EXHIBIT 13
Selected Consolidated Financial and Operating Data
(Dollars in thousands, 1997
except per share data) 1994 1995 1996 1997 as adjusted 1998
Statement of Operations Data (for the years ended December 31)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross revenues $1,257,946 $1,445,975 $1,605,905 $1,790,785 $1,790,785 $2,038,139
Net revenues(1) 135,599 160,094 179,069 206,020 206,020 245,666
Income from operations 40,511 44,980 50,029 32,079 56,735(2) 68,443
Net income from continuing
operations 24,141 29,455 32,442 11,492 36,148(2) 43,015
Net income from continuing
operations per share
(basic and diluted) $ .52 $ .67 $ .78 $ .28 $ .88(2) $ 1.04
Weighted average number of shares
outstanding (in thousands)
Basic 46,296 43,934 41,799 41,285 41,285 41,216
Diluted 46,296 43,934 41,799 41,302 41,302 41,309
Dividends and distributions per share $ .108 $ .130 $ .185 $ 2.530 $ .210(3) $ .250
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (as of December 31)
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital $ 86,122 $ 97,144 $ 114,070 $ 109,042 $ 109,042 $ 135,245
Total assets 246,528 285,517 320,780 340,628 340,628 409,116
Total long-term debt - - - - - -
Stockholders' investment 112,784 133,339 154,428 138,981 138,981 169,518
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Data (as of December 31)
- ------------------------------------------------------------------------------------------------------------------------------------
Branches 89 99 108 119 119 120
Employees 1,403 1,436 1,665 1,925 1,925 2,205
Average net revenues per branch $ 1,597 $ 1,683 $ 1,717 $ 1,822 $ 1,822 $ 2,082
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Net revenues are determined by deducting cost of transportation and
products from gross revenues. See "Management's Discussion and Analysis."
(2) Excludes unusual charges and expenses of $24,656 related to our initial
public offering.
(3) Excludes special dividends and distributions related to our initial public
offering in October 1997.
16
Management's Discussion & Analysis
General
Gross revenues represent the total dollar value of services and goods we sell to
our customers. Our costs of transportation and products include the contracted
direct costs of transportation, including motor carrier, intermodal, ocean, air,
and other costs, and the purchase price of the products we source. We act
principally as a service provider to add value and expertise in the execution
and procurement of these services for our customers. Our net revenues (gross
revenues less cost of transportation and products) are the primary indicator of
our ability to source, add value and resell services and products that are
provided by third parties, and are considered by management to be our primary
measurement of growth. Accordingly, the discussion of results of operations
below focuses on the changes in our net revenues.
In the transportation industry, results of operations generally show a seasonal
pattern as customers reduce shipments during and after the winter holiday
season. In recent years, our operating income and income from continuing
operations have been higher in the second and third quarters than in the first
and fourth quarters. Seasonality in the transportation industry has not had a
significant impact on our results of operations or cash flows in recent years.
Also, inflation has not materially affected our operations due to the
short-term, transactional basis of our business. However, we cannot fully
predict the impact seasonality and inflation may have in the future.
1998 Compared to 1997
Revenues - Gross revenues for 1998 were $2.04 billion, an increase of 13.8% over
$1.79 billion for 1997. Net revenues for 1998 were $245.7 million, an increase
of 19.2% over $206.0 million for 1997, resulting from an increase in
transportation services net revenues of 19.2% to $189.8 million, an increase in
sourcing net revenues of 16.2% to $44.2 million, and an increase in information
services net revenues of 33.8% to $11.6 million. Our net revenues are increasing
at a faster rate than our gross revenues due to the different growth rates in
the mix of our service lines. Our information services net revenues as a
percentage of their gross revenues is the highest of our three lines, followed
by our transportation business and finally our sourcing business.
The increase in transportation services net revenues resulted primarily from an
increase in transaction volume. Net revenue per transaction on our truck
business also increased slightly in 1998. During the fourth quarter of 1997, a
high demand for trucks in the marketplace increased our cost of these
transportation services, reducing our net revenue per transaction. The increase
in transaction volume and net revenues was driven by significant expansion of
business with current customers and from new domestic and international
customers.
Sourcing net revenues increased by 16.2% due principally to net revenue growth
from sourcing produce for our large retail chain customers and temporary
opportunities created by adverse weather conditions in major produce growing
Results of Operations
The following table summarizes our net revenues by service line:
For the years ended December 31, (in thousands) 1996 1997 change 1998 change
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenues
Transportation $ 133,246 $ 159,260 19.5% $ 189,797 19.2%
Sourcing 39,252 38,060 (3.0) 44,229 16.2
Information services 6,571 8,700 32.4 11,640 33.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 179,069 $ 206,020 15.1% $ 245,666 19.2%
- ------------------------------------------------------------------------------------------------------------------------------------
The following table represents certain statement of operations data shown as
percentages of our net revenues:
1997
For the years ended December 31, 1996 1997 as adjusted(1) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0% 100.0%
Selling, general and administrative expenses 72.1 72.5 72.5 72.1
Public offering charges and expenses - 12.0 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 27.9 15.5 27.5 27.9
Investment and other income 1.7 1.4 1.4 1.1
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision for income taxes 29.6 16.9 28.9 29.0
Provision for income taxes 11.5 11.4 11.4 11.5
- ------------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 18.1% 5.5% 17.5% 17.5%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Adjusted to exclude unusual charges and expenses of $24,656 related to our
initial public offering in October 1997.
17
areas. Our branch network and relationships with produce growers worldwide
provided us with sources of produce in this challenging market and provided
growth to both the number of transactions and the profit per transaction. In
addition, we entered into a new program with an international banana shipper in
the first quarter of 1998, which added to our sourcing net revenue growth.
The increase in information services net revenues was the result of significant
growth in transaction volume from new and existing customers.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for 1998 were $177.2 million, an increase of 18.7% over
$149.3 million for 1997. Selling, general and administrative expenses as a
percentage of net revenues were 72.1% and 72.5% in 1998 and 1997. The decrease
in selling, general and administrative expenses as a percentage of net revenues
was due primarily to the elimination and consolidation of warehouse facilities
in 1998.
Public Offering Charges and Expenses - On October 15, 1997, we recorded charges
and expenses of $24.7 million for unusual items related to our initial public
offering. This amount includes a non-recurring, non-cash charge of $21.6 million
to conform with Securities and Exchange Commission requirements to account for
stock issued to employees and for outstanding stock purchased by certain
employees from retiring employees at prices below the initial public offering
price under our previous book value plans during the 12 months preceding our
initial public offering ("cheap stock"). These book value plans were terminated
and have been replaced by stock-based incentive plans more typical of a publicly
held company, including a stock incentive plan and an employee stock purchase
program.
Income from Operations - Income from operations was $68.4 million for 1998, an
increase of 20.6% over $56.7 million for 1997, excluding the non-recurring
public offering charges and expenses. Income from operations, excluding the
public offering charges and expenses, as a percentage of net revenues was 27.9%
and 27.5% for 1998 and 1997. Income from operations, including the public
offering charges and expenses incurred in 1997, increased 113.4% from 1997 to
1998.
Investment and Other Income - Investment and other income was $2.8 million for
1998, a decrease of 2.8% from $2.9 million for 1997.
Provision for Income Taxes - The effective income tax rates for continuing
operations were 39.7% and 39.4% for 1998 and 1997, excluding the public offering
charges and expenses incurred in 1997. The effective income tax rate for both
periods is greater than the statutory federal income tax rate primarily due to
state income taxes, net of federal benefit. The majority of the $24.7 million in
public offering charges and expenses in 1997 is not deductible for income tax
purposes.
Net Income from Continuing Operations - Net income from continuing operations
was $43.0 million for 1998, an increase of 19.0% over $36.1 million for 1997,
excluding the public offering charges and expenses. Net income from continuing
operations per share, excluding the public offering charges and expenses,
increased by 18.2% to $1.04 (basic and diluted) for 1998 compared to $.88 (basic
and diluted) for 1997. Net income from continuing operations for 1998 increased
274.3% from 1997 to 1998, including the effects of our 1997 public offering
charges and expenses.
1997 Compared to 1996
Revenues - Gross revenues for 1997 were $1.79 billion, an increase of 11.5% over
$1.61 billion for 1996. Net revenues for 1997 were $206.0 million, an increase
of 15.1% over $179.1 million for 1996, resulting from an increase in
transportation services net revenues of 19.5% to $159.3 million, a decrease in
sourcing net revenues of 3.0% to $38.1 million, and an increase in information
services net revenues of 32.4% to $8.7 million. Our net revenues are increasing
at a faster rate than our gross revenues due to the different growth rates in
the mix of our service lines. Our information services net revenues as a
percentage of their gross revenues is the highest of our three lines, followed
by our transportation business and finally our sourcing business.
The increase in transportation services net revenues resulted primarily from an
increase in transaction volume offset by a slight decline in the net revenue per
transaction. The increase in transaction volume and net revenues was driven by
significant expansion of business with current customers and from new domestic
and international customers. The decrease in net revenue per transaction was due
primarily to a high demand for trucks in the marketplace during the fourth
quarter of 1997, which increased the cost of these transportation services.
Sourcing net revenues decreased by 3.0% due to a reduction in net revenues from
our ingredient divisions, a decline in net revenues from sales to produce
wholesalers, and the elimination in December 1996 of a program to source and
distribute various seafood and other products. These reductions were partially
offset by net revenue growth from sourcing produce for our large retail chain
customers, and by various expansions of warehouse sourcing services.
The increase in information services net revenues was the result of significant
growth in transaction volume. Net revenue per transaction decreased slightly due
to the increase in less expensive electronic transactions that have been growing
faster than manual transactions.
18
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for 1997 were $149.3 million, an increase of 15.7% over
$129.0 million for 1996. Selling, general and administrative expenses as a
percentage of net revenues were 72.5% and 72.1% in 1997 and 1996. These
increases were primarily due to increased personnel and warehouse costs
associated with our growth.
Income from Operations - Income from operations, excluding the nonrecurring
public offering charges and expenses, was $56.7 million for 1997, an increase of
13.4% over $50.0 million for 1996. Income from operations, excluding the public
offering charges and expenses, as percentage of net revenues was 27.5% and 27.9%
for 1997 and 1996. Income from operations, including the public offering charges
and expenses, was $32.1million for 1997, a decrease of 35.9%.
Investment and Other Income - Investment and other income was $2.9 million for
1997, a decrease of 5.4% from $3.1 million for 1996. This decrease was the
result of a special dividend paid on October 10, 1997 in conjunction with our
initial public offering, which lowered the amount of cash available for
investment.
Provision for Income Taxes - The majority of the $24.7 million in public
offering charges and expenses is not deductible for income tax purposes.
Excluding these charges and expenses, the effective income tax rates for
continuing operations were 39.4% and 38.9% for 1997 and 1996. The effective
income tax rate for both periods is greater than the statutory federal income
tax rate primarily due to state income taxes, net of federal benefit.
Net Income from Continuing Operations - Net income from continuing operations,
excluding the public offering charges and expenses, was $36.1 million for 1997,
an increase of 11.4% over $32.4 million for 1996. Net income from continuing
operations per share, excluding the public offering charges and expenses,
increased by 12.8% to $.88 (basic and diluted) for 1997 compared to $.78 (basic
and diluted) for 1996, primarily due to an increase in net income and partly as
a result of a decrease in shares outstanding due to our share repurchases. Net
income from continuing operations for 1997, including the public offering
charges and expenses, was $11.5 million, a decrease of 64.6%, or $.28 per share
(basic and diluted), a decrease of 64.1%.
Liquidity and Capital Resources
We have historically generated substantial cash from operations which has
enabled us to fund our growth while paying cash dividends and repurchasing
stock. Cash and cash equivalents totaled $99.3 million and $62.5 million and
available-for-sale securities totaled $30.7 million and $10.4 million as of
December 31, 1998 and 1997. Working capital at December 31, 1998 and 1997
totaled $135.2 million and $109.0 million. We have had no long-term debt for the
last five years and currently have no material commitments for future capital
expenditures. We do not believe that the conversion to the euro will have a
material business or financial impact on us.
During the fourth quarter of 1997, several transactions occurred related to the
initial public offering, including the sale of our finance businesses. On
October 10, 1997, we paid a special cash dividend of $1.50 per share ($61.9
million in the aggregate). We removed restrictions on October 13, 1997 on shares
previously awarded to employees which generated a $40.5 million tax benefit. On
October 14, 1997, we sold our finance businesses for $40.3 million and we
declared and paid a liquidating distribution to stockholders of record on
October 14, 1997 of $.95 per share ($39.2 million in the aggregate), the net
proceeds resulting from this sale. Management does not anticipate any
significant effects on our operations as a result of these non-recurring
transactions.
We generated $77.6 million of positive cash flow from operations for 1998. This
was unusually high due partly to the collection of our $17.3 million tax
receivable resulting from transactions related to our initial public offering.
We used $31.6 million of cash and cash equivalents for investing activities,
including $20.3 million for net purchases of available-for-sale securities, $6.8
million for acquisitions, net of cash acquired, and $5.1 million to fund capital
expenditures necessary for continued growth. We also used $9.2 million of cash
and cash equivalents for financing activities, primarily to pay quarterly cash
dividends. We have declared a $.07 per share dividend payable to shareholders of
record as of March 8, 1999, payable on April 1, 1999.
Assuming no change in our current business plan, management believes that our
available cash, together with expected future cash generated from operations,
are expected to be sufficient to satisfy our anticipated needs for working
capital, capital expenditures and cash dividends for all future periods. In
addition, we have $17.5 million available under our two existing lines of credit
both with interest rates of 6.1%, as of December 31, 1998. The lines of credit
renew annually and do not restrict the payment of dividends. There were no
borrowings under the lines of credit during 1998 or 1997. We expect to be able
to renew these lines of credit in the future.
Impact of Year 2000
We have completed an assessment of our compliance with Year 2000 issues and will
modify or replace portions of our hardware and software so that our computer
systems will function properly with respect to dates after December 31, 1999. We
have completed a majority of the modifications and are currently in the testing
phase of our Year 2000 compliance process. This testing includes running test
transactions with dates beyond December 31, 1999 through
19
our systems to ensure that our daily, monthly and yearly processes accept the
transactions, process and store them, and allow for extraction of the
transaction data as needed to operate our business and generate our internal and
external financial information. We are in the process of completing all such
testing on our systems, with a majority of our testing to be completed by June
30, 1999.
Our existing general ledger, fixed assets and payroll systems are not Year 2000
compliant. We are in the process of replacing these systems. Our new general
ledger system and fixed assets system are currently operational and running
parallel to our existing systems, with expected full conversion to occur before
June 30, 1999. Our expected completion date for the payroll system is June 30,
1999.
We do not anticipate any disruptions to be caused by embedded circuitry in our
operational systems. Our information services line also has a commercial
application from the Federal Reserve which is not Year 2000 compliant. A new
version is expected by June 30, 1999. We do not anticipate that this will create
any implementation problems on our scheduled timeline.
In addition, we are not aware of any material relationships with any customer,
transportation carrier or produce supplier that would have a material impact on
our business, results of operations or financial condition in the instance that
these third parties would have material systems interruptions as a result of the
Year 2000 situation. We have no single third-party relationship that accounts
for more than 6% of our business.
Although we believe we have internally addressed our risks and have not
discovered any material exposure with our third-party relationships, there are
inherent risks that we may not meet our objectives by December 31, 1999 or that
unforeseen circumstances may arise. We could experience business interruption in
the event our systems would be unable to process information or would process
information incorrectly. Additionally, we could suffer loss of business if a
number of our third-party relationships, taken together, would have similar
problems. It is impossible to fully assess the potential consequences in the
event there are disruptions in such infrastructure areas as utilities,
communications, transportation, banking and government. Any such business
interruption could have a material adverse effect on our results of operations,
liquidity, and financial condition depending on the severity and duration of the
interruption. We are developing contingency plans in the event we are unable to
complete remediation efforts or unidentified problems develop. We expect to have
these plans in place by June 30, 1999.
We are using primarily internal resources for system modifications and testing.
Total costs we have incurred, plus costs we plan to incur for programming,
testing, purchase of Year 2000 testing software, and outside consultant costs
are expected to be in the range of $500,000 to $600,000. The actual cost could
exceed this estimate. These costs, however, are not expected to have a material
effect on our financial condition, results of operations, or cash flows. We have
incurred and expensed approximately $300,000 as of December 31, 1998. Our costs
to replace the noncompliant systems mentioned above are not included in the
range, as these replacements were planned to occur and we have not accelerated
the replacement due to Year 2000 requirements. All other costs are being
expensed as incurred.
Market Risk
We had approximately $130.0 million of cash and investments on December 31,
1998, approximately $99.3 million of which were cash and cash equivalents and
$30.7 million of which were available for sale (non-trading) securities.
Substantially all of the cash equivalents and available for sale securities are
investment grade, fixed income securities from domestic issuers. Because of the
credit risk criteria of our investment policies, the primary market risk
associated with these investments is interest rate risk. We do not use
derivative financial instruments to manage interest rate risk or to speculate on
future changes in interest rates. A rise in interest rates could negatively
affect the fair value of our investments; however, because we consider it
unlikely that we would need or choose to substantially liquidate our
investments, we believe that such an increase in interest rates would not have a
material impact on our future earnings or cash flows. We also conduct business
in foreign currencies and at times we enter into forward contracts to hedge
against foreign currency exposure. There were no such contracts outstanding
during 1998. We also have inventory which is subject to certain commodity price
volatility, and we sometimes choose to hedge our positions with futures and
options. We believe a reasonable near-term change in foreign currency exchange
rates or commodity prices would not have a material impact on our future
earnings or cash flows because the amount of our inventory and foreign currency
exposure is not material.
Our discussion and analysis of our financial condition and results of
operations, including our Year 2000 and market risk discussions, contain
forward-looking statements, including our current assumptions about future
financial performance, anticipated problems, estimated Year 2000 costs and our
plans for future operations, which are subject to various risks and
uncertainties. Our actual results may differ significantly. Further discussion
of factors that may cause a difference may be found in an exhibit to the
Company's Form 10-K filed with the Securities and Exchange Commission.
20
Consolidated Balance Sheets
(In thousands, except per share data)
As of December 31,
1998 1997
Assets
- --------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 99,341 $ 62,497
Available-for-sale securities 30,730 10,428
Receivables, net of allowance for doubtful accounts of $12,412 and $8,936 221,021 206,743
Deferred tax benefit 12,821 4,781
Prepaid expenses and other 7,442 5,797
Inventories 3,488 3,109
Income taxes receivable - 17,334
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 374,843 310,689
Property and equipment:
Land, building and improvements - 1,500
Furniture, fixtures and equipment 41,285 39,363
Accumulated depreciation and amortization (21,801) (18,637)
- ------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 19,484 22,226
Intangible assets, net of accumulated amortization of $8,576 and $13,400 12,613 6,674
Other assets 2,176 1,039
- ------------------------------------------------------------------------------------------------------------------------------
$ 409,116 $ 340,628
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Investment
- --------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 192,908 $ 166,789
Accrued expenses -
Compensation and profit-sharing contribution 27,481 22,107
Income taxes and other 19,209 12,751
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 239,598 201,647
- ------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 3 and 7)
Stockholders' investment:
Preferred stock, $0.10 par value, 20,000 shares authorized;
no shares issued or outstanding - -
Common stock, $0.10 par value, 130,000 shares authorized;
41,265 shares issued, 41,190 and 41,265 shares outstanding 4,119 4,126
Additional paid-in capital 62,054 62,108
Retained earnings 106,178 73,465
Cumulative other comprehensive loss (1,145) (718)
Treasury stock at cost (75 and 0 shares) (1,688) -
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' investment 169,518 138,981
- ------------------------------------------------------------------------------------------------------------------------------
$ 409,116 $ 340,628
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated balance
sheets.
21
Consolidated Statements of Operations
(In thousands, except per share data)
For the years ended December 31,
1998 1997 1996
Gross revenues $2,038,139 $1,790,785 $1,605,905
Cost of transportation and products 1,792,473 1,584,765 1,426,836
- -------------------------------------------------------------------------------------------------------------------------------
Net revenues 245,666 206,020 179,069
Selling, general and administrative expenses 177,223 149,285 129,040
Public offering charges and expenses (Note 1) - 24,656 -
- -------------------------------------------------------------------------------------------------------------------------------
Income from operations 68,443 32,079 50,029
Investment and other income 2,844 2,927 3,095
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before provision
for income taxes 71,287 35,006 53,124
Provision for income taxes 28,272 23,514 20,682
- -------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 43,015 11,492 32,442
- -------------------------------------------------------------------------------------------------------------------------------
Net income from discontinued operations,
net of taxes of $951 in 1997 and $1,474 in 1996 - 1,589 2,158
Gain on sale of discontinued operations,
net of taxes of $10,440 in 1997 - 14,506 -
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 43,015 $ 27,587 $ 34,600
- -------------------------------------------------------------------------------------------------------------------------------
Basic net income per share:
From continuing operations $ 1.04 $ .28 $ .78
From discontinued operations - .39 .05
- -------------------------------------------------------------------------------------------------------------------------------
Basic net income per share $ 1.04 $ .67 $ .83
- -------------------------------------------------------------------------------------------------------------------------------
Diluted net income per share:
From continuing operations $ 1.04 $ .28 $ .78
From discontinued operations - .39 .05
- -------------------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ 1.04 $ .67 $ .83
- -------------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 41,216 41,285 41,799
Dilutive effect of outstanding stock options 93 17 -
- -------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,309 41,302 41,799
- -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
22
Consolidated Statements of Stockholders' Investment
(In thousands, except per share data)
For the years ended December 31, 1998, 1997 and 1996
Cumulative
Common Additional Other Com- Total
Shares Paid-In Retained prehensive Treasury Stockholders'
Outstanding Amount Capital Earnings Loss Stock Investment
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 43,407 $ 4,340 $ 704 $ 128,600 $ (305) $ - $ 133,339
Net income - - - 34,600 - - 34,600
Other comprehensive income:
Foreign currency
translation adjustment - - - - (41) - (41)
---------
Comprehensive income - - - - - - 34,559
---------
Cash dividends, $.185 per share - - - (7,655) - - (7,655)
Incentive shares of common stock issued, net 200 20 1,031 - - - 1,051
Repurchase of common stock (2,232) (223) (1,735) (4,908) - - (6,866)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 41,375 4,137 - 150,637 (346) - 154,428
Net income - - - 27,587 - - 27,587
Other comprehensive income:
Foreign currency translation
adjustment - - - - (372) - (372)
---------
Comprehensive income - - - - - - 27,215
---------
Cash dividends and distributions,
$2.53 per share - - - (104,400) - - (104,400)
Incentive shares of common
stock issued, net 239 24 919 - - - 943
Sale of common stock 25 3 100 - - - 103
Cheap stock charge (Note 1) - - 21,596 - - - 21,596
Tax benefit on vesting
of stock awards - - 40,539 - - - 40,539
Repurchase of common stock (374) (38) (1,046) (359) - - (1,443)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 41,265 4,126 62,108 73,465 (718) - 138,981
Net income - - - 43,015 - - 43,015
Other comprehensive income:
Foreign currency translation
adjustment - - - - (427) - (427)
---------
Comprehensive income - - - - - - 42,588
---------
Cash dividends, $.25 per share - - - (10,302) - - (10,302)
Sale of common stock 63 6 (115) - - 1,430 1,321
Tax benefit on deferred
compensation plans - - 61 - - - 61
Repurchase of common stock (138) (13) - - - (3,118) (3,131)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 41,190 $ 4,119 $ 62,054 $ 106,178 $ (1,145) $ (1,688) $ 169,518
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
23
Consolidated Statements of Cash Flows
(In thousands)
For the years ended December 31,
1998 1997 1996
Operating Activities
- ---------------------------------------------------------------------------------------------
Net income $ 43,015 $ 27,587 $ 34,600
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 8,521 8,684 7,604
Cheap stock charge and incentive stock expense - 21,596 943
Deferred income taxes (9,272) 4,842 (2,464)
Gain on sale of discontinued operations, net of tax - (14,506) -
Loss on sale of assets 141 82 10
Changes in operating elements -
Receivables (11,056) (35,808) (22,019)
Inventories (374) 2,167 2,050
Prepaid expenses and other (1,379) (3,709) 344
Accounts payable 20,027 26,413 14,482
Accrued compensation and profit sharing contribution 5,275 5,059 159
Accrued income taxes and other 22,750 27,971 (359)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 77,648 70,378 35,350
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
- ---------------------------------------------------------------------------------------------
Purchases of property and equipment (5,071) (6,305) (4,784)
Sales of property and equipment 1,981 1,446 80
Cash paid for acquisitions, net of cash acquired (6,799) - -
Sales of long-term investments - 5,536 115
Purchases of long-term investments - - (5,267)
Sales/maturities of available-for-sale securities 37,594 113,576 33,719
Purchases of available-for-sale securities (57,900) (81,293) (39,318)
Cash provided by discontinued operations - 24,653 3,707
Changes in other assets, net (1,380) (2,321) (966)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (31,575) 55,292 (12,714)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
- ---------------------------------------------------------------------------------------------
Sale of common stock 1,321 103 -
Repurchase of common stock (3,131) (1,443) (6,866)
Cash dividends and distributions (7,419) (104,400) (7,655)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (9,229) (105,740) (14,521)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 36,844 19,930 8,115
Cash and cash equivalents, beginning of year 62,497 42,567 34,452
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 99,341 $ 62,497 $ 42,567
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid for income taxes $ 34,848 $ 9,678 $ 22,662
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
24
Notes to Consolidated Financial Statements
(Including data applicable to unaudited periods)
1. Summary of Significant Accounting Policies
Basis of Presentation - C.H. Robinson Worldwide, Inc. and its Subsidiaries ("the
Company," "we," "us," and "our") is a global provider of multimodal
transportation services and logistics solutions through a network of 120 branch
offices in 38 states throughout the United States, along with offices in Canada,
Mexico, South America, Europe and Africa. The consolidated financial statements
include the accounts of C.H. Robinson Worldwide, Inc. and its majority owned and
controlled subsidiaries. Our finance businesses are presented in the
accompanying consolidated statements of operations as discontinued operations
(See Note 5). Minority interests in subsidiaries are not significant. All
significant intercompany transactions and balances have been eliminated in the
consolidated financial statements.
Initial Public Offering - On October 15, 1997, we completed an initial public
offering of 10,578,396 shares of our common stock which were previously held by
our employees. Pursuant to Securities Exchange Commission rules related to stock
issued or sold to employees at prices below the initial public offering price
for the 12 months preceding the date that the initial offering becomes effective
("cheap stock"), we recorded a $21,596,000 charge to expense at the effective
date of the offering. This charge related to approximately 1,519,000 shares
previously sold to employees or issued under incentive plans no longer in effect
and represented the difference between the book value of shares sold and issued
to employees and the offering price per share.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate results could differ from those estimates.
Revenue Recognition - Gross revenues consist of the total dollar value of goods
and services purchased by customers. We act principally as the service provider
for these transactions and recognize revenue as these services are rendered and
goods are delivered.
Foreign Currency - All balance sheet accounts of foreign subsidiaries are
translated at the current exchange rate as of the end of the year. Statement of
operations items are translated at average exchange rates during the year. The
resulting translation adjustment is recorded as a separate component of
comprehensive income in our statement of stockholders' investment.
We provide products and services to numerous international customers. At times,
we enter into forward contracts to hedge against foreign currency exposure
related to these transactions. Upon settlement, resultant gains or losses on
such contracts offset the impact of foreign currency rates on cash collected
from accounts receivable. There are no open contracts at December 31, 1998.
Geographic Information - The following table presents our gross revenues (based
on location of the customer) for the years ended December 31 and our long-lived
assets as of December 31 by geographic regions (in thousands):
1998 1997 1996
- ----------------------------------
Gross revenues
United States $1,935,191 $1,700,802 $1,527,278
Other locations 102,948 89,983 78,627
- ------------------------------------------------------------
$2,038,139 $1,790,785 $1,605,905
- ------------------------------------------------------------
1998 1997
- ------------------------------------------------
Long-lived assets
United States $27,203 $26,399
Other locations 7,070 3,540
- ------------------------------------------------------------
$34,273 $29,939
- ------------------------------------------------------------
Cash and Cash Equivalents - Cash and cash equivalents consist primarily of
highly liquid investments with an original maturity of three months or less. The
carrying amount approximates fair value due to the short maturity of the
instruments.
Available-For-Sale Securities - Available-for-sale securities consist of various
debt and equity securities. The fair value of our available-for-sale securities
equals the quoted market price where available or quoted market prices for
similar securities, if a quoted market price is not available.
Inventories - Inventories consist primarily of produce, fruit concentrates and
related products held for resale and are stated at the lower of cost or market.
25
Property and Equipment - Property and equipment additions are recorded at cost.
Maintenance and repair expenditures are charged to expense as incurred.
Depreciation is computed using straight-line and accelerated methods over the
following estimated lives of the assets:
Years
- --------------------------------------------------------------------------------
Building and improvements 3 - 37
Furniture, fixtures and equipment 3 - 10
Amortization of leasehold improvements is computed over the shorter of the lease
term or the estimated useful lives of the improvements.
Intangible Assets - Intangible assets consist of customer lists, trade names,
contracts, noncompete agreements, software and goodwill. Intangible assets are
being amortized over their estimated economic lives, ranging from three to 20
years. We periodically evaluate whether events and circumstances have occurred
that indicate the remaining balance of intangible assets may not be recoverable.
Income Per Share - Basic net income per common share are computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the period. No dilution for potentially dilutive securities is included.
Diluted net income per share are computed under the treasury stock method and
are calculated to compute the dilutive effect of outstanding options, warrants
and other securities.
Comprehensive Income - We have adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130).
SFAS No. 130 requires the disclosure of other comprehensive income in our
financial statements. Comprehensive income includes any changes in the equity of
an enterprise from transactions and other events and circumstances from
non-owner sources. Our foreign currency translation adjustment is currently our
only component of other comprehensive income and is presented on our
consolidated statements of stockholders' investment.
Segment Reporting - We have adopted the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 establishes new accounting
standards for segment reporting. No operational segment or customer information
is required for us.
Recently Issued Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
No. 133). SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
imbedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. We do not expect the adoption of SFAS No. 133 to
have a material impact on our financial statements or disclosures contained
therein.
2. Marketable Securities
We have classified all of our marketable securities as available-for-sale as of
December 31, 1998 and 1997. Available-for-sale securities are carried at
amortized cost, which approximates market value. The unrealized gains and losses
are immaterial as the fair value approximates amortized cost. The gross realized
gains and losses on sales of available-for-sale securities were not material for
the years ended December 31, 1998 and 1997.
The following is a summary of marketable securities at December 31 (in
thousands):
1998 1997
- ----------------------------------------------------------
U.S. government and government
agency obligations $ 1,803 $ 767
State and local agency obligations 16,641 -
Corporate bonds 11,183 8,822
Other debt securities 999 742
Equity securities 104 97
- --------------------------------------------------------------------------------
Available-for-sale securities $30,730 $10,428
- --------------------------------------------------------------------------------
26
The contractual maturities of marketable securities at December 31 are stated
below (in thousands):
1998 1997
- ---------------------------------------------------------------
Debt securities:
Due within one year $ 6,763 $ 933
Due after one year through five years 21,278 4,465
Due after five years 2,585 4,933
- --------------------------------------------------------------------------------
Total debt securities with
contractual maturities 30,626 10,331
Equity securities 104 97
- --------------------------------------------------------------------------------
$30,730 $10,428
- --------------------------------------------------------------------------------
3. Lines of Credit
We have unsecured lines of credit with banks which provide for borrowings of up
to $17,500,000 and expire on May 1, 1999. Interest on borrowings under the lines
is at 1% above the banks' cost of funds (6.1% as of December 31, 1998). There
were no borrowings under the lines of credit during 1998, 1997 or 1996.
Our credit agreements contain certain financial covenants. We were in compliance
with such covenants at December 31, 1998.
4. Income Taxes
C.H. Robinson Worldwide, Inc. and its 80% (or more) owned U.S. subsidiaries file
a consolidated federal income tax return. We file unitary or separate state
returns based on state filing requirements.
The components of the provision for income taxes consisted of the following at
December 31 (in thousands):
1998 1997 1996
- ----------------------------------------------------
Tax provision:
Federal $ 29,974 $ 14,688 $ 19,060
State 5,862 3,619 3,423
Foreign 1,708 365 663
- --------------------------------------------------------------------------------
37,544 18,672 23,146
Deferred provision
(benefit) (9,272) 4,842 (2,464)
- --------------------------------------------------------------------------------
Total provision $ 28,272 $ 23,514 $ 20,682
- --------------------------------------------------------------------------------
A reconciliation from the provision for income taxes using the statutory federal
income tax rate to our effective income tax rate at December 31 is as follows:
1998 1997 1996
- ---------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net
of federal benefit 4.1 3.3 3.9
Public offering charges
and expenses - 27.8 -
Foreign and other .6 1.1 -
- --------------------------------------------------------------------------------
39.7% 67.2% 38.9%
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) are comprised of the following at December 31
(in thousands):
1998 1997
- ---------------------------------------------------------------
Deferred income tax assets:
Receivables $ 5,000 $ 4,035
State taxes 2,423 359
Accrued expenses 5,401 344
Amortization 3,026 2,468
Accrued compensation 771 59
Other 830 830
Deferred income tax liabilities:
Long-lived assets (2,488) (2,406)
Other (19) (17)
- --------------------------------------------------------------------------------
Net deferred income tax asset $ 14,944 $ 5,672
- --------------------------------------------------------------------------------
5. Discontinued Operations
On October 14, 1997, we sold our finance businesses. As a result, we recorded a
gain on the sale of $14,506,000, net of income taxes. These operations were
reported as discontinued operations in the accompanying consolidated financial
statements. Summary condensed financial information for the discontinued segment
for the years ended December 31 is as follows (in thousands):
1997 1996
- ---------------------------------------------------------------
Revenues $ 12,996 $ 12,870
Expenses 10,456 9,238
- --------------------------------------------------------------------------------
Income from discontinued
operations $ 2,540 $ 3,632
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6. Capital Stock and Stock Award Plans
Preferred Stock - Our Certificate of Incorporation (Certificate) authorizes the
issuance of 20,000,000 shares of Preferred Stock, par value $.10 per share, none
of which are issued or outstanding. The Preferred Stock may be issued by
resolution of our board of directors from time to time without any action of the
stockholders. The Preferred Stock may be issued in one or more series and the
board of directors may fix the designation and relative powers, including voting
powers, preferences, rights, qualifications, limitations and restrictions of
each series, so authorized. The issuance of any such series may have an adverse
effect on the rights of holders of Common Stock or impede the completion of a
merger, tender offer or other takeover attempt. We have no present intention to
issue shares of any series of Preferred Stock.
Common Stock - The Certificate authorizes 130,000,000 shares of Common Stock,
par value $.10 per share. Subject to the prior rights of any series of Preferred
Stock which may from time to time be authorized and outstanding, holders of
Common Stock are entitled to receive dividends out of funds legally available
when, and if declared by the board of directors and to receive pro rata the net
assets of the Company legally available for distribution upon liquidation or
dissolution.
Holders of Common Stock are entitled to one vote for each share of Common Stock
held on each matter to be voted on by the holders of Common Stock, including the
election of directors. Holders of Common Stock are not entitled to cumulative
voting, which means that the holders of more than 50% of the outstanding Common
Stock can elect all of the directors of any class if they choose to do so. The
stockholders do not have preemptive rights. All outstanding shares of Common
Stock are fully paid and nonassessable.
Share Repurchase Program - In conjunction with our initial public offering, our
board of directors authorized the repurchase of 1,000,000 common shares for
reissuance upon the exercise of employee stock options and other stock award
plans. During 1998, we purchased approximately 138,000 shares of our common
stock for the treasury at an aggregate cost of $3,131,000.
Stock Award Plans - We have an Omnibus Stock Plan to grant certain stock awards,
including stock options at fair market value and restricted shares, to our key
employees and outside directors. A maximum of 2,000,000 shares can be granted
under this plan; 1,567,954 shares were available for stock awards as of December
31, 1998.
The following schedule summarizes activity in the plans:
Stock Grant Contractual
Options Price Lives
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1996 - - -
Granted in 1997 475,667 $18.00 10 years
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1997 475,667 $18.00 10 years
Terminated in 1998 (43,621) $18.00 10 years
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1998 432,046 $18.00 10 years
- --------------------------------------------------------------------------------
Exercisable at
December 31, 1998 - - -
- --------------------------------------------------------------------------------
We follow the provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), which encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. As permitted under SFAS No. 123, we have
continued to account for employee stock options using the intrinsic value method
outlined in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, we have not recognized any compensation
expense for our stock options. Had compensation expense for our stock-based
compensation plans been determined based on the fair value at the grant dates
consistent with the method of SFAS No. 123, our net income and income per share
would have been as follows (in thousands, except per share amounts):
1998 1997
- -----------------------------------------------------------
Net income As reported $43,015 $27,587
Adjusted $42,460 $26,978
- --------------------------------------------------------------------------------
Basic and diluted net
income per share As reported $ 1.04 $ .67
Adjusted $ 1.03 $ .65
- --------------------------------------------------------------------------------
28
The adjusted effects to net income presented reflect compensation costs for all
outstanding options which were granted during 1997. The compensation cost is
being reflected over the options' vesting period of five years. Therefore, the
full impact of calculating compensation costs of options under SFAS No. 123 is
not reflected.
The fair value per option at the date of grant for options granted in 1997 was
$6.09. The fair value was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions:
Risk-free interest rate 5.72%
- --------------------------------------------------------------------------------
Expected dividend yield 1.00%
- --------------------------------------------------------------------------------
Expected volatility factor 25.00%
- --------------------------------------------------------------------------------
Expected option term 7 years
- --------------------------------------------------------------------------------
7. Commitments and Contingencies
Employee Benefit Plans - We participate in a defined contribution profit-sharing
plan and a savings plan which qualifies under Section 401(k) of the Internal
Revenue Code and covers all full-time employees with one or more years of
continuous service. Annual profit-sharing contributions are determined by each
company's board of directors, in accordance with the provisions of the plan.
Profit-sharing plan expense aggregated approximately $4,560,000 in 1998,
$4,030,000 in 1997 and $3,611,000 in 1996. We can elect to make contributions to
the 401(k) plan at the discretion of our board of directors. There were no
Company contributions during 1998, 1997 or 1996.
Lease Commitments - We lease certain facilities, equipment and automobiles under
operating leases. Lease expense was $14,376,000 for 1998, $13,356,000 for 1997
and $8,318,000 for 1996.
Minimum future lease commitments under noncancelable lease agreements in excess
of one year as of December 31, 1998 are as follows (in thousands):
1999 $ 8,409
2000 5,828
2001 4,605
2002 3,033
2003 1,734
Thereafter 873
- --------------------------------------------------------------------------------
$ 24,482
- --------------------------------------------------------------------------------
Litigation - In 1995, the United States Customs Service began an investigation
of possible duties owed on imports of certain juice concentrates by
Daystar-Robinson, Inc. (Daystar), a subsidiary of the Company. We have been
advised by the United States Attorney for the Eastern District of New York that
Daystar was not the target or the subject of a criminal investigation, although
the United States Attorney is not bound by such statements. We believe, however,
that the U.S. Customs Service will seek additional duties of approximately
$4,000,000 and may seek civil monetary penalties against Daystar. We believe the
disposition of this matter will not have a material adverse effect on our
financial condition or results of operations, although there can be no assurance
that the duties and penalties sought against Daystar will not exceed our
reserves for this matter.
We are currently not otherwise subject to any pending or threatened litigation,
other than routine litigation arising in the ordinary course of business, none
of which is expected to have a material adverse effect on our financial
condition or results of operations.
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8. Supplementary Data (Unaudited)
Our results of operations for each of the quarters in the years ended December
31, 1998 and 1997 are summarized below (in thousands, except per share data).
Quarters Ended (Unaudited)
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
- ------------------------------------------------------------------------------------------------------------------------------------
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 and diluted net income (loss) per share:
From continuing operations $ .18 $ .24 $ .24 $ (.37)
From discontinued operations .01 .01 .01 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted net income (loss) per share $ .19 $ .25 $ .25 $ (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 41,359 41,253 41,265 41,265
Dilutive effect of outstanding stock options - - - 65
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 41,359 41,253 41,265 41,330
- ------------------------------------------------------------------------------------------------------------------------------------
30
Report of Independent Public Accountants
To C.H. Robinson Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of C.H. Robinson
Worldwide, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of C.H. Robinson Worldwide, Inc.
and Subsidiaries as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
February 4, 1999
Report of Management
The management of C.H. Robinson Worldwide, Inc., is responsible for the
integrity and objectivity of the consolidated financial statements and other
financial information contained in this annual report. The consolidated
financial statements and related information were prepared in accordance with
generally accepted accounting principles and include some amounts that are based
on management's best estimates and judgments.
To meet its responsibility, management depends on its accounting systems and
related internal accounting controls. These systems are designed to provide
reasonable assurance, at an appropriate cost, that financial records are
reliable for use in preparing financial statements and that assets are
safe-guarded. Qualified personnel throughout the organization maintain and
monitor these internal accounting controls on an ongoing basis.
The Audit Committee of the Board of Directors, composed entirely of directors
who are not employees of the Company, meets periodically and privately with the
Company's independent public accountants as well as management to review
accounting, auditing, internal control, financial reporting and other matters.
/s/ D.R. "Sid" Verdoorn
D.R. "Sid" Verdoorn
Chairman of the Board, President
and Chief Executive Officer
/s/ John P. Wiehoff
John P. Wiehoff
Senior Vice President, Office of the President
and Chief Financial Officer
31