minimum future lease commitments under noncancelable lease agreements in excess
of one year as of December 31, 1998 are as follows (in thousands):
1999 $ 8,409
2000 5,828
2001 4,605
2002 3,033
2003 1,734
Thereafter 873
- --------------------------------------------------------------------------------
$ 24,482
- --------------------------------------------------------------------------------
Litigation - In 1995, the United States Customs Service began an investigation
of possible duties owed on imports of certain juice concentrates by
Daystar-Robinson, Inc. (Daystar), a subsidiary of the Company. We have been
advised by the United States Attorney for the Eastern District of New York that
Daystar was not the target or the subject of a criminal investigation, although
the United States Attorney is not bound by such statements. We believe, however,
that the U.S. Customs Service will seek additional duties of approximately
$4,000,000 and may seek civil monetary penalties against Daystar. We believe the
disposition of this matter will not have a material adverse effect on our
financial condition or results of operations, although there can be no assurance
that the duties and penalties sought against Daystar will not exceed our
reserves for this matter.
We are 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 our financial
condition or results of operations.
29
<PAGE>
8. Supplementary Data (Unaudited)
Our results of operations for each of the quarters in the years ended December
31, 1998 and 1997 are summarized below (in thousands, except per share data).
<TABLE>
<CAPTION>
Quarters Ended (Unaudited)
1998 March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenues $ 468,189 $ 546,672 $ 516,181 $ 507,097
Cost of transportation and products 412,968 483,380 452,422 443,703
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenues 55,221 63,292 63,759 63,394
Income from operations 13,354 18,621 18,933 17,535
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 8,374 $ 11,612 $ 11,911 $ 11,118
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted net income per share $ .20 $ .28 $ .29 $ .27
- ------------------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 41,251 41,215 41,203 41,195
Dilutive effect of outstanding stock options 101 100 89 82
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,352 41,315 41,292 41,277
- ------------------------------------------------------------------------------------------------------------------------------------
<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 and diluted net income (loss) per share:
From continuing operations $ .18 $ .24 $ .24 $ (.37)
From discontinued operations .01 .01 .01 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted net income (loss) per share $ .19 $ .25 $ .25 $ (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 41,359 41,253 41,265 41,265
Dilutive effect of outstanding stock options - - - 65
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,359 41,253 41,265 41,330
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<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,
1998 and 1997, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1998. 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, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
February 4, 1999
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
D.R. "Sid" Verdoorn
Chairman of the Board, President
and Chief Executive Officer
/s/ John P. Wiehoff
John P. Wiehoff
Senior Vice President, Office of the President
and Chief Financial Officer
31
<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:
Percentage of
Outstanding Voting
Subsidiaries Securities Owned
- ------------ ------------------
CHRW Holdings, Inc. 100%
(Minnesota)
C.H. Robinson International, Inc. 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)
C.H. Robinson Company 100%
(Delaware)
Daystar-Robinson, Inc. 100%
(Delaware)
Fresh 1 Marketing, Inc. 100%
(Minnesota)
Preferred Translocation Systems, Inc 100%
(Minnesota)
Wagonmaster Transportation Co. 100%
(Minnesota)
Robinson Europe, S.A. 100%
(France)
Robinson-Transeco S.A. 100%
(France)
Robinson Italia S.R.L 95%
(Italy)
C.H. Robinson (UK) Limited 100%
(United Kingdom)
C.H. Robinson Poland Sp. Zo.o 100%
(Poland)
Comexter Trading S.A. 100%
(Argentina)
Comexter Cargo S.A. 100%
(Argentina)
Geotrade S.A. 100%
(Argentina)
Comexter Trading Company 100%
(Florida)
Comexter Cargo, Inc. 100%
(Florida)
Norminter S.A. 100%
(France)
Norminter (UK) Limited 100%
(United Kingdom)
Norminter France SARL 100%
(France)
Norminter Iberica 98%
(Spain)
E.G.C. SARL 46%
(France)
Payment & Logistics Services LLC 100%
(Minnesota)
T-Chek Systems LLC 100%
(Minnesota)
Robinson Logistica Do Brasil Ltda. 100%
(Brazil)
<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. 333-53047, 333-41027 and 333-41899.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF C.H. ROBINSON WORLDWIDE, INC. AND
SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 99,341
<SECURITIES> 30,730
<RECEIVABLES> 233,433
<ALLOWANCES> 12,412
<INVENTORY> 3,488
<CURRENT-ASSETS> 374,843
<PP&E> 41,285
<DEPRECIATION> 21,801
<TOTAL-ASSETS> 409,116
<CURRENT-LIABILITIES> 239,598
<BONDS> 0
0
0
<COMMON> 4,119
<OTHER-SE> 165,399
<TOTAL-LIABILITY-AND-EQUITY> 409,116
<SALES> 0
<TOTAL-REVENUES> 2,038,139
<CGS> 0
<TOTAL-COSTS> 1,792,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,902
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 71,287
<INCOME-TAX> 28,272
<INCOME-CONTINUING> 43,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,015
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
<PAGE>
Exhibit 99
CAUTIONARY STATEMENT
Forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "PSLRA") are included in our Form 10-K. The
words or phrases "believes," "may," "will," "expects," "should," "continue,"
"anticipates," "intends," "will likely result," "estimates," "projects" or
similar expressions identify forward-looking statements in our Form 10-K and in
our future filings with the Securities and Exchange Commission, in our press
releases, in our presentations to securities analysts or investors, and in oral
statements made by or approved by an executive officer of Robinson.
Forward-looking statements involve risks and uncertainties that may materially
and adversely affect our business, results of operation, financial condition or
prospects, and may cause our actual results to differ materially from historical
results or the results discussed in the forward-looking statements.
You should consider carefully the following cautionary statements if you
own our common stock or are planning to buy our common stock. We intend to take
advantage of the "safe harbor" provisions of the PSLRA by providing this
discussion. We are not undertaking to address or update each factor in future
filings or communications regarding our business or results except to the extent
required by law.
Demand for our services may decrease during an economic recession.
The transportation industry historically has experienced cyclical financial
results as a result of economic recession, the business cycles of customers,
price hikes by carriers, interest rate fluctuations, and other economic factors
beyond our control. Carriers can be expected to charge higher prices to cover
higher operating expenses, and our net revenues and income from operations may
decrease if we are unable to pass through to our customers the full amount of
higher transportation costs. If economic recession or a downturn in our
customers' business cycles causes a reduction in the volume of freight shipped
by those customers, particularly among certain national retailers or in the
food, beverage or printing industries, our operating results could also be
adversely affected.
We depend upon available equipment and services.
We do not own trucks or other transportation equipment, and we depend in
part on independent third parties to provide truck, rail, ocean and air
services. Equipment shortages in the transportation industry have occasionally
occurred, particularly among truckload carriers. If we are unable to secure
sufficient equipment or other transportation services to meet our customers'
needs, our operating results could be materially and adversely affected, and our
customers could switch to our competitors temporarily or permanently.
Our international business raises additional difficulties.
We provide services within and between continents on an increasing basis.
Our business outside of the United States is subject to various risks,
including:
o changing local economic and market conditions,
<PAGE>
o political and economic instability,
o fluctuations in currency exchange rates,
o armed conflicts, and
o unexpected changes in United States and foreign laws relating to
tariffs, trade restrictions, transportation regulations, foreign
investments and taxation.
As we expand our business in foreign countries we will expose the Company
to increased risk of loss from foreign currency fluctuations and exchange
controls as well as longer accounts receivable payment cycles. We have no
control over these risks, and if we do not correctly anticipate changes in
international economic and political conditions, we may not alter our business
practices in time to avoid adverse effects.
Our management and internal systems may be inadequate to handle continued
growth of our business.
Our continued success depends upon our ability to attract and retain a
large group of motivated salespersons and other logistics professionals. If we
cannot recruit and retain a sufficient number of personnel, we may be forced to
limit our growth. We cannot assure you that we will be able to continue to hire
and retain a sufficient number of qualified personnel. Our rapid expansion of
operations has placed added demands on our management and operating systems.
Continued expansion depends in large part on our ability to develop successful
salespersons into managers and to implement enhancements to our information
systems that are adaptable to the changes in our business and the requirements
of our customers.
We face substantial industry competition.
Competition in the transportation services industry is intense and broad
based. We compete against other non-asset based logistics companies as well as
logistics companies that own their own equipment, third-party freight brokers
and carriers offering logistics services. We also compete against carriers'
internal sales forces and shippers' transportation departments. We often buy and
sell transportation services from and to many of our competitors. Historically,
competition has created downward pressure on freight rates, and continued rate
pressure may adversely affect our net revenues and income from operations.
Our earnings may be affected by seasonal changes in the transportation
industry.
Results of operations for our industry generally show a seasonal pattern as
customers reduce shipments during and after the winter holiday season. In recent
years, our operating income and earnings have been higher in the second and
third quarters than in the first and fourth quarters. Although seasonal changes
in the transportation industry have not had a significant impact on our cash
flow or results of operations, we expect this trend to continue and we cannot
assure you that it will not adversely impact us in the future.
Our sourcing business is dependent upon the supply and price of fresh produce.
The supply and price of fresh produce is affected by government food
safety regulation, growing conditions (such as drought, insects and disease),
and other conditions over which we have no control. Shortages or overproduction
of fresh produce affect commodity prices, which are often highly volatile.
<PAGE>
Sourcing and reselling fresh produce exposes us to possible product liability.
Agricultural chemicals used on fresh produce are subject to various
approvals, and the commodities themselves are subject to regulations on
cleanliness and contamination. Product recalls in the produce industry have been
caused by concern about particular chemicals and alleged contamination, often
leading to lawsuits brought by consumers of allegedly affected produce. Because
we sell produce, we may have legal responsibility arising from the sale. While
we are insured for up to $75 million for product liability claims, settlement of
class action claims is often costly, and we cannot assure you that our liability
coverage will be adequate and will continue to be available. If we have to
recall produce, we may be required to bear the cost of repurchasing,
transporting and destroying any allegedly contaminated product, which our
insurance does not cover. Any recall or allegation of contamination could affect
our reputation, particularly of our produce brand: The Fresh 1(R). Loss due to
spoilage (including the need for disposal) is also a routine part of the
sourcing business.
Our business depends upon compliance with numerous government regulations.
We are licensed by the Department of Transportation as a broker authorized
to arrange for the transportation of general commodities by motor vehicle. We
must comply with certain insurance and surety bond requirements to act in this
capacity. We are also licensed by the Federal Maritime Commission as an ocean
freight forwarder, which requires us to maintain a non-vessel operating common
carrier bond. We are also licensed by the United States Customs Service of the
Department of the Treasury. We source fresh produce under a license issued by
the Department of Agriculture. Our failure to comply with the laws and
regulations applicable to entities holding these licenses could materially and
adversely affect our results of operations or financial condition. Legislative
or regulatory changes can affect the economics of the transportation industry by
requiring changes in operating practices or influencing the demand for, and the
cost of providing, transportation services.
We increasingly derive a significant portion of our gross revenues from our
largest clients.
The sudden loss of a number of our major clients could materially and
adversely affect our operating results.
Our change to public company status may have a detrimental effect on our
corporate culture.
Prior to our initial public offering, more than 700 employees owned
substantially all of our outstanding common stock. Consequently, our employees
considered themselves the owners of C.H. Robinson. As a result of our
establishing a public market for the trading of shares of our common stock, a
larger portion of common stock may rest in the hands of the general public, and
our employee stockholders will have significant liquid assets. This change in
structure and liquidity may adversely affect employee motivation. We had also
issued restricted stock as an incentive, and employees owning common stock
before going public profited from the growth in the book value of the common
stock. We have replaced our previous stock program with new stock-based
programs, but we cannot predict whether the new plans will be perceived as being
a less valuable form of compensation. If we find that we must initiate new
incentive programs to improve employee performance in the future, our results of
operations could be adversely affected.
<PAGE>
Our systems and services may be subject to Year 2000 problems.
We have completed an assessment of our compliance with Year 2000 issues and
will modify or replace portions of our hardware and software so that our
computer systems will function properly with respect to dates after December 31,
1999. Although we believe we have internally addressed our risks and have not
discovered any material exposure with any customer, transportation carrier or
produce supplier, we cannot assure you that we will meet our objectives by
December 31, 1999 or that unforeseen circumstances will not arise. We could
experience business interruption in the event our systems would be unable to
process information or would process information incorrectly. Additionally, we
could suffer loss of business if a number of our customers and suppliers, taken
together, would have similar problems. It is impossible to fully assess the
potential consequences in the event there are disruptions in such infrastructure
areas as utilities, communications, transportation, banking and government. Any
such business interruption could have a material and adverse effect on our
results of operations, liquidity, and financial condition depending on the
severity and duration of the interruption. We are developing contingency plans
in the event we are unable to complete remediation efforts or unidentified
problems develop. We expect to have these plans in place by June 30, 1999.
