UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From         to        

Commission File Number: 000-23189

C.H. ROBINSON WORLDWIDE, INC.

(Exact name of registrant as specified in its charter)

Delaware	41-1883630
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

14701 Charlson Road

Eden Prairie, MN 55347

(Address of principal executive officers, including zip code)

952-937-8500

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.10 par value	CHRW	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Emerging Growth Company	☐
Non-accelerated filer	☐	Smaller reporting company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of August 6, 2019, the number of shares outstanding of the registrant’s Common Stock, par value $0.10 per share, was 135,377,884.

C.H. ROBINSON WORLDWIDE, INC.

TABLE OF CONTENTS

	PART I. Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 2019, and December 31, 2018	3
	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018	4
	Consolidated Statements of Stockholders' Investment for the Three and Six Months Ended June 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
	PART II. Other Information
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults on Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	31
Item 6.	Exhibits	31

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

C.H. ROBINSON WORLDWIDE, INC.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

 

	June 30, 2019			December 31, 2018
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	355,307		$	378,615
Receivables, net of allowance for doubtful accounts of $39,175 and $41,131	2,100,246			2,162,438
Contract assets	179,015			159,635
Prepaid expenses and other	72,005			52,386
Total current assets	2,706,573			2,753,074
Property and equipment, net	222,390			228,301
Goodwill	1,291,715			1,258,922
Other intangible assets, net	110,869			108,822
Right-of-use lease assets	262,355			—
Deferred tax assets	12,957			9,993
Other assets	77,250			68,300
Total assets	$	4,684,109		$	4,427,412
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable	$	1,064,432		$	971,023
Outstanding checks	58,213			92,084
Accrued expenses:
Compensation	92,676			153,626
Transportation expense	138,970			119,820
Income taxes	25,309			28,360
Other accrued liabilities	61,948			63,410
Current lease liabilities	54,792			—
Current portion of debt	—			5,000
Total current liabilities	1,496,340			1,433,323
Long-term debt	1,253,849			1,341,352
Noncurrent lease liabilities	215,830			—
Noncurrent income taxes payable	22,063			21,463
Deferred tax liabilities	36,344			35,757
Other long-term liabilities	372			430
Total liabilities	3,024,798			2,832,325
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; 179,423 and 179,400 shares issued, 135,731 and 137,284 outstanding	13,573			13,728
Additional paid-in capital	541,090			521,486
Retained earnings	4,037,610			3,845,593
Accumulated other comprehensive loss	(72,326		)	(71,935		)
Treasury stock at cost (43,692 and 42,116 shares)	(2,860,636		)	(2,713,785		)
Total stockholders’ investment	1,659,311			1,595,087
Total liabilities and stockholders’ investment	$	4,684,109		$	4,427,412

See accompanying notes to the condensed consolidated financial statements.

3

C.H. ROBINSON WORLDWIDE, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income

(unaudited, in thousands except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Transportation	$	3,638,612		$	3,953,139		$	7,143,544		$	7,590,779
Sourcing	270,228			322,898			516,506			610,585
Total revenues	3,908,840			4,276,037			7,660,050			8,201,364
Costs and expenses:
Purchased transportation and related services	2,972,998			3,313,196			5,826,254			6,354,798
Purchased products sourced for resale	240,626			291,358			459,780			549,158
Personnel expenses	338,886			340,630			678,984			668,927
Other selling, general, and administrative expenses	128,795			111,845			242,947			217,888
Total costs and expenses	3,681,305			4,057,029			7,207,965			7,790,771
Income from operations	227,535			219,008			452,085			410,593
Interest and other expense	(6,615		)	(5,128		)	(23,755		)	(15,828		)
Income before provision for income taxes	220,920			213,880			428,330			394,765
Provision for income taxes	51,740			54,717			97,362			93,305
Net income	169,180			159,163			330,968			301,460
Other comprehensive loss	(5,688		)	(27,512		)	(391		)	(28,077		)
Comprehensive income	$	163,492		$	131,651		$	330,577		$	273,383
Basic net income per share	$	1.23		$	1.14		$	2.41		$	2.16
Diluted net income per share	$	1.22		$	1.13		$	2.39		$	2.14
Basic weighted average shares outstanding	137,185			139,464			137,518			139,745
Dilutive effect of outstanding stock awards	1,071			1,147			1,149			1,215
Diluted weighted average shares outstanding	138,256			140,611			138,667			140,960

See accompanying notes to the condensed consolidated financial statements.

4

C.H. ROBINSON WORLDWIDE, INC.

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 Income (Loss)			Treasury Stock			Total Stockholders’ Investment
Balance December 31, 2018	137,284		$	13,728		$	521,486		$	3,845,593		$	(71,935	)	$	(2,713,785	)	$	1,595,087
Net income									161,788									161,788
Foreign currency translation												5,297						5,297
Dividends declared, $0.50 per share									(69,683		)							(69,683		)
Stock issued for employee benefit plans	342		34			(11,520		)							19,059			7,573
Issuance of restricted stock, net of forfeitures	(3	)	—			—												—
Stock-based compensation expense	—		—			17,123									—			17,123
Repurchase of common stock	(734	)	(73		)										(64,551		)	(64,624		)
Balance March 31, 2019	136,889		13,689			527,089			3,937,698			(66,638		)	(2,759,277		)	1,652,561
Net income									169,180									169,180
Foreign currency translation												(5,688		)				(5,688		)
Dividends declared, $0.50 per share									(69,268		)							(69,268		)
Stock issued for employee benefit plans	129		13			(681		)							8,367			7,699
Issuance of restricted stock, net of forfeitures	23		2			(2		)										—
Stock-based compensation expense	—		—			14,684									—			14,684
Repurchase of common stock	(1,310	)	(131		)										(109,726		)	(109,857		)
Balance June 30, 2019	135,731		$	13,573		$	541,090		$	4,037,610		$	(72,326	)	$	(2,860,636	)	$	1,659,311

	Common Shares Outstanding		Amount			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Stockholders’ Investment
Balance December 31, 2017	139,542		$	13,954		$	444,280		$	3,437,093		$	(18,460	)	$	(2,451,122	)	$	1,425,745
Net income									142,297									142,297
Cumulative effect change - revenue recognition									9,239									9,239
Foreign currency translation												(565		)				(565		)
Dividends declared, $0.46 per share									(65,384		)							(65,384		)
Stock issued for employee benefit plans	370		37			(10,441		)							16,810			6,406
Issuance of restricted stock, net of forfeitures	(2	)	—			—												—
Stock-based compensation expense	—		—			18,127									7			18,134
Repurchase of common stock	(557	)	(56		)										(51,144		)	(51,200		)
Balance March 31, 2018	139,353		13,935			451,966			3,523,245			(19,025		)	(2,485,449		)	1,484,672
Net income									159,163									159,163
Foreign currency translation												(27,512		)				(27,512		)
Dividends declared, $0.46 per share									(65,084		)							(65,084		)
Stock issued for employee benefit plans	174		17			(85		)							10,615			10,547
Issuance of restricted stock, net of forfeitures	1		—			—												—
Stock-based compensation expense	—		—			26,570									—			26,570
Repurchase of common stock	(784	)	(78		)										(70,119		)	(70,197		)
Balance June 30, 2018	138,744		$	13,874		$	478,451		$	3,617,324		$	(46,537	)	$	(2,544,953	)	$	1,518,159

See accompanying notes to the condensed consolidated financial statements.

5

C.H. ROBINSON WORLDWIDE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

 

	Six Months Ended June 30,
	2019			2018
OPERATING ACTIVITIES
Net income	$	330,968		$	301,460
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	49,642			48,479
Provision for doubtful accounts	3,224			9,055
Stock-based compensation	31,807			44,704
Deferred income taxes	(5,322		)	(9,014		)
Excess tax benefit on stock-based compensation	(5,353		)	(7,502		)
Other operating activities	961			668
Changes in operating elements (net of acquisitions):
Receivables	89,175			(214,620		)
Contract assets	(19,380		)	(34,483		)
Prepaid expenses and other	(16,404		)	5,326
Accounts payable and outstanding checks	37,378			101,770
Accrued compensation	(60,976		)	(7,381		)
Accrued transportation expense	19,149			45,420
Accrued income taxes	(3,051		)	12,068
Other accrued liabilities	4,166			9,277
Other assets and liabilities	542			3,243
Net cash provided by operating activities	456,526			308,470
INVESTING ACTIVITIES
Purchases of property and equipment	(16,774		)	(20,569		)
Purchases and development of software	(14,790		)	(9,514		)
Acquisitions, net of cash acquired	(58,379		)	(1,315		)
Other investing activities	8			(1,546		)
Net cash used for investing activities	(89,935		)	(32,944		)
FINANCING ACTIVITIES
Proceeds from stock issued for employee benefit plans	27,952			35,846
Stock tendered for payment of withholding taxes	(12,680		)	(18,893		)
Repurchase of common stock	(173,622		)	(119,497		)
Cash dividends	(139,010		)	(130,559		)
Proceeds from long-term borrowings	473,000			591,012
Payments on long-term borrowings	(561,000		)	—
Proceeds from short-term borrowings	14,000			2,418,000
Payments on short-term borrowings	(19,000		)	(3,067,000		)
Net cash used for financing activities	(390,360		)	(291,091		)
Effect of exchange rates on cash	461			(7,750		)
Net change in cash and cash equivalents	(23,308		)	(23,315		)
Cash and cash equivalents, beginning of period	378,615			333,890
Cash and cash equivalents, end of period	$	355,307		$	310,575
Noncash transactions from financing activities:
Accrued share repurchases held in other accrued liabilities	$	3,860		$	2,400

See accompanying notes to the condensed consolidated financial statements.

6

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.

On January 1, 2019, we reorganized our enterprise transportation services structure to combine our North American Surface Transportation (“NAST”) and Robinson Fresh transportation networks. The newly combined transportation network will be managed by and reported under the NAST reportable segment. Our reportable segments are NAST and Global Forwarding with all other segments included in All Other and Corporate. We have determined that the remaining Robinson Fresh segment no longer meets the requirements of a reportable segment. Robinson Fresh will be included in the All Other and Corporate reportable segment with Managed Services, Other Surface Transportation outside of North America, and other miscellaneous revenues and unallocated corporate expenses. Prior period information has been reclassified to conform with this presentation. 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, 2018.

RECENTLY ADOPTED ACCOUNTING STANDARDS

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). This update requires a lessee to recognize on the balance sheet a liability to make lease payments and a corresponding right-of-use lease asset. The guidance also requires certain qualitative and quantitative disclosures about the amount, timing, and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides another transition method no longer requiring application to previously reported periods. Therefore, prior period balances will not be restated. We adopted Topic 842 during the first quarter of 2019 by recognizing right-of-use lease assets and lease liabilities of approximately $265.4 million and $273.3 million, respectively, on January 1, 2019. The adoption of this standard did not have a significant impact on our consolidated results of operations or consolidated statements of cash flows. Refer to Note 11, Leases, for further information.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income, which amends existing guidance for reporting comprehensive income to reflect changes resulting from the Tax Cuts and Jobs Act of 2017 (“Tax Act”). The amendment provides the option to reclassify stranded tax effects resulting from the Tax Act within accumulated other comprehensive income (“AOCI”) to retained earnings. This amendment became effective for us on January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements and disclosures.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and in November 2018 issued a subsequent amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This update significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The update will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. ASU 2018-19 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope of this amendment that have the contractual right to receive cash. This update is effective for fiscal years and interim periods beginning after December 15, 2019, and is effective for our fiscal year beginning January 1, 2020. We are evaluating the impact of the new standard on our consolidated financial position, results of operations, and cash flows.

7

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, 2018, includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. We have expanded these policies below to effect the adoption of Accounting Standards Codification (“ASC”) 842 in the first quarter of 2019.

RIGHT-OF-USE LEASE ASSETS. Right-of-use lease assets are recognized upon lease commencement and represent our right to use an underlying asset for the lease term.

LEASE LIABILITIES. Lease liabilities are recognized at commencement date and represent our obligation to make the lease payments arising from a lease, measured on a discounted basis.

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, 2018(1)	$	1,016,784		$	182,029	$	60,109	$	1,258,922
Acquisitions	—			24,636		7,771		32,407
Translation	(685		)	962		109		386
Balance June 30, 2019	$	1,016,099		$	207,627	$	67,989	$	1,291,715

____________________________________________

⁽¹⁾ Amounts have been reclassified related to the reorganization of the NAST and Robinson Fresh transportation networks discussed in Note 9, Segment Reporting.

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”). As a result of the segment reorganization discussed in Note 9, Segment Reporting, we determined the fair value of each of our reporting units to further support our qualitative assessment and determined the more likely than not criteria had not been met, and therefore a Step One Analysis was not required as of June 30, 2019.

Identifiable intangible assets consisted of the following (in thousands):

	June 30, 2019							December 31, 2018
	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
Finite-lived intangibles
Customer relationships	$	275,243	$	(174,879	)	$	100,364	$	254,293	$	(156,006	)	$	98,287
Non-competition agreements	300		(270		)	30		300		(240		)	60
Total finite-lived intangibles	275,543		(175,149		)	100,394		254,593		(156,246		)	98,347
Indefinite-lived intangibles
Trademarks	10,475		—			10,475		10,475		—			10,475
Total intangibles	$	286,018	$	(175,149	)	$	110,869	$	265,068	$	(156,246	)	$	108,822

8

Amortization expense for other intangible assets is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Amortization expense	$	9,675	$	9,196	$	18,968	$	18,595

Definite-lived intangible assets, by reportable segment, as of June 30, 2019, will be amortized over their remaining lives as follows (in thousands):

	NAST		Global Forwarding		All Other and Corporate		Total
Remainder of 2019	$	3,907	$	15,040	$	310	$	19,257
2020	250		28,071		620		28,941
2021	250		14,551		620		15,421
2022	250		14,551		620		15,421
2023	250		11,938		620		12,808
Thereafter	164		6,884		1,498		8,546
Total							$	100,394

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 June 30, 2019, and December 31, 2018. There were no transfers between levels during the period.

9

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
	June 30, 2019		December 31, 2018		Maturity	June 30, 2019		December 31, 2018
Revolving credit facility	—	%	3.64	%	October 2023	$	—	$	5,000
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
Receivables securitization facility (1)	3.05	%	3.15	%	December 2020	161,823		249,744
Senior Notes (1)	4.20	%	4.20	%	April 2028	592,026		591,608
Total debt						1,253,849		1,346,352
Less: Current maturities and short-term borrowing						—		(5,000		)
Long-term debt						$	1,253,849	$	1,341,352

____________________________________________

⁽¹⁾ Net of unamortized discounts and issuance costs.

SENIOR UNSECURED REVOLVING CREDIT FACILITY

We have a senior unsecured revolving credit facility (the "Credit Agreement"). On October 24, 2018, the Credit Agreement was amended to increase the total availability from $900 million to $1 billion and extend the maturity date from December 31, 2019, to 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 one-month LIBOR plus a specified margin). As of June 30, 2019, the variable rate equaled 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 approximates fair value because of the short maturity period of the debt; therefore, we consider these borrowings to be a Level 2 financial liability.

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 $527.7 million at June 30, 2019. We estimate the fair value of the Notes primarily using an expected present value technique, which is based on observable market inputs using interest rates currently available to companies of similar credit standing for similar terms and remaining maturities, and considering our own risk. If the Notes were recorded at fair value, they would be classified as Level 2.

The Note Purchase Agreement contains various restrictions and covenants that require us to maintain certain financial ratios, including a maximum leverage ratio of 3.00 to 1.00, a minimum interest coverage ratio of 2.00 to 1.00, and a maximum consolidated priority debt to consolidated total asset ratio of 15 percent.

The Note Purchase Agreement provides for customary events of default. The occurrence of an event of default would permit certain Purchasers to declare certain Notes then outstanding to be immediately due and payable. Under the terms of the Note Purchase Agreement, the Notes are redeemable, in whole or in part, at 100 percent of the principal amount being redeemed together with a “make-whole amount” (as defined in the Note Purchase Agreement), and accrued and unpaid interest with

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respect to each Note. The obligations of the company under the Note Purchase Agreement and the Notes are guaranteed by C.H. Robinson Company, a Delaware corporation and a wholly-owned subsidiary of the company, and by C.H. Robinson Company, Inc., a Minnesota corporation and an indirect wholly-owned subsidiary of the company.

U.S. TRADE ACCOUNTS RECEIVABLE SECURITIZATION

On April 26, 2017, we entered into a receivables purchase agreement and related transaction documents with The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch and Wells Fargo Bank, N.A. to provide a receivables securitization facility (the “Receivables Securitization Facility”). On December 17, 2018, we entered into an amended Receivables Securitization Facility with Wells Fargo Bank, N.A. and Bank of America, N.A. to extend the maturity date from April 26, 2019, to December 17, 2020. The Receivables Securitization Facility is based on the securitization of our U.S. trade accounts receivable and provides funding of up to $250 million. The interest rate on borrowings under the Receivables Securitization Facility is based on 30-day LIBOR plus a margin. There is also a commitment fee we are required to pay on any unused portion of the facility. The Receivables Securitization Facility expires on December 17, 2020, unless extended by the parties. The recorded amount of borrowings outstanding on the Receivables Securitization Facility approximates fair value because it can be redeemed on short notice and the interest rate floats, therefore, we consider these borrowings to be a Level 2 financial liability.

The Receivables Securitization Facility contains various customary affirmative and negative covenants, and it also contains customary default and termination provisions which provide for acceleration of amounts owed under the Receivables Securitization Facility upon the occurrence of certain specified events.

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. The proceeds from the Senior Notes were utilized to pay down the balance on our Credit Agreement. 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 $640.9 million as of June 30, 2019, based primarily on the market prices quoted from external sources. The carrying value of the Senior Notes was $592.0 million as of June 30, 2019. If the Senior Notes were measured at fair value in the financial statements, they would be classified as Level 2 in the fair value hierarchy.

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, enter into sales and leaseback transactions 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.

As of June 30, 2019, we were in compliance with all of the covenants under the Credit Agreement, Note Purchase Agreement, Receivables Securitization Facility, and Senior Notes.

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NOTE 5. INCOME TAXES

C.H. Robinson Worldwide, Inc., and its 80 percent (or more) owned U.S. subsidiaries file a consolidated federal return. We file unitary or separate state returns based on state filing requirements. 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 2012. We are currently under an Internal Revenue Service audit for the 2015 tax year.

Our effective tax rate for the three months ended June 30, 2019, and 2018 was 23.4 percent and 25.6 percent, respectively, and our effective tax rate for the six months ended June 30, 2019, and 2018 was 22.7 percent and 23.6 percent, respectively. The effective income tax rate for the three and six months ended June 30, 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 share-based payment awards. Additionally, the six months ended June 30, 2018, included net income tax expense of $1.0 million related to adjustments to the one-time transition tax required as part of the Tax Act. We have asserted that we will indefinitely reinvest earnings of foreign subsidiaries to support expansion of our international business. If we repatriated all foreign earnings, the estimated effect on income taxes payable would be an increase of approximately $16.5 million as of June 30, 2019.

Global Intangible Low-tax Income (“GILTI”) and Foreign Derived Intangible Income (“FDII”) were enacted as part of the Tax Act on December 22, 2017. Although enacted more than a year ago, regulatory guidance on the application of FDII has not been finalized. We have included the tax impact of both GILTI and FDII in our income tax expense for the six months ended June 30, 2019, based on our understanding of the rules available at the time of this filing. However, our calculations could be impacted by future regulations as guidance is finalized. We will continue to monitor any new guidance related to FDII and determine any impact it may have on our calculations.

As of June 30, 2019, we have $39.6 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 $3.0 million in the next 12 months due to lapsing of statutes.

NOTE 6. STOCK AWARD PLANS

Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense as it vests. A summary of our total compensation expense recognized in our condensed consolidated statements of operations and comprehensive income for stock-based compensation is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Stock options	$	4,461	$	7,263	$	8,710	$	12,265
Stock awards	9,584		18,692		21,328		30,904
Company expense on ESPP discount	639		615		1,769		1,535
Total stock-based compensation expense	$	14,684	$	26,570	$	31,807	$	44,704

On May 9, 2019, our shareholders approved an amendment and restatement of our 2013 Equity Incentive Plan to increase the number of shares authorized for award by 4,000,000 shares. The 2013 Equity Incentive 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 5,207,623 shares were available for stock awards under the plan as of June 30, 2019. Shares subject to 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 time-based and performance-based stock options to certain key employees. These options are subject to certain vesting requirements over a five-year period based on the company’s earnings growth or on the employees continued employment. Any options remaining unvested at the end of the five-year vesting period are forfeited to the company. Although participants can exercise options via a stock swap exercise, we do not issue reloads (restoration options) on the grants.

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The fair value of these options is established based on the market price on the date of grant, discounted for post-vesting holding restrictions, calculated using the Black-Scholes option pricing model. Changes in measured stock price volatility and interest rates are the primary reasons for changes in the discount. These grants are being expensed based on the terms of the awards. As of June 30, 2019, unrecognized compensation expense related to stock options was $48.4 million. The amount of future expense to be recognized will be based on the passage of time, the company’s earnings growth, and certain other conditions.

Full Value Awards - We have awarded performance-based shares and restricted stock units to certain key employees and non-employee directors. These awards are subject to certain vesting requirements over a five-year period, based on our earnings growth. The awards also contain restrictions on the awardees’ ability to sell or transfer vested awards for a specified period of time. The fair value of these awards is established based on the market price on the date of grant, discounted for post-vesting holding restrictions. The discounts on outstanding grants vary from 15 percent to 21 percent and are calculated using the Black-Scholes option pricing model-protective put method. Changes in 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 have also awarded time-based restricted shares and restricted stock units to certain key employees that vest primarily based on their continued employment. The value of these awards is established by the market price on the date of the grant, discounted for post-vesting holding restrictions, and is being expensed over the vesting period of the award.

We have also issued restricted stock units to certain key employees and non-employee directors, which are fully vested upon issuance. These units contain restrictions on the awardees’ ability to sell or transfer vested units for a specified period of time. The fair value of these units is established using the same method discussed above. These grants have been expensed during the year they were earned.

As of June 30, 2019, there was unrecognized compensation expense of $100.2 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 growth, and certain other conditions.

Employee Stock Purchase Plan - Our 1997 Employee Stock Purchase Plan ("ESPP") allows our employees to contribute up $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: 

Three Months Ended June 30, 2019
Shares purchased by employees	Aggregate cost to employees		Expense recognized by the company
53,503	$	3,621,065	$	639,011

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 additional losses. However, based upon our historical experience, the resolution of these proceedings is not expected to have a material effect on our consolidated financial position, results of operations, or cash flows.

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NOTE 8. ACQUISITIONS

On May 22, 2019, we acquired all of the outstanding shares of Dema Service S.p.A. (“Dema Service”) to strengthen our existing footprint in Italy. Total purchase consideration, net of cash acquired was $14.2 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	$	4,252

There was $7.8 million of goodwill recorded related to the acquisition of Dema Service. The Dema Service goodwill is a result of acquiring and retaining the Dema Service workforce and expected synergies from integrating its business into ours. Purchase accounting is considered preliminary. No goodwill was recognized for Italian tax purposes from the acquisition. The results of operations of Dema Service have been included as part of the All Other and Corporate segment in our consolidated financial statements since May 23, 2019.

On February 28, 2019, we acquired all of the outstanding shares of The Space Cargo Group (“Space Cargo”) for the purpose of expanding our presence and capabilities in Spain and Colombia. Total purchase consideration, net of cash acquired, was $44.1 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	$	16,439

There was $24.6 million of goodwill recorded related to the acquisition of Space Cargo. The Space Cargo goodwill is a result of acquiring and retaining the Space Cargo workforce and expected synergies from integrating its business into ours. Purchase accounting is considered preliminary. No goodwill was recognized for Spanish tax purposes from the acquisition. The results of operations of Space Cargo have been included as part of the Global Forwarding segment in our consolidated financial statements since March 1, 2019.

NOTE 9. SEGMENT REPORTING

On January 1, 2019, we reorganized our enterprise transportation services structure to combine our NAST and Robinson Fresh transportation networks. The newly combined transportation network will be managed by and reported under the NAST reportable segment. We have determined that the remaining Robinson Fresh segment no longer meets the requirements of a reportable segment and will be included in the All Other and Corporate reportable segment. Prior period information has been reclassified to conform with this presentation. 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 as follows:

• 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, temperature-controlled transportation, LTL, and intermodal.

• 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 services similar to NAST across Europe.

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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.

Reportable segment information as of, and for the three and six months ended June 30, 2019, and 2018, is as follows (dollars in thousands):

	NAST		Global Forwarding		All Other and Corporate			Consolidated
Three Months Ended June 30, 2019
Total revenues	$	2,872,053	$	592,483	$	444,304		$	3,908,840
Net revenues	486,418		141,936		66,862			695,216
Income (loss) from operations	204,732		26,618		(3,815		)	227,535
Depreciation and amortization	6,131		9,315		9,636			25,082
Total assets(1)	2,685,477		1,014,235		984,397			4,684,109
Average headcount	7,533		4,770		3,409			15,712
	NAST		Global Forwarding		All Other and Corporate			Consolidated
Three Months Ended June 30, 2018(2)
Total revenues	$	3,163,185	$	617,597	$	495,255		$	4,276,037
Net revenues	459,706		144,031		67,746			671,483
Income from operations	188,244		29,788		976			219,008
Depreciation and amortization	6,288		8,753		9,197			24,238
Total assets(1)	2,692,908		861,080		899,296			4,453,284
Average headcount	7,401		4,736		3,092			15,229

	NAST		Global Forwarding			All Other and Corporate			Consolidated
Six Months Ended June 30, 2019
Total revenues	$	5,668,837	$	1,130,050		$	861,163		$	7,660,050
Net revenues	972,968		269,172			131,876			1,374,016
Income (loss) from operations	416,015		40,821			(4,751		)	452,085
Depreciation and amortization	12,390		18,241			19,011			49,642
Total assets(1)	2,685,477		1,014,235			984,397			4,684,109
Average headcount	7,486		4,728			3,343			15,557
	NAST		Global Forwarding			All Other and Corporate			Consolidated
Six Months Ended June 30, 2018(2)
Total revenues	$	6,071,604	$	1,171,351		$	958,409		$	8,201,364
Net revenues	898,108		267,068			132,232			1,297,408
Income from operations	367,881		38,009			4,703			410,593
Depreciation and amortization	12,619		17,662			18,198			48,479
Total assets(1)	2,692,908		861,080			899,296			4,453,284
Average headcount	7,368		4,743		<