What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-19 · 161 added, 146 removed, 258 unchanged (54% of the section changed)

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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 technology 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, technology, and scale.

We offer a global suite of services using tailored, market-leading differentiated technology built by and for our global network of supply chain experts working with our customers to drive better outcomes by leveraging our experience, data, technology, and scale.

Our global network of supply chain experts works with our customers to drive better supply chain outcomes by leveraging our experience, data, technology, and scale.

Our adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures.

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Adjusted operating margin 34.3 % 27.9 % 30.5 %

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MARKET TRENDS

The North American surface transportation market experienced significant volatility in freight volumes and costs over the duration of 2020 as a result of the COVID-19 pandemic.

The impact on the market varied significantly depending on the severity of the restrictions in place to control the outbreak, industry, and customer size.

Certain industries, such as retail, saw periods of elevated demand while other industries, especially smaller customers in those industries, experienced extended periods of demand and production well below historical levels.

Industry freight volumes, as measured by the Cass Freight Index, declined approximately eight percent in 2020 compared to 2019, which reflects the volatility resulting from the COVID-19 pandemic.

Industry freight volumes compared to 2019 bottomed out in the second quarter of 2020, declining approximately 21 percent before showing growth of approximately four percent in the fourth quarter of 2020 compared to the prior year.

The impact of reduced consumer demand and production, in addition to driver shortages, resulted in reduced carrier capacity, most notably in truckload, as many carriers either reduced lanes or exited the market entirely.

This reduced carrier capacity caused routing guides to rapidly degrade and more loads moved to the spot market, driving sharp increases in transportation costs, most significantly in the second half of 2020.

The North American surface transportation market experienced extremely tight carrier capacity in 2021 as strong demand combined with ongoing driver availability and supply chain disruptions caused by port congestion and weather events drove purchased transportation to historic levels.

This compared to an extremely volatile market in 2020 resulting from the early stages of the COVID-19 pandemic and restrictions implemented to control the outbreak, which drove significant volatility in customer demand and carrier capacity.

Industry freight volumes, as measured by the Cass Freight Index, increased approximately 13 percent in 2021 compared to 2020 and experienced growth in each quarter of 2021 compared to 2020.

This compared to a decline of approximately eight percent in 2020 compared to 2019 with significant volatility over the course of 2020.

One of the metrics we use to measure market conditions is the truckload routing guide depth from our Managed Services business.

Routing guide depth is calculated as a simple average of all accepted shipments over all tender instances for any shipment facilitated by our Managed Services business.

The average routing guide depth was 1.4 in 2020 and increased steadily during the second half of 2020, to 1.8 in the fourth quarter of 2020.

This compared to an average depth of tender of 1.2 during 2019, which is among the lowest levels we have experienced this decade.

The global forwarding market also experienced significant volatility resulting from the COVID-19 pandemic.

The air freight market experienced a significant decline in capacity due to a reduction in commercial flights from COVID-19 restrictions, which resulted in sharp pricing increases.

The impact of the COVID-19 pandemic on the ocean freight market varied significantly over the course of 2020 depending on the severity of the outbreak in regions in which we operate.

Many industries experienced temporary volume reductions and factory closures due to efforts to contain the spread of the virus, which initially resulted in excess capacity and decreased pricing early in 2020.

In the second half of 2020, most industries had resumed production and companies began to replenish low inventory levels amidst continued market uncertainty from the ongoing COVID-19 pandemic.

As demand accelerated, it outpaced carrier capacity returning to the market, which resulted in significant pricing increases for the cost of ocean freight.

The average routing guide depth was 1.7 in 2021 compared to 1.4 in 2020.

The average routing guide depth increased steadily during the second half of 2020 and finished in line with those seen over the duration of 2021.

The global forwarding market has also been significantly impacted by supply chain disruptions caused by ongoing port congestion along with equipment and labor shortages in 2021.

These disruptions combined with strong demand have continued to drive purchased transportation costs for both ocean and air freight to historic levels.

As with the North American surface transportation market, this compared to the significant volatility seen in 2020 resulting from the COVID-19 pandemic.

In 2020, the COVID-19 pandemic resulted in a sharp decline in commercial air freight capacity and periods of significantly reduced ocean freight demand due to factory closures followed by a rapid surge of demand in the second half of 2020 when production resumed and companies began to replenish low inventory levels amidst the market uncertainty.

BUSINESS TRENDS

Our 2020 surface transportation results were largely consistent with the overall market trends summarized above, although we did experience volume increases in excess of the industry trends as measured by the Cass Freight Index.

Despite industry freight volumes declining approximately eight percent in 2020, our combined North American Surface Transportation (“NAST”) truckload and LTL volumes increased approximately 5.5 percent.

The COVID-19 pandemic had a significant impact on our small business customers as our customer count decreased nearly 12 percent, driven almost entirely by small and emerging market customers.

Similarly, the number of active contracted transportation companies we utilized declined approximately six percent, solely with those carriers having a fleet under 100 trucks.

We continued to work with our customers to meet our contractual commitments while adapting our pricing to reflect the volatile cost of transportation pricing seen since the beginning of the COVID-19 pandemic while also serving customers' needs in the spot market.

This resulted in an increase in average truckload linehaul rates per mile, excluding fuel costs, charged to customers, although our truckload transportation costs, excluding fuel prices, increased at a faster rate resulting in adjusted gross profit margin compression.

Our global forwarding results were largely consistent with the overall market trends summarized above.

Throughout 2020, we augmented our air freight capacity with charter flights due to the significant capacity shortages in the market, which resulted in larger than normal shipment sizes.

The increase in air freight pricing more than offset an 18.0 percent decline in air freight volumes.

Ocean volumes increased a modest 0.5 percent in 2020 as volume reductions in the first half of 2020 due to the COVID-19 pandemic were more than offset by increases in the second half of 2020 as industries resumed production and demand increased.

Our ocean business experienced significant increases in the cost of ocean freight beginning in the second quarter as many ocean carriers idled capacity due to the impacts of the COVID-19 pandemic and this capacity was slow to return to the market in comparison to the demand and production increases experienced in the second half of 2020.

These factors resulted in a rapidly increasing price and cost environment.

Our 2021 surface transportation results were impacted by the rising cost and price environment summarized in the market trends section above.

We did not, however, experience the significant year over year volume volatility seen in the industry as measured by the Cass Freight Index.

Industry freight volumes increased approximately 13 percent in 2021 compared to a decline of eight percent in 2020.

Our combined NAST truckload and LTL volume increased 5.5 percent in both 2021 and 2020.

The COVID-19 pandemic had a significant impact on our small business customers in 2020 as our customer count decreased nearly 12 percent, driven almost entirely by small and emerging market customers.

Throughout the COVID-19 pandemic we have continued to work with our customers to meet our contractual commitments, 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 have continued 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 in 2021 resulted in our average truckload linehaul cost per mile, excluding fuel costs, increasing 30.5 percent.

Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, increased approximately 29.0 percent in 2021.

In our global forwarding business, we continued to experience significant increases in purchased transportation costs for both ocean and air freight due to the disruption caused by port congestion in addition to the equipment and labor shortages impacting the global forwarding market.

This along with increased volumes has resulted in strong growth in both total revenues and cost of transportation for our ocean and air freight services.

Ocean volumes increased 17.0 percent in 2021 with strong growth in nearly all regions we serve, driven by higher award sizes from existing customers and new customer growth in addition to the adverse impact to 2020 results from factory closures during the early stages of the COVID-19 pandemic.

Throughout 2021 and 2020, we have augmented our air freight capacity with charter flights due to the significant commercial capacity shortages in the market, which have resulted in larger than normal shipment sizes as compared to our pre-pandemic operations.

On June 3, 2021, we acquired Combinex Holding B.V.

(“Combinex”) to strengthen our European road transportation presence, for $14.7 million in cash.

On March 2, 2020, we acquired Prime Distribution Services (“Prime Distribution” or “Prime”), a leading provider of retail consolidation services in North America, for $222.7 million in cash.

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 NAST segment in our consolidated financial statements since March 1, 2020.

On February 28, 2019, we acquired The Space Cargo Group (“Space Cargo”) for the purpose of expanding our presence and capabilities in Spain and Colombia.

Our consolidated results include the results of

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Space Cargo since March 1, 2019.

On May 22, 2019, we acquired Dema Service S.p.A (“Dema Service”) to strengthen our existing footprint in Italy.

Our consolidated results include the results of Dema Service since May 23, 2019.

SIGNIFICANT DEVELOPMENTS

Our 2020 financial results and operations were impacted by the COVID-19 pandemic described above and discussed throughout Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” In addition, see Part I—“Item 1A, Risk Factors,” included within this Annual Report on Form 10-K for discussion of the impacts and potential impacts of the COVID-19 pandemic.

The extent to which the COVID-19 pandemic impacts our financial results and operations in 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.

During 2020, 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 continue to follow public and private sector policies and initiatives to reduce the transmission of COVID-19, such as requiring social distancing, wearing a mask, and limiting the number of employees to less than 50 percent capacity when in the office, in addition to the elimination of all non-essential travel.

We have also adopted work-from-home arrangements, and near the end of 2020 approximately 84 percent of our employees were working remotely, executing their duties and responsibilities.

In addition, we took steps in 2020 to reduce costs, including the elimination of all non-essential travel, temporary salary reductions for company executive officers, temporary reductions in cash retainers for board members, temporary suspension of the company match to retirement plans for U.S.

and Canadian employees, accelerating the use of paid time off, and furloughing approximately seven percent of our U.S.

and Canadian employees in the second quarter of 2020.

As we continued to harness the benefits of our technology investment and network transformation, we eliminated certain positions during 2020, and therefore, a portion of employees did not return from furlough.

We recognized $4.4 million in severance in 2020 as a result of these reductions.

Due to the ongoing uncertainty around the severity and duration of the outbreak, we are not able at this time to estimate the impact the COVID-19 pandemic may have on our financial results and operations in 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, in particular small businesses, continue to experience reduced production and output, which could result in a decrease in freight volumes across a number of industries, which may reduce our contractual and spot market opportunities.

In addition, a significant number of our contracted carriers may reduce their capacity or charge higher prices in light of the volatile market conditions, which may reduce our adjusted gross profit margins as we honor our contractual freight rates.

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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select 2021 year-over-year operating comparisons to 2020:

• Total revenues increased 5.9 percent to $16.2 billion, driven primarily by higher pricing in ocean and air freight services and contributions from the Prime acquisition.

• Gross profits decreased 7.0 percent to $2.4 billion.

Adjusted gross profits decreased 6.7 percent to $2.4 billion, primarily driven by lower adjusted gross profit margins in truckload services, partially offset by contributions from the Prime acquisition and higher adjusted gross profits in air freight and ocean services.

• Personnel expenses decreased 4.3 percent to $1.2 billion, driven primarily by cost savings initiatives, including a 2.8 percent decrease in average headcount and a decline in benefits expenses and incentive compensation.

• Selling, general, and administrative (“SG&A”) expenses decreased 0.3 percent to $496.1 million, primarily due to significantly lower travel expenses, partially offset by the ongoing expenses from the Prime acquisition.

• Income from operations totaled $673.3 million, down 14.8 percent from last year due to a decline in adjusted gross profits.

Adjusted operating margin of 27.9 percent decreased 260 basis points.

• Interest and other expenses totaled $44.9 million, which primarily consisted of $49.1 million of interest expense and was partially offset by a $3.3 million favorable impact from foreign currency revaluation and realized foreign currency gains and losses.

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• Total revenues increased 42.5 percent to $23.1 billion, driven primarily by higher pricing and higher volume across most of our services.

• Gross profits increased 30.7 percent to $3.1 billion.

Adjusted gross profits increased 30.7 percent to $3.2 billion, primarily driven by higher adjusted gross profit per transaction and higher volume across most of our services.

• Personnel expenses increased 24.2 percent to $1.5 billion, primarily due to higher incentive compensation costs and a 4.2 percent increase in average headcount, and also due to the benefit realized in 2020 from our short-term, pandemic-related cost reduction initiatives.

• Selling, general, and administrative (“SG&A”) expenses increased 6.1 percent to $526.4 million, primarily due to the increases in purchased services and warehouse expenses, partially offset by decreases in amortization and bad debt expenses and by an $11.5 million loss on the sale-leaseback of a company-owned data center in 2020.

• Income from operations totaled $1.1 billion, up 60.7 percent from last year due to an increase in adjusted gross profits, partially offset by the increase in operating expenses.

Adjusted operating margin of 34.3 percent increased 640 basis points.

• Interest and other expenses totaled $59.8 million, which primarily consisted of $52.1 million of interest expense, which increased $3.0 million versus last year due to a higher average debt balance.

The current year also included a $15.1 million unfavorable impact from foreign currency revaluation and realized foreign currency gains and losses.

These expenses were 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.

• The effective tax rate for 2021 was 17.4 percent compared to 19.4 percent in 2020.

The lower effective tax rate was due primarily to the tax benefit related to stock-based compensation, including delivery of a one-time deferred stock award that was granted to the company's prior Chief Executive Officer in 2000, and excess foreign tax credits.

• Net income totaled $506.4 million, down 12.2 percent from a year ago.

Diluted earnings per share (EPS) decreased 11.2 percent to $3.72.

The rate decrease was due primarily to a favorable mix of foreign earnings and an increased benefit related to U.S.

tax credits and incentives.

• Net income totaled $844.2 million, up 66.7 percent from a year ago.

Diluted earnings per share increased 69.6 percent to $6.31.

• Cash flow from operations decreased 81.0 percent to $95.0 million.

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CONSOLIDATED RESULTS OF OPERATIONS

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Adjusted gross profit margin percentage (1)

Transportation 15.3% 17.3% (2.0) pts 16.7% 0.6 pts

Sourcing 9.4% 10.5% (1.1) pts 10.0% 0.5 pts

Total adjusted gross profit margin 14.9% 16.9% (2.0) pts 16.3% 0.6 pts

Transportation 13.8% 15.3% (150 bps) 17.3% (200 bps)

Sourcing 9.5% 9.4% 10 bps 10.5% (110 bps)

Total adjusted gross profit margin 13.6% 14.9% (130 bps) 16.9% (200 bps)

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A reconciliation of our reportable segments to our consolidated results can be found in Note 9, Segment Reporting, in Part II, Financial Information of this Annual Report on Form 10-K.

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Consolidated Results of Operations—Twelve Months Ended December 31, 2021 Compared to Twelve Months Ended December 31, 2020

Total revenues and related costs.

Total transportation revenues increased driven by significant pricing increases in our ocean and air freight service lines and increased LTL volumes.

Ocean pricing increased significantly in the second half of 2020 as improving demand outpaced carrier capacity returning to the market.

In addition, a significant decline in capacity due to a reduction in commercial flights from COVID-19 restrictions resulted in sharp increases in air freight pricing.

These increases were partially offset by lower pricing in LTL and truckload services.

Total purchased transportation and related services increased due to increased cost of transportation in most of our transportation services resulting from the factors discussed above.

Our sourcing total revenues and purchased products sourced for resale increased due to higher pricing and costs per case, which was partially offset by lower case volume most notably in the foodservice industry, which has been significantly impacted by the COVID-19 pandemic.

Total transportation revenues and purchased transportation and related services increased significantly driven by higher pricing and volumes in most service lines, most notably ocean and truckload services.

The higher pricing was driven by the continued supply chain disruptions impacting both the global forwarding and surface transportation market discussed above in the market and business trends sections.

The prior year period was also impacted by the early stages of the COVID-19 pandemic, which resulted in significant volatility to both pricing and volumes.

Much of this volatility was the result of restrictions in place to control the outbreak, which resulted in the sharp decline in commercial air freight capacity and periods of significantly reduced ocean freight demand due to factory closures.

This was followed by periods of rapid demand increases when production resumed and companies began to replenish low inventory levels amidst the market uncertainty and elevated demand for essential products.

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Our sourcing total revenues and purchased products sourced for resale decreased due to lower pricing and costs per case, which was partially offset by higher case volume most notably in the foodservice industry, which was significantly impacted by the COVID-19 pandemic in the prior year.

Gross profits and adjusted gross profits.

Our transportation adjusted gross profit decreased driven by adjusted gross profit margin declines in truckload services due to tight carrier capacity in the marketplace and the significant transportation cost volatility resulting from the impact of the COVID-19 pandemic relative to our contractual customer pricing.

We continued to meet our customer commitments despite increases for the cost of capacity, which has resulted in adjusted gross profit margin compression.

Partially offsetting these declines was an increase in air freight pricing resulting in adjusted gross profit margin expansion as we were able to leverage our contractual air freight capacity despite significant shortages in the air freight market.

Sourcing adjusted gross profits declined driven by the costs of purchased products sourced for resale increasing at a faster rate than our sourcing total revenues in addition to lower case volumes.

Operating exp enses.

Personnel expenses decreased primarily due to cost savings initiatives, including the temporary suspension of the company match to retirement plans for U.S.

and Canadian employees, declines in healthcare costs, lower variable compensation and a decrease in average headcount.

Other SG&A expenses decreased driven by the elimination of all non-essential travel.

Partially offsetting this decrease was an increase in occupancy expenses, including those attributable to acquisitions, and an $11.5 million loss on the sale-leaseback of a company-owned data center.

Our transportation adjusted gross profit increased driven by increased pricing and volumes in nearly all service lines, most notably ocean and truckload services, resulting in higher adjusted gross profits per transaction.

Our transportation adjusted gross profit margin decreased driven by the significant increase in the cost of purchased transportation and related services in nearly all service lines.

The prior year period also included significant volatility in both volumes and the cost of purchased transportation due to the impact of the COVID-19 pandemic.

We have continued to meet our customer commitments since the early stages of the COVID-19 pandemic, which has resulted in adjusted gross profit margin compression especially during periods of extreme volatility in the cost of capacity relative to our contractual customer pricing.

Sourcing adjusted gross profits increased driven by an increase in case volume from sourcing managed procurement customers in the foodservice industry as the prior year period experienced a significant decrease in demand resulting from the COVID-19 pandemic.

This increase was partially offset by a decrease in case volume with retail customers.

Operating expenses.

Personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current year, an increase in average headcount, 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 $62.0 million in the current year compared to none in the prior year.

There is no remaining stock-based compensation expense to recognize on our 2017 and 2018 performance-based equity awards while 20 percent remains on our 2019 and 2020 performance-based equity awards.

Refer to Note 6, Capital Stock and Stock Award Plans, for further discussion related to our stock-based compensation plan.

Other SG&A expenses increased due to increased purchased services and warehouse expenses, partially offset by decreases in amortization due to the completion of amortization related to intangible assets from a prior acquisition and bad debt expenses and the impact of an $11.5 million loss on the sale-leaseback of a company-owned data center in the prior year period.

Interest and other expense.

Interest and other expense primarily consisted of $49.1 million of interest expense, partially offset by a $3.3 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses in 2020.

This compared to a $4.2 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in 2019.

Interest expense decreased from 2019 due to lower average borrowings and interest rates.

Interest and other expense of $59.8 million primarily consisted of $52.1 million of interest expense and a $15.1 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in 2021.

Interest expense increased driven by a higher average debt balance compared to the prior year period.

The prior year period included a $3.3 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Provision for income taxes.

Our effective income tax rate was 17.4 percent in 2021 and 19.4 percent in 2020.

The effective income tax rate for the twelve months ended December 31, 2020, 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 and excess foreign tax credits.

The effective income tax rate for the twelve months ended December 31, 2021, was lower than the statutory federal income tax rate primarily due to the tax benefit from U.S.

tax credits and incentives, and a lower tax rate on foreign earnings.

These impacts were partially offset by state income taxes, net of federal benefits.

The effective income tax rate for the twelve months ended December 31, 2020, 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 our prior Chief Executive Officer in 2000 and excess foreign tax credits.

These impacts were partially offset by state income taxes, net of federal benefits and foreign income taxes.

The effective income tax rate for the twelve months ended December 31, 2019, was higher than the statutory federal income tax rate due to state income taxes, net of federal benefit, and foreign income taxes, but was partially offset by the tax impact of excess foreign tax credits and share-based payment awards.

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NAST Segment Results of Operations

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Total costs and expenses

13,922,566 10,804,078 28.9 % 10,560,929 2.3 %

Income from operations $ 585,351 $ 508,475 15.1 % $ 722,763 (29.6) %

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Total revenues and related costs.

NAST total revenues increased due to the acquisition of Prime, which added one percentage point to NAST total revenues.

This increase was partially offset by declines in truckload total revenues driven by lower pricing in the first half of 2020 and significantly lower fuel prices in 2020.

NAST cost of transportation and related services increased driven by increased cost per mile in truckload services and was partially offset by significantly lower fuel prices.

NAST total revenues increased due to higher pricing in truckload and, to a lesser extent, higher pricing in LTL services in addition to volume increases in both LTL and truckload services.

The increased pricing in truckload was driven by tight carrier capacity caused by driver availability challenges and the supply chain disruptions facing the industry as discussed above in the market and business trends sections.

The prior year was adversely impacted by weakening demand during the early stages of the COVID-19 pandemic, which resulted in industry volume decreases.

Total purchased transportation and related services increased, driven by higher average truckload linehaul costs per mile in addition to higher purchased transportation costs per transaction in LTL services and volume increases in both LTL and truckload services.

Gross profits and adjusted gross profits.

NAST adjusted gross profits decreased driven, primarily, by lower adjusted gross profit per shipment in truckload and LTL services.

The lower adjusted gross profit per shipment in truckload was driven by the tight carrier capacity in the marketplace and the significant transportation cost volatility resulting from the impact of the COVID-19 pandemic relative to our contractual customer pricing.

We continued to meet our customer commitments despite increases for the cost of capacity, which has resulted in adjusted gross profit margin compression.

Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 5.5 percent resulting from the market and business trends discussed above.

NAST adjusted gross profits increased, driven by increased adjusted gross profits per transaction due to the higher pricing and increased volume discussed above.

Our average truckload linehaul rate per mile charged to our customers increased approximately 29.0 percent.

Our truckload transportation costs, excluding fuel surcharges, increased approximately 30.5 percent.

NAST LTL adjusted gross profits decreased primarily due to reduced adjusted gross profit margins driven by the tight carrier capacity in the marketplace, partially offset by increased volume.

The acquisition of Prime Distribution contributed five percentage points of LTL adjusted gross profit growth.

NAST other adjusted gross profits increased primarily due to incremental warehousing services related to the acquisition of Prime.

NAST LTL adjusted gross profits increased due to increased volumes and increased adjusted gross profits per transaction.

NAST other adjusted gross profits decreased slightly as lower adjusted gross profits per transaction and lower volume in intermodal were partially offset by incremental warehousing services related to the acquisition of Prime Distribution.

Operating expenses.

NAST personnel expense decreased primarily due to cost savings initiatives, including the temporary suspension of the company match to retirement plans for U.S.

and Canadian employees, lower variable compensation, declines in healthcare costs, and a decrease in average headcount.

NAST SG&A expenses increased due to the ongoing expenses from the Prime acquisition, which were partially offset by the elimination of all non-essential travel.

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NAST personnel expense increased primarily due to incentive compensation increases reflecting the strong results for the 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 .

NAST SG&A expenses increased, driven by increased investments in technology, warehouse expenses, and purchased services, partially offset by lower credit losses.

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 selling and administrative expenses and allocated based upon relevant segment operating metrics.

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Global Forwarding Segment Results of Operations

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Total costs and expenses

6,219,034 2,925,012 112.6 % 2,247,386 30.2 %

Income from operations $ 510,756 $ 175,513 191.0 % $ 80,527 118.0 %

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Ocean 17.0 % 0.5 %

Air (18.0) % (7.0) %

45.5 % 11.0 %

Customs 13.5 % (3.5) %

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________________________________

(1) In 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 profits is a non-GAAP financial measure explained above.

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Total revenues and related costs.

Total revenues and related costs increased driven by higher pricing and costs in the ocean and air freight markets which were significantly impacted by the COVID-19 pandemic as discussed above.

Ocean pricing and purchased transportation costs increased significantly in the second half of 2020 as improving demand outpaced carrier capacity returning to the market.

The air freight market has been significantly impacted by reduced cargo capacity due to fewer commercial flights, an increase in charter flights, and larger than normal shipment sizes which has created an environment with unusually high pricing and purchased transportation costs.

Total revenues and purchased transportation and related services increased due to higher pricing in our ocean services and, to a lesser extent, higher pricing in our air freight services, in addition to volume increases in both ocean and air services.

The higher ocean and air freight pricing was driven by the unprecedented supply chain disruptions impacting the global forwarding market combined with strong demand as discussed in the market and business trends sections.

Increased air freight volumes were driven by ocean freight conversion 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 reduction of commercial flights.

The first half of 2020 was also severely impacted by reduced demand and production due to the early stages of the COVID-19 pandemic, which led to significant volume declines in all services in the prior year.

Gross profits and adjusted gross profits.

Global Forwarding adjusted gross profits increased driven by the significant increase in air freight and ocean pricing due to the impact of the COVID-19 pandemic.

The price for ocean services has also increased significantly due to tight ocean carrier capacity.

These increases were partially offset by volume declines in air freight.

Customs adjusted gross profits decreased driven by decreased volumes.

Ocean and air freight adjusted gross profits increased driven by higher pricing resulting in higher adjusted gross profits per transaction, in addition to increased volumes.

Customs adjusted gross profits increased, driven by increased volumes.

Operating expenses.

Personnel expenses increased driven by an increase in incentive compensation but was partially offset by a decrease in average headcount.

SG&A expenses decreased driven by the elimination of non-essential travel, partially offset by an increase in credit loss expense.

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Personnel expenses increased primarily due to an increase in average headcount and incentive compensation reflecting the strong results in the year.

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 by increased investments in technology and increased purchased services, partially offset by a reduction of

amortization expense due to the completion of amortization related to intangible assets from a prior acquisition.

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All Other and Corporate Segment Results of Operations

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Total revenues and related costs.

Total revenues and related costs increased driven by increased pricing in our Robinson Fresh business, which was partially offset by decreased demand from customers in the foodservice industry resulting from the COVID-19 pandemic, and to a lesser extent, an increase in Other Surface Transportation and Managed Services.

Total revenues and related costs increased driven by higher truckload pricing and volumes in Other Surface Transportation, including a 6.0 percentage point increase from the acquisition of Combinex.

Robinson Fresh total revenues and related costs decreased due to lower pricing and costs per case, which was partially offset by higher case volume most notably in the foodservice industry, which was significantly impacted by the COVID-19 pandemic in the prior year.

Gross profits and adjusted gross profits.

Robinson Fresh adjusted gross profits decreased driven by reduced case volumes, most notably from customers in the foodservice industry.

Managed Services adjusted gross profits increased driven by a combination of new customer wins and selling additional services to existing customers.

Other Surface Transportation adjusted gross profits increased primarily driven by the acquisition of Dema Service, which contributed three percentage points of growth in Other Surface Transportation.

Robinson Fresh adjusted gross profits increased, driven by an increase in case volume from sourcing managed procurement customers in the food service industry as the prior year period experienced a significant decrease in demand resulting from the COVID-19 pandemic.

This increase was partially offset by a decrease in case volume with retail customers.

Managed Services adjusted gross profits increased, driven by increased transaction volumes resulting from an increase in freight under management.

Other Surface Transportation adjusted gross profits increased primarily due to a 6.5 percentage point increase from the acquisition of Combinex and a modest increase in truckload volumes.

LIQUIDITY AND CAPITAL RESOURCES

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Revolving credit facility $ 525,000 $ 1,000,000 October 2023

Receivables securitization facility (1)(2)

299,481 500,000 November 2023

Senior Notes, Series A 175,000 175,000 August 2023

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(1) Net of unamortized discounts and issuance costs.

(2) On February 1, 2022, we amended the Receivables Securitization Facility primarily to increase the total availability from $300 million to $500 million.

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 $257.4 million as of December 31, 2021, and $243.8 million as of December 31, 2020.

Cash and cash equivalents held outside the United States totaled $230.9 million as of December 31, 2020, and $405.1 million as of December 31, 2019.

Cash and cash equivalents held outside the United States totaled $217.1 million as of December 31, 2021, and $230.9 million as of

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December 31, 2020.

Working capital increased from $1.10 billion at December 31, 2020, to $1.48 billion at December 31, 2021.

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We prioritize our investments to grow the business, as we require some working capital and a relatively small amount of capital expenditures to grow.

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Cash dividends (277,321) (209,956) (277,786)

Net payments on debt (143,000) (112,000) (118,988)

Net borrowings (repayments) on debt 822,701 (143,000) (112,000)

Other financing activities 43,949 89,803 47,977

Cash used for financing activities (440,667) (651,253) (32.3) % (655,177) (0.6) %

Net cash provided by (used for) financing activities 7,573 (440,667) N/M (651,253) (32.3) %

Effect of exchange rates on cash and cash equivalents (3,239) 9,128 (1,894)

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Cash flow from operating activities.

The decrease in cash flow from operating activities in 2020 from 2019 was primarily due to unfavorable changes in working capital.

The unfavorable changes in working capital were primarily related to a sequential increase in accounts receivable associated with increasing pricing in a number of service lines during 2020.

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.

The significant decrease in cash flow from operating activities in 2021 from 2020 was due to unfavorable changes in working capital.

These changes in working capital were primarily related to a sequential increase in accounts receivable and contract assets, partially offset by a related increase in accounts payable and accrued transportation expense.

Both increases were driven by a significant increase in pricing for most of our transportation services in addition to increased volumes in nearly all services during 2021.

The increase in accounts receivable was also impacted by a change in business mix from the significant growth of our global forwarding business where our days sales outstanding ratio is approximately double that of our NAST business.

Despite the increase in accounts receivable, we are not experiencing a deterioration in the quality of our accounts receivable balance.

Additionally, since the early stages of the COVID-19 pandemic, we have been 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.

Our investing activities consist primarily of capital expenditures and cash paid for acquisitions.

Capital expenditures consisted primarily of investments in information technology, 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.

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.

During 2019, we sold a facility we owned in Chicago, Illinois, for approximately $17.0 million.

In 2021, we used $14.7 million for the acquisition of Combinex.

In 2020, we used $222.7 million for the acquisition of Prime.

In 2019, we used $45.0 million for the acquisition of Space Cargo and $14.2 million for the acquisition of Dema Service.

In 2019, we used $45.0 million for the acquisition of The Space Cargo Group and $14.2 million for the acquisition of Dema Service S.p.A.

We anticipate capital expenditures in 2022 to be approximately $90 million to $100 million.

Cash used for financing activities.

We had net repayments on debt of $143.0 million in 2020 and $112.0 million in 2019.

The 2020 and 2019 net repayments were primarily to reduce the outstanding balance of the receivables securitization facility (the "Facility").

This Facility expired in December 2020 and was not renewed.

There was no outstanding balance on our senior unsecured revolving credit facility (the "Credit Agreement") as of December 31, 2020 and 2019.

As of December 31, 2020, we were in compliance with all of the covenants under the Credit Agreement, note purchase agreement, and senior unsecured notes.

The decrease in cash dividends paid was the result of our fourth quarter dividend being paid on January 4, 2021.

The decrease in share repurchases in 2020 was due to the temporary suspension of our share repurchase activity near the end of the first quarter of 2020 as we assessed the impacts of the COVID-19 pandemic.

We resumed our repurchase activity in the fourth quarter of 2020.

In May 2018, the Board of Directors increased the number of shares authorized to be repurchased by 15,000,000 shares.

We had net borrowings on debt of $822.7 million in 2021 and net repayments of $143.0 million in 2020.

The 2021 net borrowings were primarily to provide cash for operations, as our working capital needs continued to increase throughout the year as mentioned above.

The 2020 net repayments were primarily to reduce the outstanding balance of the receivables securitization facility.

This receivables securitization facility expired in December 2020 and was not renewed;

however, we entered into a new receivables securitization facility in November 2021.

There was a $525 million outstanding balance on our senior unsecured revolving credit facility (the “Credit Agreement”) as of December 31, 2021, compared to no outstanding balance as of December 31, 2020 .

As of December 31, 2021, we were in compliance with

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all of the covenants under the Credit Agreement, the Accounts Receivable Securitization, note purchase agreement, and senior unsecured notes.

The increase in cash dividends paid was the result of our fourth quarter 2020 dividend being paid on January 4, 2021.

Near the end of the first quarter of 2020, we temporarily suspended our share repurchase activity as we assessed the impacts of the COVID-19 pandemic.

We resumed our share repurchase activity in the fourth quarter of 2020 and throughout 2021, which resulted in the increase in share repurchases in 2021.

In December 2021, the Board of Directors increased the number of shares authorized to be repurchased by 20,000,000 shares.

As of December 31, 2021, there were 21,635,388 shares remaining for future repurchases.

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We may seek to retire or purchase our outstanding Senior Notes through open market cash purchases, privately negotiated transactions, or otherwise.

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Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we 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.

Although there continues to be uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we 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 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.

Recently Issued Accounting Pronouncements.

Refer to Note 14, Recently Issued Accounting Pronouncements , of the accompanying consolidated financial statements for a discussion of recently issued accounting pronouncements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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In addition, we analyze contract data for the first few days following the reporting date combined with our historical experience of trends related to partially completed contracts as of the reporting date to determine our right to consideration for the services we have provided where the transit period is partially complete or completed and not yet invoiced at period end.

Differences in contract data for the first few days following the reporting date compared with our historical experience or disruptions such as weather events or other delays could cause the actual amount of revenue earned at period end to differ from these estimates.

Differences in contract data for the first few days following the reporting date compared with our historical experience or disruptions such as weather events, port congestion, or other delays could cause the actual amount of revenue earned at period end to differ from these estimates.

Total revenues represent the total dollar value of revenue recognized from contracts with customers for the goods and services we provide.

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Additionally, in our sourcing business, in some cases we take inventory risk before the specified good has been transferred to our customer.

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Customs brokerage, managed services, freight forwarding, and sourcing managed procurement transactions are recorded at the net amount we charge our customers for the service we provide because many of the factors stated above are not present.

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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

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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”).

As part of our Step Zero Analysis, we considered the impacts of the COVID-19 pandemic on financial markets and our business operations and determined that the more likely than not criteria had not been met, and therefore a Step One Analysis was not required.

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”).

As part of our Step Zero Analysis we determined that the more likely than not criteria had not been met, and therefore a Step One Analysis was not required.

When we perform a Step One Analysis, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill.

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Actual results may differ from those used in our valuations when a Step One Analysis is performed.

INCOME TAX RESERVES.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations.

We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may or may not prevail in full or in part.

GAAP, if we determine that a tax position, more likely than not, will be sustained upon audit based solely on the technical merits of the position, we recognize the benefit.

We measure the benefit by determining the amount that is greater than 50 percent likely of being realized upon resolution.

We presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information.

We regularly monitor our tax positions and tax liabilities.

We reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit, or derecognize a previously recorded tax benefit, when there is (i) a completion of a tax audit, (ii) effective settlement of an issue, (iii) litigation of the issue, including appeals, (iv) a change in applicable tax law including a tax case or legislative guidance, or (v) the expiration of the applicable statute of limitations.

Significant judgment is required in accounting for tax reserves.

Although we believe that we have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on our effective tax rate, consolidated earnings, financial position and/or cash flows.

Uncertain income tax positions are included in “Accrued income taxes” or “Noncurrent income taxes payable” in the consolidated balance sheet.

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DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL CONTINGENCIES

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2022 2023 2024 2025 2026 Thereafter Total

Borrowings under credit agreements $ 525,000 $ 300,000 $ — $ — $ — $ — $ 825,000

Senior notes (1)

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As of December 31, 2021, we do not have significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis