Customs brokerage and import services revenues increased 3% in 2001 as compared with 2000 as a result of (1) the Company’s growing reputation for providing high quality service, (2) consolidation within the customs brokerage market as customers seek out customs brokers with more sophisticated computerized capabilities critical to an over- all logistics management program, and (3) the growing importance of distribution services as a separate and distinct service offered to existing and potential customers. Distribution services accounted for nearly 36% of the increase in customs brokerage and import services revenues for 2001 compared with 2000. Salaries and related costs increased in 2001 compared to 2000 as a result of (1) the Company’s increased hiring of sales, operations, and administrative personnel in exist- ing and new offices to accommodate increases in business activity and (2) increased compensation levels. Salaries and related costs increased 1% as a percentage of net revenues. The relatively consistent relationship between salaries and net revenues is the result of a compensation philosophy that has been maintained since the inception of the Company: offer a modest base salary and the opportunity to share in a fixed and determinable percentage of the operating profit of the business unit controlled by each key employee. Using this compensation model, changes in individual compensation will occur in proportion to changes in Company profits. Management believes that the growth in revenues, net revenues and net earnings for 2001 are a result of the incen- tives inherent in the Company’s compensation program. Other operating expenses increased in 2001 as compared with 2000 as rent expense, communications expense, quality and training expenses, and other costs expanded to accommodate the Company’s growing operations. Other operating expenses as a per- centage of net revenues decreased 2% in 2001 as compared with 2000. Management believes that this decrease was significant as it reflects the successful achievement of cost containment objectives initiated at the branch level. The ability to sustain these savings into future periods is contingent upon branch level management’s ability to adhere to these objectives. Other income, net, increased in 2001 as compared to 2000 primarily due to interest income earned on higher cash balances and short-term investments in 2001. Manage- ment attributes higher cash balances, in large part, to the success of cash management and billing improvement initiatives. The Company pays income taxes in the United States and other jurisdictions, as well as other taxes which are typically included in costs of operations. The Company’s con- solidated effective income tax rate in 2001 was 37%, down marginally from the 37.7% rate experienced in the prior year. The .7% decrease was caused primarily by a reduc- tion in state tax expense required to be paid by the Company. 79 expd 02 MD&A