EXHIBIT 13
Selected Consolidated Financial and Operating Data
(Dollars in thousands, except per share amounts) 1997
For the years ended December 31, 1993 1994 1995 1996 1997 as adjusted
- - -------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
Gross revenues $1,095,815 $1,257,946 $1,445,975 $1,605,905 $1,790,785 $ 1,790,785
Net revenues/1/ 108,713 135,599 160,094 179,069 206,020 206,020
Income from operations 27,683 40,511 44,980 50,029 32,079 56,735/2/
Net income from continuing operations 17,844 24,141 29,455 32,442 11,492 36,148/2/
Net income from continuing operations
per share $ .36 $ .52 $ .67 $ .78 $ .28 $ .88/2/
Weighted average number of shares
outstanding (in thousands) 48,980 46,296 43,934 41,799 41,285 41,285
Dividends and distributions per share $ .087 $ .108 $ .130 $ .185 $ 2.530 $ .210/3/
- - -------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (at end of period):
Working capital $ 64,600 $ 86,122 $ 97,144 $ 114,070 $ 109,042 $ 109,042
Total assets 202,282 246,528 285,517 320,780 340,628 340,628
Total long-term debt - - - - - -
Stockholders' investment 95,899 112,784 133,339 154,428 138,981 138,981
- - -------------------------------------------------------------------------------------------------------------------------
Operating Data (at end of period):
Branches 81 89 99 108 119 119
Employees 1,183 1,403 1,436 1,665 1,925 1,925
Average net revenues per branch $ 1,392 $ 1,597 $ 1,683 $ 1,717 $ 1,822 $ 1,822
- - -------------------------------------------------------------------------------------------------------------------------
/1/ Net revenues are determined by deducting cost of transportation and
products from gross revenues. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
/2/ Excludes unusual charges and expenses of $24,656 related to the Company's
initial public offering.
/3/ Excludes special dividends and distributions related to the Company's
initial public offering.
16
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Gross revenues represent the total amount of services and goods sold by the
Company to its customers. Costs of transportation and products include direct
costs of transportation contracted by the Company, including motor carrier,
intermodal, ocean, air, and other costs, and the purchase price of products
sourced by the Company. The Company acts principally as a service provider to
add value and expertise in the execution and procurement of these services for
its customers. The net revenues of the Company (gross revenues less cost of
transportation and products) are the primary indicator of the Company's ability
to source, add value and resell services and products that are provided by third
parties, and are considered by management to be the primary measurement of
growth for the Company. Accordingly, the discussion of results of operations
below focuses on the changes in the Company's net revenues.
In the transportation industry, results of operations generally show a seasonal
pattern as customers reduce shipments during and after the winter holiday
season. In recent years, the Company's operating income and earnings from
continuing operations have been higher in the second and third quarters than in
the first and fourth quarters. Although seasonality in the transportation
industry has not had a significant impact on the Company's cash flow or results
of operations in recent years, the Company cannot fully predict the impact it
may have in the future. Inflation has not materially affected the Company's
operations due to the short-term, transactional basis of its business.
Results of Operations
The following table summarizes net revenues by service line:
For the years ended December 31, 1995 1996 change 1997 change
- - ---------------------------------------------------------------------------------
Net revenues (in thousands)
Transportation $117,021 $133,246 13.9% $159,260 19.5%
Sourcing 38,207 39,252 2.7 38,060 (3.0)
Information services 4,866 6,571 35.0 8,700 32.4
- - ---------------------------------------------------------------------------------
Total $160,094 $179,069 11.9 $206,020 15.1
=================================================================================
The following table represents certain statement of operations data shown as
percentages of the Company's net revenues:
1997
For the years ended December 31, 1995 1996 1997 as adjusted/1/
- - --------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0% 100.0%
Selling, general and administrative expenses 71.9 72.1 72.5 72.5
Public offering charges and expenses - - 12.0 -
- - --------------------------------------------------------------------------------------------------
Income from operations 28.1 27.9 15.5 27.5
Investment and other income 1.8 1.7 1.4 1.4
- - --------------------------------------------------------------------------------------------------
Income from continuing operations
before provision for income taxes 29.9 29.6 16.9 28.9
Provision for income taxes 11.5 11.5 11.4 11.4
- - --------------------------------------------------------------------------------------------------
Net income from continuing operations 18.4% 18.1% 5.5% 17.5%
==================================================================================================
/1/ Adjusted to exclude public offering charges and expenses.
17
1997 Compared to 1996
Revenues - Gross revenues for 1997 were $1.8 billion, an increase of 11.5% over
gross revenues of $1.6 billion for 1996. Net revenues for 1997 were $206.0
million, an increase of 15.1% over net revenues of $179.1 million for 1996,
resulting from an increase in transportation services net revenues of 19.5% to
$159.3 million, a decrease in sourcing net revenues of 3.0% to $38.1 million,
and an increase in information services net revenues of 32.4% to $8.7 million.
The increase in transportation net revenues resulted from an increase in
transaction volume offset by a slight decline in the net revenue per
transaction. The increase in transaction volume was driven by significant
expansion of business with current customers and from new domestic and
international customers. The decrease in net revenue per transaction was due
primarily to a high demand for trucks in the marketplace during the fourth
quarter of 1997, which increased the cost of these transportation services.
Sourcing net revenues decreased by 3.0% due to a reduction in net revenue from
the Company's ingredient divisions, a decline in net revenues from sales to
produce wholesalers, and the elimination in December 1996 of a program to source
and distribute various seafood and other products. These reductions were
partially offset by net revenue growth from sourcing produce for the Company's
large retail chain customers, and by various expansions of warehouse sourcing
services.
The increase in information services net revenues was the result of significant
growth in transaction volume. Net revenue per transaction decreased slightly due
to the increase in less expensive electronic transactions that have been growing
faster than manual transactions.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for 1997 were $149.3 million, an increase of 15.7% over
$129.0 million for 1996. Selling, general and administrative expenses as a
percent of net revenues were 72.5% and 72.1% in 1997 and 1996, respectively.
These increases were primarily due to increased personnel and warehouse costs
associated with the Company's growth.
Public Offering Charges and Expenses - During the fourth quarter of 1997, the
Company recorded charges and expenses of $24.7 million for unusual items related
to the Company's initial public offering. This amount includes a non-recurring,
non-cash charge of $21.6 million to conform with Securities and Exchange
Commission requirements to account for stock issued to employees and for
outstanding stock purchased by certain employees from retiring employees at
prices below the initial public offering price of $18 under the Company's
previous book value plans during the 12 months preceding the Company's initial
public offering ("cheap stock"). These book value plans were terminated and have
been replaced by stock-based incentive plans more typical of a publicly held
company including a stock incentive plan and an employee stock purchase program.
Income from Operations - Income from operations, excluding the nonrecurring
public offering charges and expenses, was $56.7 million for 1997, an increase of
13.4% over $50.0 million for 1996. Income from operations, excluding the public
offering charges and expenses, as a percent of net revenues was 27.5% and 27.9%
for 1997 and 1996, respectively. Income from operations, including the public
offering charges and expenses, was $32.1 million for the year ended December 31,
1997, a decrease of 35.9%.
Investment and Other Income - Investment and other income was $2.9 million for
1997, a decrease of 5.4% from $3.1 million for 1996. This decrease was the
result of a special dividend paid on October 10, 1997, which lowered the amount
of cash available for investment.
Provision for Income Taxes - The majority of the $24.7 million in public
offering charges and expenses is not deductible for income tax purposes.
Excluding these charges and expenses, the effective income tax rates for
continuing operations were 39.4% and 38.9% for 1997 and 1996, respectively. The
effective income tax rate for both periods is greater than the statutory federal
income tax rate primarily due to state income taxes, net of federal benefit.
Net Income from Continuing Operations - Net income from continuing operations,
excluding the public offering charges and expenses, was $36.1 million for 1997,
an increase of 11.4% over $32.4 million for 1996. Net income from continuing
operations per share, excluding the public offering charges and expenses,
increased by 12.8% to $.88 per share (basic and diluted) for 1997 compared to
$.78 per share (basic and diluted) for 1996, primarily due to an increase in net
income and partly as a result of a decrease in shares outstanding due to the
Company's share repurchases. Net income from continuing operations for 1997,
including the public offering charges and expenses, was $11.5 million, a
decrease of 64.6%, or $.28 per share (basic and diluted), a decrease of 64.1%.
1996 Compared to 1995
Revenues - Gross revenues for 1996 were $1.6 billion, an 11.1% increase over
gross revenues of $1.4 billion for 1995. Net revenues for 1996 were $179.1
million, an 11.9% increase over net
18
revenues of $160.1 million for 1995. Transportation net revenues were $133.2
million, an increase of 13.9% over net revenues in 1995 of $117.0 million.
Sourcing net revenues were $39.3 million, an increase of 2.7% over net revenues
in 1995 of $38.2 million. Information services net revenues were $6.6 million,
an increase of 35.0% over net revenues in 1995 of $4.9 million.
The transportation net revenue increase resulted primarily from an increase in
the number of transactions. The volume increase came from both existing
customers (particularly large accounts) and new customers. This volume increase
was offset by a slight reduction in average net revenue per transaction. Net
revenues per transaction in 1995 had been unusually high due to excess motor
carrier capacity resulting in lower costs of purchased transportation.
The increase in net revenues from sourcing primarily resulted from an increase
in the number of transactions, partially offset by a decline in net revenues per
transaction. Net revenues per transaction were adversely affected by a write-off
of approximately $1.0 million in connection with the elimination of a sourcing
and distribution program for seafood and other products that had been initiated
in early 1996.
Information service net revenues increased primarily due to a large increase in
transaction volume for all services. An increasingly higher percentage of lower-
priced electronic transactions resulted in a decrease in net revenues per
transaction.
Selling, General and Administrative Expenses -- Selling, general and
administrative expenses were $129.0 million for 1996, an increase of 12.1% over
1995. Selling, general and administrative expenses as a percent of net revenues
were 72.1% and 71.9% for 1996 and 1995, respectively. These increases were due
primarily to higher personnel costs from additional staffing and new warehouse
expenses to support the Company's growth.
Income from Operations -- Income from operations was $50.0 million for 1996, an
increase of 11.2% over $45.0 million for 1995. Income from operations as a
percent of net revenues was 27.9% and 28.1% for 1996 and 1995, respectively.
Investment and Other Income -- Investment and other income was $3.1 million for
1996, an increase of 5.8% over 1995, as the average amount of funds available
for short-term investment increased in 1996.
Provision for Income Taxes -- The effective income tax rates for continuing
operations were 38.9% in 1996 and 38.5% in 1995. The effective income tax rate
for 1996 and the effective income tax rate for 1995 are higher than the
statutory federal income tax rate primarily due to state income taxes, net of
the federal benefit.
Net Income from Continuing Operations -- Net income from continuing operations
for 1996 was $32.4 million, an increase of 10.1% from $29.5 million in 1995. Net
income from continuing operations per share for 1996 was $.78 per share (basic
and diluted) versus $.67 per share (basic and diluted) for 1995.
Liquidity and Capital Resources
The Company has historically generated substantial cash from operations which
has enabled it to fund its growth while paying cash dividends and repurchasing
stock. Cash and cash equivalents totaled $62.5 million and available-for-sale
securities totaled $10.4 million as of December 31, 1997. Working capital at
December 31, 1997 totaled $109.0 million. The Company has had no long-term debt
for the last five years.
During the fourth quarter of 1997, several transactions occurred related to the
initial public offering including the sale of the Company's financial services
business. On October 10, 1997, the Company paid a special cash dividend of $1.50
per share ($61.9 million in total). The Company removed restrictions on October
13, 1997 on shares previously awarded to employees which generated a $40.5
million tax benefit. On October 14, 1997 the Company sold its financial services
business for $40.3 million. The Company declared and paid a liquidating
distribution to stockholders of record on October 14, 1997 of $39.2 million
($.95 per share), the net proceeds resulting from this sale. Management does not
anticipate any significant effects on the Company's operations as a result of
these nonrecurring transactions. The Company has declared a $.06 per share
dividend payable to stockholders of record as of March 12, 1998, payable on
April 1, 1998.
Management believes that the Company's available cash, together with expected
future cash generated from operations, is expected to be sufficient to satisfy
its anticipated needs for working capital, capital expenditures, cash dividends
and stock repurchases. In addition, the Company has $17.5 million available
under its two existing lines of credit at interest rates of 6.7% each as of
December 31, 1997. The lines of credit do not restrict the payment of dividends.
There were no borrowings under these lines of credit during 1995, 1996 and 1997.
The Company continues to assess what impact the year 2000 will have on
its current information systems. A plan is under way to complete the necessary
programming using primarily internal resources. The cost of this programming is
expected to be immaterial to the Company's overall financial position and is
being expensed as incurred.
19
Consolidated Balance Sheets
(In thousands, except per share data)
December 31, 1997 1996
- - ----------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 62,497 $ 42,567
Available-for-sale securities 10,428 42,711
Receivables, net of allowance for doubtful accounts of $8,936 and $10,079 206,743 170,935
Inventories 3,109 5,276
Deferred tax benefit 4,781 6,698
Prepaid expenses and other 5,797 2,088
Income taxes receivable 17,334 -
Net assets of discontinued operations (Note 5) - 10,147
- - ----------------------------------------------------------------------------------------------------
Total current assets 310,689 280,422
Property and equipment:
Land, building and improvements 1,500 2,773
Furniture, fixtures and equipment 39,363 33,835
Accumulated depreciation and amortization (18,637) (13,561)
- - ----------------------------------------------------------------------------------------------------
Net property and equipment 22,226 23,047
Intangible assets, net of accumulated amortization of $13,400 and $10,331 6,674 7,811
Other assets 1,039 9,500
- - ----------------------------------------------------------------------------------------------------
$340,628 $320,780
====================================================================================================
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable $166,789 $140,376
Accrued expenses -
Compensation and profit-sharing contribution 22,107 17,991
Income taxes and other 12,751 7,985
- - ----------------------------------------------------------------------------------------------------
Total current liabilities 201,647 166,352
- - ----------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 3 and 7)
Stockholders' investment:
Preferred Stock, $.10 par value, 20,000 shares authorized;
no shares outstanding - -
Common Stock, $.10 par value, 130,000 shares authorized;
41,265 and 41,375 shares issued and outstanding 4,126 4,137
Additional paid-in capital 62,108 -
Retained earnings 73,465 150,637
Foreign currency translation adjustment (718) (346)
- - ----------------------------------------------------------------------------------------------------
Total stockholders' investment 138,981 154,428
- - ----------------------------------------------------------------------------------------------------
$340,628 $320,780
====================================================================================================
The accompanying notes are an integral part of these consolidated balance
sheets.
20
Consolidated Statements of Operations
(In thousands, except per share data)
For the years ended December 31, 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------
Gross revenues $1,790,785 $1,605,905 $1,445,975
Cost of transportation and products 1,584,765 1,426,836 1,285,881
- - -----------------------------------------------------------------------------------------------------------------------------
Net revenues 206,020 179,069 160,094
Selling, general and administrative expenses 149,285 129,040 115,114
Public offering charges and expenses (Note 1) 24,656 - -
- - -----------------------------------------------------------------------------------------------------------------------------
Income from operations 32,079 50,029 44,980
Investment and other income 2,927 3,095 2,925
- - -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision for income taxes 35,006 53,124 47,905
Provision for income taxes 23,514 20,682 18,450
- - -----------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 11,492 32,442 29,455
- - -----------------------------------------------------------------------------------------------------------------------------
Net income from discontinued operations,
net of taxes of $951, $1,474 and $1,395 1,589 2,158 2,086
Gain on sale of discontinued operations, net of taxes of $10,440 14,506 - -
- - -----------------------------------------------------------------------------------------------------------------------------
Net income $ 27,587 $ 34,600 $ 31,541
=============================================================================================================================
Basic net income per share:
From continuing operations $ .28 $ .78 $ .67
From discontinued operations .39 .05 .05
- - -----------------------------------------------------------------------------------------------------------------------------
Basic net income per share $ .67 $ .83 $ .72
=============================================================================================================================
Dilutive net income per share:
From continuing operations $ .28 $ .78 $ .67
From discontinued operations .39 .05 .05
- - -----------------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ .67 $ .83 $ .72
=============================================================================================================================
Basic weighted average shares outstanding 41,285 41,799 43,934
Dilutive effect of outstanding stock options 17 - -
- - -----------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,302 41,799 43,934
=============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
21
Consolidated Statements of Stockholders' Investment
(In thousands, except per share data)
For the years ended December 31, 1997, 1996 and 1995
- - -------------------------------------------------------------------------------------------------------------------
Foreign
Common Additional Currency Total
Shares Paid-in Retained Translation Stockholders'
Outstanding Amount Capital Earnings Adjustment Investment
- - -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 45,690 $4,568 $ 5,870 $ 102,703 $(357) $ 112,784
Net income - - - 31,541 - 31,541
Foreign currency translation
adjustment - - - - 52 52
Cash dividends, $.13 per share - - - (5,644) - (5,644)
Incentive shares of common
stock issued, net 878 88 2,387 - - 2,475
Repurchase of common stock (3,161) (316) (7,553) - - (7,869)
- - -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 43,407 4,340 704 128,600 (305) 133,339
Net income - - - 34,600 - 34,600
Foreign currency translation
adjustment - - - - (41) (41)
Cash dividends, $.185 per share - - - (7,655) - (7,655)
Incentive shares of common
stock issued, net 200 20 1,031 - - 1,051
Repurchase of common stock (2,232) (223) (1,735) (4,908) - (6,866)
- - -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 41,375 4,137 - 150,637 (346) 154,428
Net income - - - 27,587 - 27,587
Foreign currency translation
adjustment - - - - (372) (372)
Cash dividends and distributions,
$2.53 per share - - - (104,400) - (104,400)
Incentive shares of common
stock issued, net 239 24 919 - - 943
Sale of common stock 25 3 100 - - 103
Cheap stock charge (Note 1) - - 21,596 - - 21,596
Tax benefit on vesting of stock awards - - 40,539 - - 40,539
Repurchase of common stock (374) (38) (1,046) (359) - (1,443)
- - -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 41,265 $4,126 $62,108 $ 73,465 $(718) $ 138,981
===================================================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
22
Consolidated Statements of Cash Flows
(In thousands)
For the years ended December 31, 1997 1996 1995
- - --------------------------------------------------------------------------------------------
Operating Activities
Net income $ 27,587 $ 34,600 $ 31,541
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 8,684 7,604 5,998
Cheap stock charge and incentive stock expense 21,596 943 1,051
Deferred income taxes 4,842 (2,464) (2,293)
Gain on sale of discontinued operations, net of tax (14,506) - -
Loss (gain) on sale of assets 82 10 (190)
Changes in operating elements -
Receivables (35,808) (22,019) (13,175)
Inventories 2,167 2,050 (3,925)
Prepaid expenses and other (3,709) 344 (648)
Accounts payable 26,413 14,482 15,729
Accrued compensation and profit sharing 5,059 159 1,007
Accrued income taxes and other 27,971 (359) 3,121
- - --------------------------------------------------------------------------------------------
Net cash provided by operating activities 70,378 35,350 38,216
- - --------------------------------------------------------------------------------------------
Investing Activities
Purchases of property and equipment (6,305) (4,784) (14,448)
Sales of property and equipment 1,446 80 2,486
Cash paid for acquisitions, net - - (2,908)
Sales of long-term investments 5,536 115 508
Purchases of long-term investments - (5,267) (33)
Sales/maturities of available-for-sale securities 113,576 33,719 17,971
Purchases of available-for-sale securities (81,293) (39,318) (35,827)
Cash provided by (used for) discontinued operations 24,653 3,707 (2,600)
Changes in other assets, net (2,321) (966) (692)
- - --------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 55,292 (12,714) (35,543)
- - --------------------------------------------------------------------------------------------
Financing Activities
Sale of common stock 103 - -
Repurchase of common stock (1,443) (6,866) (7,869)
Cash dividends and distributions (104,400) (7,655) (5,644)
- - --------------------------------------------------------------------------------------------
Net cash used for financing activities (105,740) (14,521) (13,513)
- - --------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 19,930 8,115 (10,840)
Cash and cash equivalents, beginning of year 42,567 34,452 45,292
- - --------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 62,497 $ 42,567 $ 34,452
============================================================================================
Cash paid for income taxes $ 9,678 $ 22,662 $ 21,525
============================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
23
Notes to Consolidated Financial Statements
(Including data applicable to unaudited periods.)
C.H. Robinson Worldwide, Inc. and Subsidiaries
1. Summary Of Significant Accounting Policies
Basis of Presentation--C.H. Robinson Worldwide, Inc. and Subsidiaries (the
Company) is a global provider of multimodal transportation services and
logistics solutions through a network of 119 branch offices in 38 states
throughout the United States, along with offices in Canada, Mexico, Belgium, the
United Kingdom, France, Italy, Poland, Singapore, Brazil and South Africa. The
consolidated financial statements include the accounts of C.H. Robinson
Worldwide, Inc. and its majority owned and controlled subsidiaries. All
significant intercompany transactions and balances have been eliminated in the
consolidated financial statements.
Initial Public Offering--On October 15, 1997, the Company completed an initial
public offering (the Offering) of 10,578,396 shares of its common stock which
were previously held by its employees. Pursuant to Securities and Exchange
Commission rules related to stock issued or sold to employees at prices below
the initial public offering price for the 12 months preceding the date that the
initial offering becomes effective ("cheap stock"), the Company recorded a
$21,596,000 charge to expense at the effective date of the Offering. This charge
relates to approximately 1,519,000 shares previously sold to employees or issued
under incentive plans no longer in effect and represents the difference between
the book value of shares sold and issued to employees and the offering price per
share.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
Revenue Recognition--Gross revenues consist of the total amount of goods and
services purchased by customers. The Company acts principally as the service
provider for these transactions and recognizes revenue as these services are
rendered and goods are delivered.
Foreign Currency--All balance sheet accounts of foreign subsidiaries are
translated at the current exchange rate as of the end of the year. Statement of
operations items are translated at average exchange rates during the year. The
resulting translation adjustment is recorded as a separate component of
stockholders' investment.
The Company provides products and services to numerous international customers.
At times, the Company enters into forward contracts to hedge against foreign
currency exposure related to these transactions. Upon settlement, resultant
gains or losses on such contracts offset the impact of foreign currency rates on
cash collected from accounts receivable. There are no open contracts at December
31, 1997.
Cash and Cash Equivalents--Cash and cash equivalents consist primarily of highly
liquid investments with an original maturity of three months or less. The
carrying amount approximates fair value due to the short maturity of the
instruments.
Available-For-Sale Securities--Available-for-sale securities consist of various
debt and equity securities. The fair value of the Company's available-for-sale
securities equals the quoted market price where available or quoted market
prices for similar securities, if a quoted market price is not available.
Inventories--Inventories consist primarily of produce, fruit concentrates and
related products held for resale and are stated at the lower of cost or market.
Property and Equipment--Property and equipment additions are recorded at cost.
Maintenance and repair expenditures are charged to expense as incurred.
Depreciation is computed using straight-line and accelerated methods over the
following estimated lives of the assets:
Years
- - -------------------------------------------
Building and improvements 3 - 37
Furniture, fixtures and equipment 5 - 10
Amortization of leasehold improvements is computed over the shorter of the lease
term or the estimated useful lives of the improvements.
24
Intangible Assets--Intangible assets consist of customer lists, trade names,
contracts, noncompete agreements, software and goodwill. Intangible assets are
being amortized over their estimated economic lives, ranging from three to 20
years. The Company periodically evaluates whether events and circumstances have
occurred that indicate the remaining balance of intangible assets may not be
recoverable.
Income Per Share--The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128).
SFAS No. 128 establishes accounting standards for computing and presenting
earnings per share. Basic earnings per common share are computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the period. No dilution for potentially dilutive securities is included.
Diluted earnings per share are computed under the treasury stock method and are
calculated to compute the dilutive effect of outstanding options, warrants and
other securities. The adoption had no effect on previously reported income per
share.
Recently Issued Accounting Pronouncements--The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) in June 1997. SFAS No. 130 requires the
disclosure of other comprehensive income in the Company's financial statements
and is effective for reporting periods beginning after December 15, 1997. The
adoption of SFAS No. 130 is not expected to have a material impact on the
Company's financial statements or the disclosures contained therein.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131) in June 1997. SFAS No. 131 establishes
accounting standards for segment reporting and is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 131 is not expected
to affect the Company's financial statements or the disclosures contained
therein.
2. Marketable Securities
The Company has classified all of its marketable securities as available-for-
sale as of December 31, 1997 and 1996. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses reported net of tax as a
separate component of stockholders' investment when material. The unrealized
gains and losses are immaterial as the fair value approximates amortized cost.
The gross realized gains and losses on sales of available-for-sale securities
were not material for the years ended December 31, 1997, 1996 and 1995.
The following is a summary of marketable securities at December 31 (in
thousands):
1997 1998
- - --------------------------------------------------------
U.S. government and government
agency obligations $ 767 $ 1,033
State and local agency obligations 2,686 27,373
Corporate bonds 53,992 40,858
Other debt securities 742 700
Equity securities 97 87
- - --------------------------------------------------------
Total 58,284 70,051
Less--Cash equivalents (47,856) (27,340)
- - --------------------------------------------------------
Available-for-sale securities $ 10,428 $ 42,711
========================================================
The fair value of marketable securities by contractual maturity at December 31
are stated below (in thousands):
1997 1996
- - -----------------------------------------------------------
Debt securities:
Due within one year $ 933 $20,596
Due after one year through five years 4,465 8,506
Due after five years 4,933 13,522
- - -----------------------------------------------------------
$10,331 $42,624
===========================================================
25
3. Lines of Credit
The Company has two unsecured lines of credit with banks which provide for
borrowings of up to $17,500,000 and expire on May 1, 1998. Interest on
borrowings under these lines is at 1 percent above the banks' cost of funds
(6.7% as of December 31, 1997). There were no borrowings under the lines of
credit during 1997, 1996 or 1995.
The Company's credit agreements contain certain financial covenants. The Company
was in compliance with such covenants at December 31, 1997.
4. Income Taxes
The Company and its 80% (or more) owned U.S. subsidiaries file a consolidated
federal income tax return. The Company files unitary or separate state returns
based on state filing requirements.
The components of the provision for income taxes consisted of the
following at December 31 (in thousands):
1997 1996 1995
- - ----------------------------------------------------------------------
Current provision:
Federal $14,688 $19,060 $17,367
State 3,619 3,423 2,956
Foreign 365 663 420
......................................................................
18,672 23,146 20,743
Deferred provision/
(benefit) 4,842 (2,464) (2,293)
......................................................................
Total provision $23,514 $20,682 $18,450
======================================================================
A reconciliation from the provision for income taxes using the statutory federal
income tax rate to the Company's effective income tax rate at December 31 is as
follows:
1997 1996 1995
- - ----------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net
of federal benefit 3.3 3.9 3.8
Public offering charges
and expenses 27.8 - -
Foreign and other 1.1 - (0.3)
......................................................................
67.2% 38.9% 38.5%
======================================================================
Deferred tax assets (liabilities) are comprised of the following at December 31
(in thousands):
1997 1996
- - -------------------------------------------------------
Deferred income tax assets:
Allowance for
doubtful accounts $ 4,035 $ 5,305
Accrued expenses 703 1,353
Amortization 2,468 1,518
Accrued compensation 59 3,581
Other 830 1,092
Deferred income tax liabilities:
Long-lived assets (2,406) (2,279)
Other (17) (56)
.......................................................
Net deferred income tax asset $ 5,672 $10,514
=======================================================
5. Discontinued Operations
On October 14, 1997, the Company sold its finance businesses. As a result, the
Company recorded a gain on the sale of $14,506,000, net of income taxes. These
operations are reported as discontinued operations in the accompanying
consolidated financial statements. Summary condensed financial information for
the discontinued segment for the years ended and as of December 31 are as
follows (in thousands):
1997 1996 1995
- - ----------------------------------------------------------------------
Revenues $12,996 $12,870 $12,117
Expenses 10,456 9,238 8,636
......................................................................
Income from discontinued
operations $ 2,540 $ 3,632 $ 3,481
======================================================================
1996
- - ----------------------------------------------------------------------
Cash and investments $ 6,885
Finance receivables 46,213
Other assets 2,650
......................................................................
Total assets $55,748
Thrift deposits $33,457
Long-term debt 7,635
Accounts payable and accrued expenses 4,509
......................................................................
Total liabilities $45,601
......................................................................
Net assets of discontinued operations $10,147
======================================================================
26
6. Capital Stock and Stock Award Plans
Preferred Stock - The Company's Certificate of Incorporation (Certificate)
authorizes the issuance of 20,000,000 shares of Preferred Stock, par value $.10
per share, none of which is outstanding. The Preferred Stock may be issued by
resolution of the Company's board of directors from time to time without any
action of the stockholders. The Preferred Stock may be issued in one or more
series and the board of directors may fix the designation and relative powers,
including voting powers, preferences, rights, qualifications, limitations and
restrictions of each series, so authorized. The Company has no present intention
to issue shares of any series of Preferred Stock.
Common Stock - The Certificate authorizes 130,000,000 shares of Common Stock,
par value $.10 per share. Subject to the prior rights of any series of Preferred
Stock which may from time to time be authorized and outstanding, holders of
Common Stock are entitled to receive dividends out of funds legally available
therefore when, and if declared by the board of directors and to receive pro
rata the net assets of the Company legally available for distribution upon
liquidation or dissolution.
Holders of Common Stock are entitled to one vote for each share of Common Stock
held on each matter to be voted on by the holders of Common Stock, including the
election of directors. All outstanding shares of Common Stock are fully paid and
nonassessable.
Stock Award Plans - The Company maintains an Omnibus Stock Plan to grant certain
stock awards, including stock options and restricted shares, to key employees of
the Company. A maximum of 2,000,000 shares can be granted under this plan;
1,524,333 shares were available for future stock awards as of December 31, 1997.
The following schedule summarizes activity in the plans:
Stock Grant Contractual
Options Price Lives
- - --------------------------------------------------------------------------------
Outstanding at
Dec. 31, 1996 - - -
Granted in 1997 475,667 $18.00 10 years
- - --------------------------------------------------------------------------------
Outstanding at
Dec. 31, 1997 475,667 $18.00 10 years
================================================================================
Exercisable at
Dec. 31, 1997 - - -
================================================================================
During 1996, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123) which encourages,
but does not require, a fair value based method of accounting for employee stock
options of similar equity instruments. As permitted under SFAS No. 123, the
Company has continued to account for employee stock options using the intrinsic
value method outlined in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, no compensation expense has been
recognized by the Company for its stock options. Had compensation expense for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates consistent with the method of SFAS No. 123, the
Company's net income and income per share for the year ended December 31, 1997
would have been as follows (in thousands, except per share amounts):
- - --------------------------------------------------------------------------------
Net income As reported $27,587
Adjusted $26,978
================================================================================
Basic and diluted income per share As reported $ .67
Adjusted $ .65
================================================================================
The adjusted effects to net income presented reflect compensation costs for all
outstanding options which were granted in 1997. The compensation cost is being
reflected over the options' vesting period of five years. Therefore, the full
impact of calculating compensation costs of options granted during 1997 under
SFAS No. 123 is not reflected.
The fair value per option at the date of grant for options granted in 1997 was
$6.09. The fair value was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions for 1997:
Risk-free interest rate 5.72%
- - -------------------------------------------------------------------------------
Expected dividend yield 1.00%
- - -------------------------------------------------------------------------------
Expected volatility factor 25.00%
- - -------------------------------------------------------------------------------
Expected option term 7 years
- - -------------------------------------------------------------------------------
27
7. Commitments and Contingencies
Employee Benefit Plans - The Company participates in a defined contribution
profit-sharing plan and a savings plan which qualifies under section 401(k) of
the Internal Revenue Code and covers all full-time employees with one or more
years of continuous service. Annual profit-sharing contributions are determined
by each company's board of directors, in accordance with the provisions of the
plan. Profit-sharing plan expense aggregated approximately $4,030,000 in 1997,
$3,611,000 in 1996 and $3,608,000 in 1995. The Company can elect to make
contributions to the 401(k) plan at the discretion of the Company's board of
directors. There were no Company contributions during 1997, 1996 or 1995.
Lease Commitments - The Company leases certain facilities and equipment under
operating leases. Lease expense was $13,356,000 for 1997, $8,318,000 for 1996
and $7,088,000 for 1995.
Future minimum lease commitments under noncancelable lease agreements in excess
of one year as of December 31, 1997 are as follows (in thousands):
1998 $ 8,352
1999 6,873
2000 4,747
2001 3,944
2002 3,111
Thereafter 4,739
- - --------------------------------------------------------------------------------
$31,766
================================================================================
Litigation - In 1995, the United States Customs Service began an investigation
of possible duties owed on imports of certain juice concentrates by a subsidiary
of the Company. The Company has been advised by the United States Attorney for
the Eastern District of New York that its subsidiary was not the target or the
subject of a criminal investigation, although the United States Attorney is not
bound by such statements. The Company believes, however, that the United States
Customs Service will seek additional duties of approximately $4,000,000 and may
seek civil monetary penalties against the subsidiary of the Company. The Company
believes the disposition of this matter will not have a material adverse effect
on the financial condition or results of operations of the Company, although
there can be no assurance that the duties and penalties sought against the
subsidiary will not exceed the Company's reserves for this matter.
The Company is subject to other routine litigation arising in the ordinary
course of business, none of which is expected to have a material adverse effect
on the financial condition or results of operations of the Company.
28
8. Supplementary Data (Unaudited)
The Company's results of operations for each of the quarters in the years ended
December 31, 1997 and 1996 are summarized below (in thousands, except per share
data).
Quarters ended (unaudited)
1997 March 31 June 30 September 30 December 31
- - --------------------------------------------------------------------------------------------------------------------
Gross revenues $403,705 $451,447 $466,408 $469,225
Cost of transportation and products 356,819 399,177 412,944 415,825
- - --------------------------------------------------------------------------------------------------------------------
Net revenues 46,886 52,270 53,464 53,400
Income (loss) from operations 11,415 15,276 15,318 (9,930)
Net income (loss) from continuing operations 7,426 9,807 9,885 (15,626)
Net income from discontinued operations 439 461 550 139
Gain on sale of discontinued operations, net - - - 14,506
- - --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,865 $ 10,268 $ 10,435 $ (981)
====================================================================================================================
Basic net income (loss) per share:
From continuing operations $ .18 $ .24 $ .24 $ (.37)
From discontinued operations .01 .01 .01 .35
- - --------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share $ .19 $ .25 $ .25 $ (.02)
====================================================================================================================
Basic weighted average shares outstanding 41,359 41,253 41,265 41,265
====================================================================================================================
Diluted net income (loss) per share:
From continuing operations $ .18 $ .24 $ .24 $ (.37)
From discontinued operations .01 .01 .01 .35
- - --------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share $ .19 $ .25 $ .25 $ (.02)
====================================================================================================================
Diluted weighted average shares outstanding 41,359 41,253 41,265 41,330
====================================================================================================================
Quarters ended (unaudited)
1996 March 31 June 30 September 30 December 31
- - --------------------------------------------------------------------------------------------------------------------
Gross revenues $361,936 $413,088 $413,585 $417,296
Cost of transportation and products 320,100 368,004 368,474 370,258
- - --------------------------------------------------------------------------------------------------------------------
Net revenues 41,836 45,084 45,111 47,038
Income from operations 10,474 13,875 13,509 12,171
Net income from continuing operations 6,719 8,966 8,673 8,084
Net income from discontinued operations 543 540 566 509
- - --------------------------------------------------------------------------------------------------------------------
Net income $ 7,262 $ 9,506 $ 9,239 $ 8,593
====================================================================================================================
Basic net income per share:
From continuing operations $ .16 $ .22 $ .21 $ .20
From discontinued operations .01 .01 .01 .01
- - --------------------------------------------------------------------------------------------------------------------
Basic net income per share $ .17 $ .23 $ .22 $ .21
====================================================================================================================
Basic weighted average shares outstanding 42,929 41,434 41,425 41,406
====================================================================================================================
Diluted net income per share:
From continuing operations $ .16 $ .22 $ .21 $ .20
From discontinued operations .01 .01 .01 .01
- - --------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ .17 $ .23 $ .22 $ .21
====================================================================================================================
Diluted weighted average shares outstanding 42,929 41,434 41,425 41,406
====================================================================================================================
29
Report of Independent Public Accountants
To C.H. Robinson Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of C.H. Robinson
Worldwide, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of C.H. Robinson Worldwide, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
February 6, 1998
Report of Management
The management of C.H. Robinson Worldwide, Inc., is responsible for the
integrity and objectivity of the consolidated financial statements and other
financial information contained in this annual report. The consolidated
financial statements and related information were prepared in accordance with
generally accepted accounting principles and include some amounts that are based
on management's best estimates and judgments.
To meet its responsibility, management depends on its accounting systems and
related internal accounting controls. These systems are designed to provide
reasonable assurance, at an appropriate cost, that financial records are
reliable for use in preparing financial statements and that assets are safe-
guarded. Qualified personnel throughout the organization maintain and monitor
these internal accounting controls on an ongoing basis.
The Audit Committee of the Board of Directors, composed entirely of directors
who are not employees of the Company, meets periodically and privately with the
Company's independent public accountants as well as management to review
accounting, auditing, internal control, financial reporting and other matters.
/s/ D.R. "Sid" Verdoorn /s/ Dale S. Hanson
D.R. "Sid" Verdoorn Dale S. Hanson
President and Chief Executive Officer Chief Financial Officer
30