C.H. Robinson Worldwide, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; filed March 1, 2013. This is an annual report, not a standalone Q4 filing. C.H. Robinson is a global third-party logistics provider, with fresh-produce sourcing and payment services. It operated 276 branches, served over 42,000 active customers, and handled approximately 11.5 million shipments.
Financial performance
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Total revenue | $11.36 billion | $10.34 billion | +9.9% |
| Net revenue | $1.718 billion | $1.633 billion | +5.2% |
| Income from operations | $675.3 million | $692.7 million | -2.5% |
| Net income | $593.8 million | $431.6 million | +37.6% |
| Diluted EPS | $3.67 | $2.62 | +40.1% |
| Cash from operations | $460.3 million | $429.7 million | +7.1% |
- Reported net income included a $281.6 million gain on the T-Chek divestiture. The company’s non-GAAP adjusted net income was $447.0 million and adjusted diluted EPS was $2.76, versus $431.6 million and $2.62 in 2011. Adjusted operating income was $720.5 million versus $692.7 million.
- Transportation generated $1.528 billion of net revenue, up 5.8%; sourcing generated $136.4 million, up 6.2%; payment services generated $53.0 million, down 12.1%, mainly due to the T-Chek sale.
- Transportation net revenue margin declined to 15.8% from 16.5%; total net revenue margin declined to 15.1% from 15.8%. Operating expenses rose 10.9%, including $33.0 million of incremental equity-award vesting expense triggered by the T-Chek gain and $10.6 million of acquisition/divestiture-related external fees.
- Cash and cash equivalents were $210.0 million, down from $373.7 million; working capital was $440.1 million, down from $734.9 million. Total assets were $2.804 billion and stockholders’ investment was $1.504 billion.
- Investing activities used $359.1 million, including $583.6 million for acquisitions, partly offset by $274.8 million of net cash proceeds from the T-Chek sale. Capital expenditures were $50.7 million.
- The company reported $253.6 million of current debt and had a $500 million revolving credit facility, with a further $500 million accordion feature, expiring in 2017. It reported covenant compliance. The filing cites approximately $253.0 million outstanding in the debt note; the filing text does not provide a single consistent debt balance across disclosures.
Material changes and unusual items
- In October 2012, C.H. Robinson sold substantially all T-Chek operations to Electronic Funds Source for $302.5 million cash, subject to adjustments, recording a $281.6 million gain. It expected to retain about $3 million per quarter in payment-services revenue from carrier cash advances.
- It acquired Poland-based Apreo in October for approximately $26.5 million and freight forwarder Phoenix in November for $660.6 million of stated purchase consideration, net of estimated adjustments. Phoenix was financed with cash, revolving-credit borrowings, and approximately $60.2 million in newly issued shares.
- Goodwill rose to $822.2 million from $359.7 million, primarily reflecting acquisitions. Phoenix purchase accounting was preliminary at year-end.
- Q4 2012 net income was $256.4 million versus $109.2 million in Q4 2011, substantially affected by the divestiture gain. Q4 operating income was $133.6 million versus $172.0 million.
Outlook, risks and contingencies
- Management reiterated a long-term compounded annual growth objective of 15% for net revenue, operating income, and EPS, while cautioning that results may vary and the objective is not assured guidance. Expected 2013 capital expenditures were approximately $55–$60 million.
- Management said cash, expected operating cash generation, and available credit were expected to cover working capital, capital expenditures, dividends, and repurchases under its current business plan. The company declared a $0.35 quarterly dividend payable March 29, 2013.
- Key risks include economic and freight-volume downturns; carrier capacity and pricing, fuel costs, and margin pressure; customer and carrier credit or concentration; competition; reliance on third-party transportation providers and proprietary technology; cyber or operational disruption; international and regulatory exposure; and produce supply, food-safety, spoilage, and product-liability risks.
- Routine litigation included eight contingent auto-liability cases; accrued amounts were described as immaterial, but possible additional losses could not be reliably estimated. The company reported no material off-balance-sheet arrangements.
- Management and the auditor concluded internal control over financial reporting was effective. However, the assessment excluded portions of controls at Phoenix and Apreo, acquired in Q4; the acquisitions represented approximately 9% of total assets, excluding acquired goodwill and intangibles.
Important facts for investors to verify
- Reconcile reported earnings and EPS with adjusted figures, focusing on the T-Chek gain and acquisition/divestiture-related expenses.
- Review the sustainability of transportation margins amid capacity costs, fuel changes, and customer pricing.
- Track integration of Phoenix and Apreo, preliminary purchase accounting, goodwill, and the acquired businesses’ contribution to results.
- Confirm debt balances and liquidity disclosures, including revolving-facility usage, maturities, and covenant headroom.
- Assess working-capital trends, customer collections, capital spending, dividends, and share repurchases against operating cash generation.
- Monitor integration of acquired-company controls and exposure to auto claims, cyber disruption, and produce-related risks.