C. H. ROBINSON WORLDWIDE, INC. - FORM 8-K - EX-99.1 - October 27, 2020

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C.H. Robinson
14701 Charlson Rd.
Eden Prairie, MN 55347
www.chrobinson.com

FOR INQUIRIES, CONTACT:
Chuck Ives, Director of Investor Relations
Email: chuck.ives@chrobinson.com

FOR IMMEDIATE RELEASE

C.H. Robinson Reports 2020 Third Quarter Results
MINNEAPOLIS, MN, October 27, 2020 - C.H. Robinson Worldwide, Inc. (“C.H. Robinson”) (Nasdaq: CHRW) today reported financial results for the quarter ended September 30, 2020.
Third Quarter Key Metrics:
•Total revenues increased 9.6 percent to $4.2 billion
•Net revenues decreased 7.0 percent to $589.3 million
•Income from operations decreased 16.3 percent to $168.2 million
•Operating margin decreased 310 basis points to 28.6 percent
•Diluted earnings per share (EPS) decreased 6.5 percent to $1.00
•Cash flow from operations decreased $335.9 million to $168.6 million used by operations

“We were able to deliver solid performance across our diversified business portfolio and improve our results as the quarter progressed due to the efforts of our C.H. Robinson team members around the world,” said Bob Biesterfeld, Chief Executive Officer of C.H. Robinson. "We also continued to make progress on our strategic, long-term initiatives around profitable market share gains, productivity improvements and technology advancements."
Biesterfeld continued, “Against a challenging backdrop, we delivered on our contractual commitments with acceptance rates that were above the industry average, while also serving customers' needs in the spot market.”


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Summary of Third Quarter Results Compared to the Third Quarter of 2019
•Total revenues increased 9.6 percent to $4.2 billion, driven primarily by higher pricing and higher volume across most of our service lines.
•Net revenues decreased 7.0 percent to $589.3 million, primarily driven by rising costs and lower margin in truckload services, partially offset by contributions from the acquisition of Prime Distribution Services ("Prime") and higher pricing in most of our service lines.
•Operating expenses decreased 2.6 percent to $421.0 million, primarily due to approximately $40 million of cost savings. Personnel expenses decreased 5.5 percent to $302.9 million, driven primarily by short-term cost reductions. Average headcount decreased 5.6 percent, which included headcount additions from Prime that added approximately 2.0 percentage points. Average full-time equivalents decreased 7.6 percent due to furloughs and reduced work hours that were implemented in the second quarter and ended in the third quarter. Selling, general and administrative (“SG&A”) expenses of $118.1 million increased 5.7 percent, primarily due to the ongoing expenses from the acquisition of Prime and the prior year period benefiting from a $5.8 million gain on the sale of an office building in Chicago, partially offset by significantly lower travel expenses.
•Income from operations totaled $168.2 million, down 16.3 percent due to declining net revenues. Operating margin of 28.6 percent declined 310 basis points.
•Interest and other expenses totaled $7.5 million, consisting primarily of $11.9 million of interest expense, which decreased $0.8 million versus last year due to a lower average debt balance. The third quarter also included a $3.3 million favorable impact from foreign currency revaluation and realized foreign currency gains and losses.
•The effective tax rate in the quarter was 15.1 percent compared to 21.8 percent in the third quarter last year. The lower effective tax rate was due primarily to the discrete benefits from foreign tax credit utilization and additional deductions from increased employee stock option activity in the third quarter.
•Net income totaled $136.5 million, down 7.1 percent from a year ago. Diluted EPS of $1.00 decreased 6.5 percent.


Summary of Year-to-Date Results Compared to the Same Period in 2019

•Total revenues increased 1.2 percent to $11.7 billion, driven by higher pricing in air and ocean services, largely offset by a decline in truckload revenue.
•Net revenues decreased 11.7 percent to $1.8 billion, primarily driven by lower margin in truckload services, partially offset by contributions from the Prime acquisition and margin expansion in air services.
•Operating expenses decreased 3.6 percent to $1.3 billion. Personnel expenses decreased 6.6 percent to $933.6 million, driven primarily by cost reductions, including a 2.6 percent decrease in average headcount, and a decline in variable compensation. SG&A expenses increased 4.8 percent to $371.6 million, due primarily to ongoing expenses from the Prime acquisition, an $11.5 million loss on the sale-leaseback of a company-owned data center, and an increase in purchased services, partially offset by significantly lower travel expenses.
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•Income from operations totaled $466.5 million, down 28.6 percent from last year due to declining net revenues. Operating margin of 26.3 percent decreased 620 basis points.
•Interest and other expenses totaled $32.9 million, which primarily consists of $36.6 million of interest expense. The nine-month period also included a $2.2 million favorable impact from foreign currency revaluation and realized foreign currency gains and losses.
•The effective tax rate for the nine months was 17.3 percent compared to 22.5 percent in the year-ago period. The lower effective tax rate was due primarily to the tax benefit related to stock-based compensation and the discrete benefits of foreign tax credit utilization.
•Net income totaled $358.6 million, down 25.0 percent from a year ago. Diluted EPS of $2.63 decreased 23.8 percent.


North American Surface Transportation Results
Summarized financial results of our NAST segment are as follows (dollars in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
20202019% change20202019% change
Total revenues$2,923,842 $2,826,308 3.5 %$8,222,879 $8,495,145 (3.2)%
Net revenues367,943 433,760 (15.2)%1,120,277 1,406,728 (20.4)%
Income from operations122,526 176,200 (30.5)%357,898 592,215 (39.6)%


Third quarter total revenues for C.H. Robinson's NAST segment totaled $2.9 billion, an increase of 3.5 percent over the prior year, primarily driven by higher truckload pricing and an increase in less than truckload ("LTL") shipments. NAST net revenues decreased 15.2 percent in the quarter to $367.9 million, with the March 2020 acquisition of Prime contributing 3.5 percentage points of net revenue growth in the quarter. Net revenues in truckload decreased 24.1 percent, less than truckload net revenues decreased 4.4 percent, and intermodal net revenues increased 6.1 percent versus the year-ago period. Excluding fuel surcharges and costs, average North America truckload linehaul rate per mile charged to customers increased approximately 10.5 percent in the quarter, while truckload linehaul cost per mile increased approximately 16.5 percent. Truckload volume increased 0.5 percent in the quarter, and LTL volumes grew 13.5 percent, both representing market share gains in the quarter when compared to an 8 percent decline in industry volumes, as measured by the Cass Freight Index. Intermodal volumes grew 2.5 percent versus the prior year. Operating expenses decreased 4.7 percent primarily due to short-term cost reductions. Income from operations decreased 30.5 percent to $122.5 million, and operating margin declined 730 basis points to 33.3 percent. NAST average headcount was down 10.0 percent in the quarter,
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with Prime contributing 4.5 percentage points of growth. NAST average full-time equivalents, which excludes furloughed employees and accounts for employees with reduced work hours, was down 13.4 percent.


Global Forwarding Results
Summarized financial results of our Global Forwarding segment are as follows (dollars in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
20202019% change20202019% change
Total revenues$831,957 $597,695 39.2 %$2,070,161 $1,727,745 19.8 %
Net revenues157,657 135,815 16.1 %448,931 404,987 10.9 %
Income from operations46,299 24,676 87.6 %117,033 65,497 78.7 %


Third quarter total revenues for the Global Forwarding segment increased 39.2 percent to $832.0 million, primarily driven by higher pricing in ocean and higher pricing in air due to reduced air cargo capacity, increased charter flights and larger shipment sizes. Net revenues increased 16.1 percent in the quarter to $157.7 million. Ocean net revenues increased 14.3 percent, driven primarily by higher pricing and a 1.5 percent increase in volumes. Net revenues in air increased 29.2 percent driven by higher pricing, partially offset by a 19.0 percent decline in shipments. Customs net revenues decreased 5.3 percent, primarily driven by a 2.5 percent reduction in transaction volume. Operating expenses increased 0.2 percent, primarily driven by increased incentive compensation in personnel expenses and partially offset by short-term cost reductions. Third quarter average headcount decreased 3.8 percent, and average full-time equivalents decreased 4.7 percent. Income from operations increased 87.6 percent to $46.3 million, and operating margin expanded 1,120 basis points to 29.4 percent in the quarter.


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All Other and Corporate Results

Total revenues and net revenues for Robinson Fresh, Managed Services and Other Surface Transportation are summarized as follows (dollars in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
20202019% change20202019% change
Total revenues$469,001 $432,129 8.5 %$1,364,614 $1,293,292 5.5 %
Net revenues:
Robinson Fresh$24,449 $26,382 (7.3)%$82,109 $86,276 (4.8)%
Managed Services24,060 21,574 11.5 %70,090 61,985 13.1 %
Other Surface Transportation15,164 15,900 (4.6)%50,272 47,471 5.9 %

Third quarter Robinson Fresh net revenues decreased 7.3 percent to $24.4 million, primarily due to a 4.0 percent decrease in case volume, which was driven by a decline in foodservice volume. Managed Services net revenues increased 11.5 percent in the quarter, primarily due to a 17.0 percent increase in volume. Other Surface Transportation net revenues decreased 4.6 percent to $15.2 million. Europe truckload net revenue was down 7 percent in the quarter.


Other Income Statement Items
The third quarter effective tax rate was 15.1 percent, down from 21.8 percent last year. The lower effective tax rate was due primarily to discrete benefits from foreign tax credit utilization and the tax benefit from increased stock option activity in the third quarter. We now expect our 2020 full-year effective tax rate to be 18 to 20 percent.
Interest and other expenses totaled $7.5 million, consisting primarily of $11.9 million of interest expense, which decreased $0.8 million versus last year due to a lower average debt balance. The third quarter also included a $3.3 million favorable impact from foreign currency revaluation and realized foreign currency gains and losses.
Diluted weighted average shares outstanding in the quarter were down 0.3 percent due primarily to share repurchases over the past twelve months.


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Cash Flow Generation and Capital Distribution
Cash used by operations totaled $168.6 million in the third quarter, compared to $167.3 million of cash generated in the third quarter of 2019. The $336 million decrease in cash flow was driven primarily by a $362 million sequential increase in accounts receivable and contract assets that coincided with an increase in gross sales.
In the third quarter, $71.9 million was returned to shareholders, with $70.3 million in cash dividends and $1.6 million in share repurchases related to employee benefit plans.
Capital expenditures totaled $15.2 million in the quarter. Full-year 2020 capital expenditures are now expected to be $50 million to $55 million, with the majority dedicated to technology.


Outlook
“We believe we are still in the midst of a strengthening freight cycle that we anticipate will continue into 2021. Freight markets are continuing to tighten in the fourth quarter due to higher demand as we enter the holiday season and lower availability of carrier capacity. At C.H. Robinson, we'll continue to evaluate our global business operations to ensure we manage our business in the most efficient manner, deliver industry leading technology to unlock growth and efficiency, create better outcomes for our customers and carriers by utilizing our unmatched combination of experience, global suite of services, scale and information advantage, grow profitable market share, and drive the transformation of C.H. Robinson, so that we can emerge from this time of uncertainty as an even stronger company,” Biesterfeld stated.



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About C.H. Robinson
C.H. Robinson solves logistics problems for companies across the globe and across industries, from the simple to the most complex. With nearly $20 billion in freight under management and 18 million shipments annually, we are one of the world’s largest logistics platforms. Our global suite of services accelerates trade to seamlessly deliver the products and goods that drive the world’s economy. With the combination of our multimodal transportation management system and expertise, we use our information advantage to deliver smarter solutions for our more than 119,000 customers and 78,000 contract carriers. Our technology is built by and for supply chain experts to bring faster, more meaningful improvements to our customers’ businesses. As a responsible global citizen, we are also proud to contribute millions of dollars to support causes that matter to our company, our Foundation and our employees. For more information, visit us at www.chrobinson.com (Nasdaq: CHRW).

Except for the historical information contained herein, the matters set forth in this release are forward-looking statements that represent our expectations, beliefs, intentions or strategies concerning future events. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience or our present expectations, including, but not limited to, such factors such as changes in economic conditions, including uncertain consumer demand; changes in market demand and pressures on the pricing for our services; competition and growth rates within the third party logistics industry; freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight; changes in relationships with existing contracted truck, rail, ocean, and air carriers; changes in our customer base due to possible consolidation among our customers; our ability to successfully integrate the operations of acquired companies with our historic operations; risks associated with litigation, including contingent auto liability and insurance coverage; risks associated with operations outside of the United States; risks associated with the potential impact of changes in government regulations; risks associated with the produce industry, including food safety and contamination issues; fuel price increases or decreases, or fuel shortages; cyber-security related risks; the impact of war on the economy; changes to our capital structure; risks related to the elimination of LIBOR; changes due to catastrophic events including pandemics such as COVID-19; and other risks and uncertainties detailed in our Annual and Quarterly Reports.
Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update such statement to reflect events or circumstances arising after such date. All remarks made during our financial results conference call will be current at the time of the call, and we undertake no obligation to update the replay.

Conference Call Information:
C.H. Robinson Worldwide Third Quarter 2020 Earnings Conference Call
Wednesday, October 28, 2020; 8:30 a.m. Eastern Time
Presentation slides and a simultaneous live audio webcast of the conference call may be accessed through the Investor Relations link on C.H. Robinson’s website at www.chrobinson.com.
To participate in the conference call by telephone, please call ten minutes early by dialing: 877-269-7756
International callers dial +1-201-689-7817

We invite call participants to submit questions in advance of the conference call, and we will respond to as many of the questions as we can in the time allowed. To submit your question(s) in advance of the call, please email chuck.ives@chrobinson.com.

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Summarized Financial Results
($ in thousands, except per share data)

This table of summary results presents our service line net revenues consistent with our historical presentation and is on an enterprise basis. The service line net revenues in the table differ from the service line net revenues discussed within the segments as our segments have revenues from multiple service lines.

Three Months Ended September 30,Nine Months Ended September 30,
20202019% change20202019% change
Total revenues$4,224,800 $3,856,132 9.6 %$11,657,654 $11,516,182 1.2 %
Net revenues:
  Transportation
     Truckload$251,072 $317,990 (21.0)%$794,364 $1,067,334 (25.6)%
     LTL118,561 124,523 (4.8)%339,426 363,743 (6.7)%
     Intermodal7,455 7,110 4.9 %22,775 19,484 16.9 %
     Ocean88,927 77,879 14.2 %237,682 234,884 1.2 %
     Air34,977 27,121 29.0 %115,720 80,837 43.2 %
     Customs22,464 23,719 (5.3)%63,118 68,903 (8.4)%
     Other logistics services42,874 30,025 42.8 %121,271 90,472 34.0 %
     Total transportation566,330 608,367 (6.9)%1,694,356 1,925,657 (12.0)%
  Sourcing22,943 25,064 (8.5)%77,323 81,790 (5.5)%
Total net revenues589,273 633,431 (7.0)%1,771,679 2,007,447 (11.7)%
Operating expenses421,034 432,346 (2.6)%1,305,213 1,354,277 (3.6)%
Income from operations168,239 201,085 (16.3)%466,466 653,170 (28.6)%
Net income$136,529 $146,894 (7.1)%$358,614 $477,862 (25.0)%
Diluted EPS$1.00 $1.07 (6.5)%$2.63 $3.45 (23.8)%

Our total revenues represent the total dollar value of services and goods we sell to our customers. Net revenues are a non-GAAP financial measure calculated as total revenues less the cost of purchased transportation and related services and the cost of purchased products sourced for resale. We believe net revenues are a useful measure of our ability to source, add value, and sell services and products that are provided by third parties, and we consider net revenues to be our primary performance measurement. Accordingly, the discussion of our results of operations often focuses on the changes in our net revenues. The reconciliation of total revenues to net revenues is presented below (in thousands):

 Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenues:
Transportation$3,944,981 $3,608,346 $10,835,710 $10,751,890 
Sourcing279,819 247,786 821,944 764,292 
Total revenues4,224,800 3,856,132 11,657,654 11,516,182 
Costs and expenses:
Purchased transportation and related services3,378,651 2,999,979 9,141,354 8,826,233 
Purchased products sourced for resale256,876 222,722 744,621 682,502 
Total costs and expenses3,635,527 3,222,701 9,885,975 9,508,735 
Total net revenues$589,273 $633,431 $1,771,679 $2,007,447 
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Condensed Consolidated Statements of Income
(unaudited, in thousands, except per share data)

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenues:
 Transportation$3,944,981 $3,608,346 $10,835,710 $10,751,890 
 Sourcing279,819 247,786 821,944 764,292 
   Total revenues4,224,800 3,856,132 11,657,654 11,516,182 
Costs and expenses:
 Purchased transportation and related services3,378,651 2,999,979 9,141,354 8,826,233 
 Purchased products sourced for resale256,876 222,722 744,621 682,502 
 Personnel expenses302,904 320,563 933,607 999,547 
 Other selling, general, and administrative expenses118,130 111,783 371,606 354,730 
   Total costs and expenses4,056,561 3,655,047 11,191,188 10,863,012 
Income from operations168,239 201,085 466,466 653,170 
Interest and other expense(7,465)(13,180)(32,904)(36,935)
Income before provision for income taxes160,774 187,905 433,562 616,235 
Provision for income taxes24,245 41,011 74,948 138,373 
Net income$136,529 $146,894 $358,614 $477,862 
Net income per share (basic)$1.01 $1.08 $2.65 $3.48 
Net income per share (diluted)$1.00 $1.07 $2.63 $3.45 
Weighted average shares outstanding (basic)135,671 136,380 135,385 137,274 
Weighted average shares outstanding (diluted)137,128 137,476 136,137 138,373 

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Business Segment Information
(unaudited, dollars in thousands)

NASTGlobal Forwarding
All
Other and Corporate
Consolidated
Three Months Ended September 30, 2020
Total revenues$2,923,842 $831,957 $469,001 $4,224,800 
Net revenues367,943 157,657 63,673 589,273 
Income (loss) from operations122,526 46,299 (586)168,239 
Depreciation and amortization7,095 9,385 10,436 26,916 
Total assets (1)
3,041,974 1,148,118 884,746 5,074,838 
Average headcount6,702 4,607 3,595 14,904 
Average full-time equivalents(2)
6,351 4,430 3,449 14,230 
NASTGlobal Forwarding
All
Other and Corporate
Consolidated
Three Months Ended September 30, 2019
Total revenues$2,826,308 $597,695 $432,129 $3,856,132 
Net revenues433,760 135,815 63,856 633,431 
Income from operations176,200 24,676 209 201,085 
Depreciation and amortization5,734 9,186 10,560 25,480 
Total assets (1)
2,649,259 995,137 992,153 4,636,549 
Average headcount7,448 4,790 3,544 15,782 
Average full-time equivalents(2)
7,332 4,647 3,425 15,404 

____________________________________________
(1) All cash and cash equivalents are included in All Other and Corporate.
(2) Average full-time equivalents excludes furloughed employees and accounts for employees with reduced work hours.

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Business Segment Information
(unaudited, dollars in thousands)

NASTGlobal Forwarding
All
Other and Corporate
Consolidated
Nine Months Ended September 30, 2020
Total revenues$8,222,879 $2,070,161 $1,364,614 $11,657,654 
Net revenues1,120,277 448,931 202,471 1,771,679 
Income (loss) from operations357,898 117,033 (8,465)466,466 
Depreciation and amortization19,550 27,740 29,777 77,067 
Total assets (1)
3,041,974 1,148,118 884,746 5,074,838 
Average headcount6,870 4,716 3,591 15,177 
NASTGlobal Forwarding
All
Other and Corporate
Consolidated
Nine Months Ended September 30, 2019
Total revenues$8,495,145 $1,727,745 $1,293,292 $11,516,182 
Net revenues1,406,728 404,987 195,732 2,007,447 
Income (loss) from operations592,215 65,497 (4,542)653,170 
Depreciation and amortization18,124 27,427 29,571 75,122 
Total assets (1)
2,649,259 995,137 992,153 4,636,549 
Average headcount7,436 4,748 3,398 15,582 

____________________________________________
(1) All cash and cash equivalents are included in All Other and Corporate.




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Condensed Consolidated Balance Sheets
(unaudited, in thousands)

September 30, 2020December 31, 2019
Assets
   Current assets:
     Cash and cash equivalents$252,569 $447,858 
     Receivables, net of allowance for credit loss2,346,384 1,974,381 
     Contract assets, net of allowance for credit loss187,973 132,874 
Prepaid expenses and other65,773 85,005 
        Total current assets2,852,699 2,640,118 
 
  Property and equipment, net183,244 208,423 
Right-of-use lease assets339,819 310,860 
  Intangible and other assets1,699,076 1,481,659 
Total assets$5,074,838 $4,641,060 
Liabilities and stockholders’ investment
  Current liabilities:
     Accounts payable and outstanding checks$1,268,905 $1,062,835 
     Accrued expenses:
        Compensation130,958 112,784 
        Transportation expense147,590 101,194 
        Income taxes12,074 12,354 
        Other accrued liabilities74,781 62,706 
Current lease liabilities66,692 61,280 
Current portion of debt59,979 142,885 
        Total current liabilities1,760,979 1,556,038 
Long-term debt1,093,087 1,092,448 
Noncurrent lease liabilities279,212 259,444 
Noncurrent income taxes payable22,981 22,354 
Deferred tax liabilities44,942 39,776 
  Other long-term liabilities278 270 
Total liabilities3,201,479 2,970,330 
Total stockholders’ investment1,873,359 1,670,730 
Total liabilities and stockholders’ investment$5,074,838 $4,641,060 

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Condensed Consolidated Statements of Cash Flow
(unaudited, in thousands, except operational data)

Nine Months Ended September 30,
20202019
Operating activities:
Net income$358,614 $477,862 
Adjustments to reconcile net income to net cash provided by operating activities:
 Depreciation and amortization77,067 75,122 
 Provision for credit losses12,701 642 
 Stock-based compensation33,127 40,657 
 Deferred income taxes(9,468)(3,360)
 Excess tax benefit on stock-based compensation(17,127)(6,908)
Other operating activities13,104 (4,471)
Changes in operating elements, net of acquisitions:
Receivables(367,538)104,108 
Contract assets (56,131)9,067 
Prepaid expenses and other12,331 (18,940)
Accounts payable and outstanding checks186,755 3,871 
Accrued compensation16,458 (45,319)
Accrued transportation expenses46,396 (5,323)
Accrued income taxes17,125 (7,042)
Other accrued liabilities8,907 5,210 
Other assets and liabilities4,728 (1,318)
Net cash provided by operating activities337,049 623,858 
Investing activities:
Purchases of property and equipment(17,446)(26,661)
Purchases and development of software(22,815)(24,282)
Acquisitions, net of cash acquired(223,230)(59,188)
Other investing activities5,525 16,625 
Net cash used for investing activities(257,966)(93,506)
Financing activities:
Proceeds from stock issued for employee benefit plans100,542 40,442 
Total repurchases of common stock(85,098)(255,655)
Cash dividends(207,428)(207,865)
  Proceeds from long-term borrowings— 929,000 
  Payments on long-term borrowings— (1,018,000)
Proceeds from short-term borrowings1,043,600 14,000 
Payments on short-term borrowings(1,126,600)(19,000)
Net cash used for financing activities(274,984)(517,078)
Effect of exchange rates on cash612 (7,465)
Net change in cash and cash equivalents(195,289)5,809 
Cash and cash equivalents, beginning of period447,858 378,615 
Cash and cash equivalents, end of period$252,569 $384,424 
As of September 30,
Operational Data:20202019
Employees 14,695 15,654 


Source: C.H. Robinson
CHRW-IR
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C. H. ROBINSON WORLDWIDE, INC. Reports