Form 10-Q
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 SEPTEMBER 30, 2002
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, Eden Prairie, Minnesota
  
55344-2248
(Address of principal executive offices)
  
(Zip Code)
 
 
(952) 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 November 1, 2002, the number of outstanding shares of the registrant’s common stock was 84,486,679.
 


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)
 
ASSETS
  
September 30,
2002

    
December 31,
2001

 
    
(unaudited)
        
CURRENT ASSETS:
                 
Cash and cash equivalents
  
$
121,624
 
  
$
115,741
 
Short-term investments
  
 
25,098
 
  
 
 
Receivables, net of allowance for doubtful accounts of
$24,767 and $23,011
  
 
398,036
 
  
 
370,378
 
Deferred tax asset
  
 
13,024
 
  
 
12,164
 
Prepaid expenses and other
  
 
4,682
 
  
 
4,932
 
    


  


Total current assets
  
 
562,464
 
  
 
503,215
 
PROPERTY AND EQUIPMENT, net
  
 
27,848
 
  
 
30,920
 
INTANGIBLE AND OTHER ASSETS, net
  
 
161,916
 
  
 
149,355
 
    


  


Total assets
  
$
752,228
 
  
$
683,490
 
    


  


LIABILITIES AND STOCKHOLDERS’ INVESTMENT
                 
CURRENT LIABILITIES:
                 
Accounts payable
  
$
283,780
 
  
$
267,708
 
Accrued expenses –
                 
Compensation and profit-sharing contribution
  
 
29,432
 
  
 
32,098
 
Income taxes and other
  
 
23,810
 
  
 
23,722
 
    


  


Total current liabilities
  
 
337,022
 
  
 
323,528
 
LONG TERM LIABILITIES:
                 
Deferred tax liability
  
 
5,023
 
  
 
3,241
 
Non-qualified deferred compensation obligation
  
 
1,450
 
  
 
906
 
    


  


Total liabilities
  
 
343,495
 
  
 
327,675
 
    


  


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;
85,042 and 85,008 shares issued, 84,505 and 84,457 shares outstanding
  
 
8,450
 
  
 
8,446
 
Additional paid-in capital
  
 
97,491
 
  
 
99,551
 
Retained earnings
  
 
327,507
 
  
 
270,711
 
Deferred compensation
  
 
(6,549
)
  
 
(6,247
)
Cumulative other comprehensive loss
  
 
(2,606
)
  
 
(1,592
)
Treasury stock at cost (537 and 551 shares)
  
 
(15,560
)
  
 
(15,054
)
    


  


Total stockholders’ investment
  
 
408,733
 
  
 
355,815
 
    


  


Total liabilities and stockholders’ investment
  
$
752,228
 
  
$
683,490
 
    


  


 
The accompanying notes are an integral part of these condensed consolidated balance sheets.

2


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 September 30,

    
Nine Months
Ended September 30,

 
    
2002

    
2001

    
2002

    
2001

 
GROSS REVENUES
  
$
872,245
 
  
$
784,517
 
  
$
2,454,996
 
  
$
2,313,695
 
COST OF TRANSPORTATION AND PRODUCTS
  
 
749,161
 
  
 
671,325
 
  
 
2,096,745
 
  
 
1,969,191
 
    


  


  


  


GROSS PROFIT
  
 
123,084
 
  
 
113,192
 
  
 
358,251
 
  
 
344,504
 
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
                                   
Personnel expenses
  
 
59,234
 
  
 
55,325
 
  
 
176,754
 
  
 
169,033
 
Other selling, general, and administrative expenses
  
 
21,486
 
  
 
23,097
 
  
 
64,324
 
  
 
74,770
 
    


  


  


  


Total selling, general, and administrative expenses
  
 
80,720
 
  
 
78,422
 
  
 
241,078
 
  
 
243,803
 
    


  


  


  


INCOME FROM OPERATIONS
  
 
42,364
 
  
 
34,770
 
  
 
117,173
 
  
 
100,701
 
INVESTMENT AND OTHER INCOME
                                   
Interest income and other
  
 
422
 
  
 
2,685
 
  
 
1,343
 
  
 
3,961
 
Non-qualified deferred compensation investment loss
  
 
(242
)
  
 
(177
)
  
 
(483
)
  
 
(208
)
    


  


  


  


Total investment and other income
  
 
180
 
  
 
2,508
 
  
 
860
 
  
 
3,753
 
    


  


  


  


INCOME BEFORE PROVISION FOR INCOME TAXES
  
 
42,544
 
  
 
37,278
 
  
 
118,033
 
  
 
104,454
 
PROVISION FOR INCOME TAXES
  
 
16,593
 
  
 
14,650
 
  
 
46,034
 
  
 
41,050
 
    


  


  


  


NET INCOME
  
 
25,951
 
  
 
22,628
 
  
 
71,999
 
  
 
63,404
 
OTHER COMPREHENSIVE LOSS:
                                   
Foreign currency translation adjustment
  
 
(122
)
  
 
(86
)
  
 
(1,014
)
  
 
(261
)
    


  


  


  


COMPREHENSIVE INCOME
  
$
25,829
 
  
$
22,542
 
  
$
70,985
 
  
$
63,143
 
    


  


  


  


BASIC NET INCOME PER SHARE
  
$
0.31
 
  
$
0.27
 
  
$
0.85
 
  
$
0.75
 
    


  


  


  


DILUTED NET INCOME PER SHARE
  
$
0.30
 
  
$
0.26
 
  
$
0.84
 
  
$
0.74
 
    


  


  


  


BASIC WEIGHTED AVERAGE SHARES OUTSTANDING
  
 
84,292
 
  
 
84,294
 
  
 
84,302
 
  
 
84,339
 
DILUTIVE EFFECT OF OUTSTANDING STOCK AWARDS
  
 
1,208
 
  
 
1,400
 
  
 
1,429
 
  
 
1,437
 
    


  


  


  


DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
  
 
85,500
 
  
 
85,694
 
  
 
85,731
 
  
 
85,776
 
    


  


  


  


 
The accompanying notes are an integral part of these condensed consolidated statements.

3


C.H. ROBINSON WORLDWIDE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
    
Nine Months Ended
September 30,

 
    
2002

    
2001

 
OPERATING ACTIVITIES:
                 
Net income
  
$
71,999
 
  
$
63,404
 
Adjustments to reconcile net income to net cash provided by operating activities–
                 
Depreciation and amortization
  
 
10,661
 
  
 
14,417
 
Deferred compensation expense
  
 
688
 
  
 
549
 
Deferred income taxes
  
 
922
 
  
 
9,453
 
Loss (gain) on sale of assets
  
 
521
 
  
 
(996
)
Changes in operating elements–
                 
Receivables
  
 
(24,774
)
  
 
(31,927
)
Prepaid expenses and other
  
 
260
 
  
 
(1,313
)
Accounts payable
  
 
14,764
 
  
 
(5,009
)
Accrued compensation and profit sharing contribution
  
 
(2,670
)
  
 
(8,814
)
Accrued income taxes and other
  
 
88
 
  
 
(3,107
)
    


  


Net cash provided by operating activities
  
 
72,459
 
  
 
36,657
 
    


  


INVESTING ACTIVITIES:
                 
Purchases of property and equipment
  
 
(5,924
)
  
 
(15,296
)
Sales of property and equipment
  
 
 
  
 
5,000
 
Purchases of available for sale securities, net
  
 
(25,098
)
  
 
 
Cash paid for acquisitions, net
  
 
(15,716
)
  
 
 
Change in other assets/liabilities, net
  
 
(1,086
)
  
 
(1,136
)
    


  


Net cash used for investing activities
  
 
(47,824
)
  
 
(11,432
)
    


  


FINANCING ACTIVITIES:
                 
Stock issued for employee benefit plans
  
 
6,057
 
  
 
4,071
 
Repurchase of common stock
  
 
(9,608
)
  
 
(9,978
)
Cash dividends
  
 
(15,201
)
  
 
(12,678
)
    


  


Net cash used for financing activities
  
 
(18,752
)
  
 
(18,585
)
    


  


Net increase in cash and cash equivalents
  
 
5,883
 
  
 
6,640
 
CASH AND CASH EQUIVALENTS, beginning of period
  
 
115,741
 
  
 
79,912
 
    


  


CASH AND CASH EQUIVALENTS, end of period
  
$
121,624
 
  
$
86,552
 
    


  


 
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 leading global provider of multimodal transportation services and logistics solutions, operating through a network of 146 offices in North America, South America, Europe and Asia. 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 nine months ended September 30, 2002 and 2001 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 accounting principles generally accepted in the United States have been condensed or omitted from these statements. The condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes included in our Annual Report on Form 10-K.
 
2.
 
N ew Accounting Pronouncements
 
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS No. 142. Other intangible assets will continue to be amortized over their useful lives. We adopted SFAS No. 142 effective January 1, 2002.
 
As of September 30, 2002, we had goodwill and other intangible assets of $157.2 million that are subject to the provisions of SFAS No. 142 consisting of $155.6 million of unamortizable goodwill and intangible assets and $1.6 million of other amortizable intangible assets. We completed an impairment test to determine the impact of adopting SFAS No. 142 on our earnings and financial position. This impairment test did not result in any impairment losses. Had SFAS No. 141 and 142 been effective January 1, 2001, net income and earnings per share would have been reported as the following amounts (in thousands, except per share data):

5


 
    
Three Months Ended
September 30,

  
Nine Months Ended
September 30,

    
2002

  
2001

  
2002

  
2001

Reported net income
  
$
25,951
  
$
22,628
  
$
71,999
  
$
63,404
Add: Goodwill amortization, net of tax
  
 
—  
  
 
780
  
 
—  
  
 
2,340
    

  

  

  

Adjusted net income
  
$
25,951
  
$
23,408
  
$
71,999
  
$
65,744
Reported basic earnings per share
  
$
0.31
  
$
0.27
  
$
0.85
  
$
0.75
Add: Goodwill amortization, net of tax
  
 
—  
  
 
0.01
  
 
—  
  
 
0.03
    

  

  

  

Adjusted basic earnings per share
  
$
0.31
  
$
0.28
  
$
0.85
  
$
0.78
Reported diluted earnings per share
  
$
0.30
  
$
0.26
  
$
0.84
  
$
0.74
Add: Goodwill amortization, net of tax
  
 
—  
  
 
0.01
  
 
—  
  
 
0.03
    

  

  

  

Adjusted diluted earnings per share
  
$
0.30
  
$
0.27
  
$
0.84
  
$
0.77
 
Amortization expense for the three month and nine month periods ended September 30, 2002 was $163,000 and $539,000 respectively. Estimated amortization expense for each of the five succeeding fiscal years based on the intangible assets as of September 30, 2002 is as follows:
 
2002
  
$698,000
2003
  
  577,000
2004
  
  546,000
2005
  
  162,000
2006
  
  162,000
 
In August 2001, the FASB issued SFAS No. 143 (SFAS 143), Accounting for Asset Retirement Obligations, which is effective January 1, 2003. SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. We are currently in the process of evaluating this standard but do not believe that adoption will have an effect on our consolidated results of operations, financial position or cash flows.
 
In September 2001, the FASB issued SFAS No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, it retains many of the fundamental provisions of that statement. The adoption of this standard on January 1, 2002 did not have an effect on our historical consolidated results of operations, financial position and cash flows.
 
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The provisions of this statement are effective for exit or disposal activities initiated after December 31, 2002. The Company expects that adoption of this statement will not have a significant impact on the Company’s consolidated financial statements.
 
3.
 
Litigation
 
The Company, along with T-J Transport, Inc., a carrier hired by the Company, among others, is named as a defendant in three wrongful death lawsuits, stemming from a multi-vehicle accident, that are currently pending in the Circuit Court for the Third Circuit in Madison County, Illinois. The plaintiffs, representing the estates of the deceased, have asserted liability based on the alleged negligence in the hiring of the truck driver involved in the accident. Each plaintiff seeks an unspecified amount of compensatory and punitive damages. The Circuit Court granted in a pre-trial motion partial summary judgment in favor of the plaintiffs finding that the Company is

6


 
vicariously liable for the actions of the truck driver. The Company requested the Illinois Supreme Court to intervene and reverse the partial summary judgment, but the Company’s request for immediate relief has been denied. The first of the three cases is now scheduled to go to trial in December. The Company denies all allegations and is vigorously defending the suit, and intends to appeal the finding of vicarious liability. Currently, the amount of any possible loss to the Company cannot be estimated; however, an unfavorable result could have a material adverse effect.
 
Recently, the Company was named as a defendant in two lawsuits by a number of present and former employees of the Company. The first lawsuit alleges a hostile working environment, unequal pay, promotions and opportunities for women and failure to pay overtime. The second lawsuit alleges a failure to pay overtime. The plaintiffs in both lawsuits seek unspecified monetary and non-monetary damages and class action certification. The Company denies all allegations and is vigorously defending the suits. Currently, the amount of any possible loss to the Company cannot be estimated; however, an unfavorable result could have a material adverse effect.
 
In addition to the litigation noted above, the Company is engaged in routine litigation arising in the ordinary course of its business operations, none of which is expected to have a material adverse effect on the financial condition or results of operations of the Company.
 
ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion of our financial condition and results of operations should be read in conjunction with our 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, rail, 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 gross profit (gross revenues less the direct cost of transportation, products, and handling) is the primary indicator of our ability to source, add value and resell services and products that are provided by third parties, and is considered by management to be our primary performance measurement. Accordingly, the discussion of results of operations below focuses on the changes in our gross profit. Prior to our 2001 Annual Report filed on Form 10-K, gross profit was referred to as net revenues in our financial statements, company materials, and reports filed with the SEC.
 
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 income from operations has been lower in the first quarter than in the other three quarters. Seasonality in the transportation industry has not had a significant impact on our results of operations or our cash flows in recent years. Also, inflation has not materially affected our operations due to the short-term, transactional basis of our business. However, we cannot fully predict the impact seasonality and inflation may have in the future.

7


 
Results of Operations
 
The following table summarizes our gross profit by service line:
 
    
Three Months Ended
September 30,

    
Nine Months Ended
September 30,

 
    
2002

  
2001

  
%
change

    
2002

  
2001

  
%
change

 
Gross profit (in thousands)
                                         
Transportation:
                                         
Truck
  
$
90,999
  
$
86,516
  
5.2
%
  
$
266,675
  
$
263,682
  
1.1
%
Intermodal
  
 
5,736
  
 
4,053
  
41.5
 
  
 
14,970
  
 
11,647
  
28.5
 
Ocean
  
 
4,339
  
 
3,649
  
18.9
 
  
 
12,479
  
 
11,158
  
11.8
 
Air
  
 
830
  
 
538
  
54.3
 
  
 
2,229
  
 
1,993
  
11.8
 
Miscellaneous
  
 
2,298
  
 
1,924
  
19.4
 
  
 
6,453
  
 
5,302
  
21.7
 
    

  

         

  

      
Total transportation
  
 
104,202
  
 
96,680
  
7.8
 
  
 
302,806
  
 
293,782
  
3.1
 
Sourcing
  
 
12,105
  
 
11,186
  
8.2
 
  
 
36,447
  
 
35,152
  
3.7
 
Information services
  
 
6,777
  
 
5,326
  
27.2
 
  
 
18,998
  
 
15,570
  
22.0
 
    

  

         

  

      
Total
  
$
123,084
  
$
113,192
  
8.7
%
  
$
358,251
  
$
344,504
  
4.0
%
    

  

         

  

      
 
The following table represents certain statement of operations data shown as percentages of our gross profit:
 
    
Three Months Ended
September 30,

    
Nine Months Ended
September 30,

 
    
2002

    
2001

    
2002

    
2001

 
Gross profit
  
100.0
%
  
100.0
%
  
100.0
%
  
100.0
%
Selling, general, and administrative expenses
                           
Personnel expenses
  
48.1
 
  
48.9
 
  
49.3
 
  
49.1
 
Other selling, general, and administrative expenses
  
17.5
 
  
20.4
 
  
18.0
 
  
21.7
 
    

  

  

  

Total selling, general, and administrative expenses
  
65.6
 
  
69.3
 
  
67.3
 
  
70.8
 
Income from operations
  
34.4
 
  
30.7
 
  
32.7
 
  
29.2
 
Investment and other income
                           
Interest income and other
  
0.3
 
  
2.4
 
  
0.4
 
  
1.1
 
Non-qualified deferred compensation investment loss
  
(0.2
)
  
(0.2
)
  
(0.1
)
  
(0.1
)
    

  

  

  

Total investment and other income
  
0.1
 
  
2.2
 
  
0.2
 
  
1.1
 
Income before provision for income taxes
  
34.6
 
  
32.9
 
  
32.9
 
  
30.3
 
Provision for income taxes
  
13.5
 
  
12.9
 
  
12.8
 
  
11.9
 
    

  

  

  

Net income
  
21.1
%
  
20.0
%
  
20.1
%
  
18.4
%
    

  

  

  

 
Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001
 
Revenues. Gross revenues for the three months ended September 30, 2002 were $872.2 million, an increase of 11.2% over gross revenues of $784.5 million for the three months ended September 30, 2001. Gross profit for the three months ended September 30, 2002 was $123.1 million, an increase of 8.7% over gross profit of $113.2 million for the three months ended September 30, 2001. This was a result of an increase in transportation gross profit of 7.8% to $104.2 million, an increase in sourcing gross profit of 8.2% to $12.1 million, and an increase in information services gross profit of 27.2% to $6.8 million. The gross profit margin, or gross profit as a percentage of gross

8


 
revenues, varies by service line. Information services has the highest gross profit margin, followed by transportation, and finally sourcing.
 
Transportation gross profit was 84.7% of our total gross profit for the quarter. Our transportation gross profit increased 7.8% as a result of gross profit increases in all modes of transportation. The increase in our truck transportation business of 5.2% was driven by volume growth, as gross profit per transaction declined due to rising costs of capacity. Intermodal, air and ocean growth was due to increased volume and gross profit per transaction.
 
Sourcing gross profit increased 8.2% in the third quarter. We continue to see increases in volume and gross profit with large retailers, offset by the trend of less volume with our traditional business with produce wholesalers.
 
Information services gross profit increased 27.2% for the third quarter, primarily due to significant transaction growth.
 
Selling, General, and Administrative Expenses. Personnel expenses for the three months ended September 30, 2002 were $59.2 million, an increase of 7.1% over personnel expenses of $55.3 million for the three months ended September 30, 2001. Personnel expenses as a percentage of gross profit decreased to 48.1% for the three months ended September 30, 2002 compared to 48.9% for the three months ended September 30, 2001. Personnel expenses as a percentage of gross profit declined as we continue to aggressively manage costs in our decentralized, profit-based compensation structure.
 
Other selling, general, and administrative expenses for the three months ended September 30, 2002 were $21.5 million, a decrease of 7.0% from $23.1 million for the three months ended September 30, 2001. Amortization of goodwill and certain intangible assets has been eliminated due to the adoption of a new accounting standard effective January 1, 2002, which reduced amortization expense by $1.3 million in the third quarter. In addition, we had notable declines in communications costs and travel expenses.
 
Income from Operations. Income from operations was $42.4 million for the three months ended September 30, 2002, an increase of 21.8% over $34.8 million for the three months ended September 30, 2001. Income from operations as a percentage of gross profit was 34.4% and 30.7% for the three months ended September 30, 2002 and 2001.
 
Investment and Other Income. Interest and other income was $422,000 for the three months ended September 30, 2002, a decrease of 84.3% from $2.7 million for the three months ended September 30, 2001. The results from 2001 include $2.0 million from unusual items, principally a gain on sale. Non-qualified deferred compensation investment loss was $242,000 for the three months ended September 30, 2002, an increase of 36.7% from a loss of $177,000 for the three months ended September 30, 2001.
 
Provision for Income Taxes. Our effective income tax rates were 39.0% and 39.3% for the three months ended September 30, 2002 and 2001. The effective income tax rate for both periods is greater than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit.
 
Net Income. Net income was $26.0 million for the three months ended September 30, 2002, an increase of 14.7% over $22.6 million for the three months ended September 30, 2001. Basic net income per share increased by 14.8% to $0.31 from $0.27 per share in 2001. Diluted net income per share increased 15.4% to $0.30 from $0.26 per share in 2001.
 
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001
 
Revenues. Gross revenues for the nine months ended September 30, 2002 were $2.45 billion, an increase of 6.1% over gross revenues of $2.31 billion for the nine months ended September 30, 2001. Gross profit for the nine months ended September 30, 2002 was $358.3 million, an increase of 4.0% over gross profit of $344.5 million for the nine months ended September 30, 2001. This was a result of an increase in transportation gross profit of 3.1% to $302.8 million, an increase in sourcing gross profit of 3.7% to $36.4 million and an increase in information services gross profit of 22.0% to $19.0 million. The gross profit margin, or gross profit as a percentage of gross revenues,

9


 
varies by service line. Information services has the highest gross profit margin, followed by transportation, and finally sourcing.
 
Transportation gross profit was 84.5% of our total gross profit for the period. Our transportation gross profit increased 3.1% during the nine months ended September 30, 2002, as a result of gross profit increases in all modes of transportation. The increase in our truck transportation business of 1.1% was driven by volume growth, as gross profit per transaction declined due to rising costs of capacity. Intermodal, air and ocean growth was due to increased volume and gross profit per transaction.
 
Sourcing gross profit increased 3.7% during the nine months ended September 30, 2002. We continue to see increases in volume and gross profits with large retailers, offset by the trend of less volume with our traditional business with produce wholesalers
 
Information services gross profit increased 22.0% for the nine months ended September 30, 2002. This increase is due to significant transaction growth and an increase in average fees per transaction.
 
Selling, General, and Administrative Expenses. Personnel expenses for the nine months ended September 30, 2002 were $176.8 million, an increase of 4.6% over personnel expenses of $169.0 million for the nine months ended September 30, 2001. Personnel expenses as a percentage of gross profit increased to 49.3% for the nine months ended September 30, 2002 compared to 49.1% for the nine months ended September 30, 2001 due to an increase in headcount and health insurance costs.
 
Other selling, general, and administrative expenses for the nine months ended September 30, 2002 were $64.3 million, a decrease of 14.0% from $74.8 million for the nine months ended September 30, 2001. Amortization of goodwill and certain intangible assets has been eliminated due to the adoption of a new accounting standard effective January 1, 2002, which reduced amortization expense by $3.9 million for the nine months ended September 30, 2002. In addition, we had notable declines in communications costs, travel expenses, and contractor costs.
 
Income from Operations. Income from operations was $117.2 million for the nine months ended September 30, 2002, an increase of 16.4% over $100.7 million for the nine months ended September 30, 2001. Income from operations as a percentage of gross profit was 32.7% and 29.2% for the nine months ended September 30, 2002 and 2001.
 
Investment and Other Income. Interest and other income was $1.3 million for the nine months ended September 30, 2002, a decrease of 66.1% from $4.0 million for the nine months ended September 30, 2001. The results from 2001 include $2.0 million from unusual items, principally a gain on sale. Non-qualified deferred compensation investment loss was $483,000 for the nine months ended September 30, 2002, an increase of 132.2% from a loss of $208,000 for the nine months ended September 30, 2001.
 
Provision for Income Taxes. Our effective income tax rates were 39.0% and 39.3% for the nine months ended September 30, 2002 and 2001. The effective income tax rate for both periods is greater than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit.
 
Net Income. Net income was $72.0 million for the nine months ended September 30, 2002, an increase of 13.6% over $63.4 million for the nine months ended September 30, 2001. Basic net income per share increased by 13.3% to $0.85 from $0.75 per share in 2001. Diluted net income per share increased 13.5% to $0.84 from $0.74 per share in 2001.
 
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 $121.6 million and $115.7 million as of September 30, 2002 and December 31, 2001. We also had $25.1 million of available-for-sale

10


 
securities on September 30, 2002. These securities are made up of tax exempt, high quality, short-term maturity bonds.
 
We generated $72.5 million and $36.7 million of cash flow from operations for the nine months ended September 30, 2002 and 2001. We completed a one-year phase out of our freight payment services subsidiary in June 2001, which had a negative $23.2 million impact on our operating cash flow during 2001. At December 31, 2000, this business had $25.4 million in payables and $2.2 million in receivables.
 
We used $47.8 million and $11.4 million of cash and cash equivalents for investing activities for the nine months ended September 30, 2002 and 2001. In January 2002, we acquired the operating assets and certain liabilities of Smith Terminal Transportation Services (FTS) for $15.7 million. In July 2002, we purchased $25.1 million of available for sale securities. These securities are tax exempt, high quality, and short-term in nature. For the nine months ended September 30, 2002 and 2001, we purchased $5.9 million and $10.2 million of property and equipment, consisting primarily of computers and related equipment.
 
We used $18.8 million and $18.6 million of cash and cash equivalents for financing activities for the nine months ended September 30, 2002 and 2001, primarily to pay quarterly cash dividends and to repurchase common stock. We declared a $0.06 per share dividend payable to shareholders of record as of September 6, 2002 that was paid on October 1, 2002.
 
We had a $40.0 million line of credit at an interest rate of LIBOR plus 60 basis points, which we terminated during the third quarter of 2001. During 2001, we borrowed $9.0 million on one day, all of which was repaid the following business day. We believe we could obtain a similar line of credit on short notice if needed.
 
We also have 3 million Euros (formerly denominated in French francs) available under a line of credit at an interest rate of Euribor plus 45 basis points (3.72% at September 30, 2002). This discretionary line of credit has no expiration date. As of September 30, 2002, we had no outstanding balance on this facility. As of September 30, 2001, the outstanding balance was 13.4 million French francs or $1.9 million, which is included in income taxes and other current liabilities. Our credit agreement contains certain financial covenants, but does not restrict the payment of dividends. We were in compliance with all covenants of this agreement as of September 30, 2002.
 
Assuming no change in our current business plan, management believes that our available cash, together with expected future cash generated from operations and the amounts available under our line of credit, will be sufficient to satisfy our anticipated needs for working capital, capital expenditures and cash dividends for all future periods. However, an unfavorable result in the outstanding litigation described in Part II, Item 1 of this Form 10-Q may have a material adverse impact on future available cash.
 
Critical Accounting Policies
 
Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in our 2001 Annual Report on Form 10-K. The accounting policies used in preparing our interim 2002 condensed consolidated financial statements are the same as those described in our annual report, except as described in Note 2 of this report, “New Accounting Pronouncements,” which we consider to be one of our critical accounting policies.
 
In preparing the financial statements, we follow accounting principles generally accepted in the United States of America, which in many cases require us to make assumptions, estimates and judgments that affect the amounts reported. Many of these policies are relatively straightforward. There are, however, a few policies that are critical because they are important in determining the financial condition and results of operations and they can be difficult to apply. Our critical accounting policies include those related to the collectibility of accounts receivable, revenue recognition, and the evaluation of long-lived assets, including goodwill, for impairment.
 
New Accounting Pronouncements
 
See Note 2 of the notes to the condensed consolidated financial statements for a discussion on new accounting pronouncements.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We had approximately $121.6 million of cash and cash equivalents on September 30, 2002, all of which were cash and cash equivalents. Substantially all of the cash equivalents are money market securities from domestic issuers or bonds maturing in less than ninety days. In addition, we had approximately $25.1 million in short-term investments. Because of the credit risk criteria of our investment policies, the primary market risk associated with these investments is interest rate risk. We do not use derivative financial instruments to manage interest rate risk or to speculate on future changes in interest rates. A rise in interest rates could negatively affect the fair value of our investments. We believe a reasonable near-term change in interest rates would not have a material impact on our future earnings due to the short-term nature of our investing practices.
 
ITEM 4.    CONTROLS AND PROCEDURES
 
(a)
 
Evaluation of disclosure controls and procedures.
 
Under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act) as of a date (the “Evaluation Date”) within 90 days prior to the filing date of this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic SEC filings.
 
(b)
 
Changes in internal controls.
 
There were no significant changes made in our internal controls during the period covered by this report or, to our knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation.
 
Cautionary Statement Relevant to Forward-Looking Information
 
Our discussions and analysis of our financial condition and results of operations, including our 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 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, but not limited to such factors as market demand, pricing, and risks associated with litigation and insurance coverage, and risks associated with operations outside of the U.S., changing economic conditions such as general economic slowdown and decreased consumer confidence, and other risk factors 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, 2001.

12


PART II — OTHER INFORMATION
 
ITEM 1.    Legal Proceedings
 
From time to time, the Company is engaged in routine litigation arising in the ordinary course of its business operations, for which the Company maintains insurance in amounts deemed prudent. The Company, along with T-J Transport, Inc., a carrier hired by the Company, among others, is named as a defendant in three wrongful death lawsuits, stemming from a multi-vehicle accident, that are currently pending in the Circuit Court for the Third Circuit in Madison County, Illinois. The plaintiffs, representing the estates of the deceased, have asserted liability based on the alleged negligence in the hiring of the truck driver involved in the accident. Each plaintiff seeks an unspecified amount of compensatory and punitive damages. The Circuit Court granted in a pre-trial motion partial summary judgment in favor of the plaintiffs finding that the Company is vicariously liable for the actions of the truck driver. The Company requested the Illinois Supreme Court to intervene and reverse the partial summary judgment, but the Company’s request for immediate relief has been denied. The first of the three cases is now scheduled to go to trial in December. The Company denies all allegations and is vigorously defending the suit, and intends to appeal the finding of vicarious liability. Currently, the amount of any possible loss to the Company cannot be estimated; however, an unfavorable result could have a material adverse effect.
 
From time to time, the Company is also involved in litigation arising out of its employment relationships. On October 2, 2002, the Company was named as a defendant in a lawsuit filed in the United States District Court for the District of Minnesota by a number of present and former female employees of the Company. The lawsuit alleges a hostile working environment, unequal pay, promotions and opportunities for women and failure to pay overtime. The plaintiffs seek unspecified monetary and non-monetary damages and class action certification. The Company denies all allegations and is vigorously defending the suit. Currently, the amount of any possible loss to the Company cannot be estimated; however, an unfavorable result could have a material adverse effect.
 
On November 7, 2002, the Company was named as a defendant in a lawsuit filed in the United States District Court for the District of Minnesota by former employees of the Company. The lawsuit alleges systematic failure by the Company to pay for overtime hours worked by its male employees under the federal Fair Labor Standards Act (FLSA). The suit seeks payment of the overtime wages earned, as well as double damages and other relief, on behalf of the plaintiffs and potential collective members who join in the lawsuit. The Company denies all allegations and is vigorously defending the suit. Currently, the amount of any possible loss to the Company cannot be estimated; however, an unfavorable result could have a material adverse effect.
 
The Company is currently not otherwise subject to any pending litigation other than routine litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on the business, financial condition or results of operations of the Company.
 
ITEM 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.

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ITEM 6.    Exhibits and Reports on Form 8-K
 
(a)
 
Exhibits
 
None.
 
(b)
 
Reports on Form 8-K
 
A report on Form 8-K was filed by the Company on July 24, 2002; such report contained information under Item 9 (Regulation FD) and included as an exhibit under Item 7 a copy of the Company’s earnings release for the quarter ended June 30, 2002.
 
A report on Form 8-K was filed by the Company on August 13, 2002; such report contained information under Item 9 (Regulation FD) and included as an exhibit under Item 7 a copy of the sworn statements of its Chief Executive Officer and Chief Financial Officer pursuant to the Commission’s order of June 27, 2002, requiring the filing of sworn statements pursuant to Section 21(a)(1) of the Securities Exchange Act of 1934, and a copy of the certifications of the Chief Executive Officer and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

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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:    November 14, 2002
 
 
C.H. ROBINSON WORLDWIDE, INC.
By
 
/s/    John P. Wiehoff

   
John P. Wiehoff
Chief Executive Officer
 
 
By
 
/s/    THOMAS K. MAHLKE

   
Thomas K. Mahlke
Controller
(principal accounting officer)

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Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
 
I, John P. Wiehoff, certify that:
 
 
1.
 
I have reviewed this quarterly report on Form 10-Q of C.H. Robinson Worldwide, Inc.;
 
 
2.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
 
3.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
 
4.
 
This registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 
a)
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
 
b)
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
 
c)
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 
5.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
 
 
a)
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and
 
 
b)
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
 
6.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Date:    November 14, 2002
 
 
/s/    JOHN P. WIEHOFF

Name:
 
John P. Wiehoff
Title:
 
Chief Executive Officer

16


Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
 
I, Chad M. Lindbloom, certify that:
 
 
1.
 
I have reviewed this quarterly report on Form 10-Q of C.H. Robinson Worldwide, Inc.;
 
 
2.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
 
3.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
 
4.
 
This registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 
a)
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
 
b)
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
 
c)
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 
5.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
 
 
d)
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and
 
 
e)
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
 
6.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
Date:    November 14, 2002
 
 
/s/    CHAD M. LINDBLOOM

Name:
 
Chad M. Lindbloom
Title:
 
Chief Financial Officer

17