October 19, 2007 Statement by Public Warehousing Co

Business Wire, Oct 20, 2007

WASHINGTON -- Working under a "subsistence prime vendor" (SPV) contract since 2003, PWC has proudly provided food to the men and women serving in Iraq and Kuwait, a tradition of excellence that continues to this day. More than 30 PWC employees have been killed and 200 injured carrying out the extremely dangerous work of providing food for U.S. troops in a war zone, primarily in attacks on convoys that have destroyed more than 300 trucks and damaged another 700.

Recent misinformation regarding PWC's work for the U.S. government under this essential program requires clarification. Much of the inaccurate information surrounding the government investigation - an inquiry inappropriately being developed through the media - stems from an acute misunderstanding of government contracting, the SPV Program, and the food supply business. This misinformation inhibits a full understanding of our business and tarnishes one of the world's largest and most successful food supply programs.

PWC does not have the ability to set the prices that food suppliers charge for their products. As part of its internal due diligence processes, PWC whenever possible does negotiate with these suppliers to make certain it is providing the best value to the U.S. taxpayers and products of the highest quality to the troops.

Approximately 50 percent of the products purchased are bought at the direction of the government through a process referred to as "hard spec'ing" or "source verifying." This process - which includes extensive testing by U.S. government food service experts in areas such as quality, serviceability and price - identifies brand-name sources for purchase. Once an item is "hard spec'd," the government directs PWC to purchase a specific good from a specific supplier at a predetermined price.

Additionally, food companies, like other manufacturers, independently set the prices for their products and provide these prices via catalogs and quotations to all Prime Vendors - contractors like PWC - and to the U.S. government, meaning that the government, which also deals with most of these vendors on numerous other food contracts, has always had complete insight into food pricing.

The price that PWC charges the government is the cost that it was charged by the food supplier, plus a distribution fee that includes PWC's costs and services. These costs and services include warehousing, security and delivery of the product to the end customer at various locations in Iraq. PWC's distribution fee is set through competitive bidding and is adjusted only through negotiation with and approval by the government.

In some of the recent information referring to PWC, terms like "rebates" and "refunds" and "discounts" have been used incorrectly to suggest improper behavior. In reality, PWC receives prompt payment discounts if it pays its suppliers within short time frames negotiated with some of its suppliers. Prompt payment discounts are a proper and standard industry practice. Indeed, the U.S. government often negotiates prompt payment discounts on its own contracts with vendors. While rebates and discounts based on the volume of government purchases are due back to the government, prompt payment discounts are not.

In fact, on October 26, 2006, the contracting officer with authority over PWC's contract wrote an email to PWC explicitly stating: "Discounts or rebates received by the prime vendor from its suppliers as a result of a prompt or early payment made by the prime vendors to such suppliers are not required to be passed to DSCP or its customers."

Additionally, since November 2006, government solicitations have included the following language: "the terms 'rebates' and 'discounts' do not include any discounts or rebates received by the Prime Vendor due to early or prompt payments to suppliers. Discounts or rebates received by the prime vendor from its suppliers as a result of a prompt or early payment made by the prime vendors to such suppliers are not required to be passed to DSCP or its customers." This language used by the U.S. government supports both the historical and factual basis of PWC's position, and that of other Prime Vendors.

Regarding references to The Sultan Center (TSC): It is Kuwait's largest independent retailer and a leading supplier of supermarket items in the Middle East. Its stock is traded publicly on the Kuwait Stock Exchange. In addition to its vast selection of food items and ability to provide large volumes of product locally, TSC is an approved U.S. government food vendor and has provided food to the U.S. government for many years - well before PWC began working for the U.S. government on Prime Vendor contracts. Altogether, these factors made TSC the clear choice as PWC sought a primary vendor for its contracts to provide perishable food and other local market ready (LMR) items to the U.S. military.

PWC informed the government from the earliest stages of the Prime Vendor procurement that TSC would be the primary vendor for local market ready items, and listed TSC no fewer than eight times in its Prime Vendor I proposal and 10 times in its Prime Vendor II proposal. In fact, as a result of TSC's vast experience delivering food throughout the Middle East, its preexisting working relationship with the U.S. government, and its compliance with the government's requirement that the LMR supplier must be on an approved list of suppliers, PWC believes that the participation of such a qualified partner contributed to its ability to win these competitively bid contracts with the U.S. government.