C.H. Robinson Worldwide, Inc. — FY 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual filing, not a standalone fourth-quarter report; selected Q4 figures are included below. C.H. Robinson is a third-party logistics provider that arranges transportation without owning the transport equipment, and also operates produce sourcing and payment/information services businesses. Management identifies net revenues (total revenues less direct transportation and product costs) as its primary performance measure.
Financial performance
| Metric | FY 2009 | FY 2008 | Change |
|---|---|---|---|
| Total revenues | $7.577 billion | $8.579 billion | -11.7% |
| Net revenues | $1.382 billion | $1.375 billion | +0.5% |
| Income from operations | $584.8 million | $571.6 million | +2.3% |
| Net income | $360.8 million | $359.2 million | +0.5% |
| Diluted EPS | $2.13 | $2.08 | +2.4% |
| Operating expenses / net revenues | 57.7% | 58.4% | Improved |
| Net revenue margin | 18.2% | 16.0% | Improved |
| Cash flow from operations | $372.6 million | $447.6 million | -16.8% |
Transportation net revenues were $1.208 billion, down 0.4%; sourcing net revenues were $128.6 million, up 15.2%; and information services net revenues were $45.8 million, down 9.8%. Transportation net revenue margin rose to 20.2% from 17.0%, primarily reflecting lower fuel prices and lower capacity costs. Net income margin was 26.1% in both years. The effective tax rate increased to 38.5% from 37.9%. Investment and other income fell to $2.25 million from $6.80 million, mainly due to lower investment yields.
Q4 2009: Total revenues were $2.008 billion versus $1.955 billion in Q4 2008; operating income was $142.8 million versus $142.4 million; net income was $87.7 million versus $88.9 million; diluted EPS was $0.52 versus $0.52. The filing’s quarterly figures imply net revenues of approximately $339.1 million versus $344.2 million, calculated as total revenues less purchased transportation and sourced products.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $337.3 million at year-end, down from $494.7 million; available-for-sale securities were $51.3 million, versus $2.6 million. Cash and investments totaled $388.6 million.
- Working capital was $575.5 million, down from $650.2 million. Total assets were $1.834 billion and stockholders’ investment was $1.080 billion.
- The company reported no long-term debt or capital lease obligations. It said cash and expected operating cash generation should cover anticipated working capital, capital expenditure, and dividend needs.
- Operating cash flow was $372.6 million; investing activities used $123.9 million and financing activities used $402.1 million. Higher receivables contributed to the decline in operating cash flow.
- Dividends paid were $162.9 million; share repurchases were $266.9 million. The annual dividend was $0.97 per share. A further 10 million-share repurchase authorization was approved in 2009, expected to be used over multiple years.
- Contractual obligations totaled $117.0 million, chiefly $106.2 million of operating leases. The filing reports no off-balance-sheet arrangements.
Material changes and management commentary
- The recession reduced freight demand, shipment volumes in several modes, and transportation rates. Total revenue fell as fuel costs and underlying freight rates declined, while net revenues and earnings edged higher as direct costs fell and operating expenses were managed.
- Truck net revenues rose 1.0%; truckload volumes declined 0.8%, while truckload rates fell about 16% including fuel (about 5% excluding the estimated fuel effect). LTL volumes rose about 27%. Intermodal, ocean, and air net revenues declined.
- Headcount fell by 614 during 2009, largely in the first quarter; year-end employees totaled 7,347. The company added seven net branches and acquired Walker, ITC, and Rosemont for approximately $45.8 million in aggregate purchase price.
- Management’s long-term growth objective remains 15% annually for net revenues, operating income, and EPS. The company did not achieve that objective in 2009 and did not expect 2010 performance to meet it given recessionary conditions. Management reported margin compression and accelerating North American truckload volume growth continuing into January 2010, with net revenue margin comparisons expected to remain challenging. Limited branch openings were planned for 2010.
- The independent auditor gave an unqualified opinion on the financial statements and internal controls. Management and the auditor excluded the 2009 acquisitions from the year-end internal-control assessment; together they represented less than 5% of assets and less than 1% of revenue and net income.
Risks, contingencies, and unusual items
- Accident litigation: A 2009 jury verdict of $23.75 million was entered against the company, a contracted motor carrier, and its driver. The company was pursuing appeal and recorded no liability because it considered multiple outcomes reasonably possible but none probable. Under its 2004 insurance program, the company would bear the first $5.0 million of claims of this nature.
- Other cited risks include recession-related freight declines and customer credit losses, carrier capacity or provider failures, pricing competition, fuel and capacity cost changes, employee retention, technology interruption or unauthorized access, international operating risks, and regulatory changes.
- Produce sourcing exposes the company to supply and price volatility, spoilage, contamination, product recalls, and potentially uninsured recall or consequential costs. Transportation claims may exceed carrier insurance or company coverage; the company’s contingent auto-liability retention was $5 million per incident for 2009 and 2010.
- The company disclosed $10.5 million of unrecognized tax benefits and related interest and penalties; timing of settlement was uncertain. A Level 3 contingent acquisition purchase-price liability was $14.7 million.
- Seasonality typically results in lower operating income in the first quarter. A hypothetical 100-basis-point interest-rate change was not expected to materially affect earnings; foreign-currency risk was described as not material.
Key facts for investors to verify
- Whether freight-volume recovery and rising capacity costs continue to compress transportation net revenue margins, especially in truckload.
- How receivables, doubtful-account provisions, and customer bankruptcies develop after the 2009 increase in receivables and credit risk.
- The outcome of the $23.75 million accident verdict appeal, potential company exposure, and insurance coverage.
- Whether cash generation can support planned repurchases and dividends while maintaining liquidity and funding acquisitions.
- Integration and control assessments for Walker, ITC, and Rosemont, and performance of those acquisitions.
- Management’s statements about 2010 are outlook commentary, not a quantified earnings or revenue forecast; the filing does not provide formal 2010 financial guidance.