Washington, D.C. 20549
C.H. ROBINSON WORLDWIDE, INC.
NOTE 3. FAIR VALUE MEASUREMENT
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.
NOTE 4. FINANCING ARRANGEMENTS
The Credit Agreement also contains customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then the administrative agent may declare any outstanding obligations underOn November 19, 2021, we amended the Credit Agreement to be immediately dueamong other things, facilitate the terms of the Receivables Securitization Facility and payable.include provisions for benchmark replacements to LIBOR.
On August 23, 2013, we entered into a Note Purchase Agreement with certain institutional investors (the “Purchasers”) named therein (the “Note Purchase Agreement”). Pursuant to the Note Purchase Agreement,On August 27, 2013, the Purchasers purchased on August 27, 2013, (i) $175,000,000an aggregate principal amount of the company’s 3.97 percent$500 million of our Senior Notes, Series A, due August 27, 2023 (the “Series A Notes”), (ii) $150,000,000 aggregate principal amount of the company’s 4.26 percent Senior Notes Series B, due August 27, 2028 (the “Series B Notes”), and (iii) $175,000,000 aggregate principal amount of the company’s 4.60 percent Senior Notes Series C due August 27, 2033 (the “Series C Notes” and, together with the Series A Notes and the Series B Notes,(collectively, the “Notes”). Interest on the Notes is payable semi-annually in arrears. We applied the proceeds of the saleThe fair value of the Notes approximated $477.9 million on June 30, 2022. We estimate the fair value of the Notes primarily using an expected present value technique, which is based on observable market inputs using interest rates currently available to companies of similar credit standing for share repurchases.similar terms and remaining maturities, and considering our own risk. If the Notes were recorded at fair value, they would be classified as Level 2.
Under the terms of the Note Purchase Agreement, the Notes are redeemable, in whole or in part, at 100 percent of the principal amount being redeemed together with a “make-whole amount” (as defined in the Note Purchase Agreement), and accrued and unpaid interest with respect to each Note. The obligations of the company under the Note Purchase Agreement and the Notes
are guaranteed by C.H. Robinson Company, a Delaware corporation and a wholly-owned subsidiary of the company, and by C.H. Robinson Company, Inc., a Minnesota corporation and an indirect wholly-owned subsidiary of the company.
U.S. Trade Accounts Receivable SecuritizationTRADE ACCOUNTS RECEIVABLE SECURITIZATION
The Receivables Securitization Facility contains various customary affirmative and negative covenants, and it also contains customary default and termination provisions, which provide for acceleration of amounts owed under the Receivables Securitization Facility upon the occurrence of certain specified events including, but not limited to, the failure to pay yield, fees, and other amounts due, defaults on certain other indebtedness, failure to discharge certain judgments, insolvency events, change in control, and exceeding certain financial ratios designed to capture events negatively affecting the overall credit quality of the receivables.events.
NOTE 5. INCOME TAXES
Our effective tax rate for the three months ended September 30, 2017 and 2016 was 35.2 percent and 36.7 percent, respectively, and our effective tax rate for the nine months ended September 30, 2017 and 2016 was 34.2 percent and 37.1 percent, respectively. The effective income tax rate for the three months ended September 30, 2017 was higher than the statutory federal income tax rate due to state income taxes, net of federal benefit. The effective income tax rate for the nine months ended September 30, 2017 was lower than the statutory federal income tax rate due to the adoption of ASU 2016-09.
NOTE 6. STOCK AWARD PLANS
Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense as it vests. A summary of our total compensation expense recognized in our condensed consolidated statements of operations and comprehensive income for stock-based compensation is as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Stock options | $ | 3,263 | | | $ | 4,027 | | | $ | 6,482 | | | $ | 7,994 | |
| Stock awards | 23,887 | | | 24,401 | | | 43,950 | | | 43,349 | |
| Company expense on ESPP discount | 779 | | | 733 | | | 2,103 | | | 1,807 | |
| Total stock-based compensation expense | $ | 27,929 | | | $ | 29,161 | | | $ | 52,535 | | | $ | 53,150 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Stock options | $ | 1,715 |
| | $ | 603 |
| | $ | 5,341 |
| | $ | 5,818 |
|
| Stock awards | 5,427 |
| | 3,747 |
| | 17,149 |
| | 22,768 |
|
| Company expense on ESPP discount | 525 |
| | 491 |
| | 2,019 |
| | 2,040 |
|
| Total stock-based compensation expense | $ | 7,667 |
| | $ | 4,841 |
| | $ | 24,509 |
| | $ | 30,626 |
|
On May 12, 2016,5, 2022, our shareholders approved a 2022 Equity Incentive Plan (the “Plan”) and authorized an amendment to and restatementinitial 4,261,884 shares for issuance of awards thereunder. Upon approval of the Plan, no new awards may be made under our 2013 Equity Incentive Plan. The Plan which allows us to grant certain stock awards, including stock options at fair market value, performance-based restricted stock units and performance shares, and time-based restricted stock units, to our key employees and outsidenon-employee directors. A maximum of 13,041,803 shares can be granted under this plan. Approximately 4,928,9884,424,631 shares were available for stock awards under the planPlan as of SeptemberJune 30, 2017.2022. Shares subject to awards under the Plan or certain of our prior plans that expire or are canceled without delivery of shares or that are settled in cash generally become available again for issuance under the plan.Plan.
Stock Options - We have awarded time-based and performance-based stock options to certain key employees. These options are subject to certain vesting requirements over a five-year period based on the company’s earnings growth. Any options remaining unvested at the end of the five-year vesting period are forfeited to the company. Although participants can exercise options via a stock swap exercise, we do not issue reloads (restoration options) on the grants.
employees through 2020. The fair value of these options iswas established based on the market price on the date of grant discounted for post-vesting holding restrictions, calculated using the Black-Scholes option pricing model. Changes in measured stock price volatility and interest rates arewere the primary reasons for changes in the discount.fair value. These grants are being expensed based on the terms of the awards. As of SeptemberJune 30, 2017,2022, unrecognized compensation expense related to stock options was $51.0$20.0 million. The amount of future expense to be recognized will be based on the passage of time and the company’s earnings growth, and certain other conditions.employees' continued employment.
Full ValueStock Awards - We have awarded performanceperformance-based restricted shares, andperformance-based restricted stock units to certain key employees(“PSUs”), and non-employee directors. Thesetime-based restricted stock units. Nearly all of our awards are subject to certain vesting requirements over a five-year period, based on the company’s earnings growth. The awards also contain restrictions on the awardees’ ability to sell or transfer vested awards for a specified period of time. The fair value of these awards is established based on the market price on the date of grant, discounted for any post-vesting holding restrictions. The discounts on outstanding grants with post-vesting holding restrictions vary from 1512 percent to 2224 percent and are calculated using the Black-Scholes option pricing model-protective put method. ChangesThe duration of the restriction period to sell or transfer vested awards, changes in the measured stock price volatility and changes in interest rates are the primary reasons for changes in the discount.discounts. These grants are being expensed based on the terms of the awards.
Performance-based Awards
We have also awarded performance-based restricted shares through 2020 to certain key employees and non-employee directors. These awards vest over a five-year period based on the company’s earnings growth. Beginning in 2021, we have awarded annually PSUs to certain key employees. These PSUs vest over a three-year period based on the company's cumulative three-year earnings per share growth and annual adjusted gross profit growth. These PSUs contain an upside opportunity of up to 200 percent of target contingent upon obtaining certain earnings per share and adjusted gross profit growth targets.
Time-based Awards
We award time-based restricted stock units to certain key employees and non-employee directors. Time-based awards granted through 2020 vest over a five-year period. Beginning in 2021, we have granted annually time-based awards that vest over a three-year period. These awards vest primarily based on theirthe passage of time and the employee’s continued employment. These grants are being expensed based on the terms of the awards.
We granted 330,072 PSUs and 634,118 time-based restricted stock units on February 9, 2022. The PSUs and time-based restricted stock unit awards had a weighted average grant date fair value of these$76.74 and $74.67, respectively. Time-based awards is established by the market price on theare eligible to vest over a three-year period with a first vesting date of the grant and is being expensed over the vesting period of the award.December 31, 2022.
We have also issued restricted stock units to certain key employees and non-employee directors, restricted stock units which are fully vested upon issuance. These units contain restrictions on the awardees’ ability to sell or transfer vested units for a specified period of time. The fair value of these units is established using the same method discussed above. These grants have been expensed during the year they were earned.
As of SeptemberJune 30, 2017,2022, there was unrecognized compensation expense of $119.3$144.3 million related to previously granted full valuestock awards assuming maximum achievement is obtained on our performance-based awards. The amount of future expense to be recognized will be based on the passage of time, the company’s earnings and adjusted gross profit growth, and certain other conditions.
Employee Stock Purchase Plan - Our 1997 Employee Stock Purchase Plan ("ESPP"(“ESPP”) allows our employees to contribute up to $10,000 of their annual cash compensation to purchase company stock. PurchaseThe purchase price is determined using the closing price on the last day of each quarter discounted by 15 percent. Shares vest immediately. The following is a summary of the employee stock purchase plan activity (dollar amounts(dollars in thousands):
| | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
Shares purchased by employees | | Aggregate cost to employees | | Expense recognized by the company |
| 51,276 | | | $ | 4,419 | | | $ | 779 | |
|
| | | | | | | | | |
| Three Months Ended September 30, 2017 |
Shares purchased by employees | | Aggregate cost to employees | | Expense recognized by the company |
| 45,986 |
| | $ | 2,975 |
| | $ | 525 |
|
NOTE 7. LITIGATION
We are not subject to any pending or threatened litigation other than routine litigation arising in the ordinary course of our business operations, including 17certain contingent auto liability cases. For some legal proceedings, we have accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material to our condensed consolidated financial position, results of operations, or cash flows. Because of the preliminary nature of many of these proceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the inconsistent treatment of claims made in many of these proceedings, and the difficulty of predicting the settlement value of many of these proceedings, we are often unable to estimate an amount or range of any reasonably possible additional losses. However, based upon our historical experience, the resolution of these proceedings is not expected to have a material effect on our consolidated financial position, results of operations, or cash flows.
NOTE 8. ACQUISITIONS
Combinex Holding B.V.
On August 31, 2017,June 3, 2021, we acquired all of the outstanding shares of Milgram & Company Ltd. ("Milgram") for the purpose of expandingCombinex to strengthen our global presence and bringing additional capabilities and expertise to our portfolio.European road transportation presence. Total purchase consideration, net of cash acquired was $46.7$14.7 million, which was paid in cash. We used advances under the Credit Agreement to fund part of the cash consideration.
Identifiable intangible assets and estimated useful lives are as follows (dollars in thousands): | | | | | | | | | | | |
| Estimated Life (years) | | |
| Customer relationships | 7 | | $ | 3,942 | |
|
| | | | | |
| | Estimated Life (years) | | |
| Customer relationships | 7 | | $ | 14,004 |
|
There was $10.8 million of goodwill recorded related to the acquisition of Combinex. The MilgramCombinex goodwill is a result of acquiring and retaining the Milgram existingCombinex workforce and expected synergies from integrating its business into ours. Purchase accounting is considered preliminary, subject to revision primarily related to certain potential post-closing and working capital adjustments, as final information was not available as of September 30, 2017.complete. The goodwill iswill not be deductible for tax purposes. The results of operations of MilgramCombinex have been included as part of the All Other and Corporate segment in our consolidated financial statements since September 1, 2017.June 3, 2021.
On September 30, 2016, we acquired all of the outstanding stock of APC Logistics ("APC"). Total purchase consideration was $229.4 million, which was paid in cash. We used advances under the Credit Agreement to fund part of the cash consideration. The following is a summary of the allocation of purchase price consideration to the estimated fair value of net assets for the acquisition of APC (in thousands): |
| | | |
| Cash | $ | 10,181 |
|
| Receivables | 37,190 |
|
| Inventory and other current assets | 2,609 |
|
| Property and equipment | 1,696 |
|
| Identifiable intangible assets | 78,842 |
|
| Goodwill | 132,797 |
|
| Other noncurrent assets | 70 |
|
| Long term deferred tax asset | 814 |
|
| Total assets | 264,199 |
|
| | |
| Accounts payable | (22,147 | ) |
| Accrued expenses | (12,700 | ) |
| Estimated net assets acquired | $ | 229,352 |
|
Identifiable intangible assets and estimated useful lives are as follows (dollars in thousands): |
| | | | | |
| | Estimated Life (years) | | |
| Customer relationships | 7 | | $ | 78,842 |
|
The APC goodwill is a result of acquiring and retaining the APC existing workforce and expected synergies from integrating their business into ours. The goodwill is not deductible for tax purposes. The results of operations of APC have been included in our consolidated financial statements since October 1, 2016. Pro forma financial information for prior periods is not presented because we believe the acquisition to be not material to our consolidated results. During the first quarter of 2017, we paid $1.8 million resulting from a working capital adjustment due to the sellers per the terms of the agreement.
NOTE 9. SEGMENT REPORTING
Our reportable segments are based on our method of internal reporting, which generally segregates the segments by service line and the primary services they provide to our customers. Beginning with the fourth quarter of 2016, based on certain internal reporting changes, we identified threeWe identify 2 reportable segments in addition to All Other and Corporate as follows:summarized below:
•North American Surface Transportation-NASTTransportation—NAST provides freight transportation services across North America through a network of offices in the United States, Canada, and Mexico. The primary services provided by NAST include truckload LTL, and intermodal.
less than truckload (“LTL”) transportation services.•Global Forwarding-GlobalForwarding—Global Forwarding provides global logistics services through an international network of offices in North America, Asia, Europe, Australia, New Zealand,Oceania, and South America and also contracts with independent agents worldwide. The primary services provided by Global Forwarding include ocean freight services, airfreightair freight services, and customs brokerage.
•All Other and Corporate—All Other and Corporate includes our Robinson Fresh-Robinson and Managed Services segments, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses. Robinson Fresh provides sourcing services under the trade name of Robinson Fresh. Our sourcing services primarily includeincluding the buying, selling, and marketing of fresh fruits, vegetables, and other perishable items. Robinson Fresh sources products from around the worldManaged Services provides Transportation Management Services, or Managed TMS®. Other Surface Transportation revenues are primarily earned by Europe Surface Transportation. Europe Surface Transportation provides transportation and has a physical presence in North America, Europe, Asia,logistics services including truckload and South America. This segment often provides the logistics and transportation of the products they sell, in addition to temperature controlled transportationgroupage services for its customers.across Europe.
| |
• | All Other and Corporate-All Other and Corporate includes our Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses. Managed Services provides Transportation Management Services, or Managed TMS®. Other Surface Transportation revenues are primarily earned by Europe Surface Transportation. Europe Surface Transportation provides services similar to NAST across Europe.
|
The internal reporting of segments is defined, based in part, on the reporting and review process used by our chief operating decision maker (“CODM”), our Chief Executive Officer. The accounting policies of our reportingreportable segments are the same as those described in the summary of significant accounting policies located in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016. Segment information2021. We do not report our intersegment revenues by reportable segment to our CODM and do not believe they are a meaningful metric for prior years has been retroactively recast to align with current year presentation. Segmentevaluating the performance of our reportable segments.
Reportable segment information as of, and for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| NAST | | Global Forwarding | | All Other and Corporate | | Consolidated |
| Three Months Ended June 30, 2022 | | | | | | | |
| Total revenues | $ | 4,147,046 | | | $ | 2,093,190 | | | $ | 558,239 | | | $ | 6,798,475 | |
| Income from operations | 276,499 | | | 167,557 | | | 25,609 | | | 469,665 | |
| Depreciation and amortization | 6,123 | | | 5,471 | | | 11,668 | | | 23,262 | |
Total assets(1) | 3,688,215 | | | 2,851,114 | | | 918,110 | | | 7,457,439 | |
| Average headcount | 7,552 | | | 5,759 | | | 4,582 | | | 17,893 | |
| | | | | | | |
| NAST | | Global Forwarding | | All Other and Corporate | | Consolidated |
| Three Months Ended June 30, 2021 | | | | | | | |
| Total revenues | $ | 3,585,481 | | | $ | 1,450,794 | | | $ | 496,451 | | | $ | 5,532,726 | |
| Income from operations | 151,092 | | | 108,212 | | | 1,300 | | | 260,604 | |
| Depreciation and amortization | 6,534 | | | 6,276 | | | 10,127 | | | 22,937 | |
Total assets(1) | 3,278,540 | | | 1,852,473 | | | 775,551 | | | 5,906,564 | |
| Average headcount | 6,580 | | | 4,909 | | | 3,916 | | | 15,405 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| NAST | | Global Forwarding | | All Other and Corporate | | Consolidated |
| Six Months Ended June 30, 2022 | | | | | | | |
| Total revenues | $ | 8,261,935 | | | $ | 4,287,587 | | | $ | 1,064,906 | | | $ | 13,614,428 | |
| Income from operations | 458,853 | | | 335,195 | | | 21,091 | | | 815,139 | |
| Depreciation and amortization | 12,362 | | | 11,026 | | | 22,360 | | | 45,748 | |
Total assets(1) | 3,688,215 | | | 2,851,114 | | | 918,110 | | | 7,457,439 | |
| Average headcount | 7,442 | | | 5,690 | | | 4,422 | | | 17,554 | |
| | | | | | | |
| NAST | | Global Forwarding | | All Other and Corporate | | Consolidated |
| Six Months Ended June 30, 2021 | | | | | | | |
| Total revenues | $ | 6,796,904 | | | $ | 2,606,833 | | | $ | 932,858 | | | $ | 10,336,595 | |
| Income (loss) from operations | 287,876 | | | 198,801 | | | (2,744) | | | 483,933 | |
| Depreciation and amortization | 13,159 | | | 11,925 | | | 21,131 | | | 46,215 | |
Total assets(1) | 3,278,540 | | | 1,852,473 | | | 775,551 | | | 5,906,564 | |
| Average headcount | 6,578 | | | 4,832 | | | 3,823 | | | 15,233 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NAST | | Global Forwarding | | Robinson Fresh | | All Other and Corporate | | Eliminations | | Consolidated |
| Three Months Ended September 30, 2017 | | | | | | | | | | | |
| Revenues | $ | 2,469,420 |
| | $ | 552,134 |
| | $ | 613,646 |
| | $ | 149,251 |
| | $ | — |
| | $ | 3,784,451 |
|
Intersegment revenues(1) | 115,796 |
| | 7,873 |
| | 43,272 |
| | 3,228 |
| | (170,169 | ) | | — |
|
| Total Revenues | $ | 2,585,216 |
| | $ | 560,007 |
| | $ | 656,918 |
| | $ | 152,479 |
| | $ | (170,169 | ) | | $ | 3,784,451 |
|
| Net Revenues | $ | 377,403 |
| | $ | 129,842 |
| | $ | 54,253 |
| | $ | 32,348 |
| | $ | — |
| | $ | 593,846 |
|
| Income from Operations | 151,392 |
| | 31,125 |
| | 11,586 |
| | 362 |
| | — |
| | 194,465 |
|
| Depreciation and amortization | 5,808 |
| | 8,455 |
| | 1,190 |
| | 8,510 |
| | — |
| | 23,963 |
|
Total assets(2) | 2,297,980 |
| | 840,762 |
| | 413,520 |
| | 623,326 |
| | — |
| | 4,175,588 |
|
| Average headcount | 6,998 |
| | 4,301 |
| | 970 |
| | 2,634 |
| | — |
| | 14,903 |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | NAST | | Global Forwarding | | Robinson Fresh | | All Other and Corporate | | Eliminations | | Consolidated |
| Three Months Ended September 30, 2016 | | | | | | | | | | | |
| Revenues | $ | 2,252,187 |
| | $ | 390,830 |
| | $ | 590,385 |
| | $ | 122,352 |
| | $ | — |
| | $ | 3,355,754 |
|
Intersegment revenues(1) | 79,728 |
| | 8,742 |
| | 32,255 |
| | 100 |
| | (120,825 | ) | | — |
|
| Total Revenues | $ | 2,331,915 |
| | $ | 399,572 |
| | $ | 622,640 |
| | $ | 122,452 |
| | $ | (120,825 | ) | | $ | 3,355,754 |
|
| Net Revenues | $ | 378,073 |
| | $ | 93,368 |
| | $ | 57,036 |
| | $ | 29,985 |
| | $ | — |
| | $ | 558,462 |
|
| Income from Operations | 171,733 |
| | 17,047 |
| | 17,733 |
| | 4,754 |
| | — |
| | 211,267 |
|
| Depreciation and amortization | 5,547 |
| | 5,073 |
| | 983 |
| | 6,054 |
| | — |
| | 17,657 |
|
Total assets(2) | 2,115,467 |
| | 625,267 |
| | 405,832 |
| | 517,496 |
| | — |
| | 3,664,062 |
|
Average headcount (3) | 6,869 |
| | 3,559 |
| | 956 |
| | 2,322 |
| | — |
| | 13,706 |
|
(1) Intersegment revenues represent the sales between our segments and are eliminated to reconcile to our consolidated results.
(2) All cash and cash equivalents are included in All Other and Corporate.
(3) Average headcount does not include employees from APC added on September 30, 2016.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NAST | | Global Forwarding | | Robinson Fresh | | All Other and Corporate | | Eliminations | | Consolidated |
| Nine Months Ended September 30, 2017 | | | | | | | | | | | |
| Revenues | $ | 7,110,223 |
| | $ | 1,549,742 |
| | $ | 1,821,094 |
| | $ | 428,535 |
| | $ | — |
| | $ | 10,909,594 |
|
Intersegment revenues(1) | 329,193 |
| | 23,456 |
| | 116,281 |
| | 13,776 |
| | (482,706 | ) | | — |
|
| Total Revenues | $ | 7,439,416 |
| | $ | 1,573,198 |
| | $ | 1,937,375 |
| | $ | 442,311 |
| | $ | (482,706 | ) | | $ | 10,909,594 |
|
| Net Revenues | $ | 1,109,749 |
| | $ | 357,411 |
| | $ | 171,936 |
| | $ | 97,105 |
| | $ | — |
| | $ | 1,736,201 |
|
| Income from Operations | 447,553 |
| | 75,006 |
| | 40,487 |
| | 1,197 |
| | — |
| | 564,243 |
|
| Depreciation and amortization | 17,104 |
| | 24,574 |
| | 3,534 |
| | 24,128 |
| | — |
| | 69,340 |
|
Total assets(2) | 2,297,980 |
| | 840,762 |
| | 413,520 |
| | 623,326 |
| | — |
| | 4,175,588 |
|
| Average headcount | 6,921 |
| | 4,113 |
| | 966 |
| | 2,590 |
| | — |
| | 14,590 |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | NAST | | Global Forwarding | | Robinson Fresh | | All Other and Corporate | | Eliminations | | Consolidated |
| Nine Months Ended September 30, 2016 | | | | | | | | | | | |
| Revenues | $ | 6,456,281 |
| | $ | 1,098,715 |
| | $ | 1,814,682 |
| | $ | 359,760 |
| | $ | — |
| | $ | 9,729,438 |
|
Intersegment revenues(1) | 211,540 |
| | 23,585 |
| | 83,200 |
| | 642 |
| | (318,967 | ) | | — |
|
| Total Revenues | $ | 6,667,821 |
| | $ | 1,122,300 |
| | $ | 1,897,882 |
| | $ | 360,402 |
| | $ | (318,967 | ) | | $ | 9,729,438 |
|
| Net Revenues | $ | 1,161,074 |
| | $ | 283,458 |
| | $ | 183,041 |
| | $ | 88,439 |
| | $ | — |
| | $ | 1,716,012 |
|
| Income from Operations | 516,805 |
| | 56,300 |
| | 62,777 |
| | 8,084 |
| | — |
| | 643,966 |
|
| Depreciation and amortization | 16,551 |
| | 15,231 |
| | 2,590 |
| | 18,344 |
| | — |
| | 52,716 |
|
Total assets(2) | 2,115,467 |
| | 625,267 |
| | 405,832 |
| | 517,496 |
| | — |
| | 3,664,062 |
|
Average headcount (3) | 6,767 |
| | 3,523 |
| | 939 |
| | 2,249 |
| | — |
| | 13,478 |
|
NOTE 10. REVENUE FROM CONTRACTS WITH CUSTOMERS
A summary of our total revenues disaggregated by major service line and timing of revenue recognition is presented below for each of our reportable segments for the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| NAST | | Global Forwarding | | All Other and Corporate | | Total |
| Major Service Lines | | | | | | | |
Transportation and logistics services(1) | $ | 4,147,046 | | | $ | 2,093,190 | | | $ | 225,406 | | | $ | 6,465,642 | |
Sourcing(2) | — | | | — | | | 332,833 | | | 332,833 | |
| Total | $ | 4,147,046 | | | $ | 2,093,190 | | | $ | 558,239 | | | $ | 6,798,475 | |
| | | | | | | |
| Three Months Ended June 30, 2021 |
| NAST | | Global Forwarding | | All Other and Corporate | | Total |
| Major Service Lines | | | | | | | |
Transportation and logistics services(1) | $ | 3,585,481 | | | $ | 1,450,794 | | | $ | 204,173 | | | $ | 5,240,448 | |
Sourcing(2) | — | | | — | | | 292,278 | | | 292,278 | |
| Total | $ | 3,585,481 | | | $ | 1,450,794 | | | $ | 496,451 | | | $ | 5,532,726 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| NAST | | Global Forwarding | | All Other and Corporate | | Total |
| Major Service Lines | | | | | | | |
Transportation and logistics services(1) | $ | 8,261,935 | | | $ | 4,287,587 | | | $ | 444,471 | | | $ | 12,993,993 | |
Sourcing(2) | — | | | — | | | 620,435 | | | 620,435 | |
| Total | $ | 8,261,935 | | | $ | 4,287,587 | | | $ | 1,064,906 | | | $ | 13,614,428 | |
| | | | | | | |
| Six Months Ended June 30, 2021 |
| NAST | | Global Forwarding | | All Other and Corporate | | Total |
| Major Service Lines | | | | | | | |
Transportation and logistics services(1) | $ | 6,796,904 | | | $ | 2,606,833 | | | $ | 396,938 | | | $ | 9,800,675 | |
Sourcing(2) | — | | | — | | | 535,920 | | | 535,920 | |
| Total | $ | 6,796,904 | | | $ | 2,606,833 | | | $ | 932,858 | | | $ | 10,336,595 | |
(1) Transportation and logistics services performance obligations are completed over time.
(2) Sourcing performance obligations are completed at a point in time.
We typically do not receive consideration and amounts are not due from our customer prior to the completion of our performance obligation and as such contract liabilities, as of June 30, 2022, and revenue recognized in the three and six months ended June 30, 2022 and 2021 resulting from contract liabilities, were not significant. Contract assets and accrued expenses-transportation expense fluctuate from period to period primarily based upon shipments in-transit at period end and the timing of customer invoicing.
(1) Intersegment revenues representNOTE 11. LEASES
We determine if our contractual agreements contain a lease at inception. A lease is identified when a contract allows us the sales betweenright to control an identified asset for a period of time in exchange for consideration. Our lease agreements consist primarily of operating leases for office space, warehouses, office equipment, trailers, and a small number of intermodal containers. We do not have material financing leases. Frequently, we enter into contractual relationships with a wide variety of transportation companies for freight capacity and utilize those relationships to efficiently and cost-effectively arrange the transport of our segmentscustomers’ freight. These contracts typically have a term of 12 months or less and do not allow us to direct the use or obtain substantially all of the economic benefits of a specifically identified asset. Accordingly, these agreements are eliminated to reconcile to our consolidated results.not considered leases.
(2) All cash and cash equivalents
Our operating leases are included on the consolidated balance sheets as right-of-use lease assets and lease liabilities. A right-of-use lease asset represents our right to use an underlying asset over the term of a lease, while a lease liability represents our obligation to make lease payments arising from the lease. Current and noncurrent lease liabilities are recognized on the commencement date at the present value of lease payments, including non-lease components, which consist primarily of common area maintenance and parking charges. Right-of-use lease assets are also recognized on the commencement date as the total lease liability plus prepaid rents. As our leases typically do not provide an implicit rate, we use our fully collateralized incremental borrowing rate based on the information available at commencement date in All Otherdetermining the present value of lease payments. The incremental borrowing rate is influenced by market interest rates, our credit rating, and Corporate.lease term and as such, may differ for individual leases.
(3) Average headcount doesOur lease agreements typically do not contain variable lease payments, residual value guarantees, purchase options, or restrictive covenants. Many of our leases include employeesthe option to renew for a period of months to several years. The term of our leases may include the option to renew when it is reasonably certain that we will exercise that option although these occurrences are seldom. We have lease agreements with lease components (e.g., payments for rent) and non-lease components (e.g., payments for common area maintenance and parking), which are all accounted for as a single lease component.
We do not have material lease agreements that have not yet commenced that are expected to create significant rights or obligations as of June 30, 2022.
Information regarding lease expense, remaining lease term, discount rate, and other select lease information is presented below as of June 30, 2022, and for the three and six months ended June 30, 2022 and 2021, is as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| Lease Costs | 2022 | | 2021 | | 2022 | | 2021 |
| Operating lease expense | $ | 23,082 | | | $ | 21,459 | | | $ | 44,727 | | | $ | 43,021 | |
| Short-term lease expense | 1,137 | | | 1,462 | | | 3,597 | | | 3,063 | |
| Total lease expense | $ | 24,219 | | | $ | 22,921 | | | $ | 48,324 | | | $ | 46,084 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| Other Lease Information | 2022 | | 2021 |
| Operating cash flows from operating leases | $ | 43,937 | | | $ | 42,495 | |
| Right-of-use lease assets obtained in exchange for new lease liabilities | 87,554 | | | 18,299 | |
| | | | | |
| Lease Term and Discount Rate | As of June 30, 2022 |
Weighted average remaining lease term (in years)(1) | 6.5 |
| Weighted average discount rate | 3.0 | % |
(1) The weighted average remaining lease term is significantly impacted by a 15-year lease related to office space in Chicago, IL, which commenced in 2018. Excluding this lease, the weighted average remaining lease term of our agreements is 5.1 years.
The maturities of lease liabilities as of June 30, 2022, were as follows (in thousands): | | | | | | | | |
| Maturity of Lease Liabilities | | Operating Leases |
| Remaining 2022 | | $ | 38,669 | |
| 2023 | | 84,653 | |
| 2024 | | 63,944 | |
| 2025 | | 47,866 | |
| 2026 | | 38,314 | |
| Thereafter | | 121,832 | |
| Total lease payments | | 395,278 | |
| Less: Interest | | (41,273) | |
| Present value of lease liabilities | | $ | 354,005 | |
NOTE 12. ALLOWANCE FOR CREDIT LOSSES
Our allowance for credit losses is computed using a number of factors including our past credit loss experience, the aging of amounts due from APC addedour customers, our customers' credit ratings, in addition to other customer-specific factors. We have also considered recent trends and developments related to the current macroeconomic environment in determining our ending allowance for credit losses for both accounts receivable and contract assets. The allowance for credit losses on Septembercontract assets was not significant.
A rollforward of our allowance for credit losses on our accounts receivable balance is presented below for the six months ended June 30, 2016.2022 (in thousands):
| | | | | |
| Balance, December 31, 2021 | $ | 41,542 | |
| Provision | (2,411) | |
| Write-offs | (1,613) | |
| Balance, June 30, 2022 | $ | 37,518 | |
Recoveries of amounts previously written off were not significant for the three and six months ended June 30, 2022.
NOTE 10.13. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss is included in Stockholders' investment on our condensed consolidated balance sheets. The recorded balance at Septemberon June 30, 2017,2022 and December 31, 2016,2021, was $22.9$87.9 million and $61.4$61.1 million, respectively. Accumulated other comprehensive lossThe recorded balance on June 30, 2022 and December 31, 2021 is comprised solely of foreign currency adjustments, including foreign currency translation.
Other comprehensive loss was $33.6 million compared to other comprehensive loss of $0.2 million for the three months ended June 30, 2022 and 2021, respectively. Both periods were driven primarily by fluctuations in the Singapore Dollar, the Australian Dollar, and the Yuan.
Other comprehensive loss was $26.7 million compared to other comprehensive loss of $7.4 million for the six months ended June 30, 2022 and 2021, respectively. Other comprehensive income and loss consisted of foreign currency adjustments, including foreign currency translation, adjustments at Septemberfor the three and six months ended June 30, 20172022 and December 31, 2016.2021. Both periods were driven primarily by fluctuations in the Singapore Dollar, Yuan, and the Australian Dollar.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read theThe following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes.
FORWARD-LOOKING INFORMATION
Our quarterly reportQuarterly Report on Form 10-Q, including this discussion and analysis of our financial condition and results of operations and our disclosures about market risk, contains certain “forward-looking statements.” These statements represent our expectations, beliefs, intentions, or strategies concerning future events that, by their nature, involve risks and uncertainties. Forward-looking statements include, among others, statements about our future performance, the continuation of historical trends, the sufficiency of our sources of capital for future needs, the effects of acquisitions or dispositions, the expected impact of recently issued accounting pronouncements, and the outcome or effects of litigation. Risks that could cause actual results to differ materially from our current expectations include, but are not limited to, changes in economic conditions;conditions, including uncertain consumer demand; changes in market demand and pressures on the pricing for our services; fuel price increases or decreases, or fuel shortages; competition and growth rates within the third partyglobal logistics industry; freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight; risks associated with significant disruptions in the transportation industry; changes in relationships with existing contracted truck, rail, ocean, and air carriers; changes in our customer base due to possible consolidation among our customers,customers; risks with reliance on technology to operate our business; cyber-security related risks; risks associated with operations outside of the United States; our ability to identify or for other reasons; complete suitable acquisitions;our ability to successfully integrate the operations of acquired companies with our historic operations; risks associated with litigation, including contingent auto liability and insurance coverage; risks associated with operations outsidethe potential impact of the U.S.; changes in government regulations; our ability to hire and retain a sufficient number of qualified personnel;risks associated with the potential impacts of changes in governmentto income tax regulations; risks associated with the produce industry, including food safety and contamination issues; fuel price increases or decreases, or fuel shortages; cyber-security related risks; the impact of war on the economy; changes to our capital structure; risk of unanticipatedchanges due to catastrophic events or opportunities that might require additional capital expenditures or alter the timing ofincluding pandemics such expenditures;as COVID-19, and other risks and uncertainties, detailed in our Annual and Quarterly Reports. Therefore, actual results may differ materially from our expectations based on these and other risks and uncertainties, including those described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2016,2021, filed with the Securities and Exchange Commission on March 1, 2017.February 23, 2022 as well as the updates to these risk factors included in Part II—“Item 1A, Risk Factors,” herein.
Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update such statement to reflect events or circumstances arising after such date.
OVERVIEW
C.H. Robinson Worldwide, Inc. (“C.H. Robinson,” “the company,” “we,” “us,” or “our”) is one of the world's largest logistics platforms. Our company.mission is to improve the world's supply chains through our people, processes, and technology by delivering exceptional value to our customers and suppliers. We are a global provider ofprovide freight transportation services and logistics solutions operatingto companies of all sizes in a wide variety of industries. We operate through a network of offices in North America, Europe, Asia, Australia, New Zealand,Oceania, and South America. AsWe offer a third party logistics provider, we enter into contractual relationships with a wide varietyglobal suite of transportation companies,services using tailored, market-leading solutions built by and utilize those relationships to efficiently and cost effectively transport our customers’ freight. We have contractual relationships with approximately 107,000 transportation companies, including motor carriers, railroads (primarily intermodal service providers), air freight, and ocean carriers. Depending on the needs of our customer and theirfor supply chain requirements, we selectexperts. Our global network of supply chain experts work with our customers to drive better supply chain outcomes by leveraging our experience, data, digital solutions, and hire the appropriate transportation for each shipment. scale.
Our model enables usadjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit is calculated as gross profit excluding amortization of internally developed software utilized to be flexible, provide solutions that optimize service fordirectly serve our customers and minimize our asset utilization risk.
In addition to transportationcontracted carriers. Adjusted gross profit margin is calculated as adjusted gross profit divided by total revenues. We believe adjusted gross profit and logistics services, we also provide sourcing services. Our sourcing business consists of buying, selling, and marketing fresh produce. We purchase fresh produce through our network of produce suppliers and sell it to grocery retailers, restaurants, foodservice distributors, and produce wholesalers. In some cases, we also arrange the transportation of the produce we sell through our relationships with specialized transportation companies. Transportation revenues generated by Robinson Freshadjusted gross profit margin are included in our transportation service line, but are included in Robinson Fresh.
Our reportable segments are North American Surface Transportation (“NAST”), Global Forwarding, Robinson Fresh, and All Other and Corporate. The All Other and Corporate segment includes Managed Services, Other Surface Transportation outside of North America, and other miscellaneous revenues and unallocated corporate expenses. We group offices primarily by services they provide. For financial information concerning our reportable segments and geographic regions, refer to Note 9 of our consolidated financial statements.
On August 31, 2017, we acquired Milgram & Company Ltd. ("Milgram"), a provider of freight forwarding, customs brokerage, and surface transportation primarily in Canada. The acquisition strengthens our global forwarding and customs brokerage offerings in Canada.
Our business model. We are primarily a service company. We add value and expertise in the procurement and execution of transportation and logistics, including sourcing of produce products for our customers. Our total revenues represent the total dollar value of services and goods we sell to our customers. Our net revenues are our total revenues less purchased transportation and related services, including contracted motor carrier, rail, ocean, air, and other costs, and the purchase price and services related to the products we source. Our net revenues are the primary indicatoruseful measures of our ability to source, add value, and sell services and products that are provided by third parties, and we consider themadjusted gross profit to be oura primary performance measurement. Accordingly, the discussion of our results of operations belowoften focuses on the changes in our net revenues.
We keep our business model as variable as possibleadjusted gross profit and adjusted gross profit margin. The reconciliation of gross profit to allow usadjusted gross profit and gross profit margin to be flexible and adapt to changing economic and industry conditions. We sell transportation services and produce to our customers with varied pricing arrangements. Some prices are committed to for a period of time, subject to certain terms and conditions, and some prices are set on a spot market basis. We buy most of our truckload transportation capacity and produce on a spot market basis. Consequently, our net revenue per transaction tends to increase in times when thereadjusted gross profit margin is excess supply and decrease in times when demand is strong relative to supply.
We design our personnel and other operating expenses to be variable. Compensation is tied to productivity and performance. Each office is responsible for its hiring and headcount decisions, based on the needs of their office and to balance personnel resources with business requirements.
Our office network. Our office network is a competitive advantage. Building local customer and contract carrier relationships has been an important part of our success, and our worldwide network of offices supports our core strategy of serving customers locally, nationally, and globally. Our network offices help us penetrate local markets, provide face-to-face service when needed, and recruit contract carriers. Our network also gives us knowledge of local market conditions, which is important in the transportation industry because it is market driven and very dynamic.
Our people. Because we are a service company, our continued success is dependent on our ability to continue to hire and retain talented, productive people, and to properly align our headcount and personnel expense with our business. Our headcount increased by 191 employees during the third quarter of 2017, primarily related to the acquisition of Milgram. Most network management compensation is dependent on the profitability of their particular office. We believe this makes our employees more service-oriented and focused on driving growth and maximizing office productivity. All of our managers and certain other employees who have significant responsibilities are eligible to receive equity awards because we believe these awards are an effective tool for creating long-term ownership and alignment between employees and our shareholders.
Our customers. In 2016, we worked with more than 113,000 active customers. We work with a wide variety of companies, ranging in size from Fortune 100 companies to small family businesses, in many different industries. Our customer base is very diverse and unconcentrated. In 2016, our top 100 customers represented approximately 30 percent of our total revenues and approximately 26 percent of our net revenues. Our largest customer was approximately two percent of our total revenues.
Our contracted carriers. Our contracted carrier base includes motor carriers, railroads (primarily intermodal service providers), air freight, and ocean carriers. In 2016, we worked with approximately 71,000 transportation providers worldwide, up from approximately 68,000 in 2015. Motor carriers that had fewer than 100 tractors transported approximately 81 percent of our truckload shipments in 2016. In our transportation business, no single contracted carrier represents more than approximately 1.6 percent of our contracted carrier capacity.
RESULTS OF OPERATIONS
The following table summarizes our total revenues by services and products (in thousands): |
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | % change | | 2017 | | 2016 | | % change |
| Transportation | $ | 3,433,701 |
| | $ | 2,998,583 |
| | 14.5 | % | | $ | 9,855,739 |
| | $ | 8,593,767 |
| | 14.7 | % |
| Sourcing | 350,750 |
| | 357,171 |
| | -1.8 | % | | 1,053,855 |
| | 1,135,671 |
| | -7.2 | % |
| Total | $ | 3,784,451 |
| | $ | 3,355,754 |
| | 12.8 | % | | $ | 10,909,594 |
| | $ | 9,729,438 |
| | 12.1 | % |
The following table illustrates our net revenue margins by services and products: |
| | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Transportation | 16.4 | % | | 17.6 | % | | 16.6 | % | | 18.8 | % |
| Sourcing | 8.5 | % | | 8.3 | % | | 9.0 | % | | 8.5 | % |
| Total | 15.7 | % | | 16.6 | % | | 15.9 | % | | 17.6 | % |
The following table summarizes our net revenues by service line. The service line net revenues in the table differ from the segment service line revenues discussedpresented below as our segments have revenues from multiple service lines (in thousands): |
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | % change | | 2017 | | 2016 | | % change |
| Transportation | | | | | | | | | | | |
| Truckload | $ | 301,025 |
| | $ | 309,027 |
| | -2.6 | % | | $ | 887,865 |
| | $ | 960,451 |
| | -7.6 | % |
LTL(1) | 101,870 |
| | 96,447 |
| | 5.6 | % | | 301,706 |
| | 287,518 |
| | 4.9 | % |
| Intermodal | 7,478 |
| | 7,676 |
| | -2.6 | % | | 23,278 |
| | 25,961 |
| | -10.3 | % |
| Ocean | 81,182 |
| | 56,506 |
| | 43.7 | % | | 217,495 |
| | 175,243 |
| | 24.1 | % |
| Air | 25,529 |
| | 19,897 |
| | 28.3 | % | | 73,166 |
| | 58,424 |
| | 25.2 | % |
| Customs | 17,421 |
| | 12,320 |
| | 41.4 | % | | 49,810 |
| | 34,649 |
| | 43.8 | % |
| Other Logistics Services | 29,580 |
| | 26,771 |
| | 10.5 | % | | 87,563 |
| | 76,965 |
| | 13.8 | % |
| Total Transportation | 564,085 |
| | 528,644 |
| | 6.7 | % | | 1,640,883 |
| | 1,619,211 |
| | 1.3 | % |
| Sourcing | 29,761 |
| | 29,818 |
| | -0.2 | % | | 95,318 |
| | 96,801 |
| | -1.5 | % |
| Total | $ | 593,846 |
| | $ | 558,462 |
| | 6.3 | % | | $ | 1,736,201 |
| | $ | 1,716,012 |
| | 1.2 | % |
(1) Less than truckload ("LTL").
The following table represents certain statements of operations data, shown as percentages of our net revenues:
|
| | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Operating expenses: | | | | | | | |
| Personnel expenses | 49.4 | % | | 46.0 | % | | 50.0 | % | | 46.9 | % |
| Other selling, general, and administrative expenses | 17.9 | % | | 16.2 | % | | 17.5 | % | | 15.6 | % |
| Total operating expenses | 67.3 | % | | 62.2 | % | | 67.5 | % | | 62.5 | % |
| Income from operations | 32.7 | % | | 37.8 | % | | 32.5 | % | | 37.5 | % |
| Interest and other expense | (1.8 | )% | | (1.3 | )% | | (1.7 | )% | | (1.3 | )% |
| Income before provision for income taxes | 31.0 | % | | 36.5 | % | | 30.8 | % | | 36.2 | % |
| Provision for income taxes | 10.9 | % | | 13.4 | % | | 10.5 | % | | 13.4 | % |
| Net income | 20.1 | % | | 23.1 | % | | 20.3 | % | | 22.8 | % |
The following table summarizes our results by reportable segment (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Revenues: | | | | | | | | | | | |
| Transportation | $ | 6,465,642 | | | | $ | 5,240,448 | | | | $ | 12,993,993 | | | | $ | 9,800,675 | | |
| Sourcing | 332,833 | | | | 292,278 | | | | 620,435 | | | | 535,920 | | |
| Total revenues | 6,798,475 | | | | 5,532,726 | | | | 13,614,428 | | | | 10,336,595 | | |
| Costs and expenses: | | | | | | | | | | | |
| Purchased transportation and related services | 5,466,874 | | | | 4,519,305 | | | | 11,117,098 | | | | 8,400,590 | | |
| Purchased products sourced for resale | 299,988 | | | | 264,245 | | | | 559,521 | | | | 484,449 | | |
| Direct internally developed software amortization | 6,640 | | | | 4,802 | | | | 12,374 | | | | 9,449 | | |
| Total direct costs | 5,773,502 | | | | 4,788,352 | | | | 11,688,993 | | | | 8,894,488 | | |
| Gross profit / Gross profit margin | 1,024,973 | | 15.1 | % | | 744,374 | | 13.5 | % | | 1,925,435 | | 14.1 | % | | 1,442,107 | | 14.0 | % |
| Plus: Direct internally developed software amortization | 6,640 | | | | 4,802 | | | | 12,374 | | | | 9,449 | | |
| Adjusted gross profit / Adjusted gross profit margin | $ | 1,031,613 | | 15.2 | % | | $ | 749,176 | | 13.5 | % | | $ | 1,937,809 | | 14.2 | % | | $ | 1,451,556 | | 14.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NAST | | Global Forwarding | | Robinson Fresh | | All Other and Corporate | | Eliminations | | Consolidated |
| Three Months Ended September 30, 2017 | | | | | | | | | | | |
| Revenues | $ | 2,469,420 |
| | $ | 552,134 |
| | $ | 613,646 |
| | $ | 149,251 |
| | $ | — |
| | $ | 3,784,451 |
|
| Intersegment revenues | 115,796 |
| | 7,873 |
| | 43,272 |
| | 3,228 |
| | (170,169 | ) | | — |
|
| Total Revenues | $ | 2,585,216 |
| | $ | 560,007 |
| | $ | 656,918 |
| | $ | 152,479 |
| | $ | (170,169 | ) | | $ | 3,784,451 |
|
| Net Revenues | $ | 377,403 |
| | $ | 129,842 |
| | $ | 54,253 |
| | $ | 32,348 |
| | $ | — |
| | $ | 593,846 |
|
| Income from Operations | 151,392 |
| | 31,125 |
| | 11,586 |
| | 362 |
| | — |
| | 194,465 |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | NAST | | Global Forwarding | | Robinson Fresh | | All Other and Corporate | | Eliminations | | Consolidated |
| Three Months Ended September 30, 2016 | | | | | | | | | | | |
| Revenues | $ | 2,252,187 |
| | $ | 390,830 |
| | $ | 590,385 |
| | $ | 122,352 |
| | $ | — |
| | $ | 3,355,754 |
|
| Intersegment revenues | 79,728 |
| | 8,742 |
| | 32,255 |
| | 100 |
| | (120,825 | ) | | — |
|
| Total Revenues | $ | 2,331,915 |
| | $ | 399,572 |
| | $ | 622,640 |
| | $ | 122,452 |
| | $ | (120,825 | ) | | $ | 3,355,754 |
|
| Net Revenues | $ | 378,073 |
| | $ | 93,368 |
| | $ | 57,036 |
| | $ | 29,985 |
| | $ | — |
| | $ | 558,462 |
|
| Income from Operations | 171,733 |
| | 17,047 |
| | 17,733 |
| | 4,754 |
| | — |
| | 211,267 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NAST | | Global Forwarding | | Robinson Fresh | | All Other and Corporate | | Eliminations | | Consolidated |
| Nine Months Ended September 30, 2017 | | | | | | | | | | | |
| Revenues | $ | 7,110,223 |
| | $ | 1,549,742 |
| | $ | 1,821,094 |
| | $ | 428,535 |
| | $ | — |
| | $ | 10,909,594 |
|
| Intersegment revenues | 329,193 |
| | 23,456 |
| | 116,281 |
| | 13,776 |
| | (482,706 | ) | | — |
|
| Total Revenues | $ | 7,439,416 |
| | $ | 1,573,198 |
| | $ | 1,937,375 |
| | $ | 442,311 |
| | $ | (482,706 | ) | | $ | 10,909,594 |
|
| Net Revenues | $ | 1,109,749 |
| | $ | 357,411 |
| | $ | 171,936 |
| | $ | 97,105 |
| | $ | — |
| | $ | 1,736,201 |
|
| Income from Operations | 447,553 |
| | 75,006 |
| | 40,487 |
| | 1,197 |
| | — |
| | 564,243 |
|
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | NAST | | Global Forwarding | | Robinson Fresh | | All Other and Corporate | | Eliminations | | Consolidated |
| Nine Months Ended September 30, 2016 | | | | | | | | | | | |
| Revenues | $ | 6,456,281 |
| | $ | 1,098,715 |
| | $ | 1,814,682 |
| | $ | 359,760 |
| | $ | — |
| | $ | 9,729,438 |
|
| Intersegment revenues | 211,540 |
| | 23,585 |
| | 83,200 |
| | 642 |
| | (318,967 | ) | | — |
|
| Total Revenues | $ | 6,667,821 |
| | $ | 1,122,300 |
| | $ | 1,897,882 |
| | $ | 360,402 |
| | $ | (318,967 | ) | | $ | 9,729,438 |
|
| Net Revenues | $ | 1,161,074 |
| | $ | 283,458 |
| | $ | 183,041 |
| | $ | 88,439 |
| | $ | — |
| | $ | 1,716,012 |
|
| Income from Operations | 516,805 |
| | 56,300 |
| | 62,777 |
| | 8,084 |
| | — |
| | 643,966 |
|
Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Total revenues and direct costs.Our consolidated total revenues increased 12.8 percent in the third quarter of 2017 compared to the third quarter of 2016. Total transportation revenues increased 14.5 percent in the third quarter of 2017 compared to the third quarter of 2016. The increase was drivenadjusted operating margin is a non-GAAP financial measure calculated as operating income divided by increased pricing and volume growth in nearly alladjusted gross profit. We believe adjusted operating margin is a useful measure of our transportation services. Totalprofitability in comparison to our adjusted gross profit, which we consider a primary performance metric as discussed above. The reconciliation of operating margin to adjusted operating margin is presented below (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| Total revenues | $ | 6,798,475 | | | $ | 5,532,726 | | | $ | 13,614,428 | | | $ | 10,336,595 | |
| Operating income | 469,665 | | | 260,604 | | | 815,139 | | | 483,933 | |
| Operating margin | 6.9 | % | | 4.7 | % | | 6.0 | % | | 4.7 | % |
| | | | | | | |
| Adjusted gross profit | $ | 1,031,613 | | | $ | 749,176 | | | $ | 1,937,809 | | | $ | 1,451,556 | |
| Operating income | 469,665 | | | 260,604 | | | 815,139 | | | 483,933 | |
| Adjusted operating margin | 45.5 | % | | 34.8 | % | | 42.1 | % | | 33.3 | % |
MARKET TRENDS
The cost of purchased transportation and related services increased 16.2 percent in the third quarter of 2017 compared to the third quarter of 2016. The increase was due to increased cost of transportation, including fuel, and volume growth in nearly all of our transportation services. Our sourcing revenue decreased 1.8 percent to $350.8 million in the third quarter of 2017 from $357.2 million in the third quarter of 2016. Purchased products sourced for resale decreased 1.9 percent in the third quarter of 2017 to $321.0 million from $327.4 million in the third quarter of 2016. These decreases were due to decreased case volumes and lower pricing resulting from lower commodity costs. The hurricanes that impacted the southern United States had an impact on volumes and pricing during the third quarter of 2017. We estimate the impact on volumes was positive on our NAST division and negative on Robinson Fresh. The storms also impacted pricing in the North American surface transportation market remains elevated compared to pre-pandemic levels and compared to the prior year but it began to decline within the second quarter of 2022. The decline of purchased transportation is the result of an increasingly balanced freight market compared to the tight capacity market conditions seen in recent periods. In the second quarter of 2022, moderating consumer demand and carrier capacity entering the market has better aligned the overall demand with available carrier capacity. Industry freight volumes, as measured by the Cass Freight Index, decreased 2 percent during the second quarter of 2022 compared to the second quarter of 2021. One of the metrics we use to measure market conditions is the truckload routing guide depth from our Managed Services business. Routing guide depth represents the number of carriers contacted prior to acceptance when procuring a transportation provider. The average routing guide depth of tender in the second quarter of 2022 declined to 1.4, representing that on average, the first carrier in a shipper's routing guide was executing the shipment in most cases. This average routing guide penetration is reflective of a more balanced freight market compared to the 1.7 average routing guide depth in both the first quarter of 2022 and the second quarter of 2021.
The global forwarding market also began to show signs of softening as shippers continue to work through elevated inventory levels and cautiously approach the upcoming peak season due to the storm disruption.
Net revenues. Total transportation net revenues increased 6.7 percent to $564.1 millionmacroeconomic uncertainty and declining import demand in the thirdUnited States. The cost of purchased transportation remains elevated compared to pre-pandemic levels and compared to the prior year but it began to decline within the second quarter of 20172022 as global demand declined to better align with the industry’s overall capacity. Despite increasing activity from $528.6 millionthe ports in China reopening from their pandemic related shutdowns, the port congestion on the United States West Coast has improved due to moderating demand and the continued diversion of freight to ports in the thirdSouthern and Eastern United States. Shippers continue to divert freight away from the United States West Coast to mitigate risk from a potential dockworker labor dispute. Despite port congestion improving during the second quarter of 2016. 2022 on the United States West Coast there is evidence of it edging back up again in addition to increased congestion on the United States East Coast due to a higher percentage of freight being routed to their ports. Air freight conversions back to ocean freight have continued with more shippers seeking lower supply chain costs by tolerating the longer duration of ocean freight transit. Air freight capacity has improved in certain trade lanes due to increased belly capacity as commercial flights become more frequent after being significantly reduced during the COVID-19 pandemic.
BUSINESS TRENDS
Our second quarter of 2022 surface transportation net revenue marginresults benefited from the softening market conditions, as periods where the cost of purchased transportation begins to decline often result in improved adjusted gross profits per transaction in our portfolio. Industry freight volumes as measured by the Cass Freight Index decreased to 16.42 percent in the thirdsecond quarter of 2017 from 17.62022 compared to the second quarter of 2021. Our combined NAST truckload and less than truckload (“LTL”) volume decreased 2.5 percent during the second quarter of 2022. As a result of the softening market conditions, our contractual rates negotiated in prior quarters contributed to an increase in our adjusted gross profit per shipment and significantly reduced the percentage of shipments with negative adjusted gross profit margins. Our average truckload linehaul cost per mile, excluding fuel costs, decreased 5.0 percent during the second quarter of 2022. Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, increased approximately 1.5 percent during the second quarter of 2022 due to our contractual rates negotiated in prior quarters.
In our global forwarding business, we continued to experience elevated purchased transportation costs for ocean freight, which resulted in growth in both total revenue and cost of purchased transportation compared to the second quarter of 2021. The cost of purchased transportation began to moderate within the second quarter of 2022 as softening demand better aligned with the industry’s overall capacity. This change in market dynamics was most evident on the Transpacific trade lane where we experienced a decline in Asia Pacific ocean volumes in the thirdsecond quarter of 20162022 compared to the second quarter of 2021. Despite this decline, our total ocean volumes increased 2.5 percent due to strong growth in other regions where we operate. Air freight tonnage decreased 6.0 percent as we experienced more customers willing to accept longer transit times by converting their freight to the increasingly balanced ocean freight market.
On June 3, 2021, we acquired Combinex Holding B.V. (“Combinex”) to further expand our European road transportation presence. Our consolidated results include the results of Combinex as of June 3, 2021.
SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS
The following summarizes select second quarter 2022 year-over-year operating comparisons to the second quarter 2021:
•Total revenues increased 22.9 percent to $6.8 billion, driven primarily by higher pricing across most of our services and higher truckload and ocean volume.
•Gross profits and adjusted gross profits increased 37.7 percent to $1.0 billion, primarily driven by higher adjusted gross profit per transaction across most of our services and higher truckload and ocean volume.
•Personnel expenses increased 22.6 percent to $444.8 million, primarily due to the cost of transportation increasing more than customer pricing, including fuel, in nearly all transportation services. Sourcing net revenues were flat at $29.8 million in the third quarter of 2017 compared to the third quarter of 2016. Our sourcing net revenue margin was 8.5 percent in the third quarter of 2017 and 8.3 percent in the third quarter of 2016.
Operating expenses. Operating expenses increased 15.0 percent to $399.4 million in the third quarter of 2017 from $347.2 million in the third quarter of 2016. Operating expenses as a percentage of net revenues increased to 67.3 percent in the third quarter of 2017 from 62.2 percent in the third quarter of 2016.
For the third quarter, personnel expenses increased 14.1 percent to $293.2 million in 2017 from $256.9 million in 2016. The increase in personnel expense was due to an increase of 8.7 percent in averagehigher headcount and an increase in variablehigher incentive compensation in the third quarter of 2017 compared to the third quarter of 2016.costs. Average headcount increased 16.2 percent.
For the third quarter of 2017, other•Other selling, general, and administrative (“SG&A”) expenses increased 17.6decreased 6.8 percent to $106.2$117.2 million, and included a $25.3 million gain on the sale-leaseback of a facility in 2017 from $90.3 million in the third quarter of 2016.Kansas City. This increase was drivenpartially offset by costs related to the addition of the APChigher purchased and Milgram businesses,contracted services and increases in the provision for bad debt, claims expenses, and warehouse costs.increased travel expenses.
Income from operations.•Income from operations decreased 8.0totaled $469.7 million, up 80.2 percent due to $194.5 millionthe increase in the third quarter of 2017 from $211.3 million in the third quarter of 2016. This decrease was primarily driven by declines in income from operations in NAST and Robinson Fresh,adjusted gross profits, partially offset by anthe increase in income from operations in Global Forwarding. Income from operations as a percentageoperating expenses.
•Adjusted operating margin of net revenues decreased to 32.745.5 percent in the third quarter of 2017 from 37.8 percent in the third quarter of 2016.increased 1,070 basis points.
•Interest and other expense. Interest and otherincome/expenses totaled $27.4 million, consisting primarily of $17.0 million of interest expense, was $10.5which increased $4.3 million in the third quarter of 2017 compared to $7.4 million in the third quarter of 2016. The increase wasversus last year due primarily to a higher average debt balance, and higher interest rates during$10.3 million of foreign currency revaluation and realized foreign currency gains and losses, which increased $8.4 million versus last year due primarily to a strengthening of the U.S. Dollar versus the Euro and Yuan.
•The effective tax rate in the quarter was 21.3 percent compared to 21.6 percent in the second quarter last year.
•Net income totaled $348.2 million, up 79.7% from a year ago.
•Diluted earnings per share (EPS) increased 85.4 percent to $2.67.
•Cash flow from operations improved $158.7 million in the six months ended SeptemberJune 30, 2017,2022 driven by the increase in net income, partially offset by a small unfavorable change in working capital.
CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes our results of operations (dollars in thousands, except per share data): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
| Revenues: | | | | | | | | | | | |
| Transportation | $ | 6,465,642 | | $ | 5,240,448 | | 23.4 | % | | $ | 12,993,993 | | $ | 9,800,675 | | 32.6 | % |
| Sourcing | 332,833 | | 292,278 | | 13.9 | % | | 620,435 | | 535,920 | | 15.8 | % |
| Total revenues | 6,798,475 | | 5,532,726 | | 22.9 | % | | 13,614,428 | | 10,336,595 | | 31.7 | % |
| Costs and expenses: | | | | | | | | | | | |
| Purchased transportation and related services | 5,466,874 | | 4,519,305 | | 21.0 | % | | 11,117,098 | | 8,400,590 | | 32.3 | % |
| Purchased products sourced for resale | 299,988 | | 264,245 | | 13.5 | % | | 559,521 | | 484,449 | | 15.5 | % |
| Personnel expenses | 444,764 | | 362,901 | | 22.6 | % | | 858,125 | | 723,736 | | 18.6 | % |
| Other selling, general, and administrative expenses | 117,184 | | 125,671 | | (6.8) | % | | 264,545 | | 243,887 | | 8.5 | % |
| Total costs and expenses | 6,328,810 | | 5,272,122 | | 20.0 | % | | 12,799,289 | | 9,852,662 | | 29.9 | % |
| Income from operations | 469,665 | | 260,604 | | 80.2 | % | | 815,139 | | 483,933 | | 68.4 | % |
| Interest and other income/expense, net | (27,395) | | (13,497) | | 103.0 | % | | (41,569) | | (24,757) | | 67.9 | % |
| Income before provision for income taxes | 442,270 | | 247,107 | | 79.0 | % | | 773,570 | | 459,176 | | 68.5 | % |
| Provision for income taxes | 94,085 | | 53,318 | | 76.5 | % | | 155,037 | | 92,082 | | 68.4 | % |
| Net income | $ | 348,185 | | $ | 193,789 | | 79.7 | % | | $ | 618,533 | | $ | 367,094 | | 68.5 | % |
| | | | | | | | | | | |
| Diluted net income per share | $ | 2.67 | | | $ | 1.44 | | | 85.4 | % | | $ | 4.71 | | $ | 2.71 | | | 73.8 | % |
| | | | | | | | | | | |
| Average headcount | 17,893 | | | 15,405 | | | 16.2 | % | | 17,554 | | | 15,233 | | | 15.2 | % |
| | | | | | | | | | | |
Adjusted gross profit margin percentage(1) | | | | | | | | | | | |
| Transportation | 15.4 | % | | 13.8 | % | | 160 bps | | 14.4 | % | | 14.3 | % | | 10 bps |
| Sourcing | 9.9 | % | | 9.6 | % | | 30 bps | | 9.8 | % | | 9.6 | % | | 20 bps |
| Total adjusted gross profit margin | 15.2 | % | | 13.5 | % | | 170 bps | | 14.2 | % | | 14.0 | % | | 20 bps |
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(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.
A reconciliation of our reportable segments to our consolidated results can be found in Note 9, Segment Reporting, in Part I, Financial Information of this Quarterly Report on Form 10-Q.
Consolidated Results of Operations—Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021
Total revenues and direct costs. Total transportation revenues and purchased transportation and related services increased primarily due to higher pricing across most of our services, most notably in ocean, truckload, and LTL services, in addition to increased volumes in truckload and ocean services. While prices remain elevated compared to pre-pandemic levels and compared to the same period ended September 30, 2016. Increased borrowings were relatedprior year due to driver availability challenges and supply chain disruptions, including port congestion and equipment shortages, prices began to decline within the second quarter of 2022. The decline in pricing within the second quarter of 2022 is the result of softening market conditions as demand has better aligned with capacity available in the market as shippers work through elevated inventory levels, and cautiously approach macroeconomic uncertainty and moderating consumer demand. Our sourcing total revenue and purchased products sourced for resale increased as a result of higher cost and pricing per case and increased case volume across all customer verticals.
Gross profits and adjusted gross profits. Our transportation adjusted gross profits increased due to elevated pricing compared to the acquisitionprior year across most of Milgramour services, most notably in truckload, ocean, and LTL services, resulting in higher adjusted gross profits per transaction. Our surface transportation adjusted gross profit per transaction increased significantly driven by the declining cost of purchased transportation within the second quarter of 2022 relative to our contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins. Sourcing adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals.
Operating expenses. Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount. SG&A expenses decreased due to a $23.5 million gain on the sale-leaseback of a facility in Kansas City and lower credit losses. This was partially offset by higher purchased and contracted services and increased working capital needs.travel expenses.
Interest and other income/expense. Interest and other income/expense primarily consisted of interest expense of $17.0 million in the second quarter of 2022 and a $10.3 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses primarily due to a strengthening of the U.S. Dollar versus the Euro and Yuan. Interest expense increased driven by a higher average debt balance in the second quarter of 2022 compared to the second quarter of 2021. The second quarter of 2021 included a $1.9 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.
Provision for income taxes. Our effective income tax rate was 35.221.3 percent for the thirdsecond quarter of 2017 and 36.72022 compared to 21.6 percent for the thirdsecond quarter of 2016. During2021. The effective income tax rate for the thirdsecond quarter of 2017,2022 was higher than the provision forstatutory federal income tax rate primarily due to state income taxes, decreasednet of federal benefit, which increased the effective income tax rate by $2.7 million2.0 percentage points. This impact was partially offset by the tax impact of foreign tax credits, which reduced the effective tax rate by 1.4 percentage points. The effective income tax rate for the second quarter of 2021 was higher than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit, and foreign income taxes which both increased our effective tax rate by 2.0 percentage points. These impacts on the effective income tax rate were partially offset by the tax impact of foreign tax credits, associated with foreign earnings deemed to be subject to U.S. taxation. Duringwhich reduced the first quartereffective tax rate by 1.2 percentage points.
Consolidated Results of 2017, we adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718). The adoption of ASU 2016-09 prospectively impacts the recording of income taxes related to share-based payment awards in our consolidated financial position and results of operations, as well as the operating and financing cash flows on the consolidated statements of cash flow. This adoption resulted in a decrease in our provision for income taxes of $1.3 million the third quarter of 2017.
Net income. Net income decreased 7.6 percent to $119.2 million in the third quarter of 2017 from $129.0 million in the third quarter of 2016. Basic and diluted net income per share decreased 5.6 percent to $0.85 from $0.90 in the third quarter of 2017 comparedOperations—Six Months Ended June 30, 2022 Compared to the third quarter of 2016.
SEGMENT RESULTS OF OPERATIONS
ThreeSix Months Ended SeptemberJune 30, 2017, Compared to Three Months Ended September 30, 20162021
North American Surface Transportation. NAST totalTotal revenues including intersegmentand direct costs. Total transportation revenues increased 10.9 percent to $2.6 billion in the third quarter of 2017 from $2.3 billion in the third quarter of 2016. This increase was driven by pricing and volume increases in most services. NAST cost ofpurchased transportation and related services increased 13.0 percentdriven by higher pricing in all of our service lines, most notably in ocean and truckload services. Volumes also increased in ocean and truckload services. Purchased transportation and related service costs remain elevated compared to $2.2 billionpre-pandemic levels and compared to the prior year as supply chain disruptions continue to impact both the surface transportation and global forwarding markets. While supply chain disruptions continue to drive higher costs and pricing in the thirdperiod we did see evidence that the market may be softening as demand has better aligned with available capacity within the second quarter of 20172022. Our sourcing total revenue and purchased products sourced for resale increased as a result of higher cost and pricing per case and increased case volume across all customer verticals.
Gross profits and adjusted gross profits. Our transportation adjusted gross profits increased due to increased pricing compared to the prior year across most of our services, most notably in truckload, ocean and LTL services resulting in higher adjusted gross profits per transaction. Our surface transportation adjusted gross profit per transaction also benefited from $2.0 billion in the thirddeclining cost of purchased transportation within the second quarter of 2016. This increase was2022 relative to our contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins. Sourcing adjusted gross profits increased driven by an increase in costscase volume and higher adjusted gross profits per case across all customer verticals.
Operating expenses. Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount. SG&A expenses increased primarily due to increases in purchased and contracted services, travel, and warehouse expenses, partially offset by a $23.5 million gain on the sale-leaseback of a facility in Kansas City.
Interest and other income/expense. Interest and other income/expense primarily consisted of interest expense of $31.5 million and an $11.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in the six months ended June 30, 2022 primarily due to a strengthening of the U.S. Dollar versus the Euro and Yuan. Interest expense increased driven by a higher average debt balance compared to the six months ended June 30, 2021. The six months ended June 30, 2021 included a $4.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses that was partially offset by a $2.9 million local government subsidy in Asia for achieving specified performance criteria that was almost entirely offset by a reduction in foreign tax credits within the provision for income taxes.
Provision for income taxes. Our effective income tax rate was 20.0 percent for the six months ended June 30, 2022 and 20.1 percent for the six months ended June 30, 2021. The effective income tax rate for the six months ended June 30, 2022 was lower than the statutory federal income tax rate primarily due to the tax impact of foreign tax credits, U.S. tax credits and incentives, and the tax impact of share-based payment awards, which reduced the effective tax rate by 1.1 percentage points, 1.0 percentage points, and 0.9 percentage points, respectively. These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income tax rate by 1.7 percentage points. The effective income tax rate for the six months ended June 30, 2021 was lower than the statutory federal income tax rate primarily due to the tax impact of share-based payment awards, U.S. tax credits and incentives, and the tax impact of foreign tax credits, which reduced the effective tax rate by 1.5 percentage points, 0.9 percentage points, and 0.5 percentage points, respectively. These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income tax rate by 2.1 percentage points.
NAST Segment Results of Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (dollars in thousands) | 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
| Total revenues | $ | 4,147,046 | | | $ | 3,585,481 | | | 15.7 | % | | $ | 8,261,935 | | | $ | 6,796,904 | | | 21.6 | % |
| Costs and expenses: | | | | | | | | | | | |
| Purchased transportation and related services | 3,522,495 | | | 3,148,885 | | | 11.9 | % | | 7,131,284 | | | 5,939,200 | | | 20.1 | % |
| Personnel expenses | 225,210 | | | 185,253 | | | 21.6 | % | | 426,012 | | | 369,182 | | | 15.4 | % |
| Other selling, general, and administrative expenses | 122,842 | | | 100,251 | | | 22.5 | % | | 245,786 | | | 200,646 | | | 22.5 | % |
| Total costs and expenses | 3,870,547 | | | 3,434,389 | | | 12.7 | % | | 7,803,082 | | | 6,509,028 | | | 19.9 | % |
| Income from operations | $ | 276,499 | | | $ | 151,092 | | | 83.0 | % | | $ | 458,853 | | | $ | 287,876 | | | 59.4 | % |
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
| Average headcount | 7,552 | | | 6,580 | | | 14.8 | % | | 7,442 | | | 6,578 | | | 13.1 | % |
| Service line volume statistics | | | | | | | | | | | |
| Truckload | | | | | 2.0 | % | | | | | | 3.0 | % |
| LTL | | | | | (5.0) | % | | | | | | (3.0) | % |
| | | | | | | | | | | |
Adjusted gross profits(1) | | | | | | | | | | | |
| Truckload | $ | 432,048 | | | $ | 286,574 | | | 50.8 | % | | $ | 766,958 | | | $ | 566,878 | | | 35.3 | % |
| LTL | 166,868 | | | 128,155 | | | 30.2 | % | | 317,610 | | | 248,272 | | | 27.9 | % |
| Other | 25,635 | | | 21,867 | | | 17.2 | % | | 46,083 | | | 42,554 | | | 8.3 | % |
| Total adjusted gross profits | $ | 624,551 | | | $ | 436,596 | | | 43.1 | % | | $ | 1,130,651 | | | $ | 857,704 | | | 31.8 | % |
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(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.
Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021
Total revenues and direct costs. NAST total revenues and purchased transportation and a volume increaserelated services increased primarily due to higher pricing in most services. NAST net revenues decreased 0.2 percenttruckload and LTL services, in addition to $377.4 million in the third quarter of 2017 from $378.1 million in the third quarter of 2016. This decrease was drivenhigher truckload volumes. These increases were partially offset by a decline in truckload net revenues, discussed below.
NAST truckload net revenues decreased 2.1 percentLTL volumes. While prices remain elevated compared to $266.6 million in the third quarter of 2017 from $272.4 million in the third quarter of 2016. NAST truckload volumes were flat in the third quarter of 2017pre-pandemic levels and compared to the thirdprior year due to driver availability challenges and supply chain disruptions, including port congestion and equipment shortages, they began to decline within the second quarter of 2016. NAST truckload net revenue margin decreased2022. The decline in pricing within the second quarter of 2022 is the result of softening market conditions as demand has better aligned with capacity available in the third quartermarket.
Gross profits and adjusted gross profits. NAST adjusted gross profits increased due to increased pricing compared to the thirdprior year in truckload and LTL services resulting in higher adjusted gross profits per transaction in addition to higher truckload volumes. These increases were partially offset by a decline in LTL volumes. Our NAST adjusted gross profit per transaction increased significantly driven by the declining costs of purchased transportation within the second quarter of 2016, due primarily2022 relative to higher transportation costs, including fuel costs.
NASTour contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins. Our average truckload net revenues accounted for approximately 93 percent of our total North American truckload net revenues in the third quarter of 2017 and approximately 92 percent in the third quarter of 2016. The majority of the remaining North American truckload net revenues are included in Robinson Fresh. Excluding the estimated impacts of the increase in fuel costs, our average truckloadlinehaul rate per mile charged to our customers, which excludes fuel surcharges, increased 6.5approximately 1.5 percent in the thirdsecond quarter of 20172022 compared to the thirdsecond quarter of 2016.2021. Our truckload transportation costs, excluding fuel surcharges, decreased approximately 5.0 percent.
NAST other adjusted gross profits increased approximately 8.5 percent, excluding the estimatedprimarily driven by an increase in fuel costs. While rapidly rising prices does often create incremental spot market activity, it can also create more margin compression on committed pricing arrangements. We experienced both of these impacts in our third quarter results. The pricing trends and required adjustments to market conditions that we discussed at length last quarter continued and were accelerated by the hurricane impacts.
NAST LTL net revenues increased 4.8 percent to $97.6 million in the third quarter of 2017 from $93.1 million in the third quarter of 2016. This increase was primarily due to a volume increase of 6.5 percent in the third quarter of 2017 compared to the third quarter of 2016, partially offset by a decrease in net revenue margin resulting from increased purchased transportation costs.
NAST intermodal net revenues decreased 1.4 percent to $7.1 million in the third quarter of 2017 from $7.2 million in the third quarter of 2016. NAST intermodal net revenues and net revenue margin decreased while volume increased in the third quarter of 2017 compared to the third quarter of 2016 due to lower-margin contractual volume growth, partially offset by a decrease in transactional business.
NAST operating expenses increased 9.5 percent in the third quarter of 2017 to $226.0 million compared to $206.3 million in the third quarter of 2016. This increase was due to increases in selling, general, and administrative expenseswarehousing services and an increase in intermodal adjusted gross profits.
Operating expenses. NAST personnel expenses. The increase in selling, general, and administrative expenses isincreased primarily due to an increase in the provision for bad debtsalaries and claims expense. The increase in personnel expense is related toincentive compensation driven by an increase in average headcount of 1.9 percent.headcount. NAST SG&A expenses increased due to increased investments in technology, increased expenditures for purchased services including temporary labor, and increased warehouse expense. The operating expenses of NAST and all other segments include allocated corporate expenses. Allocated personnel expenses consist primarily of stock-based compensation allocated based upon segment participation levels in our equity plans. Remaining corporate allocations, including corporate functions and technology related expenses, are primarily included within each segment’s other SG&A, and allocated based upon relevant segment operating metrics.
NAST income from operations decreased 11.8 percent
Six Months Ended June 30, 2022 compared to $151.4 million in the third quarter of 2017 from $171.7 million in the third quarter of 2016. This was primarily due to a decline in netSix Months Ended June 30, 2021
Total revenues caused by an increase in transportationand direct costs.
Global Forwarding. Global Forwarding NAST total revenues including intersegment revenues, increased 40.2 percent to $560.0 million in the third quarter of 2017 compared to $399.6 million in the third quarter of 2016. Global Forwarding costs ofand purchased transportation and related services increased 40.5 percentdue to $430.2 millionhigher pricing in the third quarter of 2017 from $306.2 milliontruckload and in the third quarter of 2016. Global Forwarding net revenues increased 39.1 percent to $129.8 millionLTL services, in the third quarter of 2017 compared to $93.4 million in the third quarter of 2016. The acquisitions of APC and Milgram accounted for approximately 18 percentage points of the net revenue growth in Global Forwarding.
Global Forwarding ocean transportation net revenues increased 44.0 percent to $81.1 million in the third quarter of 2017 from $56.3 million in the third quarter of 2016. This was primarily relatedaddition to volume increases including those from acquisitions. Ocean transportation volumes increased approximately 22 percent and customer rates also increased in truckload services. Truckload pricing reached historic levels during the thirdfirst quarter of 20172022 due to tight carrier capacity caused by driver availability challenges and the supply chain disruptions facing the industry, however, prices started to decline within the second quarter of 2022. The costs of purchased transportation also started to decline driven by moderating demand and capacity entering the market but remain elevated compared to the same periodprior year.
Gross profits and adjusted gross profits. NAST adjusted gross profits increased due primarily to increased pricing resulting in higher adjusted gross profits per transaction, in addition to an increase in volume. The increased adjusted gross profit per transaction was the result of 2016.
Global Forwarding airthe softening market conditions resulting in moderating costs for purchased transportation net revenues increased 32.7 percentrelative to $24.0 millionour contractual rates negotiated in prior quarters. This significant reduced the third quarterpercentage of 2017 from $18.1 million in the third quarter of 2016. This was primarily relatedshipments with negative adjusted gross profit margins. Our average truckload linehaul rate per mile charged to volume increases, including those from acquisitions. Air transportation volumesour customers, which excludes fuel surcharges, increased approximately 28 percent and customer rates also increased in the third quarter of 2017 compared to the same period of 2016.
Global Forwarding customs net revenues increased 41.4 percent to $17.4 million in the third quarter of 2017 from $12.3 million in 2016. The increase was primarily due to increased transaction volumes, primarily related to acquisitions. Customs transaction volumes10.5 percent. Our truckload transportation costs, excluding fuel surcharges, increased approximately 52 percent in the third quarter of 2017 compared to the same period of 2016.7.5 percent.
Global Forwarding operating expensesNAST other adjusted gross profits increased 29.3 percent in the third quarter of 2017 to $98.7 million from $76.3 million in the third quarter of 2016. This increase was due to increases in both personnel and selling, general, and administrative expenses. The personnel expense increase was driven by an average headcount increase of 20.8 percent. The acquisitions of APC and Milgram added approximately 18 percent to the Global Forwarding average headcount. The selling, general, and administrativein warehousing services.
Operating expenses. NAST personnel expense increase was primarily driven by the acquisition amortization related to APC and Milgram.
Global Forwarding income from operations increased 82.6 percent to $31.1 million in the third quarter of 2017 from $17.0 million in the third quarter of 2016. This was primarily due to an increase in net revenues.salaries and incentive compensation driven by an increase in average headcount. NAST SG&A expenses increased due to increased investments in technology, increased expenditures for purchased services including temporary labor, increased warehouse expense, and a non-recurring legal expense.
Robinson Fresh. Robinson Fresh
Global Forwarding Segment Results of Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (dollars in thousands) | 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
| Total revenues | $ | 2,093,190 | | | $ | 1,450,794 | | | 44.3 | % | | $ | 4,287,587 | | | $ | 2,606,833 | | | 64.5 | % |
| Costs and expenses: | | | | | | | | | | | |
| Purchased transportation and related services | 1,768,747 | | | 1,212,040 | | | 45.9 | % | | 3,641,296 | | | 2,153,779 | | | 69.1 | % |
| Personnel expenses | 106,096 | | | 82,936 | | | 27.9 | % | | 207,372 | | | 163,945 | | | 26.5 | % |
| Other selling, general, and administrative expenses | 50,790 | | | 47,606 | | | 6.7 | % | | 103,724 | | | 90,308 | | | 14.9 | % |
| Total costs and expenses | 1,925,633 | | | 1,342,582 | | | 43.4 | % | | 3,952,392 | | | 2,408,032 | | | 64.1 | % |
| Income from operations | $ | 167,557 | | | $ | 108,212 | | | 54.8 | % | | $ | 335,195 | | | $ | 198,801 | | | 68.6 | % |
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
| Average headcount | 5,759 | | 4,909 | | 17.3 | % | | 5,690 | | 4,832 | | 17.8 | % |
| Service line volume statistics | | | | | | | | | | | |
| Ocean | | | | | 2.5 | % | | | | | | 4.5 | % |
| Air | | | | | (6.0) | % | | | | | | 1.5 | % |
| Customs | | | | | 10.5 | % | | | | | | 8.0 | % |
| | | | | | | | | | | |
Adjusted gross profits(1) | | | | | | | | | | | |
| Ocean | $ | 228,093 | | | $ | 150,916 | | | 51.1 | % | | $ | 449,494 | | | $ | 286,312 | | | 57.0 | % |
| Air | 56,112 | | | 52,179 | | | 7.5 | % | | 116,679 | | | 97,426 | | | 19.8 | % |
| Customs | 27,820 | | | 25,512 | | | 9.0 | % | | 55,315 | | | 49,735 | | | 11.2 | % |
| Other | 12,418 | | | 10,147 | | | 22.4 | % | | 24,803 | | | 19,581 | | | 26.7 | % |
| Total adjusted gross profits | $ | 324,443 | | | $ | 238,754 | | | 35.9 | % | | $ | 646,291 | | | $ | 453,054 | | | 42.7 | % |
________________________________
(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.
Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021
Total revenues and direct costs. Global forwarding total revenues including intersegment revenues, increased 5.5 percent to $656.9 million in the third quarter of 2017 from $622.6 million in the third quarter of 2016. Robinson Fresh costs ofand purchased transportation and related services increased due to higher pricing and higher volumes in our ocean services. The cost of purchased products sourced for resale increased 6.6 percenttransportation and pricing continues to $602.7 million in the third quarter of 2017 from $565.6 million in the third quarter of 2016. Robinson Fresh net revenues decreased 4.9 percentbe elevated compared to $54.3 million in the third quarter of 2017 from $57.0 million in the third quarter of 2016, primarily as a result of declines in transportation net revenues. The hurricanes in both Texaspre-pandemic levels and Florida had a negative impact on Robinson Fresh cases volumes and net revenue in the third quarter. We have service center facilities in both of these locations that were shut down for seven to ten days as a result of the storms.
Robinson Fresh net revenues from sourcing services were flat at $29.8 million in the third quarter of 2017 compared to the thirdprior year driven by the continued supply chain disruptions impacting the global forwarding market. The market did begin to show signs of softening which resulted in prices beginning to moderate within the second quarter of 2016. A slight2022, most notably on the Transpacific trade lane as we experienced a decline in Asia Pacific ocean volumes. Despite this decline, our total ocean volumes increased due to strong growth in other regions where we operate. Air freight total revenues and purchased transportation and related services decreased driven by conversions back to ocean freight and the impact of increased air freight capacity on purchased transportation costs in certain trade lanes due to the increased frequency of commercial flights which were significantly reduced at the onset of the COVID-19 pandemic.
Gross profits and adjusted gross profits. Ocean freight transportation adjusted gross profits increased due to higher pricing resulting in increased adjusted gross profits per transaction, in addition to an increase in net revenue margin wastotal volumes. Air freight adjusted gross profits increased due to an increase in adjusted gross profits per transaction driven by the declining cost of purchased transportation, partially offset by a case volume decrease of one percent compared to the third quarter of 2016.
Robinson Fresh net revenues from transportation services decreased 10.0 percent to $24.5 million in the third quarter of 2017 compared to $27.2 million in the third quarter of 2016, primarilyvolume. Customs adjusted gross profits increased due to a decreasean increase in truckload net revenue. Robinson Freshtransportation net revenue margin decreased in the third quarter of 2017 compared to the third quarter of 2016. Robinson Fresh transportation volumes increased 13 percent in the third quarter of 2017 compared to the third quarter of 2016.transaction volume.
Robinson Fresh operatingOperating expenses. Personnel expenses increased 8.6 percent in the third quarter of 2017 to $42.7 million from $39.3 million in the third quarter of 2016. This was primarily due to an increase in warehousing expenses related to expanding facilitiessalaries and incentive compensation driven by an increase in average headcountheadcount. SG&A expenses increased due to increased investments in technology and travel expenses, partially offset by favorable credit losses.
Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021
Robinson Fresh income from operations decreased 34.7 percentTotal revenues and direct costs. Total revenues and purchased transportation and related services increased driven by higher pricing and volumes in our ocean services and, to $11.6 milliona lesser extent, higher pricing and volumes in our air freight services. The cost of purchased transportation and pricing continues to be elevated compared to pre-pandemic levels and compared to the third quarter of 2017 from $17.7 millionprior year driven by the continued supply chain disruptions impacting the global forwarding market.
Gross profits and adjusted gross profits. Ocean and air freight transportation adjusted gross profits increased driven by higher pricing resulting in the third quarter of 2016. This wasincreased adjusted gross profits per transaction, in addition to increased volumes. Customs adjusted gross profits increased driven by an increase in transaction volumes.
Operating expenses. Personnel expenses increased primarily due to an increase in operatingsalaries and incentive compensation driven by an increase in average headcount. SG&A expenses increased due to increased investments in technology, increased purchased services including temporary labor, and a decrease in transportation services net revenues.travel expenses. These increases were partially offset by favorable credit losses.
All Other and Corporate. Corporate Segment Results of Operations
All Other and Corporate includes our Robinson Fresh and Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses. Managed Services provides Transportation Management Services, or Managed TMS. Europe Surface Transportation provides services similar to NAST across Europe. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (dollars in thousands) | 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
| Total revenues | $ | 558,239 | | | $ | 496,451 | | | 12.4 | % | | $ | 1,064,906 | | | $ | 932,858 | | | 14.2 | % |
| Income (loss) from operations | 25,609 | | | 1,300 | | | N/M | | 21,091 | | | (2,744) | | | N/M |
| | | | | | | | | | | |
Adjusted gross profits(1) | | | | | | | | | | | |
| Robinson Fresh | 34,981 | | | 29,940 | | | 16.8 | % | | 65,486 | | | 54,888 | | | 19.3 | % |
| Managed Services | 27,618 | | | 26,234 | | | 5.3 | % | | 55,700 | | | 51,790 | | | 7.5 | % |
| Other Surface Transportation | 20,020 | | | 17,652 | | | 13.4 | % | | 39,681 | | | 34,120 | | | 16.3 | % |
| Total adjusted gross profits | $ | 82,619 | | | $ | 73,826 | | | 11.9 | % | | $ | 160,867 | | | $ | 140,798 | | | 14.3 | % |
Managed Services net revenues increased 10.8 percent in the third quarter of 2017 to $18.5 million________________________________
(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.
Three Months Ended June 30, 2022 compared to $16.7 million in the third quarter of 2016. This increase was a result of new business with new and existing customers. Other Surface Transportation net revenues increased 4.2 percent in the third quarter of 2017 to $13.9 million compared to $13.3 million in the third quarter of 2016. This increase is primarily the result of increased volumes, partially offset by margin compression in the surface transportation business in Europe.
NineThree Months Ended SeptemberJune 30, 2017 Compared to Nine Months Ended September 30, 20162021
Total revenues and direct costs. Our consolidatedRobinson Fresh total revenues increased 12.1 percent in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. Total transportation revenues increased 14.7 percent to $9.9 billion in the nine months ended September 30, 2017, from $8.6 billion in the nine months ended September 30, 2016. The increase in total transportation revenues was driven by increased pricing and volumes in nearly all of our transportation services. Total purchased transportation and related services increased 17.8 percent in the nine months ended September 30, 2017, to $8.2 billion from $7.0 billion in the nine months ended September 30, 2016. The increase was due to higher pricing per case and increased volumescase volume across all customer verticals. In addition, total revenues in all of our transportation services, and byOther Surface Transportation increased costs of transportation, including fuel. Sourcing revenue decreased 7.2 percent in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Purchased products sourced for resale decreased 7.7 percent in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. These decreases were primarily due to lower pricinghigher Europe truckload pricing.
Gross profits and commodity costs.
Net revenues. Total transportation net revenuesadjusted gross profits. Robinson Fresh adjusted gross profits increased 1.3 percent to $1.64 billion in the nine months ended September 30, 2017 from $1.62 billion in the nine months ended September 30, 2016. Our transportation net revenue margin decreased to 16.6 percent in the nine months ended September 30, 2017 from 18.8 percent in the nine months ended September 30, 2016, primarily due to the cost of transportation increasing more than customer pricing, including fuel, in nearly all transportation services. Sourcing net revenues decreased 1.5 percent to $95.3 million in the nine months ended September 30, 2017 from $96.8 million in the nine months ended September 30, 2016. This decrease was primarily the result of lower net revenue per case, as volumes were flat. Our sourcing net revenue margin increased in the nine months ended September 30, 2017 to 9.0 percent from 8.5 percent in the nine months ended September 30, 2016.
Operating expenses. Operating expenses increased 9.3 percent in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Operating expenses as a percentage of net revenues increased to 67.5 percent in the nine months ended September 30, 2017, from 62.5 percent in the nine months ended September 30, 2016.
Personnel expenses increased 7.9 percent to $867.9 million in the nine months ended September 30, 2017, from $804.6 million in the nine months ended September 30, 2016. For the nine months ended September 30, 2017, our average headcount increased 8.3 percent compared to the same period ended September 30, 2016, including 650 employees added through acquisitions. The increase in personnel expense was less than the increase in average headcount due to decreased expenses related to variable incentive plans.
Other selling, general, and administrative expenses increased 13.7 percent to $304.0 million in the nine months ended September 30, 2017 from $267.4 million in the nine months ended September 30, 2016. This increase was primarily driven by costs related to the addition of the APC and Milgram businesses, the provision for bad debt, and warehouse costs.
Income from operations. Income from operations decreased 12.4 percent to $564.2 million in the nine months ended September 30, 2017, from $644.0 million in the nine months ended September 30, 2016. Income from operations as a percentage of net revenues decreased to 32.5 percent in the nine months ended September 30, 2017, from 37.5 percent in the nine months ended September 30, 2016.
Interest and other expense. Interest and other expense increased to $29.2 million in the nine months ended September 30, 2017, from $22.5 million in the nine months ended September 30, 2016. The change was due primarily to a higher average debt balance and higher interest rates on our short-term debt during the nine months ended September 30, 2017, compared to the same period ended September 30, 2016.
Provision for income taxes. Our effective income tax rate was 34.2 percent for the nine months ended September 30, 2017, and 37.1 percent for the nine months ended September 30, 2016. During the first quarter of 2017, we adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718). The adoption of ASU 2016-09 prospectively impacts the recording of income taxes related to share-based payment awards in our consolidated statement of financial position and results of operations, as well as the operating and financing cash flows on the consolidated statements of cash flow. This adoption resulted in a decrease in our provision for income taxes of $11.9 million the nine months ended September 30, 2017. The effective income tax rate for the nine months ended September 30, 2017 was lower than the statutory federal income tax rate due to the adoption of ASU 2016-09.
Net income. Net income decreased 9.9 percent to $352.3 million in the nine months ended September 30, 2017, from $391.1 million in the nine months ended September 30, 2016. Basic net income per share decreased 8.4 percent to $2.50 in the nine months ended September 30, 2017 from $2.73 in the nine months ended September 30, 2016. Diluted net income per share decreased 8.8 percent to $2.49 in the nine months ended September 30, 2017 from $2.73 in the nine months ended September 30, 2016.
SEGMENT RESULTS OF OPERATIONS
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
North American Surface Transportation. NAST total revenues, including intersegment revenues, increased 11.6 percent to $7.4 billion during the nine months ended September 30, 2017 from $6.7 billion during the nine months ended September 30, 2016. This increase was driven by volume and pricing increases in all services. NAST cost of transportation and related services increased 14.9 percent to $6.3 billion in the nine months ended September 30, 2017 from $5.5 billion in the nine months ended September 30, 2016. This was driven by increases in volumes and costs of transportation in all services. NAST net revenues decreased 4.4 percent to $1.1 billion in the nine months ended September 30, 2017 from $1.2 billion in the nine months ended September 30, 2016. This decrease was driven primarily by a decline in truckload net revenues.
NAST truckload net revenues decreased 7.4 percent to $784.3 million during the nine months ended September 30, 2017 from $847.2 million in the nine months ended September 30, 2016. NAST truckload volumes increased approximately six percent during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. NAST truckload net revenue margin decreased in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, due to increased transportation costs, excluding the change in fuel costs.
NAST truckload net revenues accounted for approximately 93 percent of our total North American truckload net revenues in the nine months ended September 30, 2017 and 92 percent in the nine months ended September 30, 2016. The majority of the remaining North American truckload net revenues are included in Robinson Fresh. Excluding the estimated impacts of the increase in fuel costs, our average truckload rate per mile charged to our customers increased approximately one percent in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Our truckload transportation costs increased 3.5 percent, excluding the estimated increase in fuel costs.
NAST LTL net revenues increased 4.6 percent to $288.3 million in the nine months ended September 30, 2017 from $275.5 million in the nine months ended September 30, 2016. This increase was primarily due to a volume increase of approximately seven percent during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, partially offset by a decrease in net revenue margin.
NAST intermodal net revenues decreased 8.8 percent to $22.1 million in the nine months ended September 30, 2017 from $24.2 million in the nine months ended September 30, 2016. Net revenues decreased while volume increased in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to lower-margin contractual volume growth, partially offset by a decrease in transactional business.
NAST operating expenses increased 2.8 percent during the nine months ended September 30, 2017 to $662.2 million compared to $644.3 million during the nine months ended September 30, 2016. This increase was driven by increases in other selling, general, and administrative expenses and personnel expenses. The increase in selling, general, and administrative expenses were driven by investments in technology. The increase in personnel expense is related an increase in average headcount of 2.3 percent and an increase in expenses related to variable incentive plans. The operating expenses of NAST and all other segments include allocated corporate expenses.
NAST income from operations decreased 13.4 percent to $447.6 million during the nine months ended September 30, 2017 from $516.8 million in the nine months ended September 30, 2016. This was primarily due to a decline in net revenues caused by the increased cost of transportation services.
Global Forwarding. Global Forwarding total revenues, including intersegment revenues, increased 40.2 percent to $1.6 billion in the nine months ended September 30, 2017 compared to $1.1 billion in the nine months ended September 30, 2016. Global Forwarding costs of transportation and related services increased 44.9 percent to $1.2 billion in the nine months ended September 30, 2017 from $838.8 million in the nine months ended September 30, 2016. Global Forwarding net revenues increased 26.1 percent to $357.4 million in the nine months ended September 30, 2017 compared to $283.5 million in the nine months ended September 30, 2016. These increases were primarily driven by our acquisition of APC, and volume growth in our organic operations.
Global Forwarding ocean transportation net revenues increased 24.5 percent to $217.8 million in the nine months ended September 30, 2017 from $174.9 million in the nine months ended September 30, 2016. The increase in net revenues was primarily a result of our acquisition of APC, partially offset by margin compression.
Our air transportation net revenues increased 27.2 percent to $68.9 million in the nine months ended September 30, 2017 from $54.1 million in the nine months ended September 30, 2016. The increase was primarily the result of our acquisition of APC, partially offset by margin compression.
Our customs net revenues increased 43.8 percent to $49.8 million in the nine months ended September 30, 2017 from $34.6 million in 2016. The increase was due to increased transaction volumes, primarily related to the acquisition of APC.
Global Forwarding operating expenses increased 24.3 percent in the nine months ended September 30, 2017 to $282.4 million from $227.2 million in the nine months ended September 30, 2016. This increase was driven by an increase in average headcount of 16.7 percentcase volume and the acquisition amortization expense related to the acquisitions of APC.
Global Forwarding income from operationshigher adjusted gross profits per case across all customer verticals. Managed Services adjusted gross profits increased 33.2 percent to $75.0 million in the nine months ended September 30, 2017 from $56.3 million in the nine months ended September 30, 2016. This was primarily due to an increase in net revenues, partially offsetfreight under management, which was driven by an increasegrowth in operating expenses.
Robinson Fresh. Robinson Fresh total revenues, including intersegment revenues, increased 2.1 percent to $1.94 billion in the nine months ended September 30, 2017 compared to $1.90 billion in the nine months ended September 30, 2016. Robinson Fresh costs of transportation and related services and purchased products sourced for resale increased 3.0 percent to $1.8 billion in the nine months ended September 30, 2017 from $1.7 billion in the nine months ended September 30, 2016. Robinson Fresh net revenues decreased 6.1 percent to $171.9 million in the nine months ended September 30, 2017 from $183.0 million in the nine months ended September 30, 2016. This decrease was the result of declines in transportation and sourcing net revenues.
Robinson Fresh net revenues from sourcing services decreased 1.5 percent to $95.3 million in the nine months ended September 30, 2017 compared to $96.8 million in the nine months ended September 30, 2016. This was primarily the result of lower net revenue per case as case volumes were flat.
Robinson Fresh net revenues from transportation services decreased 11.2 percent to $76.6 million in the nine months ended September 30, 2017 compared to $86.2 million in the nine months ended September 30, 2016, primarily due to decreases in truckload net revenue. Robinson Fresh transportation net revenue margin decreased in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, due primarily to increased transportation costs, including fuel.
Robinson Fresh operating expenses increased 9.3 percent in the nine months ended September 30, 2017 to $131.4 million from $120.3 million in the nine months ended September 30, 2016. This was primarily due to an increase in warehousing expenses related to expanding facilities, claims, and an increase in average headcount, partially offset by a decrease in expenses related to variable incentive compensation plans.
Robinson Fresh income from operations decreased 35.5 percent to $40.5 million in the nine months ended September 30, 2017 from $62.8 million in the nine months ended September 30, 2016. This was primarily due to decreases in transportation and sourcing net revenues, and an increase in operating expenses.
All Other and Corporate. All Other and Corporate includes our Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses. Managed Services provides Transportation Management Services, or Managed TMS. Other Surface Transportation revenues are primarily earned by Europe Surface Transportation. Europe Surface Transportation provides services similar to NAST across Europe.
Managed Services net revenues increased 14.5 percent in the nine months ended September 30, 2017 to $53.8 million compared to $47.0 million in the nine months ended September 30, 2016. This increase was a result of volume growth frombusiness with both new and existing customers. Other Surface Transportation adjusted gross profits increased 4.5 percent in the nine months ended Septemberdue to increased Europe truckload adjusted gross profits per transaction.
Six Months Ended June 30, 2017 to $43.3 million2022 compared to $41.4 millionthe Six Months Ended June 30, 2021
Total revenues and direct costs. Robinson Fresh total revenues increased driven by higher pricing per case and increased case volume across all customer verticals. In addition, total revenues in the nine months ended September 30, 2016, primarily the result ofOther Surface Transportation increased due to higher to higher Europe truckload pricing and an increase in Europe truckload volumes.
Gross profits and adjusted gross profits. Robinson Fresh adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals. Managed Services adjusted gross profits increased due to an increase in freight under management, which was driven by growth in business with both new and existing customers. Other Surface Transportation adjusted gross profits increased due to increased Europe Surface Transportation.truckload adjusted gross profits per transaction and an increase in Europe truckload volumes.
LIQUIDITY AND CAPITAL RESOURCES
We have historically generated substantial cash from operations, which has enabled us to fund our organic growth while paying cash dividends and repurchasing stock. In 2012,addition, we entered into a senior unsecured revolving credit facility to partially fund an acquisition. In December 2014, we amendedmaintain the revolving credit facility to increase the amount available from $500 million to $900 millionfollowing debt facilities as described in Note 4, Financing Arrangements (in thousands): | | | | | | | | | | | | | | | | | | | | |
| Description | | Carrying Value as of June 30, 2022 | | Borrowing Capacity | | Maturity |
| Revolving credit facility | | $ | 174,000 | | | $ | 1,000,000 | | | October 2023 |
| 364-day revolving credit facility | | 500,000 | | | 500,000 | | | May 2023 |
| Senior Notes, Series A | | 175,000 | | | 175,000 | | | August 2023 |
| Senior Notes, Series B | | 150,000 | | | 150,000 | | | August 2028 |
| Senior Notes, Series C | | 175,000 | | | 175,000 | | | August 2033 |
| | | | | | |
Receivables securitization facility (1) | | 499,448 | | | 500,000 | | | November 2023 |
Senior Notes (1) | | 594,607 | | | 600,000 | | | April 2028 |
| Total debt | | $ | 2,268,055 | | | $ | 3,100,000 | | | |
(1) Net of unamortized discounts and to extend the expiration date from October 2017 to December 2019, primarily to fund an acquisition. In 2013, we entered into a Note Purchase Agreement to fund the repurchase of $500 million worth of our common stock. The Note Purchase Agreement was amended in February 2015 to conform its financial covenants to be consistent with the amended revolving credit facility. In April 2017, we entered into an U.S. Trade Accounts Receivable Securitization facility to reduce the amount outstanding on our revolving credit facility. issuance costs.
We also expect to use the revolving credit facility, the receivables securitization facility,our current debt facilities and potentially other indebtedness incurred in the future to assist us in continuing to fund working capital, capital expenditures, possible acquisitions, dividends, and share repurchases.
Cash and cash equivalents totaled $297.3$238.9 million as of SeptemberJune 30, 2017,2022 and $247.7$257.4 million as of December 31, 2016.2021. Cash and cash equivalents held outside the United States totaled $233.3$204.4 million as of SeptemberJune 30, 2017,2022 and $172.2$217.1 million as of December 31, 2016. If we repatriated all foreign earnings, the estimated effect on income taxes payable would be an increase of approximately $29.0 million as of September 30, 2017. Working capital at September 30, 2017, was $468.5 million and at December 31, 2016, was $162.4 million.2021.
We prioritize our investments to grow the business, as we require some working capital and a relatively small amount of capital expenditures to grow. We are continually looking for acquisitions, but those acquisitions must fit our culture and enhance our growth opportunities.
The following table summarizes our major sources and uses of cash and cash equivalents (dollars in thousands): | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 | | % change |
| Sources (uses) of cash: | | | | | |
| Cash provided by operating activities | $ | 251,329 | | | $ | 92,598 | | | 171.4 | % |
| | | | | |
| Capital expenditures | (69,403) | | | (29,837) | | | |
| Acquisitions, net of cash acquired | — | | | (14,749) | | | |
| Other investing activities | 63,208 | | | — | | | |
| Cash used for investing activities | (6,195) | | | (44,586) | | | (86.1) | % |
| | | | | |
| Repurchase of common stock | (490,699) | | | (262,904) | | | |
| Cash dividends | (145,268) | | | (139,756) | | | |
| Net borrowings on debt | 349,000 | | | 270,962 | | | |
| Other financing activities | 29,790 | | | 13,591 | | | |
| Cash used for financing activities | (257,177) | | | (118,107) | | | 117.7 | % |
| Effect of exchange rates on cash and cash equivalents | (6,445) | | | (898) | | | |
| Net change in cash and cash equivalents | $ | (18,488) | | | $ | (70,993) | | | |
Cash flow from operating activities. We generated $218.3 million and $376.8 million of cash flow from operations during Cash provided by operating activities improved in the ninesix months ended SeptemberJune 30, 2017 and September 30, 2016, respectively, a decrease of $158.5 million2022 compared to the ninesix months ended SeptemberJune 30, 2016. The increase in volumes, customer rates, and costs of transportation, including fuel prices, in the first nine months of 2017 compared2021 due to the first nine months of 2016 resulted in increased growthnet income, partially offset by a small unfavorable change in working capitalcapital. We continue to closely monitor credit and ledcollections activities and the quality of our accounts receivable balance to decreased operating cash flow.minimize risk as well as working with our customers to facilitate the movement of goods across their supply chains while also ensuring timely payment.
Cash used for investing activities. We used $94.7 million and $292.0 million of cash during the nine months ended September 30, 2017 and September 30, 2016 for investing activities.
We used $46.4 million and $71.1 million for capital expenditures during the nine months ended September 30, 2017 and September 30, 2016. During the nine months ended September 30, 2017, our capital Capital expenditures consisted primarily of investments in facilities, office equipment, and information technology,software, which are intended to increase employee productivity, automate interactions with our customers and contracted carriers, and improve efficienciesour internal workflows to help expand our adjusted operating margins and help grow the business.
During the ninesecond quarter, we sold an office building in Kansas City, Missouri, for a sales price of $55 million and recognized a gain of $23.5 million on the sale of the building in the three months ended SeptemberJune 30, 2017, we used $48.4 million in connection with2022. We simultaneously entered into an agreement to lease the acquisitions. We used $46.7 million in connection with the acquisition of Milgram. We used $1.8 millionoffice building for a post-closing working capital adjustment due to the sellers of APC under the terms of the acquisition agreement.10 years.
Cash used for financing activities. We used $91.2 million and $28.2 million of cash flow for financing activities during Net borrowings on debt in the ninesix months ended SeptemberJune 30, 20172022 and SeptemberJune 30, 2016.
During the nine months ended September 30, 2017, we had net short-term repayments of $21.0 million. During the nine months ended September 30, 2016, we had net short-term borrowings of $275.0 million. The outstanding balance on the revolving credit facility was $719.0 million as of September 30, 2017.
During the nine months ended September 30, 2017, we had long-term borrowings of $250.0 million on the Receivables Securitization Facility. The outstanding balance on the Receivables Securitization Facility was $250.0 million as of September 30, 2017. We2021 were in compliance with all of the covenants under the Credit Agreement, Note Purchase Agreement,to fund working capital needs and Receivables Securitization Facility as of September 30, 2017.
We used $192.8 million and $191.1 million to pay cash dividends during the nine months ended September 30, 2017 and September 30, 2016.share repurchases. The increase was primarily due to a dividend rate increase in 2017 compared to 2016, partially offset by a decrease in weighted average shares outstanding during the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016.
Wecash used $130.0 million and $109.1 million onfor share repurchases during the nine months ended September 30, 2017 and September 30, 2016. The change was due to an increase in the number of shares repurchased and thea higher average price of the repurchased sharesper share during the ninesix months ended SeptemberJune 30, 2017, compared to the same period of 2016. In August 2013, the Board of Directors increased the number of shares authorized for repurchase by 15,000,000 shares. As of September 30, 2017, there were 2,654,301 shares remaining for future repurchases under the repurchase authorization.2022. The number of shares we repurchase, if any, during future periods will vary based on our cash position, other potential uses of our cash, and market conditions. Over the long term, we remain committed to our quarterly dividend and share repurchases to enhance shareholder value. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. We may seek to retire or purchase our outstanding Senior Notes through open market cash purchases, privately negotiated transactions or otherwise.
We used $20.7 million and $36.2 million to acquire shares from employees through their withholding taxes resulting from the delivery of restricted equity during the nine months ended September 30, 2017 and September 30, 2016.
Management believesbelieve that, assuming no change in our current business plan, our available cash, together with expected future cash generated from operations, the amount available under our credit facilities, and credit available in the market, will be sufficient to satisfy our anticipated needs for working capital, capital expenditures, and cash dividends infor at least the next 12 months and the foreseeable future. We also believe we could obtain funds under lines of credit or other forms of indebtedness on short notice, if needed.
As of June 30, 2022, we were in compliance with all of the covenants under the Credit Agreement, 364-day Credit Agreement, Note Purchase Agreement, Senior Notes, and Receivables Securitization. Recently Issued Accounting Pronouncements
Refer to Note 1, Basis of Presentation, contained in this Quarterly Report and in the company's 2021 Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our condensed consolidated financial statements include accounts of the company and all majority-owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying condensed consolidated financial statements and related footnotes. In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported relatedRefer to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Note 1 of the Notes to Consolidated Financial Statements in ourcompany's 2021 Annual Report on Form 10-K for the year ended December 31, 2016, includes a summary of the significantcomplete discussion regarding our critical accounting policies and methods used in the preparationestimates. As of our consolidated financial statements. The following is a brief discussion ofJune 30, 2022, there were no material changes to our critical accounting policies and estimates.
Revenue recognition. Total revenues consist of the total dollar value of goods and services purchased from us by customers. Net revenues are total revenues less the direct costs of transportation, products, and handling. We act principally as the service provider for these transactions and recognize revenue as these services are rendered or goods are delivered. At that time, our obligations to the transactions are completed and collection of receivables is reasonably assured. Most transactions in our Transportation and Sourcing businesses are recorded at the gross amount we charge our customers for the service we provide and goods we sell. In these transactions, we are the primary obligor, we have credit risk, we have discretion to select the supplier, and we have latitude in pricing decisions. Additionally, in our Sourcing business, we often take loss of inventory risk during shipment and have general inventory risk.
Certain transactions in customs brokerage, transportation management, and sourcing are recorded at the net amount we charge our customers for the service we provide because many of the factors stated above are not present.
Valuations for accounts receivable. Our allowance for doubtful accounts is calculated based upon the aging of our receivables, our historical experience of uncollectible accounts, and any specific customer collection issues that we have identified. The allowance was $44.4 million as of September 30, 2017 and $39.5 million as of December 31, 2016. We believe that the recorded allowance is sufficient and appropriate based on our customer aging trends, the exposures we have identified, and our historical loss experience.
Goodwill. Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.
Goodwill is tested at least annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is performed using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit, there is an indication that goodwill impairment exists, and a second step must be completed to determine the amount of the goodwill impairment, if any, that should be recorded. In the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.
The fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations.
Stock-based compensation. The fair value of each share-based payment award is established on the date of grant. For grants of restricted shares and restricted units, the fair value is established based on the market price on the date of the grant, discounted for post-vesting holding restrictions. The discounts on outstanding grants vary from 15 percent to 22 percent and are calculated using the Black-Scholes option pricing model. Changes in the measured stock price volatility and interest rates are the primary reason for changes in the discount. For grants of options, we use the Black-Scholes option pricing model to estimate the fair value of share-based payment awards. The determination of the fair value of share-based awards is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate, and expected dividends.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We had $297.3 million of cash and cash equivalentsRefer to the company’s 2021 Annual Report on September 30, 2017. Substantially all of the cash equivalents are in demand accounts with financial institutions. The primary market risks associated with these investments are liquidity risks.
We areForm 10-K for a party to a credit agreement with various lenders consisting of a $900 million revolving loan facility. Interest accruesdiscussion on the revolving loan at variable rates based on LIBOR or "prime" plus the applicable add-on percentage as defined therein. At Septembercompany’s market risk. As of June 30, 2017,2022, there was $719 million outstanding on the revolving loan.
We are a party to the Note Purchase Agreement, as amended, with various institutional investors with fixed rates consisting of: (i) $175,000,000 ofwere no material changes in market risk from those disclosed in the company’s 3.97 percent Senior Notes, Series A, due August 27, 2023, (ii) $150,000,000 of the company’s 4.26 percent Senior Notes, Series B, due August 27, 2028, and (iii) $175,000,000 of the company’s 4.60 percent Senior Notes, Series C, due August 27, 2033. At September 30, 2017, there was $500 million outstanding2021 Annual Report on the notes.Form 10-K.
We are a party to a receivables securitization facility with various lenders and provides funding of up to $250 million. Interest accrues on the facility at variable rates based on the asset-backed commercial paper rate or the 30 day LIBOR plus the applicable add-on percentage as defined therein. At September 30, 2017, there was $250 million outstanding on the securitization facility.
A hypothetical 100-basis-point change in the interest rate would not have a material effect on our earnings. 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. Market risk arising from changes in foreign currency exchange rates are not material due to the size of our international operations.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
UnderWe maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the supervisionSecurities Exchange Act of 1934 (“Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and withreported within the participation oftime periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.
Our management, including our 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 RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange ActAct) as of 1934 (the “Exchange Act”).June 30, 2022. Based upon that evaluation, theour Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.effective at the reasonable assurance level as of June 30, 2022.
(b) Changes in internal controls over financial reporting.
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the most recent fiscal quarterthree months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company'sour internal control over financial reporting.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not subject to any pending or threatened litigation other than routine litigation arising in the ordinary course of our business operations. For some legal proceedings, we have accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material to our consolidated financial position, results of operations, or cash flows. Because of the preliminary nature of many of these proceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the inconsistent treatment of claims made in many of these proceedings, and the difficulty of predicting the settlement value of many of these proceedings, we are often unable to estimate an amount or range of any reasonably possible additional losses. However, based upon our historical experience, the resolution of these proceedings is not expected to have a material effect on our consolidated financial position, results of operations, or cash flows.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report,Quarterly Report, you should carefully consider the factors discusseddisclosed in Part I, "Item“Item 1A. Risk Factors"Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016,2021, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. As of June 30, 2022, there were no material changes to the risk factors set forth in the Company’s 2021 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about company purchases by the companyof common stock during the quarter ended SeptemberJune 30, 2017, of shares of the company's common stock.2022: | | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares (or Units) Purchased (1) | | Average Price Paid Per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Number of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs (2) |
| April 1, 2022 - April 30, 2022 | 928,786 | | | $ | 102.78 | | | 920,000 | | | 19,123,945 | |
| May 1, 2022 - May 31, 2022 | 1,074,372 | | | 106.47 | | | 1,015,000 | | | 18,108,945 | |
| June 1, 2022 - June 30, 2022 | 1,278,544 | | | 103.60 | | | 1,277,624 | | | 16,831,321 | |
| Second Quarter 2022 | 3,281,702 | | | $ | 104.31 | | | 3,212,624 | | | 16,831,321 | |
|
| | | | | | | | | | | | |
| | Total Number of Shares (or Units) Purchased (a) | | Average Price Paid Per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (b) | | Maximum Number of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs (b) |
| July 1, 2017-July 31, 2017 | 306,403 |
| | $ | 67.48 |
| | 296,507 |
| | 3,234,848 |
|
| August 1, 2017-August 31, 2017 | 63,559 |
| | 65.70 |
| | 60,926 |
| | 3,173,922 |
|
| September 1, 2017-September 30, 2017 | 523,287 |
| | 73.12 |
| | 519,621 |
| | 2,654,301 |
|
| Third quarter 2017 | 893,249 |
| | $ | 70.66 |
| | 877,054 |
| | 2,654,301 |
|
(a)(1) The total number of shares purchased based on trade date includes: (i) 877,0543,212,624 shares of common stock purchased under the authorization described below; and (ii) 16,19569,078 shares of common stock surrendered to satisfy minimum statutory tax obligations under our stock incentive plans.
(b)(2) In August 2013,December 2021, the Board of Directors increased the number of shares authorized for repurchase by 15,000,00020,000,000 shares. As of SeptemberJune 30, 2017,2022, there were 2,654,30116,831,321 shares remaining for future repurchases. PurchasesRepurchases can be made in the open market or in privately negotiated transactions, including Rule 10b5-1 plans and accelerated repurchase programs.
ITEM 3. DEFAULTS ONUPON SENIOR SECURITIES
NoneNone.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
NoneOn July 27, 2022, the Talent and Compensation Committee (the “Committee”) of our Board of Directors approved the C.H. Robinson Executive Separation and Change in Control Plan (the “Executive Severance Plan”), to be effective as of July 27, 2022. The Executive Severance Plan is intended to provide severance benefits to our executives in the event of a qualifying involuntary termination of their employment under certain circumstances, including such a termination involving a change in control of the company.
Certain of our executives, including all of our executive officers, are eligible to participate in the Executive Severance Plan. Executives who are parties to individual agreements providing for severance benefits are not eligible to participate in or receive benefits under the Executive Severance Plan. However, Messrs. Rajan and Zechmeister have agreed to waive the severance benefits provided under their employment agreements in order to be eligible for benefits under the Executive Severance Plan.
Under the Executive Severance Plan, following a termination by the company of an executive’s employment related to a reduction in staff, business reorganization, position elimination, closing of a business unit and other similar events, unless the executive’s employment is terminated for misconduct, failure to perform executive’s duties, actions which may harm the company, or any of the other reasons specified in the Executive Severance Plan (“cause”), an executive will be eligible to receive continuing base salary for 24 months (for the CEO), 18 months (for executive officers and presidents) or 12 months (for certain other vice presidents). A terminated employee will also be eligible to receive a lump-sum amount of the executive’s monthly COBRA premium payment multiplied by the same number of months as the continued base salary.
The Executive Severance Plan also provides that if an executive is terminated by the company for cause or by the executive for “good reason” (as defined in tour equity incentive plan) within 24 months after a “change in control” (as defined in our equity plan), the executive will be eligible to receive a lump sum payment equal to 2.5 (for the CEO), 2.0 (for executive officers and presidents) or 1.0 (for certain other vice presidents) times the executive’s (i) annual salary, (ii) annual target bonus, and (iii) annual cost of COBRA premiums. In addition, in connection with a termination following a change in control, all of an eligible executive’s outstanding equity awards will be fully vested (with performance awards vesting at the greater of actual or target performance levels). However, if the applicable equity incentive plan or the eligible executive’s outstanding equity award agreements provide more favorable terms than those provided by the Executive Severance Plan, the more favorable terms will apply. In addition, the Executive Severance Plan adopts a “net best benefit” approach with respect to addressing any potential parachute payments subject to Section 280G of the Internal Revenue Code.
To receive benefits under the Executive Severance Plan, an executive must sign and not revoke a separation agreement and general release of claims in the form we provide, including a non-disparagement agreement, comply with all other restrictive covenants, and the executive must work through the scheduled termination date. The Committee may amend the Executive Severance Plan from time to time to provide for different severance benefits and/or severance benefit terms and conditions, or to eliminate severance benefits entirely, for all or a portion of our executives.
The purpose of adopting the Executive Severance Plan is to provide for market competitive severance benefits for executives to aid in the attraction and retention of executive talent.
The Executive Severance Plan is attached as Exhibit 10.3 to this Quarterly Report on Form 10-Q.
ITEM 6. EXHIBITS
Exhibits filed with, or incorporated by reference into, this report: Quarterly Report: | | | | | |
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31.1 | |
| 10.1 | |
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| 10.2 | |
| |
| 10.3* | |
| |
| 31.1 | |
| |
| 31.2 | |
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| 32.1 | |
| |
| 32.2 | |
| |
| 101 | Financial statements from the Quarterly Report on Form 10-Q of the company for the period ended SeptemberJune 30, 2017,2022 formatted in Inline XBRL (embedded within the Inline XBRL document) |
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| 104 | The cover page from the Quarterly Report on Form 10-Q of the company for the period ended June 30, 2022 formatted in Inline XBRL (embedded within the Inline XBRL document) |
* Filed herewith
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 on November 8, 2017.July 29, 2022.
| | | | | | | | |
| C.H. ROBINSON WORLDWIDE, INC. |
| | |
C.H. ROBINSON WORLDWIDE, INC.By: | | /s/ Robert C. Biesterfeld, Jr. |
| | Robert C. Biesterfeld, Jr. |
By: | | /s/ John P. Wiehoff |
| | John P. Wiehoff |
| | Chief Executive Officer |
| | |
| | |
| By: | | /s/ Andrew C. ClarkeMichael P. Zechmeister |
| | Andrew C. ClarkeMichael P. Zechmeister |
| | Chief Financial Officer (principal accounting officer) |
