10 EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
C.H. Robinson Worldwide, Inc. and Subsidiaries
For the years ended December 31, 1999 1998 1997 1997 1996 1995
as adjusted
Statement of Operations Data (In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross revenues $2,261,027 $2,038,139 $1,790,785 $1,790,785 $1,605,905 $1,445,975
Net revenues(1) 293,283 245,666 206,020 206,020 179,069 160,094
Income from operations 83,828 68,443 56,735/(2)/ 32,079 50,029 44,980
Net income from continuing
operations 53,349 43,015 36,148/(2)/ 11,492 32,442 29,455
Net income from continuing
operations per share
(basic and diluted) $ 1.29 $ 1.04 $ .88/(2)/ $ .28 $ .78 $ .67
Weighted average number of shares
outstanding (in thousands)
Basic 41,228 41,216 41,285 41,285 41,799 43,934
Diluted 41,503 41,309 41,302 41,302 41,799 43,934
Dividends and distributions
per share $ .290 $ .250 $ .210/(3)/ $ 2.530 $ .185 $ .130
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data As of December 31 (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital $ 67,158 $ 135,245 $ 109,042 $ 109,042 $ 114,070 $ 97,144
Total assets 522,661 409,116 340,628 340,628 320,780 285,517
Total long-term debt - - - - - -
Stockholders' investment 246,767 169,518 138,981 138,981 154,428 133,339
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Data (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Branches 131 120 119 119 108 99
Employees 3,125 2,205 1,925 1,925 1,665 1,436
Average net revenues per branch $ 2,263 $ 2,082 $ 1,822 $ 1,822 $ 1,717 $ 1,683
- ------------------------------------------------------------------------------------------------------------------------------------
/(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 in October 1997.
/(3)/ Excludes special dividends and distributions related to our initial
public offering in October 1997.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 lower in the first quarter than in the other three
quarters. Seasonality in the transportation industry has not had a significant
impact on our results of operations or our 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.
Results of Operations
The following table summarizes our net revenues by service line:
For the years ended December 31, (Dollars in thousands) 1999 1998 Change 1997 Change
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenues
Transportation $233,848 $189,797 23.2% $159,260 19.2%
Sourcing 42,759 44,229 (3.3) 38,060 16.2
Information services 16,676 11,640 43.3 8,700 33.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total $293,283 $245,666 19.4% $206,020 19.2%
====================================================================================================================================
The following table represents certain statement of operations data shown as
percentages of our net revenues:
1997
For the years ended December 31, 1999 1998 1997 as adjusted /(1)/
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0% 100.0%
Selling, general and administrative expenses 71.4 72.1 72.5 72.5
Public offering charges and expenses -- -- 12.0 --
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 28.6 27.9 15.5 27.5
Investment and other income 1.6 1.1 1.4 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision for income taxes 30.2 29.0 16.9 28.9
Provision for income taxes 12.0 11.5 11.4 11.4
- ------------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 18.2% 17.5% 5.5% 17.5%
====================================================================================================================================
/(1)/ Adjusted to exclude unusual charges and expenses of $24,656 related to our
initial public offering in October 1997.
1999 Compared to 1998
Revenues - Gross revenues for 1999 were $2.26 billion, an increase of 10.9% over
$2.04 billion for 1998. Net revenues for 1999 were $293.3 million, an increase
of 19.4% over $245.7 million for 1998, resulting from an increase in
transportation net revenues of 23.2% to $233.8 million, a decrease in sourcing
net revenues of 3.3% to $42.8 million, and an increase in information services
net revenues of 43.3% to $16.7 million. Our net revenues increased 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 gross
revenues was highest of our three lines, followed by our transportation business
and finally our sourcing business.
The increase in transportation net revenues of 23.2% resulted from internal
growth of approximately 18% and growth from current year acquisitions of
approximately 5%. Revenue per transaction remained relatively consistent from
1998 to 1999. 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 decreased by 3.3% due principally to difficult comparisons
caused by abnormal net revenue growth of 16.2% during 1998. During 1998, adverse
weather conditions in major produce growing areas created temporary
opportunities for us. We continued to expand our sourcing business with large
retailers, but this was offset by a decline in business with produce
wholesalers.
12
The increase in information services net revenues was the result of significant
growth in transaction volume from new and existing customers and growth in
market share due to consolidation of our competitors in the information services
industry.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for 1999 were $209.5 million, an increase of 18.2% over
$177.2 million for 1998. Selling, general and administrative expenses as a
percentage of net revenues were 71.4% and 72.1% in 1999 and 1998. The decrease
in selling, general and administrative expenses as a percentage of net revenues
was due primarily to cost containment efforts in fixed cost areas while growing
net revenues at 19.4%.
Income from Operations - Income from operations was $83.8 million for 1999, an
increase of 22.5% over $68.4 million for 1998. Income from operations as a
percentage of net revenues was 28.6% and 27.9% for 1999 and 1998.
Investment and Other Income - Investment and other income was $4.6 million for
1999, an increase of 63.5% from $2.8 million for 1998. This increase was the
result of the growth in cash and investments throughout the year. In late
December 1999, we used $100 million of our cash and investments to purchase
American Backhaulers, Inc., which we expect will reduce our investment and other
income in 2000.
Provision for Income Taxes - The effective income tax rate was 39.7% for both
1999 and 1998. 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 - Net income was $53.3 million for 1999, an increase of 24.0% over
$43.0 million for 1998. Net income per share increased by 24.0% to $1.29 (basic
and diluted) for 1999 compared to $1.04 (basic and diluted) for 1998.
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 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 increased 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 gross
revenues was highest of our three lines, followed by our transportation business
and finally our sourcing business.
The increase in transportation net revenues resulted primarily from an increase
in transaction volume. Net revenue per transaction on our third-party truck
business also increased slightly in 1998. During the fourth quarter of 1997, a
high demand for trucks in the marketplace increased our cost, reducing our net
13
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 growth from sourcing
produce for our large retail chain customers and temporary opportunities created
by adverse weather conditions in major produce growing areas. In this
challenging market, our branch network and relationships with produce growers
worldwide provided us with sources of produce, growing 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 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 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.
14
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 public offering charges
and expenses.
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 $49.6 million and $99.3 million and
available-for-sale securities totaled $0 and $30.7 million as of December 31,
1999 and 1998. In conjunction with our December 1999 acquisition of all of the
operations and certain assets and liabilities of American Backhaulers, Inc.
(ABH), we used $100.0 million of our cash and cash equivalents on hand. This was
the primary reason our working capital decreased from $135.2 million at December
31, 1998 to $67.2 million at December 31, 1999. In addition, we entered into a
new debt facility to fund our expected short-term cash needs. We have had no
long-term debt for the last five years and have no material commitments for
future capital expenditures. We have not experienced, nor do we 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 our
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.
We generated $51.9 million, $77.6 million and $70.4 million of cash flow from
operations for 1999, 1998 and 1997. This was due to net income generated, offset
by increases in our working capital resulting from our growth. Our net cash
provided by operating activities was higher in 1998 than 1999 due primarily to
the timing of federal income tax payments. We had a $17.3 million income tax
receivable as of December 31, 1997, which was collected in 1998.
We used $88.8 million and $31.6 million of cash flow for investing activities
for 1999 and 1998 and generated $55.3 million of cash flow from investing
activities in 1997. The cash used in 1999 was due to $112.2 million spent for
acquisitions and $9.4 million to fund capital expenditures necessary for
continued growth, offset by $30.5 million generated by sales and maturities of
available-for-sale securities (net of purchases). Comparing 1999 to 1998, the
effects of selling our available-for-sale securities and funding the acquisition
of ABH accounted for a majority of the excess cash used for investing
activities.
We also used $12.7 million, $9.2 million and $105.7 million of cash flow for
financing activities for 1999, 1998 and 1997. This was due primarily to
quarterly cash dividends and distributions and share repurchases for our
employee stock plans. We have declared an $.08 per share dividend payable to
shareholders of record as of March 8, 2000 payable on April 3, 2000. In 1997, we
paid special dividends and distributions of $101.1 million in conjunction with
our initial public offering and the sale of our finance businesses.
Assuming no change in our current business plan, management believes that our
available cash, together with expected future cash generated from operations and
the amounts available under our line of credit, are sufficient to satisfy our
anticipated needs for working capital, capital expenditures and cash dividends
for all future periods. Our board of directors has authorized two stock
repurchase plans, which allow management to repurchase up to a total of
3,000,000 shares of our common stock for reissuance upon the exercise of
employee stock options and other stock plans. Any purchases would be made from
available cash or cash generated from future operations. As of December 31,
1999, we had purchased a total of 223,000 shares. We have $40.0 million
available under an existing line of credit at an interest rate of 6.4%, as of
December 31, 1999. The line of credit expires on December 16, 2002 and does not
restrict the payment of dividends. We were in compliance with all covenants of
the agreement as of December 31, 1999. There were no borrowings during 1999 or
1998.
15
Impact of Year 2000
We have not experienced any material disruptions or other problems with our
internal computer systems related to the Year 2000 issue. In addition, we are
not aware of any material systems interruptions with any customer, produce
supplier or transportation carrier that has had a material impact on our
business as a result of Year 2000. We have no single third-party relationship
that accounts for more than 6% of our business.
Total costs we have incurred for programming, testing, purchase of Year 2000
testing software, and outside consultant costs approximated $600,000. Our costs
to replace noncompliant systems are not included in this amount, as these
replacements were planned to occur and were not accelerated due to Year 2000
requirements.
Market Risk
We had approximately $49.6 million of cash and cash equivalents on December 31,
1999. Substantially all of the cash equivalents are money market 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. We
believe a reasonable near-term change in interest rates would not have a
material impact on our future earnings due to the short-term nature of our
investing practices. 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 market risk discussions, contain forward-looking
statements, including our current assumptions about future financial performance
and our plans for future operations 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.
16
Consolidated Balance Sheets
C.H. Robinson Worldwide, Inc. and Subsidiaries
(In thousands, except per share data)
As of December 31, 1999 1998
Assets
- -------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 49,637 $ 99,341
Available-for-sale securities - 30,730
Receivables, net of allowance for doubtful accounts of $18,280 and $12,412 270,296 221,021
Deferred tax benefit 18,480 12,821
Prepaid expenses and other 2,854 7,442
Inventories 1,785 3,488
- -------------------------------------------------------------------------------------------------------------
Total current assets 343,052 374,843
Property and equipment 51,387 41,285
Accumulated depreciation and amortization (26,640) (21,801)
- -------------------------------------------------------------------------------------------------------------
Net property and equipment 24,747 19,484
Goodwill, net of accumulated amortization of $1,729 and $630 144,625 8,485
Other intangible assets, net of accumulated amortization of $4,396 and $7,946 8,951 4,128
Other assets 1,286 2,176
- -------------------------------------------------------------------------------------------------------------
$ 522,661 $409,116
=============================================================================================================
Liabilities and Stockholders' Investment
- -------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 231,592 $192,908
Accrued expenses -
Compensation and profit-sharing contribution 28,115 27,481
Income taxes and other 16,187 19,209
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 275,894 239,598
- -------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 4 and 8)
Stockholders' investment:
Preferred stock, $.10 par value, 20,000 shares authorized;
no shares issued or outstanding - -
Common stock, $.10 par value, 130,000 shares authorized;
42,386 shares issued, 42,284 and 41,190 outstanding 4,228 4,119
Additional paid-in capital 98,958 62,054
Retained earnings 147,586 106,178
Cumulative other comprehensive loss (1,053) (1,145)
Treasury stock at cost (102 and 75 shares) (2,952) (1,688)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' investment 246,767 169,518
- -------------------------------------------------------------------------------------------------------------
$ 522,661 $ 409,116
=============================================================================================================
The accompanying notes are an integral part of these consolidated balance
sheets.
17
CONSOLIDATED STATEMENTS OF OPERATIONS
C.H. Robinson Worldwide, Inc. and Subsidiaries
(In thousands, except per share data)
For the years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------
Gross revenues $2,261,027 $2,038,139 $1,790,785
Cost of transportation and products 1,967,744 1,792,473 1,584,765
- ------------------------------------------------------------------------------------------
Net revenues 293,283 245,666 206,020
Selling, general and administrative expenses 209,455 177,223 149,285
Public offering charges and expenses (Note 1) - - 24,656
- ------------------------------------------------------------------------------------------
Income from operations 83,828 68,443 32,079
Investment and other income 4,649 2,844 2,927
- ------------------------------------------------------------------------------------------
Income from continuing operations before provision
for income taxes 88,477 71,287 35,006
Provision for income taxes 35,128 28,272 23,514
- ------------------------------------------------------------------------------------------
Net income from continuing operations 53,349 43,015 11,492
- ------------------------------------------------------------------------------------------
Net income from discontinued operations,
net of taxes of $951 in 1997 - - 1,589
Gain on sale of discontinued operations,
net of taxes of $10,440 in 1997 - - 14,506
- ------------------------------------------------------------------------------------------
Net income $ 53,349 $ 43,015 $ 27,587
==========================================================================================
Basic net income per share:
From continuing operations $ 1.29 $ 1.04 $ .28
From discontinued operations - - .39
- ------------------------------------------------------------------------------------------
Basic net income per share $ 1.29 $ 1.04 $ .67
==========================================================================================
Diluted net income per share:
From continuing operations $ 1.29 $ 1.04 $ .28
From discontinued operations - - .39
- ------------------------------------------------------------------------------------------
Diluted net income per share $ 1.29 $ 1.04 $ .67
==========================================================================================
Basic weighted average shares outstanding 41,228 41,216 41,285
Dilutive effect of outstanding stock options 275 93 17
- ------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,503 41,309 41,302
==========================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME
C.H. Robinson Worldwide, Inc. and Subsidiaries
(In thousands, except per share data)
For the years ended December 31, 1999, 1998 and 1997
Cumulative
Common Additional Other Com- Total
Shares Paid-In Retained prehensive Treasury Stockholders'
Outstanding Amount Capital Earnings Loss Stock Investment
- ------------------------------------------------------------------------------------------------------------------------------------
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
Net income - - - 53,349 - - 53,349
Other comprehensive income:
Foreign currency translation adjustment - - - - 92 - 92
----------
Comprehensive income - - - - - - 53,441
==========
Cash dividends, $.29 per share - - - (11,941) - - (11,941)
Sale of common stock 58 6 51 - - 1,472 1,529
Stock issued in acquisition (Note 2) 1,121 112 36,813 - - - 36,925
Tax benefit on deferred compensation plans - - 40 - - - 40
Repurchase of common stock (85) (9) - - - (2,736) (2,745)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 42,284 $ 4,228 $98,958 $ 147,586 $ (1,053) $(2,952) $ 246,767
====================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
C.H. Robinson Worldwide, Inc. and Subsidiaries
(In thousands)
For the years ended December 31 1999 1998 1997
Operating Activities
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 53,349 $ 43,015 $ 27,587
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 10,133 8,521 8,684
Cheap stock charge - - 21,596
Deferred income taxes (4,822) (9,272) 4,842
Gain on sale of discontinued operations, net of tax - - (14,506)
(Gain) loss on sale of assets (178) 141 82
Changes in operating elements, net of effects of acquisitions -
Receivables (35,196) (11,056) (35,808)
Prepaid expenses and other 3,907 (1,379) (3,709)
Inventories 1,703 (374) 2,167
Accounts payable 25,748 20,027 26,413
Accrued compensation and profit-sharing contribution 339 5,275 5,059
Accrued income taxes and other (3,105) 22,750 27,971
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 51,878 77,648 70,378
- ----------------------------------------------------------------------------------------------------------------------
Investing Activities
- ----------------------------------------------------------------------------------------------------------------------
Purchases of property and equipment (9,433) (5,071) (6,305)
Sales of property and equipment 430 1,981 1,446
Cash paid for acquisitions, net of cash acquired (112,216) (6,799) -
Sales of long-term investments 1,300 - 5,536
Sales/maturities of available-for-sale securities 44,172 37,594 113,576
Purchases of available-for-sale securities (13,643) (57,900) (81,293)
Cash provided by discontinued operations - - 24,653
Changes in other assets, net 553 (1,380) (2,321)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (88,837) (31,575) 55,292
- ----------------------------------------------------------------------------------------------------------------------
Financing Activities
- ----------------------------------------------------------------------------------------------------------------------
Sale of common stock 1,529 1,321 103
Repurchase of common stock (2,745) (3,131) (1,443)
Cash dividends and distributions (11,529) (7,419) (104,400)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (12,745) (9,229) (105,740)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (49,704) 36,844 19,930
Cash and cash equivalents, beginning of year 99,341 62,497 42,567
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 49,637 $ 99,341 $ 62,497
======================================================================================================================
Cash paid for income taxes $ 42,348 $ 34,848 $ 9,678
======================================================================================================================
Supplemental disclosure of noncash activities:
Stock issued in acquisition (Note 2) $ 36,925 $ - $ -
======================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C.H. Robinson Worldwide, Inc. and Subsidiaries
1. Summary of Significant Accounting Policies
Basis of Presentation - C.H. Robinson Worldwide, Inc. and its Subsidiaries ("the
Company," "we," "us," or "our") is a global provider of multimodal
transportation services and logistics solutions through a network of 131 branch
offices in 39 states throughout the United States, along with offices in Canada,
Mexico, South America and Europe. 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 6). 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 and
comprehensive income.
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, 1999.
Segment Reporting and Geographic Information - 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 accounting standards for segment reporting. No operational segments
or customer information is required for us. 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):
1999 1998 1997
- -----------------------------------------------------------------------------
Gross revenues
United States $2,144,386 $1,935,191 $1,700,802
Other locations 116,641 102,948 89,983
- -----------------------------------------------------------------------------
$2,261,027 $2,038,139 $1,790,785
=============================================================================
1999 1998
- -----------------------------------------------------------------------------
Long-lived assets
United States $33,882 $23,303
Other locations 1,102 2,485
- -----------------------------------------------------------------------------
$34,984 $25,788
=============================================================================
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.
21
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.
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
estimated lives of the assets of three to 10 years.
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 goodwill and other identifiable
intangible assets. Intangible assets are being amortized over their estimated
economic lives, ranging from three to 40 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. Diluted net income per common 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 - Comprehensive income includes any changes in the equity
of an enterprise from transactions and other events and circumstances from
nonowner 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 and comprehensive income.
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
derivatives' 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, 2000. We do not expect adoption of this standard to
have a material impact on our consolidated financial statements or disclosures
contained herein.
2. Acquisition of American Backhaulers, Inc.
On December 16, 1999, we acquired all of the operations and certain assets and
liabilities of American Backhaulers, Inc. (ABH). ABH was a privately held,
non-asset-based third-party transportation provider, located primarily in
Chicago, Illinois. The purchase price of the assets was $136,925,000, including
$100,000,000 in cash and 1,120,715 newly issued shares of our common stock. We
accounted for the acquisition using the purchase method of accounting, with
assets acquired including primarily goodwill and other identifiable intangible
assets. We are amortizing the goodwill associated with the acquisition over 40
years, and all other intangible assets over periods ranging from three to seven
years. Our results of operations include the operations of ABH from the closing
date through December 31, 1999. Pro forma operating results of the combined
enterprise assuming this transaction had occurred on January 1, 1998 are as
follows for the years ended December 31 (in thousands, except per share data):
1999 1998
- -----------------------------------------------------------
Net revenues
As reported $293,283 $245,666
Pro forma $345,706 $286,185
Income before income taxes
As reported $ 88,477 $ 71,287
Pro forma $ 91,264 $ 67,824
Net income
As reported $ 53,349 $ 43,015
Pro forma $ 55,032 $ 40,898
Basic net income per share
As reported $ 1.29 $ 1.04
Pro forma $ 1.30 $ .97
Diluted net income per share
As reported $ 1.29 $ 1.04
Pro forma $ 1.29 $ .96
- -----------------------------------------------------------
22
3. Marketable Securities
In December 1999, we liquidated our portfolio of marketable securities to fund
the acquisition of ABH. We have historically classified all of our marketable
securities as available-for-sale. 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, 1999 and 1998.
The following is a summary of marketable securities at December 31, 1998 (in
thousands):
- ------------------------------------------------------------------------
U.S. government and government agency obligations $ 1,803
State and local agency obligations 16,641
Corporate bonds 11,183
Other debt securities 999
Equity securities 104
- ------------------------------------------------------------------------
Available-for-sale securities $30,730
========================================================================
The contractual maturities of marketable securities at December 31, 1998 are
stated below (in thousands):
- ------------------------------------------------------------------------
Debt securities:
Due within one year $ 6,763
Due after one year through five years 21,278
Due after five years 2,585
- ------------------------------------------------------------------------
Total debt securities with contractual maturities 30,626
Equity securities 104
- ------------------------------------------------------------------------
$30,730
========================================================================
4. Lines Of Credit
In connection with our acquisition of ABH we have obtained an unsecured line of
credit with two banks which provides for borrowings of up to $40,000,000 and
expires on December 16, 2002. Interest on borrowings under the line is at LIBOR
plus 0.60% (6.43% at December 31, 1999). We cancelled our previous lines of
credit at that time. There were no borrowings under our lines of credit during
1999, 1998 or 1997. Our credit agreement contains certain financial covenants.
We were in compliance with such covenants at December 31, 1999.
5. 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 consist of the following at
December 31 (in thousands):
1999 1998 1997
- ------------------------------------------------------------------
Tax provision:
Federal $33,207 $29,974 $14,688
State 5,649 5,862 3,619
Foreign 1,094 1,708 365
- ------------------------------------------------------------------
39,950 37,544 18,672
Deferred provision (benefit) (4,822) (9,272) 4,842
- ------------------------------------------------------------------
Total provision $35,128 $28,272 $23,514
==================================================================
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:
1999 1998 1997
- ------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 2.7 4.1 3.3
Public offering charges
and expenses - - 27.8
Foreign and other 2.0 .6 1.1
- ------------------------------------------------------------------
39.7% 39.7% 67.2%
==================================================================
Deferred tax assets (liabilities) are comprised of the following at December 31
(in thousands):
1999 1998
- ------------------------------------------------------------------
Deferred income tax assets:
Receivables $ 6,735 $ 5,000
State taxes 3,797 2,423
Accrued expenses 7,092 5,401
Amortization 1,303 3,026
Accrued compensation 1,409 771
Other 1,607 830
Deferred income tax liabilities:
Long-lived assets (2,169) (2,488)
Other (8) (19)
- ------------------------------------------------------------------
Net deferred income tax asset $19,766 $14,944
==================================================================
23
6. 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 year ended December 31, 1997 is as follows (in thousands):
- ----------------------------------------------------------
Revenues $12,996
Expenses 10,456
- ----------------------------------------------------------
Income from discontinued operations $ 2,540
==========================================================
7. 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 is 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 a stock repurchase plan which allows management to
repurchase 1,000,000 common shares for reissuance upon the exercise of employee
stock options and other stock plans. During 1999, the board of directors also
authorized a second stock repurchase plan, allowing for the repurchase of
2,000,000 shares. We purchased approximately 85,000 and 138,000 shares of our
common stock for the treasury at an aggregate cost of $2,745,000 and $3,131,000
in 1999 and 1998 under the initial stock repurchase plan. No shares have been
repurchased under the 1999 stock repurchase plan.
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; 1,035,788 shares were available for stock awards as of December
31, 1999. The contractual lives of all options granted are 10 years.
The following schedule summarizes activity in the plans:
1999 Option 1997 Option
Grant Grant
- --------------------------------------------------------------------------
Outstanding at December 31, 1996 - -
Granted in 1997 at $18/share - 475,667
- --------------------------------------------------------------------------
Outstanding at December 31, 1997 - 475,667
Terminated in 1998 - (43,621)
- --------------------------------------------------------------------------
Outstanding at December 31, 1998 - 432,046
- --------------------------------------------------------------------------
Granted in 1999 at $25.19/share 488,545 -
Terminated in 1999 (24,496) (14,314)
Exercised in 1999 - (1,250)
- --------------------------------------------------------------------------
Outstanding at December 31, 1999 464,049 416,482
Exercisable at December 31, 1998 - -
Exercisable at December 31, 1999 - 112,849
==========================================================================
24
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):
1999 1998
- --------------------------------------------------------------------
Net income As reported $ 53,349 $ 43,015
Adjusted $ 52,540 $ 42,460
====================================================================
Basic and diluted income
per share As reported $ 1.29 $ 1.04
Adjusted $ 1.27 $ 1.03
====================================================================
The adjusted effects to net income presented reflect compensation costs for all
outstanding options which were granted during 1997 and 1999. 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 was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions:
1999 Grant 1997 Grant
- --------------------------------------------------------------------
Risk-free interest rate 5.10% 5.72%
Expected dividend yield 1.00% 1.00%
Expected volatility factor 30.00% 25.00%
Expected option term 7 years 7 years
Fair value per option $ 9.31 $ 6.09
- --------------------------------------------------------------------
8. Commitments and Contingencies
Employee Benefit Plans - We participate in a defined contribution profit-sharing
and 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. We can also
elect to make matching contributions to the plan at the discretion of our board
of directors. We contributed a 3% match in 1999. There were no Company matching
contributions during 1998 or 1997. Profit-sharing plan expense, including
matching contributions, was approximately $5,928,000 in 1999, $4,560,000 in
1998, and $4,030,000 in 1997.
Lease Commitments - We lease certain facilities, equipment and automobiles under
operating leases. Lease expense was $16,072,000 for 1999, $14,376,000 for 1998
and $13,356,000 for 1997.
Minimum future lease commitments under noncancelable lease agreements in excess
of one year as of December 31, 1999 are as follows (in thousands):
- -------------------------------------------------------------------
2000 $10,277
2001 8,516
2002 6,053
2003 3,271
2004 2,018
Thereafter 83
- -------------------------------------------------------------------
$30,218
===================================================================
Litigation - We are currently not 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.
25
9. Supplementary Data (Unaudited)
Our results of operations for each of the quarters in the years ended December
31, 1999 and 1998 are summarized below (in thousands, except per share data).
Quarters Ended
1999 March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------
Gross revenues $509,275 $579,423 $593,354 $578,975
Cost of transportation and products 442,256 506,027 518,351 501,110
- --------------------------------------------------------------------------------------------------------------
Net revenues 67,019 73,396 75,003 77,865
Income from operations 16,911 22,060 22,193 22,664
- --------------------------------------------------------------------------------------------------------------
Net income $ 10,772 $ 13,982 $ 14,042 $ 14,553
==============================================================================================================
Basic and diluted net income per share $ .26 $ .34 $ .34 $ .35
==============================================================================================================
Basic weighted average shares outstanding 41,186 41,195 41,181 41,351
Dilutive effect of outstanding stock options 157 283 331 327
- --------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,343 41,478 41,512 41,678
==============================================================================================================
Quarters Ended
1998 March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------------------
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
==============================================================================================================
26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
C.H. Robinson Worldwide, Inc. and Subsidiaries
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,
1999 and 1998, and the related consolidated statements of operations,
stockholders' investment and comprehensive income and cash flows for each of the
three years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 28, 2000
27
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
accounting principles generally accepted in the United States 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/ John P. Wiehoff
John P. Wiehoff
President
/s/ Chad M. Lindbloom
Chad M. Lindbloom
Vice President and Chief Financial Officer