SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR
THE TRANSITION PERIOD FROM ___________ TO ____________
Commission File Number
000-23189
C.H. ROBINSON WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1883630
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 Mitchell Road, Suite 200, Eden Prairie, Minnesota 55344-2248
- ------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(612) 937-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
As of April 30, 1999, the number of outstanding shares of the registrant's
common stock was 41,201,085.
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
C.H. ROBINSON WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
March 31, December 31,
ASSETS 1999 1998
------------- -----------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents................................ $ 93,953 $ 99,341
Available-for-sale securities............................ 29,196 30,730
Receivables, net of allowance for doubtful accounts of
$16,297 and $12,412.................................... 249,528 221,021
Deferred tax benefit..................................... 15,399 12,821
Inventories.............................................. 5,544 3,488
Prepaid expenses and other............................... 4,736 7,442
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Total current assets................................. 398,356 374,843
PROPERTY AND EQUIPMENT, net................................. 19,425 19,484
INTANGIBLE & OTHER ASSETS, net.............................. 19,733 14,789
--------- ----------
$ 437,514 $ 409,116
========= ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable......................................... $ 217,038 $ 192,908
Accrued expenses -
Compensation and profit-sharing contribution........... 12,386 27,481
Income taxes & other................................... 30,654 19,209
--------- ----------
Total current liabilities............................ 260,078 239,598
STOCKHOLDERS' INVESTMENT
Preferred stock, $0.10 par value, 20,000 shares
authorized; none outstanding.......................... -- --
Common stock, $0.10 par value; 130,000 shares
authorized; 41,265 shares issued, 41,201 and 41,190
shares outstanding..................................... 4,120 4,119
Additional paid-in capital............................... 62,008 62,054
Retained earnings........................................ 114,067 106,178
Cumulative other comprehensive loss...................... (1,274) (1,145)
Treasury stock at cost (64 and 75 shares)................ (1,485) (1,688)
--------- ----------
Total stockholders' investment....................... 177,436 169,518
--------- ----------
$ 437,514 $ 409,116
========= ==========
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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C.H. ROBINSON WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income
(In thousands, except per share data)
(unaudited)
Three Months
Ended March 31,
----------------------
1999 1998
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GROSS REVENUES........................................... $ 509,275 $ 468,189
COST OF TRANSPORTATION AND PRODUCTS...................... 442,256 412,968
--------- ---------
NET REVENUES............................................. 67,019 55,221
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............. 50,108 41,867
--------- ---------
INCOME FROM OPERATIONS................................... 16,911 13,354
INVESTMENT AND OTHER INCOME.............................. 947 491
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES................. 17,858 13,845
PROVISION FOR INCOME TAXES............................... 7,086 5,471
--------- ---------
NET INCOME............................................... 10,772 8,374
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment............... (129) (45)
--------- ---------
COMPREHENSIVE INCOME..................................... $ 10,643 $ 8,329
========= =========
BASIC NET INCOME PER SHARE............................... $ 0.26 $ 0.20
DILUTED NET INCOME PER SHARE............................. $ 0.26 $ 0.20
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING................ 41,186 41,251
DILUTIVE EFFECT OF OUTSTANDING STOCK OPTIONS............. 157 101
--------- ---------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING.............. 41,343 41,352
========= =========
The accompanying notes are an integral part of these condensed consolidated
statement.
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C.H. ROBINSON WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Three Months Ended
March 31,
----------------------
1999 1998
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OPERATING ACTIVITIES:
Net income.................................................... $ 10,772 $ 8,374
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization............................... 2,342 1,938
Deferred income taxes....................................... (3,128) 201
Gain on sale of assets...................................... (18) --
Changes in operating elements-
Receivables................................................. (19,435) (5,476)
Inventories................................................. (2,056) (246)
Prepaid expenses and other.................................. 2,869 2,304
Accounts payable............................................ 14,892 10,154
Accrued compensation and profit sharing contribution........ (15,390) (14,912)
Accrued income taxes and other.............................. 11,323 9,337
--------- ---------
Net cash provided by operating activities................. 2,171 11,674
INVESTING ACTIVITIES:
Purchases of property and equipment........................... (1,450) (1,621)
Sales of property and equipment............................... 65 22
Purchases of long-term investments............................ -- (250)
Sales/maturities of available-for-sale securities............. 7,330 8,336
Purchases of available-for-sale securities.................... (5,796) (12,127)
Other, net.................................................... (4,983) (968)
--------- ---------
Net cash used for investing activities.................... (4,834) (6,608)
FINANCING ACTIVITIES:
Sale of common stock.......................................... 606 --
Repurchase of common stock.................................... (448) (1,570)
Cash dividends................................................ (2,883) (2,474)
--------- ---------
Net cash used for financing activities.................... (2,725) (4,044)
--------- ---------
Net increase (decrease) in cash and cash equivalents...... (5,388) 1,022
CASH AND CASH EQUIVALENTS, beginning of period................... 99,341 62,497
--------- ---------
CASH AND CASH EQUIVALENTS, end of period......................... $ 93,953 $ 63,519
========= =========
The accompanying notes are an integral part of these condensed consolidated
statements.
- 4 -
C.H. ROBINSON WORLDWIDE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:
Basis of Presentation
C.H. Robinson Worldwide, Inc. and its Subsidiaries ("the Company,"
"we," "us," or "our") is a global provider of multimodal transportation services
and logistics solutions through a network of 129 branch offices in 38 states
throughout the United States, along with offices in Canada, Mexico, Belgium, the
United Kingdom, France, Spain, Italy, Poland, Brazil, Argentina, Venezuela and
South Africa. The condensed consolidated financial statements include the
accounts of C.H. Robinson Worldwide, Inc. and its majority owned and controlled
subsidiaries. Minority interests in subsidiaries are not significant. All
significant intercompany transactions and balances have been eliminated in the
consolidated financial statements.
The condensed consolidated financial statements which are unaudited
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In management's opinion, these financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations for the interim
periods presented. The results of operations for the three months ended March
31, 1999 and 1998 are not necessarily indicative of results to be expected for
the entire year. Pursuant to SEC rules and regulations, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from these statements. The condensed consolidated financial statements
and notes thereto should be read in conjunction with the financial statements
and notes included in the Company's Annual Report on Form 10-K.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and Notes thereto.
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 our cash flows in recent
years. Also, inflation has not materially affected our operations due to the
short-term, transactional basis of our business. However, we cannot fully
predict the impact seasonality and inflation may have in the future.
- 5 -
Results of Operations
The following table summarizes our net revenues by service line:
Three Months Ended
March 31,
----------------------------------
1999 1998 change
--------- -------- ---------
Net revenues (in thousands)
Transportation $ 53,071 $ 41,740 27.1 %
Sourcing 10,374 11,097 (6.5)
Information services 3,574 2,384 49.9
--------- --------
Total $ 67,019 $ 55,221 21.4 %
========= ========
The following table represents certain income statement data shown as
percentages of our net revenues:
Three Months Ended
March 31,
---------------
1999 1998
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Net revenues 100.0% 100.0%
Selling, general and administrative expenses 74.8 75.8
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Income from operations 25.2 24.2
Investment and other income 1.4 0.9
------ ------
Income before provision for income taxes 26.6 25.1
Provision for income taxes 10.5 9.9
------ ------
Net income 16.1% 15.2%
====== ======
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues. Gross revenues for the three months ended March 31, 1999 were
$509.3 million, an increase of 8.8% over gross revenues of $468.2 million for
the three months ended March 31, 1998. Net revenues for the three months ended
March 31, 1999 were $67.0 million, an increase of 21.4% over net revenues of
$55.2 million for the three months ended March 31, 1998 resulting from an
increase in transportation services net revenues of 27.1% to $53.1 million, a
decrease in sourcing net revenues of 6.5% to $10.4 million, and an increase in
information services net revenues of 49.9% to $3.6 million. Our net revenues are
increasing at a faster rate than our gross revenues due to expanding margins in
our truck transportation revenues and the different growth rates in the mix of
our service lines. Our information services net revenues as a percentage of
their gross revenues is highest of our three lines, followed by our
transportation business and finally our sourcing business.
The increase in transportation net revenue resulted primarily from an
increase in our truck transportation, including our short haul and
less-than-truckload business. The increase in transaction volume was driven by
significant expansion of business with current customers and from new domestic
and international customers.
Sourcing net revenues decreased by 6.5% due principally to the abnormal
growth of 22.0% shown in the first quarter of 1998 as compared to the first
quarter of 1997. Adverse weather conditions in major produce growing areas in
the first quarter of 1998 coupled with the strength of our branch network and
relationships with produce growers worldwide provided us with sources of produce
in this challenging market and provided growth to both our number of
transactions and our profit per transaction. No similar conditions existed in
the first quarter of 1999.
- 6 -
The increase in information services net revenue was the result of
significant growth in transaction volume with our existing customers.
Additionally, during the fourth quarter of 1998, we added many new customers to
our portfolio which contributed to the current growth.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 1999 were $50.1
million, an increase of 19.7% over $41.9 million for the three months ended
March 31, 1998. This increase was primarily due to increased costs associated
with our growth. Selling, general and administrative expenses as a percentage of
net revenues decreased to 74.8% for the three months ended March 31, 1999
compared to 75.8% for the three months ended March 31,1998. This decrease is due
primarily to a reduction in personnel expenses as a percentage of net revenues.
Our personnel expenses as a percentage of net revenues have historically been
highest in the first quarter of the year, with declining percentages each
quarter thereafter as a result of our compensation structure. With the strong
growth in this first quarter's profitability, these declining percentages were
slightly accelerated.
Income from Operations. Income from operations was $16.9 million for
the three months ended March 31, 1999, an increase of 25.2% over $13.4 million
for the three months ended March 31, 1998. Income from operations as percent of
net revenue were 25.2% and 24.2% for the three months ended March 31, 1999 and
1998.
Investment and Other Income. Investment and other income was $947,000
for the three months ended March 31, 1999, an increase of 92.9% from $491,000
for the three months ended March 31, 1998. Our cash and investments as of March
31, 1999 increased $51.2 million over the balance as of March 31, 1998 as a
result of our operations.
Provision for Income Taxes. The effective income tax rates for
continuing operations were 39.7% and 39.5% for the three months ended March 31,
1999 and 1998. The effective income tax rate for both periods is greater than
the statutory federal income tax rate primarily due to state income taxes, net
of federal benefit.
Net Income from Continuing Operations. Net income from continuing
operations was $10.8 million for the three months ended March 31, 1999, an
increase of 28.6% over $8.4 million for the three months ended March 31, 1998.
Net income from continuing operations per share increased by 30.0% to $0.26
(basic and diluted) for the three months ended March 31, 1999 compared to $0.20
(basic and diluted) for the three months ended March 31, 1998.
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 $94.0 million and $99.3 million and
available-for-sale securities totaled $29.2 million and $30.7 million as of
March 31, 1999 and December 31, 1998. Working capital at March 31, 1999 and
December 31, 1998 totaled $138.3 million and $135.2 million. We have had no
long-term debt for the last five years and 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.
We generated $2.2 million of positive cash flow from operations for the
three months ended March 31, 1999. This was due to net income generated for the
quarter, offset by annual employee bonus payments and profit sharing
contributions which occur in the first quarter of each year. We used $4.8
million of cash and cash equivalents for investing activities, including $7.3
million generated by sales and maturities of available-for-sale securities, $5.8
million spent on purchases of available-for-sale securities, $5.0 million spent
for acquisitions, net of cash acquired, and $1.5 million to fund capital
expenditures necessary for continued growth. We also used $2.7 million of cash
and cash equivalents for financing activities, primarily to pay quarterly cash
dividends. We have declared a $0.07 per share dividend payable to shareholders
of record as of March 8, 1999 payable on April 1, 1999.
- 7 -
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 5.9%, as of March 31, 1999. The lines of
credit renew annually and do not restrict the payment of dividends. There were
no borrowings under the lines of credit during the quarter ended March 31, 1999
or during 1998. 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 our systems to
ensure 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 process of completing all such testing on our systems,
with a majority of our testing to be completed by June 30, 1999.
Our existing fixed assets and payroll systems are not Year 2000
compliant. We are in process of replacing these systems. Our new fixed assets
system is currently operational and running parallel to our existing system,
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 will be available by June 30, 1999. We do not anticipate this to create
any implementation problems on our scheduled timeline.
In addition, we are not aware of any material relationships with any
customer, produce supplier or transportation carrier 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 duration and severity 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 $400,000 as of March 31,
1999. Our costs to replace the noncompliant systems mentioned above are not
included in the range, as these replacements
- 8 -
were planned to occur and we have not accelerated the replacement due to Year
2000 requirements. All other costs are being expensed as incurred.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We had approximately $123.2 million of cash and investments on March
31, 1999, approximately $94.0 million of which were cash and cash equivalents
and $29.2 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 the quarter ended March 31, 1999. 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.
Cautionary Statement Relevant to Forward-Looking Information
Our discussions and analysis of our financial condition and results of
operations, including our Year 2000 and market risk discussions, contain certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent our expectations or
beliefs, including, but not limited to, 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. When used in this Form 10-Q and in future filings by the Company
with the Securities and Exchange Commission, in our press releases,
presentations to securities analysts or investors, in oral statements made by or
with the approval of an executive officer of the Company, the words or phrases
"believes," "may," "will," "expects," "should," "continue," "anticipates,"
"intends," "will likely result," "estimates," "projects" or similar expressions
and variations thereof are intended to identify such forward-looking statements.
However, any statements contained in this Form 10-Q that are not statements of
historical fact may be deemed to be forward-looking statements. We caution that
these statements by their nature involve risks and uncertainties, certain of
which are beyond our control, and actual results may differ materially depending
on a variety of important factors, including those described in Exhibit 99 to
our Form 10-K filed with the Securities and Exchange Commission with respect to
the fiscal year ended December 31, 1998.
- 9 -
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings
In accordance with reporting requirements promulgated by the Securities
and Exchange Commission, the Company has no new information to report regarding
legal proceedings for this Quarterly Report on Form 10-Q.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1999.
- 10 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1999
C.H. ROBINSON WORLDWIDE, INC.
By /s/ D. R. Verdoorn
-----------------------------
D.R. Verdoorn
Chief Executive Officer
By /s/ Chad Lindbloom
-----------------------------
Chad Lindbloom
Controller
(principal accounting officer)
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule