C. H. ROBINSON WORLDWIDE, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS C.H. ROBINSON WORLDWIDE, INC. Condensed Consolidated Balance Sheets (unaudited, in thousands, except per share data) September 30, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 202,649 $ 243,796 Receivables, net of allowance for credit loss of $ 37,114 and $ 38,113 3,721,571 2,449,577 Contract assets, net of allowance for credit loss 416,971 197,176 Prepaid expenses and other 89,472 51,152 Total current assets 4,430,663 2,941,701 Property and equipment, net of accumulated depreciation and amortization 177,418 178,949 Goodwill 1,486,199 1,487,187 Other intangible assets, net of accumulated amortization 96,025 113,910 Right-of-use lease assets 297,249 319,785 Deferred tax assets 26,244 18,640 Other assets 88,808 84,086 Total assets $ 6,602,606 $ 5,144,258 LIABILITIES AND STOCKHOLDERS’ INVESTMENT Current liabilities: Accounts payable $ 1,797,441 $ 1,195,099 Outstanding checks 66,748 88,265 Accrued expenses: Compensation 173,353 138,460 Transportation expense 319,154 153,574 Income taxes 39,276 43,700 Other accrued liabilities 157,251 154,460 Current lease liabilities 66,470 66,174 Current portion of debt 632,000 — Total current liabilities 3,251,693 1,839,732 Long-term debt 1,093,950 1,093,301 Noncurrent lease liabilities 245,902 268,572 Noncurrent income taxes payable 25,449 26,015 Deferred tax liabilities 20,259 22,182 Other long-term liabilities 14,553 14,523 Total liabilities 4,651,806 3,264,325 Stockholders’ investment: 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; 179,206 and 179,232 shares issued, 130,376 and 134,298 outstanding 13,038 13,430 Additional paid-in capital 637,182 566,022 Retained earnings 4,779,964 4,372,833 Accumulated other comprehensive loss ( 65,480 ) ( 45,998 ) Treasury stock at cost ( 48,830 and 44,934 shares) ( 3,413,904 ) ( 3,026,354 ) Total stockholders’ investment 1,950,800 1,879,933 Total liabilities and stockholders’ investment $ 6,602,606 $ 5,144,258 See accompanying notes to the condensed consolidated financial statements. 3 Table of Contents C.H. ROBINSON WORLDWIDE, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited, in thousands except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenues: Transportation $ 5,999,901 $ 3,944,981 $ 15,800,576 $ 10,835,710 Sourcing 263,794 279,819 799,714 821,944 Total revenues 6,263,695 4,224,800 16,600,290 11,657,654 Costs and expenses: Purchased transportation and related services 5,180,390 3,378,651 13,580,980 9,141,354 Purchased products sourced for resale 239,113 256,876 723,562 744,621 Personnel expenses 399,880 302,904 1,123,616 933,607 Other selling, general, and administrative expenses 133,543 118,130 377,430 371,606 Total costs and expenses 5,952,926 4,056,561 15,805,588 11,191,188 Income from operations 310,769 168,239 794,702 466,466 Interest and other expense ( 16,662 ) ( 7,465 ) ( 41,419 ) ( 32,904 ) Income before provision for income taxes 294,107 160,774 753,283 433,562 Provision for income taxes 47,054 24,245 139,136 74,948 Net income 247,053 136,529 614,147 358,614 Other comprehensive (loss) income, net of tax ( 12,034 ) 13,236 ( 19,482 ) 5,294 Comprehensive income $ 235,019 $ 149,765 $ 594,665 $ 363,908 Basic net income per share $ 1.87 $ 1.01 $ 4.61 $ 2.65 Diluted net income per share $ 1.85 $ 1.00 $ 4.56 $ 2.63 Basic weighted average shares outstanding 131,845 135,671 133,201 135,385 Dilutive effect of outstanding stock awards 1,591 1,457 1,460 752 Diluted weighted average shares outstanding 133,436 137,128 134,661 136,137 See accompanying notes to the condensed consolidated financial statements. 4 Table of Contents 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 Balance December 31, 2020 134,298 $ 13,430 $ 566,022 $ 4,372,833 $ ( 45,998 ) $ ( 3,026,354 ) $ 1,879,933 Net income 173,305 173,305 Foreign currency adjustments ( 7,286 ) ( 7,286 ) Dividends declared, $ 0.51 per share ( 69,606 ) ( 69,606 ) Stock issued for employee benefit plans 357 36 ( 21,805 ) 18,766 ( 3,003 ) Issuance of restricted stock, net of forfeitures ( 26 ) ( 3 ) 3 — Stock-based compensation expense — — 23,989 — 23,989 Repurchase of common stock ( 1,386 ) ( 139 ) ( 129,006 ) ( 129,145 ) Balance March 31, 2021 133,243 13,324 568,209 4,476,532 ( 53,284 ) ( 3,136,594 ) 1,868,187 Net income 193,789 193,789 Foreign currency adjustments ( 162 ) ( 162 ) Dividends declared, $ 0.51 per share ( 69,094 ) ( 69,094 ) Stock issued for employee benefit plans 250 25 418 16,151 16,594 Stock-based compensation expense — — 29,161 — 29,161 Repurchase of common stock ( 1,358 ) ( 136 ) ( 132,169 ) ( 132,305 ) Balance June 30, 2021 132,135 $ 13,213 $ 597,788 $ 4,601,227 $ ( 53,446 ) $ ( 3,252,612 ) $ 1,906,170 Net income 247,053 247,053 Foreign currency adjustments ( 12,034 ) ( 12,034 ) Dividends declared, $ 0.51 per share ( 68,316 ) ( 68,316 ) Stock issued for employee benefit plans 91 9 ( 1,418 ) 5,755 4,346 Stock-based compensation expense — — 40,812 — 40,812 Repurchase of common stock ( 1,850 ) ( 184 ) ( 167,047 ) ( 167,231 ) Balance September 30, 2021 130,376 $ 13,038 $ 637,182 $ 4,779,964 $ ( 65,480 ) $ ( 3,413,904 ) $ 1,950,800 5 Table of Contents C.H. ROBINSON WORLDWIDE, INC. Condensed Consolidated Statements of Stockholders’ Investment, continued (unaudited, in thousands, except per share data) Common Shares Outstanding Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (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 Net income 78,146 78,146 Foreign currency adjustments ( 32,195 ) ( 32,195 ) Dividends declared, $ 0.51 per share ( 69,871 ) ( 69,871 ) Stock issued for employee benefit plans 343 34 ( 24,192 ) 21,632 ( 2,526 ) Issuance of restricted stock, net of forfeitures 321 32 ( 32 ) — Stock-based compensation expense — — 11,397 — 11,397 Repurchase of common stock ( 973 ) ( 97 ) ( 68,466 ) ( 68,563 ) Balance March 31, 2020 134,586 13,459 533,819 4,153,109 ( 108,344 ) ( 3,004,925 ) 1,587,118 Net income 143,939 143,939 Foreign currency adjustments 24,253 24,253 Dividends declared, $ 0.51 per share ( 69,791 ) ( 69,791 ) Stock issued for employee benefit plans 138 13 ( 1,165 ) 9,007 7,855 Stock-based compensation expense — — 10,954 — 10,954 Balance June 30, 2020 134,724 $ 13,472 $ 543,608 $ 4,227,257 $ ( 84,091 ) $ ( 2,995,918 ) $ 1,704,328 Net income 136,529 136,529 Foreign currency adjustments 13,236 13,236 Dividends declared, $ 0.51 per share ( 70,188 ) ( 70,188 ) Stock issued for employee benefit plans 1,176 118 1,032 77,528 78,678 Stock-based compensation expense — — 10,776 — 10,776 Balance September 30, 2020 135,900 $ 13,590 $ 555,416 $ 4,293,598 $ ( 70,855 ) $ ( 2,918,390 ) $ 1,873,359 See accompanying notes to the condensed consolidated financial statements. 6 Table of Contents C.H. ROBINSON WORLDWIDE, INC. Condensed Consolidated Statements of Cash Flows (unaudited, in thousands) Nine Months Ended September 30, 2021 2020 OPERATING ACTIVITIES Net income $ 614,147 $ 358,614 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 68,621 77,067 Provision for credit losses 3,979 12,701 Stock-based compensation 93,962 33,127 Deferred income taxes ( 11,683 ) ( 9,468 ) Excess tax benefit on stock-based compensation ( 10,830 ) ( 17,127 ) Other operating activities 1,384 13,104 Changes in operating elements, net of acquisitions: Receivables ( 1,290,485 ) ( 367,538 ) Contract assets ( 220,889 ) ( 56,131 ) Prepaid expenses and other ( 38,525 ) 12,331 Accounts payable and outstanding checks 595,036 186,755 Accrued compensation 35,413 16,458 Accrued transportation expense 165,580 46,396 Accrued income taxes 6,400 17,125 Other accrued liabilities 4,947 8,907 Other assets and liabilities 2,043 4,728 Net cash provided by operating activities 19,100 337,049 INVESTING ACTIVITIES Purchases of property and equipment ( 26,503 ) ( 17,446 ) Purchases and development of software ( 26,062 ) ( 22,815 ) Acquisitions, net of cash acquired ( 14,749 ) ( 223,230 ) Other investing activities — 5,525 Net cash used for investing activities ( 67,314 ) ( 257,966 ) FINANCING ACTIVITIES Proceeds from stock issued for employee benefit plans 43,183 100,542 Stock tendered for payment of withholding taxes ( 25,246 ) ( 16,535 ) Repurchase of common stock ( 428,801 ) ( 68,563 ) Cash dividends ( 208,926 ) ( 207,428 ) Payments on long-term borrowings ( 2,048 ) — Proceeds from short-term borrowings 2,768,000 1,043,600 Payments on short-term borrowings ( 2,136,251 ) ( 1,126,600 ) Net cash provided by (used for) financing activities 9,911 ( 274,984 ) Effect of exchange rates on cash and cash equivalents ( 2,844 ) 612 Net change in cash and cash equivalents ( 41,147 ) ( 195,289 ) Cash and cash equivalents, beginning of period 243,796 447,858 Cash and cash equivalents, end of period $ 202,649 $ 252,569 See accompanying notes to the condensed consolidated financial statements. 7 Table of Contents 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. RECENTLY ISSUED ACCOUNTING STANDARDS In March 2020, 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 of September 30, 2021, we have not utilized any of the expedients discussed within this ASU. We will continue 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. 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, 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 — 10,754 10,997 Foreign currency translation ( 7,894 ) ( 2,668 ) ( 1,423 ) ( 11,985 ) Balance September 30, 2021 $ 1,196,321 $ 211,314 $ 78,564 $ 1,486,199 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 indicating that our goodwill might be impaired, including consideration of the ongoing impacts of the COVID-19 8 Table of Contents pandemic 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 September 30, 2021. Identifiable intangible assets consisted of the following (in thousands): September 30, 2021 December 31, 2020 Cost Accumulated Amortization Net Cost Accumulated Amortization Net Finite-lived intangibles Customer relationships $ 169,540 $ ( 82,115 ) $ 87,425 $ 171,684 $ ( 67,312 ) $ 104,372 Trademarks — — — 1,875 ( 937 ) 938 Total finite-lived intangibles 169,540 ( 82,115 ) 87,425 173,559 ( 68,249 ) 105,310 Indefinite-lived intangibles Trademarks 8,600 — 8,600 8,600 — 8,600 Total intangibles $ 178,140 $ ( 82,115 ) $ 96,025 $ 182,159 $ ( 68,249 ) $ 113,910 Amortization expense for other intangible assets is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Amortization expense $ 6,130 $ 9,937 $ 19,416 $ 27,968 Finite-lived intangible assets, by reportable segment, as of September 30, 2021, will be amortized over their remaining lives as follows (in thousands): NAST Global Forwarding All Other and Corporate Total Remaining 2021 $ 2,024 $ 3,738 $ 293 $ 6,055 2022 8,096 14,953 1,171 24,220 2023 8,096 12,304 1,171 21,571 2024 7,991 3,778 1,171 12,940 2025 7,857 2,479 1,171 11,507 Thereafter 9,168 403 1,561 11,132 Total $ 87,425 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 no Level 3 assets or liabilities as of and during the periods ended September 30, 2021 and December 31, 2020. There were no transfers between levels during the period. 9 Table of Contents 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 September 30, 2021 December 31, 2020 Maturity September 30, 2021 December 31, 2020 Revolving credit facility 1.20 % — % October 2023 $ 632,000 $ — Senior Notes, Series A 3.97 % 3.97 % August 2023 175,000 175,000 Senior Notes, Series B 4.26 % 4.26 % August 2028 150,000 150,000 Senior Notes, Series C 4.60 % 4.60 % August 2033 175,000 175,000 Senior Notes (1) 4.20 % 4.20 % April 2028 593,950 593,301 Total debt 1,725,950 1,093,301 Less: Current maturities and short-term borrowing ( 632,000 ) — Long-term debt $ 1,093,950 $ 1,093,301 ____________________________________________ (1) Net of unamortized discounts and issuance costs. SENIOR UNSECURED REVOLVING CREDIT FACILITY We have a senior unsecured revolving credit facility (the "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 under the Credit Agreement to be immediately due and payable. In addition, if we become the subject of voluntary or involuntary proceedings under any bankruptcy, insolvency, or similar law, then any outstanding obligations under the Credit Agreement will automatically become immediately due and payable. 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 $ 546.0 million at September 30, 2021. 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. 10 Table of Contents COMBINEX CREDIT FACILITY On June 3, 2021, we assumed a credit facility as part of our acquisition of Combinex Holding B.V. (“Combinex”) with total availability of approximately $ 3.6 million and a maturity date of January 18, 2027. We paid off the $ 2.2 million balance of this facility in September 2021. For more information regarding the Combinex acquisition, refer to Note 8, Acquisitions . SENIOR NOTES On April 9, 2018, we issued senior unsecured notes ("Senior 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 $ 680.2 million as of September 30, 2021, based primarily on the market prices quoted from external sources. The carrying value of the Senior Notes was $ 594.0 million as of September 30, 2021. 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 US Bank of which $ 8 million is currently utilized for standby letters of credit related to insurance collateral as of September 30, 2021. These standby letters of credit are renewed annually and were undrawn as of September 30, 2021. 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. 11 Table of Contents NOTE 5. INCOME TAXES A reconciliation of the provision for income taxes using the statutory federal income tax rate to our effective income tax rate for the three and nine months ended September 30, 2021and 2020, is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Federal statutory rate 21.0 % 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 0.6 2.0 1.5 2.4 Share based payment awards 0.4 ( 3.8 ) ( 0.8 ) ( 4.1 ) Foreign tax credits ( 0.1 ) ( 5.2 ) ( 0.3 ) ( 3.1 ) Foreign ( 4.2 ) 0.3 ( 1.5 ) 1.2 Other ( 1.7 ) 0.8 ( 1.4 ) ( 0.1 ) Effective income tax rate 16.0 % 15.1 % 18.5 % 17.3 % 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 September 30, 2021. 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 September 30, 2021, we have recognized a payroll deferral and tax credit of $ 28.5 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. As of September 30, 2021, we have $ 40.0 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 $ 5.6 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. 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Stock options $ 4,070 $ 5,081 $ 12,064 $ 15,119 Stock awards 36,012 5,042 79,361 15,736 Company expense on ESPP discount 730 653 2,537 2,272 Total stock-based compensation expense $ 40,812 $ 10,776 $ 93,962 $ 33,127 On May 9, 2019, our shareholders approved an amendment and restatement of our 2013 Equity Incentive Plan (the “Plan”) to increase the number of shares authorized for award by 4,000,000 shares. The Plan allows us to grant certain stock awards, including stock options at fair market value and performance shares and restricted stock units, to our key employees and outside directors. A maximum of 17,041,803 shares can be granted under this plan following the amendment and restatement. Approximately 1,765,322 shares were available for stock awards under the plan as of September 30, 2021. Shares subject to 12 Table of Contents awards that expire or are canceled without delivery of shares or that are settled in cash generally become available again for issuance under the 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 September 30, 2021, unrecognized compensation expense related to stock options was $ 30.6 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 and time-based restricted stock units to certain key employees and non-employee directors. Performance-based 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 post-vesting holding restrictions. The discounts on outstanding grants vary from 12 percent to 24 percent and are calculated using the Black-Scholes option pricing model-protective put method. Differences in post-holding restrictions, measured stock price volatility and interest rates are the primary reasons for changes in the discount. These grants are being expensed based on the terms of the awards. We granted 280,255 performance-based restricted stock units and 619,689 time-based restricted stock units on February 3, 2021. The performance-based and time-based awards had a weighted average grant date fair value of $ 74.76 and $ 71.28 , respectively, and 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. 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 September 30, 2021, there was unrecognized compensation expense of $ 99.9 million related to previously granted full value 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") allows our employees to contribute up to $ 10,000 of their annual cash compensation to purchase company stock. 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 September 30, 2021 Shares purchased by employees Aggregate cost to employees Expense recognized by the company 55,904 $ 4,134 $ 730 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. 13 Table of Contents 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. 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. 14 Table of Contents 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 two 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. 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. 15 Table of Contents Reportable segment information as of, and for the three and nine months ended September 30, 2021 and 2020, is as follows (dollars in thousands): NAST Global Forwarding All Other and Corporate Consolidated Three Months Ended September 30, 2021 Total revenues $ 3,814,988 $ 1,978,901 $ 469,806 $ 6,263,695 Income (loss) from operations 149,035 165,155 ( 3,421 ) 310,769 Depreciation and amortization 6,620 5,427 10,359 22,406 Total assets (1) 3,437,461 2,438,106 727,039 6,602,606 Average headcount 6,764 5,167 4,037 15,968 NAST Global Forwarding All Other and Corporate Consolidated Three Months Ended September 30, 2020 Total revenues $ 2,923,842 $ 831,957 $ 469,001 $ 4,224,800 Income (loss) from operations 122,526 46,299 ( 586 ) 168,239 Depreciation and amortization 7,095 9,385 10,436 26,916 Total assets (1) 3,041,974 1,148,118 884,746 5,074,838 Average headcount 6,702 4,607 3,595 14,904 NAST Global Forwarding All Other and Corporate Consolidated Nine Months Ended September 30, 2021 Total revenues $ 10,611,892 $ 4,585,734 $ 1,402,664 $ 16,600,290 Income (loss) from operations 436,911 363,956 ( 6,165 ) 794,702 Depreciation and amortization 19,779 17,352 31,490 68,621 Total assets (1) 3,437,461 2,438,106 727,039 6,602,606 Average headcount 6,650 4,951 3,881 15,482 NAST Global Forwarding All Other and Corporate Consolidated Nine Months Ended September 30, 2020 Total revenues $ 8,222,879 $ 2,070,161 $ 1,364,614 $ 11,657,654 Income (loss) from operations 357,898 117,033 ( 8,465 ) 466,466 Depreciation and amortization 19,550 27,740 29,777 77,067 Total assets (1) 3,041,974 1,148,118 884,746 5,074,838 Average headcount 6,870 4,716 3,591 15,177 _________________________________________ (1) All cash and cash equivalents are included in All Other and Corporate. 16 Table of Contents 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 nine months ended September 30, 2021 and 2020 (in thousands): Three Months Ended September 30, 2021 NAST Global Forwarding All Other and Corporate Total Major Service Lines Transportation and logistics services (1) $ 3,814,988 $ 1,978,901 $ 206,012 $ 5,999,901 Sourcing (2) — — 263,794 263,794 Total $ 3,814,988 $ 1,978,901 $ 469,806 $ 6,263,695 Three Months Ended September 30, 2020 NAST Global Forwarding All Other and Corporate Total Major Service Lines Transportation and logistics services (1) $ 2,923,842 $ 831,957 $ 189,182 $ 3,944,981 Sourcing (2) — — 279,819 279,819 Total $ 2,923,842 $ 831,957 $ 469,001 $ 4,224,800 Nine Months Ended September 30, 2021 NAST Global Forwarding All Other and Corporate Total Major Service Lines Transportation and logistics services (1) $ 10,611,892 $ 4,585,734 $ 602,950 $ 15,800,576 Sourcing (2) — — 799,714 799,714 Total $ 10,611,892 $ 4,585,734 $ 1,402,664 $ 16,600,290 Nine Months Ended September 30, 2020 NAST Global Forwarding All Other and Corporate Total Major Service Lines Transportation and logistics services (1) $ 8,222,879 $ 2,070,161 $ 542,670 $ 10,835,710 Sourcing (2) — — 821,944 821,944 Total $ 8,222,879 $ 2,070,161 $ 1,364,614 $ 11,657,654 ____________________________________________ (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 September 30, 2021, and revenue recognized in the three and nine months ended September 30, 2021 and 2020 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. 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, 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, Leases , 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. 17 Table of Contents 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 at commencement date at the present value of lease payments, including non-lease components, which consist primarily of common area maintenance charges. Right-of-use lease assets are also recognized at commencement date as the total lease liability plus prepaid rents and less any deferred rent liability that existed under ASC 840, Leases, upon transition. As most of our leases 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 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 September 30, 2021. Information regarding lease expense, remaining lease term, discount rate, and other select lease information is presented below as of September 30, 2021, and for the three and nine months ended September 30, 2021 (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, Lease Costs 2021 2020 2021 2020 Operating lease expense $ 21,220 $ 22,373 $ 64,241 $ 63,855 Short-term lease expense 2,871 3,626 5,934 10,225 Total lease expense $ 24,091 $ 25,999 $ 70,175 $ 74,080 Nine Months Ended September 30, Other Lease Information 2021 2020 Operating cash flows from operating leases $ 70,997 $ 60,569 Right-of-use lease assets obtained in exchange for new lease liabilities 38,028 88,857 Lease Term and Discount Rate As of September 30, 2021 Weighted average remaining lease term (in years) (1) 6.5 Weighted average discount rate 3.0 % ____________________________________________ (1) The weighted average remaining lease term is significantly impacted by a 15 -year lease related to office space in Chicago, IL, that commenced in 2018. Excluding this lease, the weighted average remaining lease term of our agreements is 4.4 years. The maturities of lease liabilities as of September 30, 2021, were as follows (in thousands): Maturity of Lease Liabilities Operating Leases Remaining 2021 $ 14,165 2022 79,177 2023 65,008 2024 44,974 2025 33,834 Thereafter 112,063 Total lease payments 349,221 Less: Interest ( 36,849 ) Present value of lease liabilities $ 312,372 18 Table of Contents 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 specific factors. We have also assessed the current macroeconomic environment, including the impact of the COVID-19 pandemic, to determine 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 nine months ended September 30, 2021: Balance, December 31, 2020 $ 38,113 Provision 2,885 Write-offs ( 3,884 ) Balance, September 30, 2021 $ 37,114 Recoveries of amounts previously written off were not significant for the three and nine months ended September 30, 2021. 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 at September 30, 2021 and December 31, 2020, was $ 65.5 million and $ 46.0 million, respectively. Accumulated other comprehensive loss is comprised solely of foreign currency adjustments at September 30, 2021 and December 31, 2020. Other comprehensive loss was $ 12.0 million compared to other comprehensive income of $ 13.2 million for the three months ended September 30, 2021 and 2020, respectively. Other comprehensive loss was $ 19.5 million compared to other comprehensive income of $ 5.3 million for the nine months ended September 30, 2021 and 2020, respectively. Other comprehensive loss and income consisted of foreign currency adjustments, including foreign currency translation, for the three and nine months ended September 30, 2021 and 2020. 19 Table of Contents