UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 20212022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number: 000-23189
C.H. ROBINSON WORLDWIDE, INC.
(Exact name of registrant as specified in its charter) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Delaware | | 41-1883630 | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
14701 Charlson Road
Eden Prairie, MN 55347
(Address of principal executive officers,offices, including zip code)
952-937-8500
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.10 par value | CHRW | Nasdaq Global Select Market |
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ | | Emerging Growth Companygrowth company | ☐ |
| | | | | | | |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 28, 2021,27, 2022, the number of shares outstanding of the registrant’s Common Stock, par value $0.10 per share, was 131,711,746.123,883,299.
C.H. ROBINSON WORLDWIDE, INC.
TABLE OF CONTENTS
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| PART I. Financial Information | |
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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| PART II. Other Information | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C.H. ROBINSON WORLDWIDE, INC.
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except per share data) | | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
ASSETS | ASSETS | | | | ASSETS | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 172,803 | | | $ | 243,796 | | Cash and cash equivalents | $ | 238,925 | | | $ | 257,413 | |
Receivables, net of allowance for credit loss of $35,430 and $38,113 | 3,166,769 | | | 2,449,577 | | |
Receivables, net of allowance for credit loss of $37,518 and $41,542 | | Receivables, net of allowance for credit loss of $37,518 and $41,542 | 4,302,321 | | | 3,963,487 | |
Contract assets, net of allowance for credit loss | Contract assets, net of allowance for credit loss | 292,760 | | | 197,176 | | Contract assets, net of allowance for credit loss | 518,752 | | | 453,660 | |
Prepaid expenses and other | Prepaid expenses and other | 90,230 | | | 51,152 | | Prepaid expenses and other | 108,258 | | | 129,593 | |
| Total current assets | Total current assets | 3,722,562 | | | 2,941,701 | | Total current assets | 5,168,256 | | | 4,804,153 | |
Property and equipment, net of accumulated depreciation and amortization | Property and equipment, net of accumulated depreciation and amortization | 174,194 | | | 178,949 | | Property and equipment, net of accumulated depreciation and amortization | 155,829 | | | 139,831 | |
Goodwill | Goodwill | 1,493,711 | | | 1,487,187 | | Goodwill | 1,472,855 | | | 1,484,754 | |
Other intangible assets, net of accumulated amortization | Other intangible assets, net of accumulated amortization | 103,640 | | | 113,910 | | Other intangible assets, net of accumulated amortization | 75,789 | | | 89,606 | |
Right-of-use lease assets | Right-of-use lease assets | 299,313 | | | 319,785 | | Right-of-use lease assets | 338,223 | | | 292,559 | |
Deferred tax assets | Deferred tax assets | 26,057 | | | 18,640 | | Deferred tax assets | 134,404 | | | 124,900 | |
Other assets | Other assets | 87,087 | | | 84,086 | | Other assets | 112,083 | | | 92,309 | |
Total assets | Total assets | $ | 5,906,564 | | | $ | 5,144,258 | | Total assets | $ | 7,457,439 | | | $ | 7,028,112 | |
| LIABILITIES AND STOCKHOLDERS’ INVESTMENT | LIABILITIES AND STOCKHOLDERS’ INVESTMENT | | LIABILITIES AND STOCKHOLDERS’ INVESTMENT | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 1,622,947 | | | $ | 1,195,099 | | Accounts payable | $ | 1,872,497 | | | $ | 1,813,473 | |
Outstanding checks | Outstanding checks | 66,421 | | | 88,265 | | Outstanding checks | 54,360 | | | 105,828 | |
Accrued expenses: | Accrued expenses: | | Accrued expenses: | |
Compensation | Compensation | 150,393 | | | 138,460 | | Compensation | 190,428 | | | 201,421 | |
Transportation expense | Transportation expense | 226,741 | | | 153,574 | | Transportation expense | 405,284 | | | 342,778 | |
Income taxes | Income taxes | 29,711 | | | 43,700 | | Income taxes | 38,850 | | | 100,265 | |
Other accrued liabilities | Other accrued liabilities | 153,092 | | | 154,460 | | Other accrued liabilities | 177,645 | | | 171,266 | |
Current lease liabilities | Current lease liabilities | 65,859 | | | 66,174 | | Current lease liabilities | 72,686 | | | 66,311 | |
Current portion of debt | Current portion of debt | 271,215 | | | 0 | | Current portion of debt | 674,000 | | | 525,000 | |
Total current liabilities | Total current liabilities | 2,586,379 | | | 1,839,732 | | Total current liabilities | 3,485,750 | | | 3,326,342 | |
| Long-term debt | Long-term debt | 1,095,798 | | | 1,093,301 | | Long-term debt | 1,594,055 | | | 1,393,649 | |
Noncurrent lease liabilities | Noncurrent lease liabilities | 249,068 | | | 268,572 | | Noncurrent lease liabilities | 281,319 | | | 241,369 | |
Noncurrent income taxes payable | Noncurrent income taxes payable | 25,968 | | | 26,015 | | Noncurrent income taxes payable | 26,291 | | | 28,390 | |
Deferred tax liabilities | Deferred tax liabilities | 28,642 | | | 22,182 | | Deferred tax liabilities | 16,521 | | | 16,113 | |
Other long-term liabilities | Other long-term liabilities | 14,539 | | | 14,523 | | Other long-term liabilities | 1,088 | | | 315 | |
Total liabilities | Total liabilities | 4,000,394 | | | 3,264,325 | | Total liabilities | 5,405,024 | | | 5,006,178 | |
Stockholders’ investment: | Stockholders’ investment: | | | | Stockholders’ investment: | | | |
Preferred stock, $0.10 par value, 20,000 shares authorized; 0 shares issued or outstanding | 0 | | | 0 | | |
Common stock, $0.10 par value, 480,000 shares authorized; 179,207 and 179,232 shares issued, 132,135 and 134,298 outstanding | 13,213 | | | 13,430 | | |
Preferred stock, $0.10 par value, 20,000 shares authorized; no shares issued or outstanding | | Preferred stock, $0.10 par value, 20,000 shares authorized; no shares issued or outstanding | — | | | — | |
Common stock, $0.10 par value, 480,000 shares authorized; 179,204 and 179,206 shares issued, 125,116 and 129,186 outstanding | | Common stock, $0.10 par value, 480,000 shares authorized; 179,204 and 179,206 shares issued, 125,116 and 129,186 outstanding | 12,512 | | | 12,919 | |
Additional paid-in capital | Additional paid-in capital | 597,788 | | | 566,022 | | Additional paid-in capital | 709,163 | | | 673,628 | |
Retained earnings | Retained earnings | 4,601,227 | | | 4,372,833 | | Retained earnings | 5,411,346 | | | 4,936,861 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (53,446) | | | (45,998) | | Accumulated other comprehensive loss | (87,860) | | | (61,134) | |
Treasury stock at cost (47,072 and 44,934 shares) | (3,252,612) | | | (3,026,354) | | |
Treasury stock at cost (54,088 and 50,020 shares) | | Treasury stock at cost (54,088 and 50,020 shares) | (3,992,746) | | | (3,540,340) | |
Total stockholders’ investment | Total stockholders’ investment | 1,906,170 | | | 1,879,933 | | Total stockholders’ investment | 2,052,415 | | | 2,021,934 | |
Total liabilities and stockholders’ investment | Total liabilities and stockholders’ investment | $ | 5,906,564 | | | $ | 5,144,258 | | Total liabilities and stockholders’ investment | $ | 7,457,439 | | | $ | 7,028,112 | |
See accompanying notes to the condensed consolidated financial statements.
C.H. ROBINSON WORLDWIDE, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(unaudited, in thousands except per share data)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Revenues: | Revenues: | | | | | | | | Revenues: | | | | | | | |
Transportation | Transportation | $ | 5,240,448 | | | $ | 3,348,611 | | | $ | 9,800,675 | | | $ | 6,890,729 | | Transportation | $ | 6,465,642 | | | $ | 5,240,448 | | | $ | 12,993,993 | | | $ | 9,800,675 | |
Sourcing | Sourcing | 292,278 | | | 279,235 | | | 535,920 | | | 542,125 | | Sourcing | 332,833 | | | 292,278 | | | 620,435 | | | 535,920 | |
Total revenues | Total revenues | 5,532,726 | | | 3,627,846 | | | 10,336,595 | | | 7,432,854 | | Total revenues | 6,798,475 | | | 5,532,726 | | | 13,614,428 | | | 10,336,595 | |
Costs and expenses: | Costs and expenses: | | | | | | | | Costs and expenses: | | | | | | | |
Purchased transportation and related services | Purchased transportation and related services | 4,519,305 | | | 2,762,590 | | | 8,400,590 | | | 5,762,703 | | Purchased transportation and related services | 5,466,874 | | | 4,519,305 | | | 11,117,098 | | | 8,400,590 | |
Purchased products sourced for resale | Purchased products sourced for resale | 264,245 | | | 250,803 | | | 484,449 | | | 487,745 | | Purchased products sourced for resale | 299,988 | | | 264,245 | | | 559,521 | | | 484,449 | |
Personnel expenses | Personnel expenses | 362,901 | | | 300,483 | | | 723,736 | | | 630,703 | | Personnel expenses | 444,764 | | | 362,901 | | | 858,125 | | | 723,736 | |
Other selling, general, and administrative expenses | Other selling, general, and administrative expenses | 125,671 | | | 125,183 | | | 243,887 | | | 253,476 | | Other selling, general, and administrative expenses | 117,184 | | | 125,671 | | | 264,545 | | | 243,887 | |
Total costs and expenses | Total costs and expenses | 5,272,122 | | | 3,439,059 | | | 9,852,662 | | | 7,134,627 | | Total costs and expenses | 6,328,810 | | | 5,272,122 | | | 12,799,289 | | | 9,852,662 | |
Income from operations | Income from operations | 260,604 | | | 188,787 | | | 483,933 | | | 298,227 | | Income from operations | 469,665 | | | 260,604 | | | 815,139 | | | 483,933 | |
Interest and other expense | (13,497) | | | (10,211) | | | (24,757) | | | (25,439) | | |
Interest and other income/expense, net | | Interest and other income/expense, net | (27,395) | | | (13,497) | | | (41,569) | | | (24,757) | |
Income before provision for income taxes | Income before provision for income taxes | 247,107 | | | 178,576 | | | 459,176 | | | 272,788 | | Income before provision for income taxes | 442,270 | | | 247,107 | | | 773,570 | | | 459,176 | |
Provision for income taxes | Provision for income taxes | 53,318 | | | 34,637 | | | 92,082 | | | 50,703 | | Provision for income taxes | 94,085 | | | 53,318 | | | 155,037 | | | 92,082 | |
Net income | Net income | 193,789 | | | 143,939 | | | 367,094 | | | 222,085 | | Net income | 348,185 | | | 193,789 | | | 618,533 | | | 367,094 | |
Other comprehensive (loss) income, net of tax | (162) | | | 24,253 | | | (7,448) | | | (7,942) | | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | (33,596) | | | (162) | | | (26,726) | | | (7,448) | |
Comprehensive income | Comprehensive income | $ | 193,627 | | | $ | 168,192 | | | $ | 359,646 | | | $ | 214,143 | | Comprehensive income | $ | 314,589 | | | $ | 193,627 | | | $ | 591,807 | | | $ | 359,646 | |
| Basic net income per share | Basic net income per share | $ | 1.45 | | | $ | 1.07 | | | $ | 2.74 | | | $ | 1.64 | | Basic net income per share | $ | 2.71 | | | $ | 1.45 | | | $ | 4.78 | | | $ | 2.74 | |
Diluted net income per share | Diluted net income per share | $ | 1.44 | | | $ | 1.06 | | | $ | 2.71 | | | $ | 1.64 | | Diluted net income per share | $ | 2.67 | | | $ | 1.44 | | | $ | 4.71 | | | $ | 2.71 | |
| Basic weighted average shares outstanding | Basic weighted average shares outstanding | 133,275 | | | 135,010 | | | 133,888 | | | 135,241 | | Basic weighted average shares outstanding | 128,405 | | | 133,275 | | | 129,447 | | | 133,888 | |
Dilutive effect of outstanding stock awards | Dilutive effect of outstanding stock awards | 1,581 | | | 600 | | | 1,388 | | | 535 | | Dilutive effect of outstanding stock awards | 1,933 | | | 1,581 | | | 1,771 | | | 1,388 | |
Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | 134,856 | | | 135,610 | | | 135,276 | | | 135,776 | | Diluted weighted average shares outstanding | 130,338 | | | 134,856 | | | 131,218 | | | 135,276 | |
See accompanying notes to the condensed consolidated financial statements.
C.H. ROBINSON WORLDWIDE, INC.
Condensed Consolidated Statements of Stockholders’ Investment
(unaudited, in thousands, except per share data)
| | | Common Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders’ Investment | | Common Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders’ Investment |
Balance December 31, 2020 | 134,298 | | | $ | 13,430 | | | $ | 566,022 | | | $ | 4,372,833 | | | $ | (45,998) | | | $ | (3,026,354) | | | $ | 1,879,933 | | |
Balance December 31, 2021 | | Balance December 31, 2021 | 129,186 | | | $ | 12,919 | | | $ | 673,628 | | | $ | 4,936,861 | | | $ | (61,134) | | | $ | (3,540,340) | | | $ | 2,021,934 | |
Net income | Net income | | 173,305 | | | 173,305 | | Net income | | 270,348 | | | 270,348 | |
Foreign currency adjustments | Foreign currency adjustments | | (7,286) | | | (7,286) | | Foreign currency adjustments | | 6,870 | | | 6,870 | |
Dividends declared, $0.51 per share | | (69,606) | | | (69,606) | | |
Dividends declared, $0.55 per share | | Dividends declared, $0.55 per share | | (72,542) | | | (72,542) | |
Stock issued for employee benefit plans | Stock issued for employee benefit plans | 357 | | | 36 | | | (21,805) | | | 18,766 | | | (3,003) | | Stock issued for employee benefit plans | 418 | | | 42 | | | (17,377) | | | 26,239 | | | 8,904 | |
Issuance of restricted stock, net of forfeitures | (26) | | | (3) | | | 3 | | | 0 | | |
Stock-based compensation expense | Stock-based compensation expense | 0 | | | 0 | | | 23,989 | | | 0 | | | 23,989 | | Stock-based compensation expense | — | | | — | | | 24,606 | | | — | | | 24,606 | |
Repurchase of common stock | Repurchase of common stock | (1,386) | | | (139) | | | (129,006) | | | (129,145) | | Repurchase of common stock | (1,593) | | | (160) | | | (164,458) | | | (164,618) | |
Balance March 31, 2021 | 133,243 | | | 13,324 | | | 568,209 | | | 4,476,532 | | | (53,284) | | | (3,136,594) | | | 1,868,187 | | |
Balance March 31, 2022 | | Balance March 31, 2022 | 128,011 | | | $ | 12,801 | | | $ | 680,857 | | | $ | 5,134,667 | | | $ | (54,264) | | | $ | (3,678,559) | | | $ | 2,095,502 | |
Net income | Net income | | 193,789 | | | 193,789 | | Net income | | 348,185 | | | 348,185 | |
Foreign currency adjustments | Foreign currency adjustments | | (162) | | | (162) | | Foreign currency adjustments | | (33,596) | | | (33,596) | |
Dividends declared, $0.51 per share | | (69,094) | | | (69,094) | | |
Dividends declared, $0.55 per share | | Dividends declared, $0.55 per share | | (71,506) | | | (71,506) | |
Stock issued for employee benefit plans | Stock issued for employee benefit plans | 250 | | | 25 | | | 418 | | | 16,151 | | | 16,594 | | Stock issued for employee benefit plans | 316 | | | 31 | | | 377 | | | 20,478 | | | 20,886 | |
| Stock-based compensation expense | Stock-based compensation expense | 0 | | | 0 | | | 29,161 | | | 0 | | | 29,161 | | Stock-based compensation expense | — | | | — | | | 27,929 | | | — | | | 27,929 | |
Repurchase of common stock | Repurchase of common stock | (1,358) | | | (136) | | | (132,169) | | | (132,305) | | Repurchase of common stock | (3,211) | | | (320) | | | (334,665) | | | (334,985) | |
Balance June 30, 2021 | 132,135 | | | $ | 13,213 | | | $ | 597,788 | | | $ | 4,601,227 | | | $ | (53,446) | | | $ | (3,252,612) | | | $ | 1,906,170 | | |
Balance June 30, 2022 | | Balance June 30, 2022 | 125,116 | | | $ | 12,512 | | | $ | 709,163 | | | $ | 5,411,346 | | | $ | (87,860) | | | $ | (3,992,746) | | | $ | 2,052,415 | |
| |
| | | Common Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders’ Investment | | Common Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders’ Investment |
Balance December 31, 2019 | 134,895 | | | $ | 13,490 | | | $ | 546,646 | | | $ | 4,144,834 | | | $ | (76,149) | | | $ | (2,958,091) | | | $ | 1,670,730 | | |
Balance December 31, 2020 | | Balance December 31, 2020 | 134,298 | | | $ | 13,430 | | | $ | 566,022 | | | $ | 4,372,833 | | | $ | (45,998) | | | $ | (3,026,354) | | | $ | 1,879,933 | |
Net income | Net income | | 78,146 | | | 78,146 | | Net income | | 173,305 | | | 173,305 | |
Foreign currency adjustments | Foreign currency adjustments | | (32,195) | | | (32,195) | | Foreign currency adjustments | | (7,286) | | | (7,286) | |
Dividends declared, $0.51 per share | Dividends declared, $0.51 per share | | (69,871) | | | (69,871) | | Dividends declared, $0.51 per share | | (69,606) | | | (69,606) | |
Stock issued for employee benefit plans | Stock issued for employee benefit plans | 343 | | | 34 | | | (24,192) | | | 21,632 | | | (2,526) | | Stock issued for employee benefit plans | 357 | | | 36 | | | (21,805) | | | 18,766 | | | (3,003) | |
Issuance of restricted stock, net of forfeitures | Issuance of restricted stock, net of forfeitures | 321 | | | 32 | | | (32) | | | 0 | | Issuance of restricted stock, net of forfeitures | (26) | | | (3) | | | 3 | | | — | |
Stock-based compensation expense | Stock-based compensation expense | 0 | | | 0 | | | 11,397 | | | 0 | | | 11,397 | | Stock-based compensation expense | — | | | — | | | 23,989 | | | — | | | 23,989 | |
Repurchase of common stock | Repurchase of common stock | (973) | | | (97) | | | (68,466) | | | (68,563) | | Repurchase of common stock | (1,386) | | | (139) | | | (129,006) | | | (129,145) | |
Balance March 31, 2020 | 134,586 | | | 13,459 | | | 533,819 | | | 4,153,109 | | | (108,344) | | | (3,004,925) | | | 1,587,118 | | |
Balance March 31, 2021 | | Balance March 31, 2021 | 133,243 | | | $ | 13,324 | | | $ | 568,209 | | | $ | 4,476,532 | | | $ | (53,284) | | | $ | (3,136,594) | | | $ | 1,868,187 | |
Net income | Net income | | 143,939 | | | 143,939 | | Net income | | 193,789 | | | 193,789 | |
Foreign currency adjustments | Foreign currency adjustments | | 24,253 | | | 24,253 | | Foreign currency adjustments | | (162) | | | (162) | |
Dividends declared, $0.51 per share | Dividends declared, $0.51 per share | | (69,791) | | | (69,791) | | Dividends declared, $0.51 per share | | (69,094) | | | (69,094) | |
Stock issued for employee benefit plans | Stock issued for employee benefit plans | 138 | | | 13 | | | (1,165) | | | 9,007 | | | 7,855 | | Stock issued for employee benefit plans | 250 | | | 25 | | | 418 | | | 16,151 | | | 16,594 | |
Stock-based compensation expense | Stock-based compensation expense | 0 | | | 0 | | | 10,954 | | | 0 | | | 10,954 | | Stock-based compensation expense | — | | | — | | | 29,161 | | | — | | | 29,161 | |
Balance June 30, 2020 | 134,724 | | | $ | 13,472 | | | $ | 543,608 | | | $ | 4,227,257 | | | $ | (84,091) | | | $ | (2,995,918) | | | $ | 1,704,328 | | |
Repurchase of common stock | | Repurchase of common stock | (1,358) | | | (136) | | | (132,169) | | | (132,305) | |
Balance June 30, 2021 | | Balance June 30, 2021 | 132,135 | | | $ | 13,213 | | | $ | 597,788 | | | $ | 4,601,227 | | | $ | (53,446) | | | $ | (3,252,612) | | | $ | 1,906,170 | |
|
See accompanying notes to the condensed consolidated financial statements.
C.H. ROBINSON WORLDWIDE, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
| | | Six Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
OPERATING ACTIVITIES | OPERATING ACTIVITIES | | | | OPERATING ACTIVITIES | | | |
Net income | Net income | $ | 367,094 | | | $ | 222,085 | | Net income | $ | 618,533 | | | $ | 367,094 | |
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | |
Adjustments to reconcile net income to net cash used for operating activities: | | Adjustments to reconcile net income to net cash used for operating activities: | |
Depreciation and amortization | Depreciation and amortization | 46,215 | | | 50,151 | | Depreciation and amortization | 45,748 | | | 46,215 | |
Provision for credit losses | Provision for credit losses | (36) | | | 9,374 | | Provision for credit losses | (2,142) | | | (36) | |
Stock-based compensation | Stock-based compensation | 53,150 | | | 22,351 | | Stock-based compensation | 52,535 | | | 53,150 | |
Deferred income taxes | Deferred income taxes | (2,474) | | | (729) | | Deferred income taxes | (5,844) | | | (2,474) | |
Excess tax benefit on stock-based compensation | Excess tax benefit on stock-based compensation | (9,367) | | | (11,999) | | Excess tax benefit on stock-based compensation | (7,553) | | | (9,367) | |
Other operating activities | Other operating activities | 933 | | | 12,341 | | Other operating activities | (26,356) | | | 933 | |
Changes in operating elements, net of acquisitions: | Changes in operating elements, net of acquisitions: | | Changes in operating elements, net of acquisitions: | |
Receivables | Receivables | (717,340) | | | (48,937) | | Receivables | (378,641) | | | (717,340) | |
Contract assets | Contract assets | (96,154) | | | (22,451) | | Contract assets | (65,362) | | | (96,154) | |
Prepaid expenses and other | Prepaid expenses and other | (38,971) | | | 8,744 | | Prepaid expenses and other | (14,170) | | | (38,971) | |
Accounts payable and outstanding checks | Accounts payable and outstanding checks | 406,875 | | | 220,276 | | Accounts payable and outstanding checks | 37,207 | | | 406,875 | |
Accrued compensation | Accrued compensation | 12,115 | | | 12,312 | | Accrued compensation | (9,673) | | | 12,115 | |
Accrued transportation expense | Accrued transportation expense | 73,167 | | | 20,284 | | Accrued transportation expense | 62,506 | | | 73,167 | |
Accrued income taxes | Accrued income taxes | (4,431) | | | 14,423 | | Accrued income taxes | (54,964) | | | (4,431) | |
Other accrued liabilities | Other accrued liabilities | 210 | | | (6,345) | | Other accrued liabilities | 1,391 | | | 210 | |
Other assets and liabilities | Other assets and liabilities | 1,612 | | | 3,763 | | Other assets and liabilities | (1,886) | | | 1,612 | |
Net cash provided by operating activities | Net cash provided by operating activities | 92,598 | | | 505,643 | | Net cash provided by operating activities | 251,329 | | | 92,598 | |
| INVESTING ACTIVITIES | INVESTING ACTIVITIES | | INVESTING ACTIVITIES | |
Purchases of property and equipment | Purchases of property and equipment | (12,856) | | | (11,621) | | Purchases of property and equipment | (36,781) | | | (12,856) | |
Purchases and development of software | Purchases and development of software | (16,981) | | | (13,418) | | Purchases and development of software | (32,622) | | | (16,981) | |
Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | (14,749) | | | (223,230) | | Acquisitions, net of cash acquired | — | | | (14,749) | |
| Other investing activities | Other investing activities | 0 | | | 5,525 | | Other investing activities | 63,208 | | | — | |
Net cash used for investing activities | Net cash used for investing activities | (44,586) | | | (242,744) | | Net cash used for investing activities | (6,195) | | | (44,586) | |
| FINANCING ACTIVITIES | FINANCING ACTIVITIES | | FINANCING ACTIVITIES | |
Proceeds from stock issued for employee benefit plans | Proceeds from stock issued for employee benefit plans | 36,674 | | | 20,295 | | Proceeds from stock issued for employee benefit plans | 53,574 | | | 36,674 | |
Stock tendered for payment of withholding taxes | Stock tendered for payment of withholding taxes | (23,083) | | | (14,966) | | Stock tendered for payment of withholding taxes | (23,784) | | | (23,083) | |
Repurchase of common stock | Repurchase of common stock | (262,904) | | | (68,563) | | Repurchase of common stock | (490,699) | | | (262,904) | |
Cash dividends | Cash dividends | (139,756) | | | (137,104) | | Cash dividends | (145,268) | | | (139,756) | |
| Proceeds from long-term borrowings | | Proceeds from long-term borrowings | 200,000 | | | — | |
| Proceeds from short-term borrowings | Proceeds from short-term borrowings | 1,661,000 | | | 979,600 | | Proceeds from short-term borrowings | 2,735,000 | | | 1,661,000 | |
Payments on short-term borrowings | Payments on short-term borrowings | (1,390,038) | | | (1,122,600) | | Payments on short-term borrowings | (2,586,000) | | | (1,390,038) | |
| Net cash used for financing activities | Net cash used for financing activities | (118,107) | | | (343,338) | | Net cash used for financing activities | (257,177) | | | (118,107) | |
| Effect of exchange rates on cash and cash equivalents | Effect of exchange rates on cash and cash equivalents | (898) | | | (5,183) | | Effect of exchange rates on cash and cash equivalents | (6,445) | | | (898) | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | (70,993) | | | (85,622) | | Net change in cash and cash equivalents | (18,488) | | | (70,993) | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 243,796 | | | 447,858 | | Cash and cash equivalents, beginning of period | 257,413 | | | 243,796 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 172,803 | | | $ | 362,236 | | Cash and cash equivalents, end of period | $ | 238,925 | | | $ | 172,803 | |
|
See accompanying notes to the condensed consolidated financial statements.
C.H. ROBINSON WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
C.H. Robinson Worldwide, Inc., and our subsidiaries (“the company,” “we,” “us,” or “our”) are a global provider of transportation services and logistics solutions operating through a network of offices located in North America, Europe, Asia, Oceania, and South America. The consolidated financial statements include the accounts of C.H. Robinson Worldwide, Inc., and our majority owned and controlled subsidiaries. Our minority interests in subsidiaries are not significant. All intercompany transactions and balances have been eliminated in the consolidated financial statements.
Our reportable segments are NAST and Global Forwarding with all other segments included in All Other and Corporate. The All Other and Corporate reportable segment includes Robinson Fresh, Managed Services, Other Surface Transportation outside of North America, and other miscellaneous revenues and unallocated corporate expenses. For financial information concerning our reportable segments, refer to Note 9, Segment Reporting.
The condensed consolidated financial statements, which are unaudited, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
Consistent with SEC rules and regulations, we have condensed or omitted certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States. You should read the condensed consolidated financial statements and related notes in conjunction with the consolidated financial statements and notes in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
PROPERTY AND EQUIPMENT
During the second quarter, we sold an office building in Kansas City, Missouri, that had been previously classified as held-for-sale assets, 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 June 30, 2022. We simultaneously entered into an agreement to lease the office building for 10 years.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2020,For the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional practical expedients to simplify accounting for reference rate reform. Amongst other practical expedients, the update allows for contract modifications due to reference rate reform for certain receivables and debt contracts to be accounted for by prospectively adjusting the effective interest rate. The amendments in this ASU are effective for all entities beginning on March 12, 2020, and companies may elect to apply the amendments prospectively through December 31, 2022. As ofthree months ended June 30, 2021, we2022, there were no recently issued or newly adopted accounting pronouncements that had, or are expected to have, not utilized any of the expedients discussed within this ASU. We will continuea material impact to assess our agreements to determine if LIBOR is included and if the expedients will be utilized during the allowed period through December 31, 2022.consolidated financial statements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements.
NOTE 2. GOODWILL AND OTHER INTANGIBLE ASSETS
The change in carrying amount of goodwill is as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| NAST | | Global Forwarding | | All Other and Corporate | | Total |
Balance, December 31, 2020 | $ | 1,203,972 | | | $ | 213,982 | | | $ | 69,233 | | | $ | 1,487,187 | |
Acquisitions | 243 | | | 0 | | | 10,754 | | | 10,997 | |
Foreign currency translation | (2,948) | | | (760) | | | (765) | | | (4,473) | |
Balance June 30, 2021 | $ | 1,201,267 | | | $ | 213,222 | | | $ | 79,222 | | | $ | 1,493,711 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| NAST | | Global Forwarding | | All Other and Corporate | | Total |
Balance, December 31, 2021 | $ | 1,196,333 | | | $ | 210,391 | | | $ | 78,030 | | | $ | 1,484,754 | |
| | | | | | | |
Foreign currency translation | (7,319) | | | (2,907) | | | (1,673) | | | (11,899) | |
Balance, June 30, 2022 | $ | 1,189,014 | | | $ | 207,484 | | | $ | 76,357 | | | $ | 1,472,855 | |
Goodwill is tested at least annually for impairment on November 30, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We first perform a qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units is less than their respective carrying value (“Step Zero Analysis”). If the Step Zero Analysis indicates it is more likely than not that the fair value of our reporting units is less than their respective carrying value, an additional impairment assessment is performed (“Step One Analysis”). We considered whether there were any changes in circumstances indicatingAs part of our Step Zero Analysis, we determined that our goodwill might be impaired, including consideration of the impacts of the novel coronavirus
(“COVID-19”) on financial markets and our business operations, and determined the more likely than not criteria had not been met, and therefore a Step One Analysis was not required as of June 30, 2021.2022.
Identifiable intangible assets consisted of the following (in thousands): | | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
Finite-lived intangibles | Finite-lived intangibles | | | | | | | | | | | | Finite-lived intangibles | | | | | | | | | | | |
Customer relationships | Customer relationships | $ | 173,571 | | | $ | (78,531) | | | $ | 95,040 | | | $ | 171,684 | | | $ | (67,312) | | | $ | 104,372 | | Customer relationships | $ | 163,580 | | | $ | (96,391) | | | $ | 67,189 | | | $ | 169,308 | | | $ | (88,302) | | | $ | 81,006 | |
Trademarks | 0 | | | 0 | | | 0 | | | 1,875 | | | (937) | | | 938 | | |
Total finite-lived intangibles | 173,571 | | | (78,531) | | | 95,040 | | | 173,559 | | | (68,249) | | | 105,310 | | |
| Indefinite-lived intangibles | Indefinite-lived intangibles | | Indefinite-lived intangibles | |
Trademarks | Trademarks | 8,600 | | | — | | | 8,600 | | | 8,600 | | | — | | | 8,600 | | Trademarks | 8,600 | | | — | | | 8,600 | | | 8,600 | | | — | | | 8,600 | |
Total intangibles | Total intangibles | $ | 182,171 | | | $ | (78,531) | | | $ | 103,640 | | | $ | 182,159 | | | $ | (68,249) | | | $ | 113,910 | | Total intangibles | $ | 172,180 | | | $ | (96,391) | | | $ | 75,789 | | | $ | 177,908 | | | $ | (88,302) | | | $ | 89,606 | |
Amortization expense for other intangible assets is as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Amortization expense | $ | 6,200 | | | $ | 9,655 | | | $ | 13,286 | | | $ | 18,031 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Amortization expense | $ | 5,957 | | | $ | 6,200 | | | $ | 11,991 | | | $ | 13,286 | |
Finite-lived intangible assets, by reportable segment, as of June 30, 2021,2022, will be amortized over their remaining lives as follows (in thousands): | | | NAST | | Global Forwarding | | All Other and Corporate | | Total | | NAST | | Global Forwarding | | All Other and Corporate | | Total |
Remaining 2021 | $ | 4,048 | | | $ | 7,752 | | | $ | 597 | | | $ | 12,397 | | |
2022 | 8,096 | | | 15,505 | | | 1,195 | | | 24,796 | | |
Remaining 2022 | | Remaining 2022 | $ | 4,048 | | | $ | 7,107 | | | $ | 529 | | | $ | 11,684 | |
2023 | 2023 | 8,096 | | | 12,744 | | | 1,195 | | | 22,035 | | 2023 | 8,096 | | | 11,685 | | | 1,058 | | | 20,839 | |
2024 | 2024 | 7,996 | | | 3,867 | | | 1,195 | | | 13,058 | | 2024 | 7,990 | | | 3,521 | | | 1,058 | | | 12,569 | |
2025 | 2025 | 7,857 | | | 2,530 | | | 1,195 | | | 11,582 | | 2025 | 7,857 | | | 2,606 | | | 1,058 | | | 11,521 | |
2026 | | 2026 | 7,857 | | | — | | | 723 | | | 8,580 | |
Thereafter | Thereafter | 9,167 | | | 411 | | | 1,594 | | | 11,172 | | Thereafter | 1,310 | | | — | | | 686 | | | 1,996 | |
Total | Total | | $ | 95,040 | | Total | | $ | 67,189 | |
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:
•Level 1 — Quoted market prices in active markets for identical assets or liabilities.
•Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data.
•Level 3 — Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.
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.
We had 0no Level 3 assets or liabilities as of and during the periods ended June 30, 20212022 and December 31, 2020.2021. There were no transfers between levels during the period.
NOTE 4. FINANCING ARRANGEMENTS
The components of our short-term and long-term debt and the associated interest rates were as follows (dollars in thousands): | | | Average interest rate as of | | Carrying value as of | | Average interest rate as of | | Carrying value as of |
| | June 30, 2021 | | December 31, 2020 | | Maturity | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 | | Maturity | | June 30, 2022 | | December 31, 2021 |
Revolving credit facility | Revolving credit facility | | 1.22 | % | | 0 | % | | October 2023 | | $ | 271,000 | | | $ | 0 | | Revolving credit facility | | 2.82 | % | | 1.23 | % | | October 2023 | | $ | 174,000 | | | $ | 525,000 | |
364-day revolving credit facility | | 364-day revolving credit facility | | 2.03 | % | | — | | | May 2023 | | 500,000 | | | — | |
Senior Notes, Series A | Senior Notes, Series A | | 3.97 | % | | 3.97 | % | | August 2023 | | 175,000 | | | 175,000 | | Senior Notes, Series A | | 3.97 | % | | 3.97 | % | | August 2023 | | 175,000 | | | 175,000 | |
Senior Notes, Series B | Senior Notes, Series B | | 4.26 | % | | 4.26 | % | | August 2028 | | 150,000 | | | 150,000 | | Senior Notes, Series B | | 4.26 | % | | 4.26 | % | | August 2028 | | 150,000 | | | 150,000 | |
Senior Notes, Series C | Senior Notes, Series C | | 4.60 | % | | 4.60 | % | | August 2033 | | 175,000 | | | 175,000 | | Senior Notes, Series C | | 4.60 | % | | 4.60 | % | | August 2033 | | 175,000 | | | 175,000 | |
| Combinex credit facility | | 2.14 | % | | 0 | % | | January 2027 | | 2,280 | | | 0 | | |
Receivables securitization facility (1) | | Receivables securitization facility (1) | | 2.26 | % | | 0.73 | % | | November 2023 | | 499,448 | | | 299,481 | |
Senior Notes (1) | Senior Notes (1) | | 4.20 | % | | 4.20 | % | | April 2028 | | 593,733 | | | 593,301 | | Senior Notes (1) | | 4.20 | % | | 4.20 | % | | April 2028 | | 594,607 | | | 594,168 | |
Total debt | Total debt | | 1,367,013 | | | 1,093,301 | | Total debt | | 2,268,055 | | | 1,918,649 | |
Less: Current maturities and short-term borrowing | Less: Current maturities and short-term borrowing | | (271,215) | | | 0 | | Less: Current maturities and short-term borrowing | | (674,000) | | | (525,000) | |
Long-term debt | Long-term debt | | $ | 1,095,798 | | | $ | 1,093,301 | | Long-term debt | | $ | 1,594,055 | | | $ | 1,393,649 | |
(1) Net of unamortized discounts and issuance costs.
SENIOR UNSECURED REVOLVING CREDIT FACILITY
We have a senior unsecured revolving credit facility (the "Credit Agreement"“Credit Agreement”) with a total availability of $1 billion and a maturity date of October 24, 2023. Borrowings under the Credit Agreement generally bear interest at a variable rate determined by a pricing schedule or the base rate (which is the highest of (a) the administrative agent's prime rate, (b) the federal funds rate plus 0.50 percent, or (c) the sum of applicable LIBOR plus 1.13 percent). In addition, there is a commitment fee on the average daily undrawn stated amount under each letter of credit issued under the facility ranging from 0.075 percent to 0.200 percent. The recorded amount of borrowings outstanding, if any, approximates fair value because of the short maturity period of the debt.
The Credit Agreement contains various restrictions and covenants that require us to maintain certain financial ratios, including a maximum leverage ratio of 3.50 to 1.00. 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.
364-DAY UNSECURED REVOLVING CREDIT FACILITY
On May 6, 2022, we entered into an unsecured revolving credit facility (the “364-day Credit Agreement”) with a total availability of $500 million and a maturity date of May 5, 2023. Borrowings under the 364-day Credit Agreement generally bear interest at an alternate base rate plus a margin or a term SOFR-based rate plus a margin of 0.625 percent to 1.25 percent. The alternate base rate is determined by a pricing schedule (which is the highest of (a) 0 percent, (b) U.S. Bank’s prime rate, (c) the federal funds effective rate plus 0.50 percent, or (d) a term SOFR-based rate plus 1.00 percent). In addition, if we becomethere is a commitment fee on the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency, or similar law, then any outstanding obligationsaggregate unused commitments under the 364-day Credit Agreement will automatically become immediately dueranging from 0.05 percent to 0.175 percent per annum. The recorded amount of borrowings outstanding, if any, approximates fair value because of the short maturity period of the debt.
The 364-day Credit Agreement contains various restrictions and payable.covenants that require us to maintain certain financial ratios, including an initial maximum leverage ratio of 3.00 to 1.00. The 364-day Credit Agreement also contains customary events of default.
NOTE PURCHASE AGREEMENT
On August 23, 2013, we entered into a Note Purchase Agreement with certain institutional investors (the “Purchasers”). On August 27, 2013, the Purchasers purchased an aggregate principal amount of $500 million of our Senior Notes, Series A, Senior Notes Series B, and Senior Notes Series C (collectively, the “Notes”). Interest on the Notes is payable semi-annually in arrears. The fair value of the Notes approximated $549.3$477.9 million aton June 30, 2021.2022. 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 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.
The Note Purchase Agreement contains various restrictions and covenants that require us to maintain certain financial ratios, including a maximum leverage ratio of 3.00 to 1.00, a minimum interest coverage ratio of 2.00 to 1.00, and a maximum consolidated priority debt to consolidated total asset ratio of 15 percent.
The Note Purchase Agreement provides for customary events of default. The occurrence of an event of default would permit certain Purchasers to declare certain Notes then outstanding to be immediately due and payable. 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.
COMBINEX CREDIT FACILITY
On June 3,November 19, 2021, we assumedamended the Note Purchase Agreement to among other things, facilitate the terms of the Receivables Securitization Facility.
U.S. TRADE ACCOUNTS RECEIVABLE SECURITIZATION
On November 19, 2021, we entered into a creditreceivables purchase agreement and related transaction documents with Bank of America, N.A. and Wells Fargo Bank, N.A. to provide a receivables securitization facility as part(the “Receivables Securitization Facility”). The Receivables Securitization Facility is based on the securitization of our acquisition of Combinex Holding B.V. (“Combinex”)U.S. trade accounts receivable with a total availability of approximately $3.6$500 million and a maturity dateas of January 18, 2027. BorrowingsJune 30, 2022. The interest rate on borrowings under the Combinex credit facility bearReceivables Securitization Facility is based on Bloomberg Short Term Bank Yield Index (“BSBY”) plus a margin. There is also a commitment fee we are required to pay on any unused portion of the facility. The Receivables Securitization Facility expires on November 17, 2023, unless extended by the parties and is recorded as a noncurrent liability as of June 30, 2022. The recorded amount of borrowings outstanding on the Receivables Securitization Facility approximates fair value because it can be redeemed on short notice and the interest at 2.14 percent. For more information regardingrate floats. We consider these borrowings to be a Level 2 financial liability. Borrowings on the Combinex acquisition, referReceivables Securitization Facility are included within proceeds on long-term borrowings on the consolidated statement of cash flows.
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.
On February 1, 2022, we amended the Receivables Securitization Facility primarily to Note 8, increase the total availability from $300 million to $500 million pursuant to the provisions of the existing agreement. On July 7, 2022, we amended the Receivables Securitization Facility to effectively increase the receivables pool available with respect to the Receivables Securitization Facility.
Acquisitions.
SENIOR NOTES
On April 9, 2018, we issued senior unsecured notes ("(“Senior Notes"Notes”) through a public offering. The Senior Notes bear an annual interest rate of 4.20 percent payable semi-annually on April 15 and October 15, until maturity on April 15, 2028. Taking into effect the amortization of the original issue discount and all underwriting and issuance expenses, the Senior Notes have an effective yield to maturity of approximately 4.39 percent per annum. The fair value of the Senior Notes, excluding debt discounts and issuance costs, approximated $686.0$577.0 million as of June 30, 2021,2022, based primarily on the market prices quoted from external sources. The carrying value of the Senior Notes was $593.7$594.6 million as of June 30, 2021.2022.
We may redeem the Senior Notes, in whole or in part, at any time and from time to time prior to their maturity at the applicable redemption prices described in the Senior Notes. Upon the occurrence of a “change of control triggering event” as defined in the Senior Notes (generally, a change of control of us accompanied by a reduction in the credit rating for the Senior Notes), we will generally be required to make an offer to repurchase the Senior Notes from holders at 101 percent of their principal amount plus accrued and unpaid interest to the date of repurchase.
The Senior Notes were issued under an indenture that contains covenants imposing certain limitations on our ability to incur liens or enter into sale and leaseback transactions above certain limits; and consolidate, or merge or transfer substantially all of our assets and those of our subsidiaries on a consolidated basis. It also provides for customary events of default (subject in certain cases to customary grace and cure periods), which include among other things nonpayment, breach of covenants in the indenture, and certain events of bankruptcy and insolvency. If an event of default occurs and is continuing with respect to the Senior Notes, the trustee or holders of at least 25 percent in principal amount outstanding of the Senior Notes may declare the principal and the accrued and unpaid interest, if any, on all of the outstanding Senior Notes to be due and payable. These covenants and events of default are subject to a number of important qualifications, limitations, and exceptions that are described in the indenture. The indenture does not contain any financial ratios or specified levels of net worth or liquidity to which we must adhere.
In addition to the above financing agreements, we have a $15 million discretionary line of credit with USU.S. Bank of which $8$7.9 million is currently utilized for standby letters of credit related to insurance collateral as of June 30, 2021.2022. These standby letters of credit are renewed annually and were undrawn as of June 30, 2021.2022.
We estimate the fair value of our financing arrangements 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 similar terms and remaining maturities, and considering our risk. These are considered Level 2 financial liabilities.
U.S. TRADE ACCOUNTS RECEIVABLE SECURITIZATION
We had a receivables securitization facility (the “Receivables Securitization Facility”) that expired on December 17, 2020 and was not renewed. The Receivables Securitization Facility was based on the securitization of certain of our U.S. trade accounts receivable and provided funding of up to $250 million. The trade accounts receivable under the facility were owned by C.H. Robinson Receivables LLC and were not available to the creditors of C.H. Robinson Worldwide, Inc., and our subsidiaries. The interest rate on borrowings under the Receivables Securitization Facility was based on one-month LIBOR plus 0.65 percent. There was also a commitment fee we were required to pay on any unused portion of the facility.
NOTE 5. INCOME TAXES
Our effective tax rateA reconciliation of the provision for the three months ended June 30, 2021 and 2020 was 21.6 percent and 19.4 percent, respectively, and our effective tax rate for the six months ended June 30, 2021 and 2020 was 20.1 percent and 18.6 percent, respectively. The effective income tax rate for the three months ended June 30, 2021 was higher thantaxes using the statutory federal income tax rate primarily due to state income taxes, net of federal benefit which increased our effective tax rate by 2.0 percentage points. This impact on the tax rate was partially offset by foreign tax impacts. 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 share-based payment awards, which reduced the effective tax rate by 1.5 percentage points, the combined tax impact of Global Intangible Low-tax Income ("GILTI") and Foreign Derived Intangible Income ("FDII"), which reduced the effective tax rate by 0.6 percentage points, and foreign tax impacts, which reduced the effective tax rate by 0.5 percentage points. These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective tax rate. For the three and six months ended June 30, 2020, our effective tax rate was lower than the statutory federal income tax rate primarily due to the tax impact of share-based payment awards, including the tax benefit from the delivery of a one-time deferred stock award that was granted to the company's prior Chief Executive Officer in 2000, which reduced the effective tax rate by 4.5 percentage points2022 and 4.2 percentage points, respectively. This impact was partially offset by state income tax expense, net of federal benefit, which increased the effective tax rate.2021, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % | | 21.0 | % |
State income taxes, net of federal benefit | 2.0 | | | 2.0 | | | 1.7 | | | 2.1 | |
Share based payment awards | (0.6) | | | (0.1) | | | (0.9) | | | (1.5) | |
Foreign tax credits | (1.4) | | | (1.2) | | | (1.1) | | | (0.5) | |
Other U.S. tax credits and incentives | (0.3) | | | (0.8) | | | (1.0) | | | (0.9) | |
Foreign | (0.5) | | | 2.0 | | | (0.5) | | | 0.2 | |
Other | 1.1 | | | (1.3) | | | 0.8 | | | (0.3) | |
Effective income tax rate | 21.3 | % | | 21.6 | % | | 20.0 | % | | 20.1 | % |
We have asserted that the unremitted earnings of a limited number of our foreign subsidiaries are permanently reinvested to support expansion of our international business. If we repatriated all foreign earnings that are considered to be permanently reinvested, the estimated effect on income taxes payable would be an increase of approximately $2.0 million as of June 30, 2021.2022.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in response to the COVID-19 pandemic. The CARES Act allowed for a deferral of the employer share of federal payroll taxes otherwise due through December 31, 2020. 50 percent of the deferred amount is due December 31, 2021 and the remaining 50 percent is due December 31, 2022. This provision allowed us to defer certain federal payroll deposits and invest this cash back into the business without any interest cost. The CARES Act also provided for a tax credit related to wages and health benefits provided to an employee whose work from March 17, 2020 through June 30, 2021 was impacted by COVID-19. The Consolidated Appropriations Act signed into law on December 27, 2020, extended the tax credit through June 30, 2021, and increased the maximum credit per employee from $5,000 per year in 2020 to $7,000 per quarter in 2021. Through June 30, 2021, wetaxes. We have recognized a payroll deferral and tax credit of $28.5$14.7 million and $0.7 million, respectively, under the CARES Act and The Consolidated Appropriations Act. We will continue evaluating the impact of both acts over the remainder of 2021.due on December 31, 2022.
As of June 30, 2021,2022, we have $43.0$41.0 million of unrecognized tax benefits and related interest and penalties. It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and settlements with taxing authorities. The total liability for unrecognized tax benefits is expected to decrease by approximately $6.2$2.4 million in the next 12 months due to the lapsing of statutes of limitations. With few exceptions, we are no longer subject to audits of U.S. federal, state and local, or non-U.S. income tax returns before 2014.2015. We are currently under an Internal Revenue Service audit for 2015, 2016 and 2017 tax years.
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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Stock options | Stock options | $ | 4,027 | | | $ | 5,025 | | | $ | 7,994 | | | $ | 10,038 | | Stock options | $ | 3,263 | | | $ | 4,027 | | | $ | 6,482 | | | $ | 7,994 | |
Stock awards | Stock awards | 24,401 | | | 5,291 | | | 43,349 | | | 10,694 | | Stock awards | 23,887 | | | 24,401 | | | 43,950 | | | 43,349 | |
Company expense on ESPP discount | Company expense on ESPP discount | 733 | | | 638 | | | 1,807 | | | 1,619 | | Company expense on ESPP discount | 779 | | | 733 | | | 2,103 | | | 1,807 | |
Total stock-based compensation expense | Total stock-based compensation expense | $ | 29,161 | | | $ | 10,954 | | | $ | 53,150 | | | $ | 22,351 | | Total stock-based compensation expense | $ | 27,929 | | | $ | 29,161 | | | $ | 52,535 | | | $ | 53,150 | |
On May 9, 2019,5, 2022, our shareholders approved an amendment and restatement of our 2013a 2022 Equity Incentive Plan (the “Plan”) to increaseand authorized an initial 4,261,884 shares for issuance of awards thereunder. Upon approval of the number of shares authorized for award by 4,000,000 shares.Plan, no new awards may be made under our 2013 Equity Incentive Plan. The Plan 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 17,041,803 shares can be granted under this plan following the amendment and restatement. Approximately 1,798,3284,424,631 shares were available for stock awards under the planPlan as of June 30, 2021.2022. Shares subject to awards
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 stock options to certain key employees through 2020. The fair value of these options was established based on the market price on the date of grant calculated using the Black-Scholes option pricing model. Changes in measured stock price volatility and interest rates were the primary reasons for changes in the fair value. These grants are being expensed based on the terms of the awards. As of June 30, 2021,2022, unrecognized compensation expense related to stock options was $34.8$20.0 million. The amount of future expense to be recognized will be based on the passage of time and the employees' continued employment.
Stock Awards - We have awarded performance-based restricted shares, through 2020. We have also awarded performance-based restricted stock units (“PSUs”), and time-based restricted stock units to certain key employees and non-employee directors. Performance-basedunits. Nearly all of our awards are subject to certain vesting requirements based on our earnings and adjusted gross profit growth. Time-based awards vest primarily based on the employee's continued employment. 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 12 percent to 24 percent and are calculated using the Black-Scholes option pricing model-protective put method. DifferencesThe duration of the restriction period to sell or transfer vested awards, changes in post-holding restrictions,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 granted 280,255have 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 619,689non-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 the 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 3, 2021.9, 2022. The performance-basedPSUs and time-based restricted stock unit awards had a weighted average grant date fair value of $74.76$76.74 and $71.28, respectively, and$74.67, respectively. Time-based awards are eligible to vest over a three-year period with a first vesting date of December 31, 2021. The performance-based awards vest based on our earnings and adjusted gross profit growth and include an upside opportunity of 200 percent upon attaining established earnings and adjusted gross profit growth targets.2022.
We have also issued restricted stock units to certain key employees and non-employee directors, 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 June 30, 2021,2022, there was unrecognized compensation expense of $131.9$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 (dollars in thousands):
| | | | | | | | | | | | | | |
Three Months Ended June 30, 2021 |
Shares purchased by employees | | Aggregate cost to employees | | Expense recognized by the company |
52,157 | | | $ | 4,153 | | | $ | 733 | |
| | | | | | | | | | | | | | |
Three Months Ended June 30, 2022 |
Shares purchased by employees | | Aggregate cost to employees | | Expense recognized by the company |
51,276 | | | $ | 4,419 | | | $ | 779 | |
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 certain 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 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 June 3, 2021, we acquired all of the outstanding shares of Combinex to strengthen our European road transportation presence. Total purchase consideration, net of cash acquired was $14.7 million, which was paid in cash.
Identifiable intangible assets and estimated useful lives are as follows (dollars in thousands): | | | | | | | | | | | |
| Estimated Life (years) | | |
Customer relationships | 7 | | $ | 3,942 | |
There was $10.8 million of goodwill recorded related to the acquisition of Combinex. The Combinex goodwill is a result of acquiring and retaining the Combinex workforce and expected synergies from integrating its business into ours. Purchase accounting is considered preliminary.complete. The goodwill will not be deductible for tax purposes. The results of operations of Combinex have been included as part of the All Other and Corporate segment in our consolidated financial statements since June 3, 2021.
Prime Distribution Services
On March 2, 2020, we acquired all of the outstanding shares of Prime Distribution Services (“Prime Distribution”), a leading provider of retail consolidation services in North America, for $222.7 million in cash. This acquisition adds scale and value-added warehouse capabilities to our retail consolidation platform, adding to our global suite of services.
The following is a summary of the allocation of purchase consideration to the estimated fair value of net assets for the acquisition of Prime Distribution. | | | | | |
Current assets | $ | 8,879 | |
Property and equipment | 7,356 | |
Right-of-use lease assets | 35,017 | |
Other intangible assets | 55,000 | |
Goodwill | 176,727 | |
Total assets | 282,979 | |
| |
Current liabilities | 12,243 | |
Lease liabilities | 35,017 | |
Deferred tax liabilities | 13,001 | |
Net assets acquired | $ | 222,718 | |
Identifiable intangible assets and estimated useful lives are as follows (dollars in thousands): | | | | | | | | | | | |
| Estimated Life (years) | | |
Customer relationships | 7 | | $ | 55,000 | |
There was $176.7 million of goodwill recorded related to the acquisition of Prime Distribution. The Prime Distribution goodwill is a result of acquiring and retaining the Prime Distribution workforce and expected synergies from integrating its business into ours. Purchase accounting is considered complete. The goodwill will not be deductible for tax purposes. The acquisition was effective as of February 29, 2020, and therefore the results of operations of Prime Distribution have been included as part of the North American Surface Transportation segment in our consolidated financial statements since March 1, 2020.
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. We identify 2 reportable segments in addition to All Other and Corporate as summarized below:
•North American Surface Transportation—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 and less than truckload (“LTL”) transportation services.
•Global Forwarding—Global Forwarding provides global logistics services through an international network of offices in North America, Asia, Europe, Oceania, and South America and also contracts with independent agents worldwide. The primary services provided by Global Forwarding include ocean freight services, air freight services, and customs brokerage.
•All Other and Corporate—All Other and Corporate includes our Robinson Fresh 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 including the buying, selling, and marketing of fresh fruits, vegetables, and other perishable items. Managed 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 logistics services including truckload and groupage services 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 reportable segments are the same as those described in the summary of significant accounting policies.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, 2021. We do not report our intersegment revenues by reportable segment to our CODM and do not believe they are a meaningful metric for evaluating the performance of our reportable segments.
Reportable segment information as of, and for the three and six months ended June 30, 20212022 and 2020,2021, 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 |
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 |
Three Months Ended June 30, 2020 | | | | | | | |
Total revenues | $ | 2,475,292 | | | $ | 707,820 | | | $ | 444,734 | | | $ | 3,627,846 | |
Income (loss) from operations | 136,846 | | | 58,775 | | | (6,834) | | | 188,787 | |
Depreciation and amortization | 7,201 | | | 9,206 | | | 9,351 | | | 25,758 | |
Total assets(1) | 2,793,290 | | | 1,029,203 | | | 1,003,196 | | | 4,825,689 | |
Average headcount | 6,960 | | | 4,726 | | | 3,608 | | | 15,294 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | All Other and Corporate | | Consolidated |
Six Months Ended June 30, 2020 | | | | | | | |
Total revenues | $ | 5,299,037 | | | $ | 1,238,204 | | | $ | 895,613 | | | $ | 7,432,854 | |
Income (loss) from operations | 235,372 | | | 70,734 | | | (7,879) | | | 298,227 | |
Depreciation and amortization | 12,455 | | | 18,355 | | | 19,341 | | | 50,151 | |
Total assets(1) | 2,793,290 | | | 1,029,203 | | | 1,003,196 | | | 4,825,689 | |
Average headcount | 6,981 | | | 4,763 | | | 3,594 | | | 15,338 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
(1) All cash and cash equivalents are included in All Other and Corporate.
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, 20212022 and 20202021 (in thousands):
| | | Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2022 |
| | NAST | | Global Forwarding | | All Other and Corporate | | Total | | NAST | | Global Forwarding | | All Other and Corporate | | Total |
Major Service Lines | Major Service Lines | | | | | | | | Major Service Lines | | | | | | | |
Transportation and logistics services(1) | Transportation and logistics services(1) | $ | 3,585,481 | | | $ | 1,450,794 | | | $ | 204,173 | | | $ | 5,240,448 | | Transportation and logistics services(1) | $ | 4,147,046 | | | $ | 2,093,190 | | | $ | 225,406 | | | $ | 6,465,642 | |
Sourcing(2) | Sourcing(2) | 0 | | | 0 | | | 292,278 | | | 292,278 | | Sourcing(2) | — | | | — | | | 332,833 | | | 332,833 | |
Total | Total | $ | 3,585,481 | | | $ | 1,450,794 | | | $ | 496,451 | | | $ | 5,532,726 | | Total | $ | 4,147,046 | | | $ | 2,093,190 | | | $ | 558,239 | | | $ | 6,798,475 | |
| | | Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2021 |
| | NAST | | Global Forwarding | | All Other and Corporate | | Total | | NAST | | Global Forwarding | | All Other and Corporate | | Total |
Major Service Lines | Major Service Lines | | | | | | | | Major Service Lines | | | | | | | |
Transportation and logistics services(1) | Transportation and logistics services(1) | $ | 2,475,292 | | | $ | 707,820 | | | $ | 165,499 | | | $ | 3,348,611 | | Transportation and logistics services(1) | $ | 3,585,481 | | | $ | 1,450,794 | | | $ | 204,173 | | | $ | 5,240,448 | |
Sourcing(2) | Sourcing(2) | 0 | | | 0 | | | 279,235 | | | 279,235 | | Sourcing(2) | — | | | — | | | 292,278 | | | 292,278 | |
Total | Total | $ | 2,475,292 | | | $ | 707,820 | | | $ | 444,734 | | | $ | 3,627,846 | | Total | $ | 3,585,481 | | | $ | 1,450,794 | | | $ | 496,451 | | | $ | 5,532,726 | |
| | | Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2022 |
| | NAST | | Global Forwarding | | All Other and Corporate | | Total | | NAST | | Global Forwarding | | All Other and Corporate | | Total |
Major Service Lines | Major Service Lines | | | | | | | | Major Service Lines | | | | | | | |
Transportation and logistics services(1) | Transportation and logistics services(1) | $ | 6,796,904 | | | $ | 2,606,833 | | | $ | 396,938 | | | $ | 9,800,675 | | Transportation and logistics services(1) | $ | 8,261,935 | | | $ | 4,287,587 | | | $ | 444,471 | | | $ | 12,993,993 | |
Sourcing(2) | Sourcing(2) | 0 | | | 0 | | | 535,920 | | | 535,920 | | Sourcing(2) | — | | | — | | | 620,435 | | | 620,435 | |
Total | Total | $ | 6,796,904 | | | $ | 2,606,833 | | | $ | 932,858 | | | $ | 10,336,595 | | Total | $ | 8,261,935 | | | $ | 4,287,587 | | | $ | 1,064,906 | | | $ | 13,614,428 | |
| | | Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2021 |
| | NAST | | Global Forwarding | | All Other and Corporate | | Total | | NAST | | Global Forwarding | | All Other and Corporate | | Total |
Major Service Lines | Major Service Lines | | | | | | | | Major Service Lines | | | | | | | |
Transportation and logistics services(1) | Transportation and logistics services(1) | $ | 5,299,037 | | | $ | 1,238,204 | | | $ | 353,488 | | | $ | 6,890,729 | | Transportation and logistics services(1) | $ | 6,796,904 | | | $ | 2,606,833 | | | $ | 396,938 | | | $ | 9,800,675 | |
Sourcing(2) | Sourcing(2) | 0 | | | 0 | | | 542,125 | | | 542,125 | | Sourcing(2) | — | | | — | | | 535,920 | | | 535,920 | |
Total | Total | $ | 5,299,037 | | | $ | 1,238,204 | | | $ | 895,613 | | | $ | 7,432,854 | | 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, 2021,2022, and revenue recognized in the three and six months ended June 30, 20212022 and 20202021 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.end and the timing of customer invoicing.
NOTE 11. LEASES
We determine if our contractual agreements contain a lease at inception. A lease is identified when a contract allows us the right 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 customers’ 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 not considered leases. In addition, we have made a policy election to not apply the guidance of ASC 842 to leases with a term of 12 months or less as allowed by the standard. These leases are recognized as expense on a straight-line basis over the lease term.
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 aton 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 aton the commencement date as the total lease liability plus prepaid rents and less any deferred rent liability that existed under ASC 840, Leases, upon transition.rents. As most of 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 determining the present value of lease payments. The incremental borrowing rate is influenced by market interest rates, our credit rating, and lease term and as such, may differ for individual leases.
Our lease agreements typically do not contain variable lease payments, residual value guarantees, purchase options, or restrictive covenants. Many of our leases include the 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, 2021.2022.
Information regarding lease expense, remaining lease term, discount rate, and other select lease information is presented below as of June 30, 2021,2022, 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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
Lease Costs | Lease Costs | 2021 | | 2020 | | 2021 | | 2020 | Lease Costs | 2022 | | 2021 | | 2022 | | 2021 |
Operating lease expense | Operating lease expense | $ | 21,459 | | | $ | 21,508 | | | $ | 43,021 | | | $ | 41,482 | | Operating lease expense | $ | 23,082 | | | $ | 21,459 | | | $ | 44,727 | | | $ | 43,021 | |
Short-term lease expense | Short-term lease expense | 1,462 | | | 4,027 | | | 3,063 | | | 6,599 | | Short-term lease expense | 1,137 | | | 1,462 | | | 3,597 | | | 3,063 | |
Total lease expense | Total lease expense | $ | 22,921 | | | $ | 25,535 | | | $ | 46,084 | | | $ | 48,081 | | Total lease expense | $ | 24,219 | | | $ | 22,921 | | | $ | 48,324 | | | $ | 46,084 | |
| | | Six Months Ended June 30, | | Six Months Ended June 30, |
Other Lease Information | Other Lease Information | 2021 | | 2020 | Other Lease Information | 2022 | | 2021 |
Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 42,495 | | | $ | 38,655 | | Operating cash flows from operating leases | $ | 43,937 | | | $ | 42,495 | |
Right-of-use lease assets obtained in exchange for new lease liabilities | Right-of-use lease assets obtained in exchange for new lease liabilities | 18,299 | | | 70,993 | | 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, 20212022 |
Weighted average remaining lease term (in years)(1) | 6.66.5 |
Weighted average discount rate | 3.13.0 | % |
(1) The weighted average remaining lease term is significantly impacted by a 15-year lease related to office space in Chicago, IL, thatwhich commenced in 2018. Excluding this lease, the weighted average remaining lease term of our agreements is 4.55.1 years.
The maturities of lease liabilities as of June 30, 2021,2022, were as follows (in thousands): | | | | | | | | |
Maturity of Lease Liabilities | | Operating Leases |
Remaining 2021 | | $ | 35,276 | |
2022 | | 75,020 | |
2023 | | 61,688 | |
2024 | | 41,950 | |
2025 | | 31,565 | |
Thereafter | | 107,570 | |
Total lease payments | | 353,069 | |
Less: Interest | | (38,142) | |
Present value of lease liabilities | | $ | 314,927 | |
| | | | | | | | |
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 | |
In addition to minimum lease payments, we are typically responsible under our lease agreements to pay our pro rata share of maintenance expenses, common charges, and real estate taxes of the buildings in which we lease space. Under ASC 842, we have elected to account for non-lease components such as common area maintenance and parking as a single lease component.
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 our customers, and our customers' credit ratings, in addition to other customer specificcustomer-specific factors. We have also assessedconsidered recent trends and developments related to the current macroeconomic environment including the impact of the COVID-19 pandemic, to determinein determining our ending allowance for credit losses for both accounts receivable and contract assets. The allowance for credit losses on contract 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, 2021:2022 (in thousands):
| | | | | |
Balance, December 31, 20202021 | $ | 38,11341,542 | |
Provision | (607)(2,411) | |
Write-offs | (2,076)(1,613) | |
Balance, June 30, 20212022 | $ | 35,43037,518 | |
Recoveries of amounts previously written off were not significant for the three and six months ended June 30, 2021.2022.
NOTE 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 aton June 30, 20212022 and December 31, 2020,2021, was $53.4$87.9 million and $46.0$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, at June 30, 2021 and December 31, 2020.including foreign currency translation.
Other comprehensive loss and income was $0.2$33.6 million and $24.3compared 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 2020, respectively. the Yuan.
Other comprehensive loss was $7.4$26.7 million and $7.9compared to other comprehensive loss of $7.4 million for the six months ended June 30, 20212022 and 2020,2021, respectively. Other comprehensive lossincome and incomeloss consisted of foreign currency adjustments, including foreign currency translation, for the three and six months ended June 30, 20212022 and 2020.2021. 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
The 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, 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 global 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; 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 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 related to the elimination of LIBOR; risks associated with the potential impact of changes in government regulations; our ability to hire and retain a sufficient number of qualified personnel;risks associated with the changes to income tax regulations; risks associated with the produce industry, including food safety and contamination issues; the impact of war on the economy; changes to our capital structure; changes due to catastrophic events including pandemics such 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, 2020,2021, filed with the Securities and Exchange Commission on February 19, 202123, 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 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 provide freight transportation services and logistics solutions to companies of all sizes in a wide variety of industries. We operate through a network of offices in North America, Europe, Asia, Oceania, and South America. We offer a global suite of services using tailored, market-leading solutions built by and for supply chain experts. 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 scale.
Our adjusted 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 directly serve our customers and contracted carriers. Adjusted gross profit margin is calculated as adjusted gross profit divided by total revenues. We believe adjusted gross profit and adjusted gross profit margin are useful measures of our ability to source, add value, and sell services and products that are provided by third parties, and we consider adjusted gross profit to be a primary performance measurement. Accordingly, the discussion of our results of operations often focuses on the changes in our adjusted gross profit and adjusted gross profit margin. The reconciliation of gross profit to adjusted gross profit and gross profit margin to adjusted gross profit margin is presented below (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | | | | | | | | | | | |
Transportation | $ | 5,240,448 | | | | $ | 3,348,611 | | | | $ | 9,800,675 | | | | $ | 6,890,729 | | |
Sourcing | 292,278 | | | | 279,235 | | | | 535,920 | | | | 542,125 | | |
Total revenues | 5,532,726 | | | | 3,627,846 | | | | 10,336,595 | | | | 7,432,854 | | |
Costs and expenses: | | | | | | | | | | | |
Purchased transportation and related services | 4,519,305 | | | | 2,762,590 | | | | 8,400,590 | | | | 5,762,703 | | |
Purchased products sourced for resale | 264,245 | | | | 250,803 | | | | 484,449 | | | | 487,745 | | |
Direct internally developed software amortization | 4,802 | | | | 3,991 | | | | 9,449 | | | | 7,736 | | |
Total direct costs | 4,788,352 | | | | 3,017,384 | | | | 8,894,488 | | | | 6,258,184 | | |
Gross profit / Gross profit margin | 744,374 | | 13.5 | % | | 610,462 | | 16.8 | % | | 1,442,107 | | 14.0 | % | | 1,174,670 | | 15.8 | % |
Plus: Direct internally developed software amortization | 4,802 | | | | 3,991 | | | | 9,449 | | | | 7,736 | | |
Adjusted gross profit / Adjusted gross profit margin | $ | 749,176 | | 13.5 | % | | $ | 614,453 | | 16.9 | % | | $ | 1,451,556 | | 14.0 | % | | $ | 1,182,406 | | 15.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | % |
Our adjusted operating margin is a non-GAAP financial measure calculated as operating income divided by adjusted gross profit. We believe adjusted operating margin is a useful measure of our profitability 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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Total revenues | Total revenues | $ | 5,532,726 | | | $ | 3,627,846 | | | $ | 10,336,595 | | | $ | 7,432,854 | | Total revenues | $ | 6,798,475 | | | $ | 5,532,726 | | | $ | 13,614,428 | | | $ | 10,336,595 | |
Operating income | Operating income | 260,604 | | | 188,787 | | | 483,933 | | | 298,227 | | Operating income | 469,665 | | | 260,604 | | | 815,139 | | | 483,933 | |
Operating margin | Operating margin | 4.7 | % | | 5.2 | % | | 4.7 | % | | 4.0 | % | Operating margin | 6.9 | % | | 4.7 | % | | 6.0 | % | | 4.7 | % |
| Adjusted gross profit | Adjusted gross profit | $ | 749,176 | | | $ | 614,453 | | | $ | 1,451,556 | | | $ | 1,182,406 | | Adjusted gross profit | $ | 1,031,613 | | | $ | 749,176 | | | $ | 1,937,809 | | | $ | 1,451,556 | |
Operating income | Operating income | 260,604 | | | 188,787 | | | 483,933 | | | 298,227 | | Operating income | 469,665 | | | 260,604 | | | 815,139 | | | 483,933 | |
Adjusted operating margin | Adjusted operating margin | 34.8 | % | | 30.7 | % | | 33.3 | % | | 25.2 | % | Adjusted operating margin | 45.5 | % | | 34.8 | % | | 42.1 | % | | 33.3 | % |
MARKET TRENDS
The cost of purchased transportation in the North American surface transportation market continuesremains elevated compared to be impacted bypre-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 due to driver availability challenges and strongentering the market has better aligned the overall demand resulting in historically high pricing for purchased transportation.with available carrier capacity. Industry freight volumes, as measured by the Cass Freight Index, increased approximately 30decreased 2 percent during the second quarter of 20212022 compared to the second quarter of 2020. The second quarter of 2020 was significantly impacted by the COVID-19 pandemic and restrictions in place to control the outbreak which drove down industry freight volumes by approximately 21 percent in the prior year.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 2021 was 1.7,2022 declined to 1.4, representing that on average, the first or second carrier in a shipper's routing guide was executing the shipment in most cases. This average routing guide penetration comparesis reflective of a more balanced freight market compared to 1.2the 1.7 average routing guide depth in both the first quarter of 2022 and the second quarter of 2020 and is reflective of the tight carrier capacity in the second quarter of 2021. As capacity continues to tighten and routing guides continue to degrade more loads move to the spot market driving sharp increases in purchased transportation costs.
The global forwarding market continuesalso began to experience strongshow signs of softening as shippers continue to work through elevated inventory levels and cautiously approach the upcoming peak season due to macroeconomic uncertainty and declining import demand whichin the United 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 2022 as global demand declined to better align with the industry’s overall capacity. Despite increasing activity from the 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 Southern 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 2022 on the United States West Coast there is outpacing supplyevidence of it edging back up again in addition to unprecedented disruptionsincreased congestion on the United States East Coast due to port congestion and shipping container shortages. These disruptions combined with strong demand across most industries, most notably retail, have resulted in significant increases in purchased transportation costs for both ocean and air freight. Duea higher percentage of freight being routed to the unprecedented challenges in thetheir ports. Air freight conversions back to ocean freight market conversions to airhave continued with more shippers seeking lower supply chain costs by tolerating the longer duration of ocean freight have become increasingly common. This resulted in a continued increase in charter flights and larger than normal shipment sizes as traditional airtransit. Air freight capacity remains strained by a reduction ofhas improved in certain trade lanes due to increased belly capacity as commercial flights since the beginning ofbecome more frequent after being significantly reduced during the COVID-19 pandemic.
BUSINESS TRENDS
Our second quarter of 20212022 surface transportation results are largely consistent withbenefited from the overallsoftening market trends summarized above, althoughconditions, as periods where the cost of purchased transportation begins to decline often result in improved adjusted gross profits per transaction in our volume changes did not experience the significant volatility seen in the industryportfolio. Industry freight volumes as measured by the Cass Freight Index. Industry freight volumes increased approximately 30Index decreased 2 percent compared to a 21 percent decline in the second quarter of 2020.2022 compared to the second quarter of 2021. Our combined NAST truckload and less than truckload ("LTL"(“LTL”) volume increase of 16.0decreased 2.5 percent compared to a 3.0 percent decrease induring the second quarter of 2020. We have continued to work with our customers to meet2022. As a result of the softening market conditions, our contractual commitments sincerates negotiated in prior quarters contributed to an increase in our adjusted gross profit per shipment and significantly reduced the beginning of the COVID-19 pandemic which has resulted in a higher than normal percentage of shipments with negative adjusted gross profit margins and less volatility in our combined NAST truckload and LTL volumes as compared to the Cass Freight Index. We continue to reshape our portfolio by adapting our pricing to reflect the rising cost environment and participating to a greater extent in the spot market. The strong demand and tight carrier capacity conditions resulted in ourmargins. Our average truckload linehaul cost per mile, excluding fuel costs, increasing 47.5decreased 5.0 percent induring the second quarter of 2021.2022. Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, increased approximately 42.01.5 percent induring the second quarter of 2021.2022 due to our contractual rates negotiated in prior quarters.
In our global forwarding business, we continued to experience significant increases inelevated purchased transportation costs for both ocean and air freight, due to the disruptions and capacity shortages impacting the global forwarding market. This along with increased volumes haswhich resulted in strong growth in both total revenue and cost of purchased transportation for our ocean and air freight services. Ocean volumes increased 29.0 percent with strong growth in all regions we serve driven by higher award sizes from existing customers, new customer growth, and the adverse impact of the COVID-19 pandemic oncompared to the second quarter of 2020 results. In addition,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 second quarter of 2022 compared to the second quarter of 2021. Despite this decline, our total ocean volumes increased 2.5 percent due to strong growth in our airother regions where we operate. Air freight services driventonnage 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 conversions resulting from the significant disruptions experienced in the industry.market.
On March 2, 2020, we acquired all of the outstanding shares of Prime Distribution Services (“Prime Distribution”), a leading provider of retail consolidation services in North America for $222.7 million in cash. This acquisition adds scale and value-added warehouse capabilities to our retail consolidation platform, adding to our global suite of services. The acquisition was effective as of February 29, 2020, and therefore the results of operations of Prime Distribution have been included as part of the North American Surface Transportation segment in our consolidated financial statements since March 1, 2020. 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.
SIGNIFICANT DEVELOPMENTS
During the three months ended June 30, 2021, our financial results and operations were impacted by the COVID-19 pandemic described above and discussed throughout Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” The extent to which the COVID-19 pandemic impacts our financial results and operations for the remainder of 2021 and going forward will depend on future developments which are highly uncertain and cannot be predicted, including fluctuations in the severity of the outbreak and the actions being taken to contain and treat it.
We have taken a variety of measures to ensure the availability, continuity, and security of our critical infrastructure, ensure the health and safety of our employees around the globe, and provide service and supply chain continuity to our customers and contracted carriers in order to deliver critical and essential goods and services. We have also adopted work-from-home arrangements, and as of June 30, 2021, over 60 percent of our employees were working remotely executing their duties and responsibilities although many of our employees began returning to our physical offices under a more flexible work model in July 2021. We do not believe these policies and initiatives will adversely impact our operations.
Due to the ongoing uncertainty around the severity and duration of the outbreak, including the emergence of COVID-19 variants, we are not able at this time to estimate the impact COVID-19 may have on our financial results and operations for the remainder of 2021 and going forward. However, the impact could be material in all business segments and could be material during any future period affected either directly or indirectly by this pandemic. Many businesses have experienced and may continue to experience reduced production and output which has resulted and could continue to result in a decrease in freight volumes across a number of industries, reducing our contractual and spot-market opportunities. In addition, a significant number of our contracted carriers have reduced and may continue to reduce their capacity or charge higher prices in light of the volatile market conditions which has reduced and may continue to reduce our adjusted gross profit margins as we honor our contractual freight rates.
SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS
The following summarizes select second quarter 20212022 year-over-year operating comparisons to the second quarter 2020:2021:
•Total revenues increased 52.522.9 percent to $5.5$6.8 billion, driven primarily by higher pricing and higher volume across most of our services.services and higher truckload and ocean volume.
•Gross profits increased 21.9 percent to $744.4 million. Adjustedand adjusted gross profits increased 21.937.7 percent to $749.2 million,$1.0 billion, primarily driven by higher volume in our ocean, truckload, LTL and air services and higher adjusted gross profit per shipment intransaction across most of our services and higher truckload and ocean and truckload services.volume.
•Personnel expenses increased 20.822.6 percent to $362.9$444.8 million, primarily driven bydue to higher headcount and higher incentive compensation costs and also due to the benefit realized in the second quarter of 2020 from our short-term cost reduction initiatives.costs. Average headcount increased 0.716.2 percent.
•Other selling, general, and administrative (“SG&A”) expenses increased 0.4decreased 6.8 percent to $125.7 million.$117.2 million, and included a $25.3 million gain on the sale-leaseback of a facility in Kansas City. This was partially offset by higher purchased and contracted services and increased travel expenses.
•Income from operations totaled $260.6$469.7 million, up 38.080.2 percent due to the increase in adjusted gross profits.profits, partially offset by the increase in operating expenses.
•Adjusted operating margin of 34.845.5 percent increased 4101,070 basis points.
•Interest and other income/expenses totaled $13.5$27.4 million, consisting primarily of $12.7$17.0 million of interest expense, which increased $0.4$4.3 million versus last year due to a higher average debt balance. The second quarter also included a $1.9balance, and $10.3 million unfavorable impact fromof foreign currency revaluation and realized foreign currency gains and losses.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 21.621.3 percent compared to 19.421.6 percent in the second quarter last year. The rate increase was due primarily to
•Net income totaled $348.2 million, up 79.7% from a tax benefit in the second quarter of 2020 from delivery of a one-time deferred stock award that was granted to the company's prior Chief Executive Officer in 2000.year ago.
•Diluted earnings per share (EPS) increased 35.885.4 percent to $1.44.$2.67.
•Cash flow from operations decreased $413.0improved $158.7 million driven by a large increase in working capital during the six months ended June 30, 2021.2022 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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change | | 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
Revenues: | Revenues: | | | | | | | | | | | | Revenues: | | | | | | | | | | | |
Transportation | Transportation | $ | 5,240,448 | | $ | 3,348,611 | | 56.5 | % | | $ | 9,800,675 | | $ | 6,890,729 | | 42.2 | % | Transportation | $ | 6,465,642 | | $ | 5,240,448 | | 23.4 | % | | $ | 12,993,993 | | $ | 9,800,675 | | 32.6 | % |
Sourcing | Sourcing | 292,278 | | 279,235 | | 4.7 | % | | 535,920 | | 542,125 | | (1.1) | % | Sourcing | 332,833 | | 292,278 | | 13.9 | % | | 620,435 | | 535,920 | | 15.8 | % |
Total revenues | Total revenues | 5,532,726 | | 3,627,846 | | 52.5 | % | | 10,336,595 | | 7,432,854 | | 39.1 | % | Total revenues | 6,798,475 | | 5,532,726 | | 22.9 | % | | 13,614,428 | | 10,336,595 | | 31.7 | % |
Costs and expenses: | Costs and expenses: | | | | | | | | | Costs and expenses: | | | | | | | | |
Purchased transportation and related services | Purchased transportation and related services | 4,519,305 | | 2,762,590 | | 63.6 | % | | 8,400,590 | | 5,762,703 | | 45.8 | % | 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 | Purchased products sourced for resale | 264,245 | | 250,803 | | 5.4 | % | | 484,449 | | 487,745 | | (0.7) | % | Purchased products sourced for resale | 299,988 | | 264,245 | | 13.5 | % | | 559,521 | | 484,449 | | 15.5 | % |
Personnel expenses | Personnel expenses | 362,901 | | 300,483 | | 20.8 | % | | 723,736 | | 630,703 | | 14.8 | % | Personnel expenses | 444,764 | | 362,901 | | 22.6 | % | | 858,125 | | 723,736 | | 18.6 | % |
Other selling, general, and administrative expenses | Other selling, general, and administrative expenses | 125,671 | | 125,183 | | 0.4 | % | | 243,887 | | 253,476 | | (3.8) | % | Other selling, general, and administrative expenses | 117,184 | | 125,671 | | (6.8) | % | | 264,545 | | 243,887 | | 8.5 | % |
Total costs and expenses | Total costs and expenses | 5,272,122 | | 3,439,059 | | 53.3 | % | | 9,852,662 | | 7,134,627 | | 38.1 | % | Total costs and expenses | 6,328,810 | | 5,272,122 | | 20.0 | % | | 12,799,289 | | 9,852,662 | | 29.9 | % |
Income from operations | Income from operations | 260,604 | | 188,787 | | 38.0 | % | | 483,933 | | 298,227 | | 62.3 | % | Income from operations | 469,665 | | 260,604 | | 80.2 | % | | 815,139 | | 483,933 | | 68.4 | % |
Interest and other expense | (13,497) | | (10,211) | | 32.2 | % | | (24,757) | | (25,439) | | (2.7) | % | |
Interest and other income/expense, net | | Interest and other income/expense, net | (27,395) | | (13,497) | | 103.0 | % | | (41,569) | | (24,757) | | 67.9 | % |
Income before provision for income taxes | Income before provision for income taxes | 247,107 | | 178,576 | | 38.4 | % | | 459,176 | | 272,788 | | 68.3 | % | Income before provision for income taxes | 442,270 | | 247,107 | | 79.0 | % | | 773,570 | | 459,176 | | 68.5 | % |
Provision for income taxes | Provision for income taxes | 53,318 | | 34,637 | | 53.9 | % | | 92,082 | | 50,703 | | 81.6 | % | Provision for income taxes | 94,085 | | 53,318 | | 76.5 | % | | 155,037 | | 92,082 | | 68.4 | % |
Net income | Net income | $ | 193,789 | | $ | 143,939 | | 34.6 | % | | $ | 367,094 | | $ | 222,085 | | 65.3 | % | Net income | $ | 348,185 | | $ | 193,789 | | 79.7 | % | | $ | 618,533 | | $ | 367,094 | | 68.5 | % |
| Diluted net income per share | Diluted net income per share | $ | 1.44 | | | $ | 1.06 | | | 35.8 | % | | $ | 2.71 | | $ | 1.64 | | | 65.2 | % | Diluted net income per share | $ | 2.67 | | | $ | 1.44 | | | 85.4 | % | | $ | 4.71 | | $ | 2.71 | | | 73.8 | % |
| Average headcount | Average headcount | 15,405 | | | 15,294 | | | 0.7 | % | | 15,233 | | | 15,338 | | | (0.7) | % | Average headcount | 17,893 | | | 15,405 | | | 16.2 | % | | 17,554 | | | 15,233 | | | 15.2 | % |
| Adjusted gross profit margin percentage(1) | Adjusted gross profit margin percentage(1) | | Adjusted gross profit margin percentage(1) | |
Transportation | Transportation | 13.8 | % | | 17.5 | % | | (3.7) pts | | 14.3 | % | | 16.4 | % | | (2.1) pts | Transportation | 15.4 | % | | 13.8 | % | | 160 bps | | 14.4 | % | | 14.3 | % | | 10 bps |
Sourcing | Sourcing | 9.6 | % | | 10.2 | % | | (0.6) pts | | 9.6 | % | | 10.0 | % | | (0.4) pts | Sourcing | 9.9 | % | | 9.6 | % | | 30 bps | | 9.8 | % | | 9.6 | % | | 20 bps |
Total adjusted gross profit margin | Total adjusted gross profit margin | 13.5 | % | | 16.9 | % | | (3.4) pts | | 14.0 | % | | 15.9 | % | | (1.9) pts | Total adjusted gross profit margin | 15.2 | % | | 13.5 | % | | 170 bps | | 14.2 | % | | 14.0 | % | | 20 bps |
________________________________
(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, 20212022 Compared to the Three Months Ended June 30, 20202021
Total revenues and direct costs. Total transportation revenues and purchased transportation and related services increased driven byprimarily due to higher pricing across most of our services, most notably in ocean, truckload, and ocean,LTL services, in addition to increased volumes in alltruckload and ocean services. While prices remain elevated compared to pre-pandemic levels and compared to the prior 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 higherdecline in pricing was driven bywithin the tighteningsecond quarter of 2022 is the result of softening market conditions as demand has better aligned with capacity and increased demand discussed aboveavailable in the market trends section.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 due toas a result of higher cost and pricing per case and increased case volume in the food service industry as across all customer verticals.
the prior period experienced a significant decrease in demand resulting from the COVID-19 pandemic.Table of ContentsGross profits and adjusted gross profits. Our transportation adjusted gross profitprofits increased due to improvedelevated pricing compared to the prior year across most of our services, most notably in truckload, ocean, and oceanLTL services, resulting in addition to volume increases in nearly all services.higher adjusted gross profits per transaction. Our surface transportation adjusted gross profit margin decreasedper transaction increased significantly driven by declines across most services other than truckload.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 profit decreased profits increased driven by loweran increase in case volume and higher adjusted gross profits per case partially offset by an increase in case volumes.across all customer verticals.
Operating expenses. Personnel expenses increased primarily due to an increase in salaries and incentive compensation increases reflecting the strong results in the current period,driven by an increase in average headcount, and the impact of steps taken to reduce costs in response to the
COVID-19 pandemic in the prior period, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees and increased health insurance costs. Stock-based compensation expense recognized on performance-based equity awards granted prior to 2021 totaled $7.7 million in the current period compared to none in the prior period.headcount. SG&A expenses increased slightlydecreased due to increased purchased services which was mostly offset by the impact of an $11.5a $23.5 million lossgain on the sale-leaseback onof a company owned data centerfacility in the prior period.Kansas City and lower credit losses. This was partially offset by higher purchased and contracted services and increased travel expenses.
Interest and other income/expense. Interest and other income/expense primarily consisted of interest expense of $12.7$17.0 million in the second quarter of 20212022 and a $1.9$10.3 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.losses primarily due to a strengthening of the U.S. Dollar versus the Euro and Yuan. Interest expense increased $0.4 million driven by a higher average debt balance in the second quarter of 20212022 compared to the second quarter of 2020.2021. The second quarter of 20202021 included a $1.8$1.9 million favorableunfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.
Provision for income taxes. Our effective income tax rate was 21.3 percent for the second quarter of 2022 compared to 21.6 percent for the second quarter of 2021 compared to 19.4 percent2021. The effective income tax rate for the second quarter of 2020.2022 was higher than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit, which increased the effective income tax rate by 2.0 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 in the second quarter by 2.0 percent. This impactpercentage points. These impacts on the tax rate was partially offset by foreign tax impacts. The effective income tax rate for the second quarter of 2020 was lower than the statutory federal income tax rate due towere partially offset by the tax impact of share-based payment awards, including theforeign tax benefit from the delivery of a one-time deferred stock award that was granted to the company's prior Chief Executive Officer in 2000,credits, which reduced the effective tax rate by 4.51.2 percentage points, and foreign tax impacts recorded in the second quarter of 2020.points.
Consolidated Results of Operations—Six Months Ended June 30, 20212022 Compared to the Six Months Ended June 30, 20202021
Total revenues and direct costs. Total transportation revenues and purchased transportation and related services increased driven by higher pricing in truckload and ocean services and volume increasesall of our service lines, most notably in our LTL, ocean and air freighttruckload services. Volumes also increased in ocean and truckload services. Purchased transportation and related services. The increased costs remain elevated compared to pre-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 truckload and oceanthe period we did see evidence that the market may be softening as demand has been driven by strong demand in addition to tight truckload carrierbetter aligned with available capacity and unprecedented disruptions inwithin the ocean freight industry.second quarter of 2022. Our sourcing total revenue and purchased products sourced for resale decreased due to lowerincreased as a result of higher cost and pricing and costs per case which was partially offset by higherand increased case volume in the foodservice industry as the prior year experienced a significant decrease in demand resulting from the COVID-19 pandemic.across all customer verticals.
Gross profits and adjusted gross profits.profits. Our transportation adjusted gross profits increased driven bydue to increased pricing compared to the prior year across most of our services, most notably in truckload, ocean and truckloadLTL services resulting in addition to volume increases in our LTL, ocean and air freight services. higher adjusted gross profits per transaction. Our surface transportation adjusted gross profit margin decreased driven by declines across most services.per transaction also benefited from 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 profit decreased profits increased driven by loweran increase in case volume and higher adjusted gross profits per case partially offset by an increase in case volumes.across all customer verticals.
Operating expenses. Personnel expenses increased primarily due to an increase in salaries and incentive compensation increases reflecting the strong results in the current year and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior year, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees in addition to increased health insurance costs. Stock-based compensation expense recognized on performance-based equity awards granted prior to 2021 totaled $19.7 million in the current year compared to none in the prior year. Partially offsetting these increases was a 0.7 percent decreasedriven by an increase in average headcount. SG&A expenses decreasedincreased primarily due to lower credit lossesincreases in purchased and contracted services, travel, expenses. The prior year also included an $11.5and warehouse expenses, partially offset by a $23.5 million lossgain on the sale-leaseback of a company owned data center.facility in Kansas City.
Interest and other income/expense. Interest and other income/expense primarily consisted of interest expense of $24.9$31.5 million and a $4.8an $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. These expenses wereThe 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. Interest expense was essentially flat compared to the six months ended June 30, 2020. The six months ended June 30, 2020 included a $1.1 million unfavorable impact
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 and 18.6 percent2021. The effective income tax rate for the six months ended June 30, 2020.2022 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, which reducedU.S. tax credits and incentives, and the rate by 1.5 percentage points, the combined tax impact of Global Intangible Low-tax Income ("GILTI") and Foreign Derived Intangible Income ("FDII"),foreign tax credits, which reduced the effective tax rate by 0.61.5 percentage points, 0.9 percentage points, and foreign tax impacts which reduced the effective tax rate by 0.5 percentage points.points, respectively. These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income tax rate. The effective income tax rate for the six months ended June 30, 2020 was lower the statutory federal income tax rate primarily due to the tax impact of share-based payment awards,
including the tax benefit from the delivery of a one-time deferred stock award that was granted to the company's prior Chief Executive Officer in 2000, which reduced the rate lower than the statutory rate by 4.22.1 percentage points, and foreign tax impacts in the six months ended June 30, 2020.points.
NAST Segment Results of Operations | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands) | (dollars in thousands) | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change | (dollars in thousands) | 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
Total revenues | Total revenues | $ | 3,585,481 | | | $ | 2,475,292 | | | 44.9 | % | | $ | 6,796,904 | | | $ | 5,299,037 | | | 28.3 | % | Total revenues | $ | 4,147,046 | | | $ | 3,585,481 | | | 15.7 | % | | $ | 8,261,935 | | | $ | 6,796,904 | | | 21.6 | % |
Costs and expenses: | Costs and expenses: | | Costs and expenses: | |
Purchased transportation and related services | Purchased transportation and related services | 3,148,885 | | | 2,095,736 | | | 50.3 | % | | 5,939,200 | | | 4,546,703 | | | 30.6 | % | Purchased transportation and related services | 3,522,495 | | | 3,148,885 | | | 11.9 | % | | 7,131,284 | | | 5,939,200 | | | 20.1 | % |
Personnel expenses | Personnel expenses | 185,253 | | | 153,209 | | | 20.9 | % | | 369,182 | | | 326,041 | | | 13.2 | % | Personnel expenses | 225,210 | | | 185,253 | | | 21.6 | % | | 426,012 | | | 369,182 | | | 15.4 | % |
Other selling, general, and administrative expenses | Other selling, general, and administrative expenses | 100,251 | | | 89,501 | | | 12.0 | % | | 200,646 | | | 190,921 | | | 5.1 | % | Other selling, general, and administrative expenses | 122,842 | | | 100,251 | | | 22.5 | % | | 245,786 | | | 200,646 | | | 22.5 | % |
Total costs and expenses | Total costs and expenses | 3,434,389 | | | 2,338,446 | | | 46.9 | % | | 6,509,028 | | | 5,063,665 | | | 28.5 | % | Total costs and expenses | 3,870,547 | | | 3,434,389 | | | 12.7 | % | | 7,803,082 | | | 6,509,028 | | | 19.9 | % |
Income from operations | Income from operations | $ | 151,092 | | | $ | 136,846 | | | 10.4 | % | | $ | 287,876 | | | $ | 235,372 | | | 22.3 | % | 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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change | | 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
Average headcount | Average headcount | 6,580 | | | 6,960 | | | (5.5) | % | | 6,578 | | | 6,981 | | | (5.8) | % | Average headcount | 7,552 | | | 6,580 | | | 14.8 | % | | 7,442 | | | 6,578 | | | 13.1 | % |
Service line volume statistics | Service line volume statistics | | Service line volume statistics | |
Truckload | Truckload | | 6.0 | % | | (0.5) | % | Truckload | | 2.0 | % | | 3.0 | % |
LTL | LTL | | 23.5 | % | | 19.0 | % | LTL | | (5.0) | % | | (3.0) | % |
| Adjusted gross profits(1) | Adjusted gross profits(1) | | Adjusted gross profits(1) | |
Truckload | Truckload | $ | 286,574 | | | $ | 252,165 | | | 13.6 | % | | $ | 566,878 | | | $ | 495,851 | | | 14.3 | % | Truckload | $ | 432,048 | | | $ | 286,574 | | | 50.8 | % | | $ | 766,958 | | | $ | 566,878 | | | 35.3 | % |
LTL | LTL | 128,155 | | | 105,428 | | | 21.6 | % | | 248,272 | | | 217,758 | | | 14.0 | % | LTL | 166,868 | | | 128,155 | | | 30.2 | % | | 317,610 | | | 248,272 | | | 27.9 | % |
Other | Other | 21,867 | | | 21,963 | | | (0.4) | % | | 42,554 | | | 38,725 | | | 9.9 | % | Other | 25,635 | | | 21,867 | | | 17.2 | % | | 46,083 | | | 42,554 | | | 8.3 | % |
Total adjusted gross profits | Total adjusted gross profits | $ | 436,596 | | | $ | 379,556 | | | 15.0 | % | | $ | 857,704 | | | $ | 752,334 | | | 14.0 | % | 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, 20212022 compared to the Three Months Ended June 30, 20202021
Total revenues and direct costs. NAST total revenues increased primarily driven by higher truckload pricing and an increase in LTL and truckload volumes. Truckload pricing reached historic levels in the second quarter of 2021 driven by tight carrier capacity and strong demand as discussed above in the market trends section. Total purchased transportation and related services increased driven byprimarily due to higher average truckload linehaul costs per mile and, to a lesser extent,pricing in truckload and LTL volumeservices, in addition to higher truckload volumes. These increases and higher purchased transportation costs per transactionwere partially offset by a decline in LTL services.volumes. While prices remain elevated compared to pre-pandemic levels and compared to the prior 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 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.
Gross profits and adjusted gross profits. NAST truckload adjusted gross profits increased driven primarilydue to increased pricing compared to the prior 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 increased volumes and improved pricing.a decline in LTL volumes. Our NAST truckload adjusted gross profit per loadtransaction increased 7 percent insignificantly driven by the declining costs of purchased transportation within the second quarter of 2021 compared2022 relative to the second quarter of 2020. The improved pricing in truckload was the result of an increase in spot market opportunities and continued progress repricing our contractual truckload business to reflectrates negotiated in prior quarters which significantly reduced the rising cost environment.percentage of shipments with negative adjusted gross profit margins. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 42.01.5 percent in the second quarter of 20212022 compared to the second quarter of 2020.2021. Our truckload transportation costs, excluding fuel surcharges, decreased approximately 5.0 percent.
NAST other adjusted gross profits increased primarily driven by an increase in warehousing services and an increase in intermodal adjusted gross profits.
Operating expenses. NAST personnel expenses increased primarily due to an increase in 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, 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.
Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021
Total revenues and direct costs. NAST total revenues and purchased transportation and related services increased due to higher pricing in truckload and in LTL services, in addition to volume increases in truckload services. Truckload pricing reached historic levels during the first quarter of 2022 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 prior 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 the softening market conditions resulting in moderating costs for purchased transportation relative to our contractual rates negotiated in prior quarters. This significant reduced the percentage of shipments with negative adjusted gross profit margins. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 10.5 percent. Our truckload transportation costs, excluding fuel surcharges, increased approximately 47.57.5 percent.
NAST LTL adjusted gross profits increased due to increased volumes, partially offset by a slight decrease in adjusted gross profits per transaction.
NAST other adjusted gross profits decreased slightly as a small decrease in intermodal adjusted gross profits was mostly offsetincreased driven by an increase in warehousing services.
Operating expenses. NAST personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current period and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior period, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees. These increases were partially offset by a decrease in average headcount. NAST SG&A
expenses increased driven by increased investments in technology. The operating expenses of NAST and all other segments include allocated corporate expenses.
Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020
Total revenues and direct costs. NAST total revenues increased due to increased pricing in truckload and, to a lesser extent, increased volumes in LTL services. These increases were partially offset by a slight decrease in truckload volumes. The increased pricing in truckload has been driven by tight carrier capacity and strong demand in the current year. The prior year was adversely impacted by weakening demand during the early stages of the COVID-19 pandemic which resulted in a declining cost environment as industry volumes decreased. Total purchased transportation and related services increased, driven by higher average truckload linehaul costs per mile in addition to higher volumes in LTL services.
Gross profits and adjusted gross profits. NAST truckload adjusted gross profits increased driven by improved pricing as discussed above. Our average truckload linehaul rate per mile charged to our customers increased approximately 37.5 percent. Our truckload transportation costs, excluding fuel costs, increased approximately 41.0 percent.
NAST LTL adjusted gross profits increased due to increased volumes partially offset by lower adjusted gross profit per transaction. The acquisition of Prime Distribution contributed 1.5 percentage points to LTL adjusted gross profit growth.
NAST other adjusted gross profits increased primarily due to incremental warehousing services related to the acquisition of Prime Distribution.
Operating expenses. NAST personnel expense increased primarily due to an increase in salaries and incentive compensation increases reflecting the strong results in the current year and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior year, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees. These increases were partially offsetdriven by a decreasean increase in average headcount. NAST SG&A expenses increased driven bydue to increased investments in technology, increased expenditures for purchased services including temporary labor, increased warehouse expense, and the ongoing expenses of Prime Distribution, partially offset by a reduction in credit loss.non-recurring legal expense.
Global Forwarding Segment Results of Operations | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands) | (dollars in thousands) | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change | (dollars in thousands) | 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
Total revenues | Total revenues | $ | 1,450,794 | | | $ | 707,820 | | | 105.0 | % | | $ | 2,606,833 | | | $ | 1,238,204 | | | 110.5 | % | Total revenues | $ | 2,093,190 | | | $ | 1,450,794 | | | 44.3 | % | | $ | 4,287,587 | | | $ | 2,606,833 | | | 64.5 | % |
Costs and expenses: | Costs and expenses: | | Costs and expenses: | |
Purchased transportation and related services | Purchased transportation and related services | 1,212,040 | | | 544,860 | | | 122.4 | % | | 2,153,779 | | | 946,930 | | | 127.4 | % | Purchased transportation and related services | 1,768,747 | | | 1,212,040 | | | 45.9 | % | | 3,641,296 | | | 2,153,779 | | | 69.1 | % |
Personnel expenses | Personnel expenses | 82,936 | | | 63,322 | | | 31.0 | % | | 163,945 | | | 134,215 | | | 22.2 | % | Personnel expenses | 106,096 | | | 82,936 | | | 27.9 | % | | 207,372 | | | 163,945 | | | 26.5 | % |
Other selling, general, and administrative expenses | Other selling, general, and administrative expenses | 47,606 | | | 40,863 | | | 16.5 | % | | 90,308 | | | 86,325 | | | 4.6 | % | Other selling, general, and administrative expenses | 50,790 | | | 47,606 | | | 6.7 | % | | 103,724 | | | 90,308 | | | 14.9 | % |
Total costs and expenses | Total costs and expenses | 1,342,582 | | | 649,045 | | | 106.9 | % | | 2,408,032 | | | 1,167,470 | | | 106.3 | % | Total costs and expenses | 1,925,633 | | | 1,342,582 | | | 43.4 | % | | 3,952,392 | | | 2,408,032 | | | 64.1 | % |
Income from operations | Income from operations | $ | 108,212 | | | $ | 58,775 | | | 84.1 | % | | $ | 198,801 | | | $ | 70,734 | | | 181.1 | % | 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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change | | 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
Average headcount | Average headcount | 4,909 | | 4,726 | | 3.9 | % | | 4,832 | | 4,763 | | 1.4 | % | Average headcount | 5,759 | | 4,909 | | 17.3 | % | | 5,690 | | 4,832 | | 17.8 | % |
Service line volume statistics | Service line volume statistics | | Service line volume statistics | |
Ocean | Ocean | | 29.0 | % | | 28.0 | % | Ocean | | 2.5 | % | | 4.5 | % |
Air(1) | Air(1) | | 42.5 | % | | 44.0 | % | Air(1) | | (6.0) | % | | 1.5 | % |
Customs | Customs | | 34.0 | % | | 23.0 | % | Customs | | 10.5 | % | | 8.0 | % |
| Adjusted gross profits(2)(1) | Adjusted gross profits(2)(1) | | Adjusted gross profits(2)(1) | |
Ocean | Ocean | $ | 150,916 | | | $ | 78,734 | | | 91.7 | % | | $ | 286,312 | | | $ | 148,544 | | | 92.7 | % | Ocean | $ | 228,093 | | | $ | 150,916 | | | 51.1 | % | | $ | 449,494 | | | $ | 286,312 | | | 57.0 | % |
Air | Air | 52,179 | | | 51,541 | | | 1.2 | % | | 97,426 | | | 78,418 | | | 24.2 | % | Air | 56,112 | | | 52,179 | | | 7.5 | % | | 116,679 | | | 97,426 | | | 19.8 | % |
Customs | Customs | 25,512 | | | 19,459 | | | 31.1 | % | | 49,735 | | | 40,652 | | | 22.3 | % | Customs | 27,820 | | | 25,512 | | | 9.0 | % | | 55,315 | | | 49,735 | | | 11.2 | % |
Other | Other | 10,147 | | | 13,226 | | | (23.3) | % | | 19,581 | | | 23,660 | | | (17.2) | % | Other | 12,418 | | | 10,147 | | | 22.4 | % | | 24,803 | | | 19,581 | | | 26.7 | % |
Total adjusted gross profits | Total adjusted gross profits | $ | 238,754 | | | $ | 162,960 | | | 46.5 | % | | $ | 453,054 | | | $ | 291,274 | | | 55.5 | % | Total adjusted gross profits | $ | 324,443 | | | $ | 238,754 | | | 35.9 | % | | $ | 646,291 | | | $ | 453,054 | | | 42.7 | % |
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(1) Beginning in the second quarter of 2021 reported air volumes represent metric tons shipped. Previously reported statistics were based on transactional volumes and have been restated to conform with the current period presentation.
(2)Adjusted gross profit margin is a non-GAAP financial measure explained above.
Three Months Ended June 30, 20212022 compared to the Three Months Ended June 30, 20202021
Total revenues and direct costs. Global Forwardingforwarding total revenues and direct costspurchased transportation and related services increased driven bydue to higher pricing and higher volumes in our ocean services and, to a lesser extent, higher volumes in both our ocean and air freight services. The increased oceancost of purchased transportation and pricing wascontinues to be elevated compared to pre-pandemic levels and compared to the prior year driven by the unprecedentedcontinued supply chain disruptions impacting the industry combined with strong demand as discussed aboveglobal forwarding market. The market did begin to show signs of softening which resulted in prices beginning to moderate within the market trends section. The second quarter of 2020 was also severely impacted2022, 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 reduced demandconversions back to ocean freight and productionthe impact of increased air freight capacity on purchased transportation costs in certain trade lanes due to the COVID-19 pandemic which led to significant volume declines all services in the prior year. Increased air freight volumes were driven by ocean freight conversions resulting from the significant disruptions experienced in the industry and the continued increase in charter flights and larger than normal shipment sizes as traditional air freight capacity remains strained by a reductionincreased frequency of commercial flights.flights which were significantly reduced at the onset of the COVID-19 pandemic.
Gross profits and adjusted gross profits. Ocean transportation adjusted gross profits increased driven by higher pricing and an increase in volumes. Airfreight transportation adjusted gross profits increased due to higher pricing resulting in increased adjusted gross profits per transaction, in addition to an increase in total 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 decrease in volume. Customs adjusted gross profits increased driven bydue to an increase in transaction volume.
Operating expenses. Personnel expenses increased primarily due to an increase in salaries and incentive compensation increases reflecting the strong results in the current period anddriven by an increase in average headcount. The prior period included the impact of steps taken to reduce costs in response to the COVID-19 pandemic, including furloughs and reduced work hours. SG&A expenses increased driven bydue to increased investments in technology and travel expenses, partially offset by a reduction of amortization expense due to the completion of amortization related to intangible assets from a prior acquisition.favorable credit losses.
Six Months Ended June 30, 20212022 compared to the Six Months Ended June 30, 20202021
Total revenues and direct costs. Total revenues and direct costspurchased transportation and related services increased driven by higher pricing and volumes in our ocean services and, to a lesser extent, higher pricing and volumes in our air freight services. The increased oceancost of purchased transportation and pricing wascontinues to be elevated compared to pre-pandemic levels and compared to the prior year driven by the unprecedentedcontinued supply chain disruptions impacting the industry combined with strong demand. The first half of 2020 was also severely impacted by reduced demand and production due to the COVID-19 pandemic which led to significant volume declines in all services in the prior year.global forwarding market.
Gross profits and adjusted gross profits. Ocean and air freight transportation adjusted gross profits increased driven by higher pricing andresulting in increased volumes. Air transportation adjusted gross profits increased dueper 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 salaries and incentive compensation increases reflecting the strong results in the current period anddriven by an increase in average headcount. The prior year included the impact of steps taken to reduce costs in response to the COVID-19 pandemic, including furloughs and reduced work hours. SG&A expenses increased driven bydue to increased investments in technology, increased purchased services including temporary labor, and travel expenses. These increases were partially offset by a reduction of amortization expense due to the completion of amortization related to intangible assets from a prior acquisition.favorable credit losses.
All Other and 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. | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(dollars in thousands) | (dollars in thousands) | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change | (dollars in thousands) | 2022 | | 2021 | | % change | | 2022 | | 2021 | | % change |
Total revenues | Total revenues | $ | 496,451 | | | $ | 444,734 | | | 11.6 | % | | $ | 932,858 | | | $ | 895,613 | | | 4.2 | % | Total revenues | $ | 558,239 | | | $ | 496,451 | | | 12.4 | % | | $ | 1,064,906 | | | $ | 932,858 | | | 14.2 | % |
Income from operations | 1,300 | | | (6,834) | | | N/M | | (2,744) | | | (7,879) | | | N/M | |
Income (loss) from operations | | Income (loss) from operations | 25,609 | | | 1,300 | | | N/M | | 21,091 | | | (2,744) | | | N/M |
| Adjusted gross profits(1) | Adjusted gross profits(1) | | Adjusted gross profits(1) | |
Robinson Fresh | Robinson Fresh | 29,940 | | | 30,202 | | | (0.9) | % | | 54,888 | | | 57,660 | | | (4.8) | % | Robinson Fresh | 34,981 | | | 29,940 | | | 16.8 | % | | 65,486 | | | 54,888 | | | 19.3 | % |
Managed Services | Managed Services | 26,234 | | | 23,503 | | | 11.6 | % | | 51,790 | | | 46,030 | | | 12.5 | % | Managed Services | 27,618 | | | 26,234 | | | 5.3 | % | | 55,700 | | | 51,790 | | | 7.5 | % |
Other Surface Transportation | Other Surface Transportation | 17,652 | | | 18,232 | | | (3.2) | % | | 34,120 | | | 35,108 | | | (2.8) | % | Other Surface Transportation | 20,020 | | | 17,652 | | | 13.4 | % | | 39,681 | | | 34,120 | | | 16.3 | % |
Total adjusted gross profits | Total adjusted gross profits | $ | 73,826 | | | $ | 71,937 | | | 2.6 | % | | $ | 140,798 | | | $ | 138,798 | | | 1.4 | % | Total adjusted gross profits | $ | 82,619 | | | $ | 73,826 | | | 11.9 | % | | $ | 160,867 | | | $ | 140,798 | | | 14.3 | % |
________________________________
(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.
Three Months Ended June 30, 20212022 compared to the Three Months Ended June 30, 20202021
Total revenues and direct costs. Robinson Fresh total revenues increased driven bydue to higher truckload pricing per case and volumesincreased case volume across all customer verticals. In addition, total revenues in Other Surface Transportation and increased case volume from customers in the food service industry in our Robinson Fresh business as the prior year period experienced a significant decrease in demand resulting from the COVID-19 pandemic.due to higher Europe truckload pricing.
Gross profits and adjusted gross profits.Robinson Fresh adjusted gross profits declined slightly as lower adjusted gross profits per case were mostly offsetincreased driven by an increase in case volume primarily from customers in the food service industry.and higher adjusted gross profits per case across all customer verticals. Managed Services adjusted gross profits increased driven by increased transaction volumes resulting fromdue to an increase in freight under management.management, which was driven by growth in business with both new and existing customers. Other Surface Transportation adjusted gross profits decreased as a result of a decrease inincreased due to increased Europe truckload adjusted gross profits per transaction, partially offset by an increase in truckload volumes.transaction.
Six Months Ended June 30, 20212022 compared to the Six Months Ended June 30, 20202021
Total revenues and direct costs. Robinson Fresh total revenues increased driven by higher truckload pricing per case and volumesincreased case volume across all customer verticals. In addition, total revenues in Other Surface Transportation partially offset by a declineincreased due to higher to higher Europe truckload pricing and an increase in Robinson Fresh driven by lower pricing.Europe truckload volumes.
Gross profits and adjusted gross profits.Robinson Fresh adjusted gross profits decreasedincreased driven by loweran increase in case volume and higher adjusted gross profits per case partially offset by an increase in case volumes.across all customer verticals. Managed Services adjusted gross profits increased driven by increased transaction volumes resulting fromdue to an increase in freight under management.management, which was driven by growth in business with both new and existing customers. Other Surface Transportation adjusted gross profits decreased as a result of a decrease inincreased due to increased Europe truckload adjusted gross profits per transaction partially offset byand 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 addition, we maintain the following debt facilities as described in Note 4, Financing Arrangements (dollars in(in thousands): | Description | Description | | Carrying Value as of June 30, 2021 | | Borrowing Capacity | | Maturity | Description | | Carrying Value as of June 30, 2022 | | Borrowing Capacity | | Maturity |
Revolving credit facility | Revolving credit facility | | $ | 271,000 | | | $ | 1,000,000 | | | October 2023 | Revolving credit facility | | $ | 174,000 | | | $ | 1,000,000 | | | October 2023 |
364-day revolving credit facility | | 364-day revolving credit facility | | 500,000 | | | 500,000 | | | May 2023 |
Senior Notes, Series A | Senior Notes, Series A | | 175,000 | | | 175,000 | | | August 2023 | Senior Notes, Series A | | 175,000 | | | 175,000 | | | August 2023 |
Senior Notes, Series B | Senior Notes, Series B | | 150,000 | | | 150,000 | | | August 2028 | Senior Notes, Series B | | 150,000 | | | 150,000 | | | August 2028 |
Senior Notes, Series C | Senior Notes, Series C | | 175,000 | | | 175,000 | | | August 2033 | Senior Notes, Series C | | 175,000 | | | 175,000 | | | August 2033 |
Combinex credit facility | | 2,280 | | | 3,565 | | | January 2027 | |
| Receivables securitization facility (1) | | Receivables securitization facility (1) | | 499,448 | | | 500,000 | | | November 2023 |
Senior Notes (1) | Senior Notes (1) | | 593,733 | | | 600,000 | | | April 2028 | Senior Notes (1) | | 594,607 | | | 600,000 | | | April 2028 |
Total debt | Total debt | | $ | 1,367,013 | | | $ | 2,103,565 | | | Total debt | | $ | 2,268,055 | | | $ | 3,100,000 | | |
(1) Net of unamortized discounts and issuance costs.
We expect to use 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 $172.8$238.9 million as of June 30, 20212022 and $243.8$257.4 million as of December 31, 2020.2021. Cash and cash equivalents held outside the United States totaled $160.1$204.4 million as of June 30, 20212022 and $230.9$217.1 million as of December 31, 2020.2021.
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, |
| 2021 | | 2020 | | % change |
Sources (uses) of cash: | | | | | |
Cash provided by operating activities | $ | 92,598 | | | $ | 505,643 | | | (81.7) | % |
| | | | | |
Capital expenditures | (29,837) | | | (25,039) | | | |
Acquisitions, net of cash acquired | (14,749) | | | (223,230) | | | |
Other investing activities | — | | | 5,525 | | | |
Cash used for investing activities | (44,586) | | | (242,744) | | | (81.6) | % |
| | | | | |
Repurchase of common stock | (262,904) | | | (68,563) | | | |
Cash dividends | (139,756) | | | (137,104) | | | |
Net borrowing (payments) on debt | 270,962 | | | (143,000) | | | |
Other financing activities | 13,591 | | | 5,329 | | | |
Cash used for financing activities | (118,107) | | | (343,338) | | | (65.6) | % |
Effect of exchange rates on cash and cash equivalents | (898) | | | (5,183) | | | |
Net change in cash and cash equivalents | $ | (70,993) | | | $ | (85,622) | | | |
| | | | | | | | | | | | | | | | | |
| 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. Cash flow fromprovided by operating activities decreased significantly duringimproved in the six months ended June 30, 20212022 compared to the six months ended June 30, 20202021 due to unfavorable changes in working capital. The unfavorable changes in working capital were primarily related to a sequential increase in accounts receivable and contract assetsincreased net income, partially offset by a related increasesmall unfavorable change in accounts payableworking capital. We continue to closely monitor credit and accrued transportation expense. Both increases were driven by a sequential increase in pricingcollections activities and volumes in nearly all services in the second quarter of 2021. Despite the increase in accounts receivables, we are not experiencing a deterioration in the quality of our accounts receivablesreceivable balance and the results of the six months ended June 30, 2021 include sequential and year-over-year improvements in the percent of accounts receivable that are past due. Additionally, given the COVID-19 pandemic, we are closely monitoring credit and collections activities to 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. Capital expenditures consisted primarily of investments in hardware and software, which are intended to increase employee productivity, automate interactions with our customers and contracted carriers, and improve our internal workflows to help expand our adjusted operating margins and grow the business. We used $14.7
During the second quarter, we sold an office building in Kansas City, Missouri, for a sales price of $55 million forand recognized a gain of $23.5 million on the acquisitionsale of Combinex during the sixbuilding in the three months ended June 30, 2021.2022. We used $222.7 millionsimultaneously entered into an agreement to lease the office building for the acquisition of Prime Distribution during the six months ended June 30, 2020.10 years.
Cash used for financing activities. Net borrowings on debt in the six months ended June 30, 2022 and June 30, 2021 were to fund share repurchases and working capital needs. Net repayments on debt in the six months ended June 30, 2020 were used to reduce the outstanding balance of the Receivables Securitization Facility.needs and share repurchases. The increase in cash used for share repurchases was due to an increase in the number of shares repurchased and a higher average price per share during the six months ended June 30, 2021 as we temporarily suspended our share repurchase activity in 2020 as we continued to assess the impacts of the COVID-19 pandemic.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.
Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, weWe believe 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 for at least the next 12 months.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, 2021,2022, we were in compliance with all of the covenants under the Credit Agreement, 364-day Credit Agreement, Note Purchase Agreement, Senior Notes, and Senior Notes.
Receivables Securitization.
Recently Issued Accounting Pronouncements
Refer to Note 1, Basis of Presentation, contained in this quarterly reportQuarterly Report and in the company's 20202021 Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to the company's 20202021 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates. As of June 30, 2021,2022, there were no material changes to our critical accounting policies and estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the company’s 20202021 Annual Report on Form 10-K for a discussion on the company’s market risk. As of June 30, 20212022, there were no material changes in market risk from those disclosed in the company’s 20202021 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that ourWe maintain disclosure controls and procedures (asas defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange(“Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)submit under the Exchange Act) will prevent all errorsAct is (i) recorded, processed, summarized and all fraud. A control system, no matter how well designedreported within the time periods specified in SEC rules and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints,forms; and the benefits of the controls must be considered relative(ii) accumulated and communicated to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness of controls and procedures to future periods are subject to the risk that the controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the controls and procedures may have deteriorated.
As of June 30, 2021, our management, with the participation ofincluding 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, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes as of June 30, 2022. Based upon that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Ourevaluation, our Chief Executive Officer and Chief Financial Officer have concluded based upon the evaluation described above that as of June 30, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.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 such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the three months ended June 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, our 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 disclosed in Part I, “Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, 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 June 30, 2021 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 2021 | 459,691 | | | $ | 97.88 | | | 445,017 | | | 5,958,517 | |
May 2021 | 427,243 | | | 98.21 | | | 424,966 | | | 5,533,551 | |
June 2021 | 496,001 | | | 96.21 | | | 488,396 | | | 5,045,155 | |
Second Quarter 2021 | 1,382,935 | | | $ | 97.38 | | | 1,358,379 | | | 5,045,155 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
(1) The total number of shares purchased based on trade date includes: (i) 1,358,3793,212,624 shares of common stock purchased under the authorization described below; and (ii) 24,55669,078 shares of common stock surrendered to satisfy minimum statutory tax obligations under our stock incentive plans.
(2) In May 2018,December 2021, the Board of Directors increased the number of shares authorized for repurchase by 15,000,00020,000,000 shares. As of June 30, 2021,2022, there were 5,045,15516,831,321 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
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.On 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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10.1 | |
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10.2 | |
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10.3* | |
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31.1 | |
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31.2 | |
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32.1 | |
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32.2 | |
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101 | Financial statements from the Quarterly Report on Form 10-Q of the company for the period ended June 30, 20212022 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, 20212022 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 July 30, 2021.29, 2022.
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C.H. ROBINSON WORLDWIDE, INC. |
| | |
By: | | /s/ Robert C. Biesterfeld, Jr. |
| | Robert C. Biesterfeld, Jr. |
| | Chief Executive Officer |
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| | |
By: | | /s/ Michael P. Zechmeister |
| | Michael P. Zechmeister |
| | Chief Financial Officer |