News Column

C.H. Robinson Reports Fourth Quarter Results

February 4, 2014

MINNEAPOLIS --(BUSINESS WIRE)-- C.H. Robinson Worldwide, Inc. (“C.H. Robinson”) (NASDAQ: CHRW), today reported financial results for the quarter ended December 31, 2013 . Summarized financial results for the quarter ended December 31 are as follows (dollars in thousands, except per share data): Three months ended December 31 , Twelve months ended December 31 , 2013 2012 % change 2013 2012 % change Total revenues $ 3,152,882 $ 2,970,876 6.1 % $ 12,752,076 $ 11,359,113 12.3 % Net revenues: Transportation Truckload $ 256,117 $ 271,248 -5.6 % $ 1,054,565 $ 1,060,120 -0.5 % LTL 58,839 57,025 3.2 % 239,477 224,160 6.8 % Intermodal 9,861 9,011 9.4 % 39,084 38,815 0.7 % Ocean 46,367 33,707 37.6 % 187,671 84,924 121.0 % Air 17,982 15,948 12.8 % 73,089 44,444 64.5 % Customs 9,271 6,782 36.7 % 36,578 18,225 100.7 % Other logistics services 17,583 15,420 14.0 % 67,931 57,449 18.2 % Total transportation 416,020 409,141 1.7 % 1,698,395 1,528,137 11.1 % Sourcing 25,799 30,543 -15.5 % 126,950 136,438 -7.0 % Payment services 2,646 4,948 -46.5 % 10,750 52,996 -79.7 % Total net revenues 444,465 444,632 0.0 % 1,836,095 1,717,571 6.9 % Operating expenses 289,352 311,028 -7.0 % 1,153,445 1,042,251 10.7 % Income from operations 155,113 133,604 16.1 % 682,650 675,320 1.1 % Investment and other (expense) income (6,005 ) 282,166 -102.1 % (9,289 ) 283,142 -103.3 % Net income $ 92,952 $ 256,392 -63.7 % $ 415,904 $ 593,804 -30.0 % Diluted earnings per share $ 0.62 $ 1.58 -60.8 % $ 2.65 $ 3.67 -27.8 % Pro Forma Comparison - The following shows the effects of the disposition of the Company’s T-Chek Payment Services business (“T-Chek”), which was completed in October 2012 , and the acquisition of Phoenix International Freight Services, Ltd. (“Phoenix”), which was completed in November 2012 , as if these transactions had occurred at the beginning of 2012. A reconciliation of these pro forma measures is described on page 3. Three months ended December 31 , Twelve months ended December 31 , 2013 2012 Pro % 2013 2012 Pro % Reported Forma change Reported Forma change Total net revenues $ 444,465 $ 453,782 -2.1 % $ 1,836,095 $ 1,812,631 1.3 % Personnel expenses 203,619 198,307 2.7 % 826,661 788,959 4.8 % Selling, general, and administrative expenses 80,718 75,006 7.6 % 306,656 279,744 9.6 % Amortization of acquisition intangibles 5,015 5,022 -0.1 % 20,128 19,859 1.4 % Total operating expenses 289,352 278,335 4.0 % 1,153,445 1,088,562 6.0 % Income from operations 155,113 175,447 -11.6 % 682,650 724,069 -5.7 % Net income $ 92,952 $ 106,567 -12.8 % $ 415,904 $ 466,179 -10.8 % Diluted earnings per share $ 0.62 $ 0.66 -6.1 % $ 2.65 $ 2.74 -3.3 % Discussion of Fourth Quarter 2013 Results Our truckload net revenues decreased 5.6 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. Our truckload volumes increased approximately seven percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. Our North American truckload volumes increased approximately six percent. Our truckload net revenue margin decreased in the fourth quarter of 2013 compared to the fourth quarter of 2012, due primarily to increased cost per mile. In North America , excluding the estimated impacts of the change in fuel, our average truckload rate per mile charged to our customers increased approximately 3.5 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. In North America , our truckload transportation costs increased approximately five percent, excluding the estimated impacts of the change in fuel. Our less-than-truckload (“LTL”) net revenues increased 3.2 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. The increase was driven by an increase in total shipments of approximately four percent, partially offset by decreased net revenue margin. Our intermodal net revenues increased 9.4 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. This was due to increased net revenue margin, partially offset by decreased volumes. Our net revenue margin increase was due to a change in our mix of business and improved customer pricing. Our ocean transportation net revenues increased 37.6 percent, our air transportation net revenues increased 12.8 percent, and our customs net revenues increased 36.7 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. These increases were primarily due to our acquisition of Phoenix in November 2012 . Sourcing net revenues decreased 15.5 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. We continued to experience volume and net revenue declines from a large customer and expect this to continue throughout 2014. Sourcing net revenue margins declined due to weather and changes in our commodity and service mix. Case volumes decreased approximately two percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. Our Payment Services net revenues decreased 46.5 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012 due to the T-Chek divestiture in the fourth quarter of 2012. For the fourth quarter, operating expenses decreased 7.0 percent to $289.4 million in 2013 from $311.0 million in 2012. This was due to a decrease of 9.9 percent in personnel expense and an increase of 0.9 percent in other selling, general, and administrative expenses. Operating expenses as a percentage of net revenues decreased to 65.1 percent in the fourth quarter of 2013 from 70.0 percent in 2012. During the fourth quarter of 2012, operating expenses were a higher percentage of net revenues primarily due to $33.0 million of incremental performance-based stock vesting expense as a result of the sale of T-Chek. For the fourth quarter, personnel expenses decreased 9.9 percent to $203.6 million in 2013 from $226.0 million in 2012. This decrease was primarily due to the performance-based stock vesting expense as a result of sale of T-Chek in 2012. On a pro forma basis, personnel expense increased 2.7 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. This increase was due to growth in our average headcount of approximately 32 percent, related primarily to the acquisitions of the Phoenix in the fourth quarter of 2012. We estimate that our average headcount, excluding acquisitions and divestitures, increased approximately eight percent in the fourth quarter of 2013 compared to 2012. The increase in personnel expense from headcount growth was partially offset by declines in expenses related to incentive plans that are designed to keep expenses variable with changes in net revenues and profitability. For the fourth quarter, other selling, general, and administrative expenses increased 0.9 percent to $85.7 million in 2013 from $85.0 million in 2012. In the fourth quarter of 2012, we had approximately $9.1 million of non-recurring acquisition and divestiture expenses. On a pro forma basis, selling, general, and administrative expense increased 7.1 percent in the fourth quarter of 2013 compared to the fourth quarter of 2012. This increase was primarily due to Phoenix operations and a higher provision for bad debt. Founded in 1905, C.H. Robinson Worldwide, Inc. , is one of the largest non-asset based third party logistics companies in the world. C.H. Robinson is a global provider of multimodal transportation services and logistics solutions, currently serving over 46,000 active customers through a network of 285 offices in North America , South America , Europe , Asia , and Australia . C.H. Robinson maintains one of the largest networks of motor carrier capacity in North America and works with approximately 63,000 transportation providers worldwide. Except for the historical information contained herein, the matters set forth in this release are forward-looking statements that represent our expectations, beliefs, intentions or strategies concerning future events. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience or our present expectations, including, but not limited to such factors as changes in economic conditions, including uncertain consumer demand; changes in market demand and pressures on the pricing for our services; competition and growth rates within the third party logistics industry; freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight, and changes in relationships with existing truck, rail, ocean and air carriers; changes in our customer base due to possible consolidation among our customers; our ability to integrate the operations of acquired companies with our historic operations successfully; risks associated with litigation and insurance coverage; risks associated with operations outside of the U.S.; risks associated with the potential impacts of changes in government regulations; risks associated with the produce industry, including food safety and contamination issues; fuel prices and availability; the impact of war on the economy; and other risks and uncertainties detailed in our Annual and Quarterly Reports. 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. All remarks made during our financial results conference call will be current at the time of the call and we undertake no obligation to update the replay. Non-GAAP vs. GAAP Financial and Pro Forma Financial Measures To assist investors in understanding our financial performance, we supplement the financial results that are generated in accordance with the accounting principles generally accepted in the United States , or GAAP, with non-GAAP financial measures from time to time. We use non-GAAP measures, including those set forth in this release, to assess our operating performance for the quarter. Management believes that these non-GAAP financial measures reflect an additional way of analyzing aspects of our ongoing operations that, when viewed with our GAAP results, provides a more complete understanding of the factors and trends affecting our business. However, non-GAAP results should not be regarded as a substitute for corresponding GAAP measures, and should be viewed in conjunction with our consolidated financial statements prepared in accordance with GAAP. To provide investors with information to assist them in assessing our financial results on a comparable basis with historical results, we have provided certain non-GAAP financial measures in this press release that include the effects of the disposition of T-Chek and the acquisition of Phoenix as if they had occurred at the beginning of our 2012 fiscal year. A reconciliation of our reported results to pro forma financial measures for the quarter ended December 31, 2012 is as follows (dollars in thousands): Non- Recurring Acquisition T-Chek Phoenix Reported Impact (1) Operations (2) Operations (2) Pro Forma Total revenues $ 2,970,876 $ - $ (2,290 ) $ 70,009 $ 3,038,595 Purchased transportation and related services 2,176,789 - - 58,569 2,235,358 Purchased products sourced for resale 348,936 - - - 348,936 Purchased payment services 519 - - - 519 Total purchased services and products 2,526,244 - - 58,569 2,584,813 Net revenues (3) 444,632 - (2,290 ) 11,440 453,782 Personnel expenses 226,042 (34,592 ) (609 ) 7,466 198,307 Selling, general and administrative expenses 81,319 (9,115 ) (479 ) 3,281 75,006 Amortization of acquisition intangibles 3,667 - - 1,355 5,022 Total other operating expenses 311,028 (43,707 ) (1,088 ) 12,102 278,335 Income from operations 133,604 43,707 (1,202 ) (662 ) 175,447 Investment and other income 282,166 (281,551 ) 1 (1,369 ) (753 ) Income before provision for income taxes 415,770 (237,844 ) (1,201 ) (2,031 ) 174,694 Provision for income taxes 159,378 (90,023 ) (480 ) (748 ) 68,127 Net income $ 256,392 $ (147,821 ) $ (721 ) $ (1,283 ) $ 106,567 Net income per share (diluted) $ 1.58 $ 0.66 Weighted average shares outstanding 161,799 (1,190 ) - 1,108 161,717 1. The adjustment to personnel consists of $33 million of incremental vesting expense of our equity awards triggered by the gain on the divestiture of T-Chek. The balance consists of transaction-related bonuses. The adjustments to other operating expenses reflect fees paid to third parties for investment banking fees related to the acquisition of Phoenix and external legal and accounting fees related to the acquisitions of Apreo Logistics S.A. (“Apreo”) and Phoenix International Freight Services, Ltd. (“Phoenix”) and the divestiture of T-Chek. The adjustment to investment and other income reflects the gain from the divestiture of T-Chek. The adjustment to diluted weighted average shares outstanding relates to the shares of C.H. Robinson stock issued as consideration paid to the sellers in the acquisition of Phoenix and the additional vesting of performance-based restricted stock as a result of the gain on sale recognized from the divestiture of T-Chek. 2. Adjustments have been made to historical Phoenix operations for the addition of amortization expense of finite-lived intangible assets recorded in connection with the acquisition ( $1.4 million ), rent expense for lease agreements entered into in connection with the acquisition ( $28 thousand ), depreciation on a building acquired in the acquisition ( $12 thousand ), and incremental interest expense on the borrowings associated with the acquisition ( $213 thousand ). Adjustments have been made for the elimination of additional bonuses ( $1.4 million ) and third party advisory fees ( $582 thousand ) paid by Phoenix . An adjustment has also been made to reduce purchased transportation and related services ( $2.5 million ) and other selling, general, and administrative expenses ( $5.0 million ) and to increase personnel expenses ( $7.5 million ) to conform to C.H. Robinson’s historical financial reporting presentation. The adjustment to diluted weighted average shares outstanding relates to the shares of C.H. Robinson stock issued as consideration paid to the sellers in the acquisition of Phoenix . There were no pro forma adjustments to the T-Chek historical results. 3. Net revenues are our total revenues less purchased transportation and related services, including contracted motor carrier, rail, ocean, air, and other costs, and the purchased price and services related to the products we source. A reconciliation of our reported results to pro forma financial measures for the twelve months ended December 31, 2012 is as follows (dollars in thousands): Non- Recurring Acquisition T-Chek Phoenix Reported Impact (1) Operations (2) Operations (2) Pro Forma Total revenues $ 11,359,113 $ - $ (41,623 ) $ 692,836 $ 12,010,326 Purchased transportation and related services 8,157,278 - - 556,153 8,713,431 Purchased products sourced for resale 1,483,745 - - - 1,483,745 Purchased payment services 519 - - - 519 Total purchased services and products 9,641,542 - - 556,153 10,197,695 Net revenues (3) 1,717,571 - (41,623 ) 136,683 1,812,631 Personnel expenses 766,006 (34,592 ) (11,819 ) 69,364 788,959 Selling, general and administrative expenses 269,941 (10,604 ) (9,226 ) 29,633 279,744 Amortization of acquisition intangibles 6,304 - - 13,555 19,859 Total other operating expenses 1,042,251 (45,196 ) (21,045 ) 112,552 1,088,562 Income from operations 675,320 45,196 (20,578 ) 24,131 724,069 Investment and other income 283,142 (281,551 ) (67 ) (5,348 ) (3,824 ) Income before provision for income taxes 958,462 (236,355 ) (20,645 ) 18,783 720,245 Provision for income taxes 364,658 (89,558 ) (7,841 ) 6,807 274,066 Net income $ 593,804 $ (146,797 ) $ (12,804 ) $ 11,976 $ 446,179 Net income per share (diluted) $ 3.67 $ 2.74 Weighted average shares outstanding 161,946 (277 ) - 1,108 162,777 1. The adjustment to personnel consists of $33 million of incremental vesting expense of our equity awards triggered by the gain on the divestiture of T-Chek. The balance consists of transaction-related bonuses. The adjustments to other operating expenses reflect fees paid to third parties for investment banking fees related to the acquisition of Phoenix and external legal and accounting fees related to the acquisitions of Apreo and Phoenix and the divestiture of T-Chek. The adjustment to investment and other income reflects the gain from the divestiture of T-Chek. The adjustment to diluted weighted average shares outstanding relates to the shares of C.H. Robinson stock issued as consideration paid to the sellers in the acquisition of Phoenix and the additional vesting of performance-based restricted stock as a result of the gain on sale recognized from the divestiture of T-Chek. 2. Adjustments have been made to historical Phoenix operations for addition of amortization expense of finite-lived intangible assets recorded in connection with the acquisition ( $13.6 million ), rent expense for lease agreements entered into in connection with the acquisition ( $280 thousand ), depreciation on a building acquired in the acquisition ( $123 thousand ), and incremental interest expense on the borrowings associated with the acquisition ( $2.1 million ). Adjustments have been made for the elimination of contractual changes in compensation ( $5.1 million ), and additional bonuses ( $1.4 million ) and third party advisory fees ( $582 thousand ) paid by Phoenix . An adjustment has also been made to reduce purchased transportation and related services ( $24.4 million ) and other selling, general, and administrative expenses ( $50.1 million ) and to increase personnel expenses ( $74.5 million ) to conform to C.H. Robinson’s historical financial reporting presentation. The adjustment to diluted weighted average shares outstanding relates to the shares of C.H. Robinson stock issued as consideration paid to the sellers in the acquisition of Phoenix . There were no pro forma adjustments to the T-Chek historical results. 3. Net revenues are our total revenues less purchased transportation and related services, including contracted motor carrier, rail, ocean, air, and other costs, and the purchased price and services related to the products we source. Conference Call Information: C.H. Robinson Worldwide Fourth Quarter 2013 Earnings Conference Call Wednesday February 5, 2014 8:30 a.m. Eastern Time The call will be limited to 60 minutes, including questions and answers . We invite call participants to submit questions in advance of the conference call and we will respond to as many of the questions as we can in the time allowed. If time permits, we will accept live questions. To submit your question(s) in advance of the call, please email tim.gagnon@chrobinson.com . Presentation slides and a simultaneous live audio webcast of the conference call may be accessed through the Investor Relations link on C.H. Robinson’s website at www.chrobinson.com To participate in the conference call by telephone, please call ten minutes early by dialing: 877-941-0844 Callers should reference the conference ID, which is 4660962# Webcast replay available through Investor Relations link at www.chrobinson.com Telephone audio replay available until 12:59 a.m. Eastern Time on February 7 : 800-406-7325; passcode: 4660962# CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands, except per share data) Three months ended Twelve months ended December 31 , December 31 , 2013 2012 2013 2012 Revenues: Transportation $ 2,767,550 $ 2,585,930 $ 11,069,710 $ 9,685,415 Sourcing 382,098 379,479 1,669,134 1,620,183 Payment Services 3,234 5,467 13,232 53,515 Total revenues 3,152,882 2,970,876 12,752,076 11,359,113 Costs and expenses: Purchased transportation and related services 2,351,530 2,176,789 9,371,315 8,157,278 Purchased products sourced for resale 356,299 348,936 1,542,184 1,483,745 Purchased payment services 588 519 2,482 519 Personnel expenses 203,619 226,042 826,661 766,006 Other selling, general, and administrative expenses 85,733 84,986 326,784 276,245 Total costs and expenses 2,997,769 2,837,272 12,069,426 10,683,793 Income from operations 155,113 133,604 682,650 675,320 Investment, interest, and other (expense) income (6,005 ) 282,166 (9,289 ) 283,142 Income before provision for income taxes 149,108 415,770 673,361 958,462 Provision for income taxes 56,156 159,378 257,457 364,658 Net income $ 92,952 $ 256,392 $ 415,904 $ 593,804 Net income per share (basic) $ 0.62 $ 1.59 $ 2.65 $ 3.68 Net income per share (diluted) $ 0.62 $ 1.58 $ 2.65 $ 3.67 Weighted average shares outstanding (basic) 150,856 160,880 156,915 161,557 Weighted average shares outstanding (diluted) 151,130 161,799 157,080 161,946 CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited, in thousands) December 31 , December 31 , 2013 2012 Assets Current assets: Cash and cash equivalents $ 162,047 $ 210,019 Receivables, net 1,449,581 1,412,136 Other current assets 52,857 50,135 Total current assets 1,664,485 1,672,290 Property and equipment, net 160,703 149,851 Intangible and other assets 977,630 982,084 Total assets $ 2,802,818 $ 2,804,225 Liabilities and stockholders’ investment Current liabilities: Accounts payable and outstanding checks $ 755,007 $ 707,476 Accrued compensation 85,247 103,343 Accrued income taxes 11,681 121,581 Other accrued expenses 43,046 46,171 Current portion of debt 375,000 253,646 Total current liabilities 1,269,981 1,232,217 Noncurrent income taxes payable 21,584 20,590 Deferred tax liabilities 70,618 45,113 Long-term debt 500,000 - Other long term liabilities 911 1,933 Total liabilities 1,863,094 1,299,853 Total stockholders’ investment 939,724 1,504,372 Total liabilities and stockholders’ investment $ 2,802,818 $ 2,804,225 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited, in thousands, except operational data) Twelve months ended December 31 , 2013 2012 Operating activities: Net income $ 415,904 $ 593,804 Stock-based compensation 9,094 59,381 Depreciation and amortization 56,882 38,090 Provision for doubtful accounts 15,587 10,459 Gain on divestiture - (281,551 ) Deferred income taxes 25,226 (14,442 ) Other 319 3,721 Changes in operating elements Receivables (87,316 ) (88,107 ) Prepaid expenses and other (5,254 ) 5,260 Accounts payable and outstanding checks 47,488 61,732 Accrued compensation (15,097 ) (19,064 ) Accrued income taxes (105,857 ) 104,542 Other accrued liabilities (9,199 ) (13,483 ) Net cash provided by operating activities 347,777 460,342 Investing activities: Purchases of property and equipment (40,354 ) (36,096 ) Purchases and development of software (7,852 ) (14,560 ) Sale of T-Chek, net of cash sold - 274,802 Cash paid for acquisitions, net of cash acquired 19,126 (583,631 ) Other 221 419 Net cash used for investing activities (28,859 ) (359,066 ) Financing activities: Borrowings on line of credit 4,165,023 324,051 Repayments on line of credit (4,043,669 ) (75,688 ) Borrowings of long-term debt 500,000 - Payment of contingent purchase price (927 ) (12,661 ) Net repurchases of common stock (792,283 ) (236,981 ) Excess tax benefit on stock-based compensation 27,209 12,294 Cash dividends (220,257 ) (275,353 ) Net cash used for financing activities (364,904 ) (264,338 ) Effect of exchange rates on cash (1,986 ) (588 ) Net change in cash and cash equivalents (47,972 ) (163,650 ) Cash and cash equivalents, beginning of period 210,019 373,669 Cash and cash equivalents, end of period $ 162,047 $ 210,019 As of December 31 , 2013 2012 Operational Data: Employees 11,676 10,929 Branches 285 276 C.H. Robinson Worldwide, Inc. Chad Lindbloom , chief financial officer, 952-937-7779 or Tim Gagnon , director, investor relations, 952-683-5007 Source: C.H. Robinson Worldwide, Inc.


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