Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Our company. We are a global provider of transportation services and logistics solutions, operating through a network of offices in North America, Europe, Asia, Australia, New Zealand, and South America. As a third party logistics provider, we enter into contractual relationships with a wide variety of transportation companies, and utilize those relationships to efficiently and cost effectively transport our customers’ freight. We have contractual relationships with approximately 107,000 transportation companies, including motor carriers, railroads (primarily intermodal service providers), air freight, and ocean carriers. Depending on the needs of our customer and their supply chain requirements, we select and hire the appropriate transportation for each shipment. Our model enables us to be flexible, provide solutions that optimize service for our customers, and minimize our asset utilization risk.

In addition to transportation and logistics services, we also provide sourcing services. Our sourcing business consists of buying, selling, and marketing fresh produce. We purchase fresh produce through our network of produce suppliers and sell it to grocery retailers, restaurants, foodservice distributors, and produce wholesalers. In some cases, we also arrange the transportation of the produce we sell through our relationships with specialized transportation companies. Transportation revenues generated by Robinson Fresh are included in our transportation service line in the first two tables below, but are included in Robinson Fresh in the segment revenue table below.

Our reportable segments are North American Surface Transportation (“NAST”), Global Forwarding, Robinson Fresh, and All Other and Corporate. The All Other and Corporate segment includes Managed Services, Other Surface Transportation outside of North America, and other miscellaneous revenues and unallocated corporate expenses. We group offices primarily by services they provide. For financial information concerning our reportable segments and geographic regions, refer to Note 10 of our consolidated financial statements.

Our business model. We are primarily a service company. We add value and expertise in the procurement and execution of transportation and logistics, including sourcing of produce products for our customers. Our total revenues represent the total dollar value of services and goods we sell to our customers. Our net revenues are our total revenues less purchased transportation and related services, including contracted motor carrier, rail, ocean, air, and other costs, and the purchase price and services related to the products we source. Our net revenues are the primary indicator of our ability to source, add value, and sell services and products that are provided by third parties, and we consider them to be our primary performance measurement. Accordingly, the discussion of our results of operations below focuses on the changes in our net revenues.

We keep our business model as variable as possible to allow us to be flexible and adapt to changing economic and industry conditions. We sell transportation services and produce to our customers with varied pricing arrangements. Some prices are committed to for a period of time, subject to certain terms and conditions, and some prices are set on a spot market basis. We buy most of our truckload transportation capacity and produce on a spot market basis. Because of this, our net revenue per transaction tends to increase in times when there is excess supply and decrease in times when demand is strong relative to supply.

In 2016, changing market conditions impacted our results. We had volume increases in nearly all of our service lines, but also experienced pricing declines, which impacted our net revenue margins. Truckload margin compression was a challenge to our earnings per share during the second half of the year. In September 2016, we completed the acquisition of APC Logistics (“APC”), a privately held company based in Australia, for the purpose of expanding our global presence and bringing additional capabilities and expertise to the our portfolio. APC provides international freight forwarding and customs brokerage services in Australia and New Zealand. APC operates in our Global Forwarding segment.

Fuel prices declined throughout 2015, which contributed to slower growth of our total revenues and an increase in our transportation net revenue margins. In 2015, we completed the acquisition of Freightquote.com, Inc. (“Freightquote”), a privately held freight broker based in Kansas City, Missouri. Freightquote provides services throughout North America. The acquisition enhances and brings synergies to our LTL and truckload businesses, and expands our ecommerce capabilities. Freightquote operates in our NAST segment. The acquisition of Freightquote contributed approximately 6.5 percentage points to our consolidated net revenue growth in 2015, primarily in our LTL service line.

We keep our personnel and other operating expenses as variable as possible. Compensation is tied to productivity and performance. Each office is responsible for its hiring and headcount decisions, based on the needs of their office and to balance personnel resources with business requirements. This helps keep our personnel expense as variable as possible with the business.

Our office network. Our office network is a competitive advantage. Building local customer and contract carrier relationships has been an important part of our success, and our worldwide network of offices supports our core strategy of serving customers locally, nationally, and globally. Our network offices help us penetrate local markets, provide face-to-face service when needed, and recruit contract carriers. Our network also gives us knowledge of local market conditions, which is important in the transportation industry because it is market driven and very dynamic.

Our people. Because we are a service company, our continued success is dependent on our ability to continue to hire and retain talented, productive people, and to properly align our headcount and personnel expense with our business. Our headcount increased by 966 employees during 2016, which includes approximately 300 employees added as a result of the APC acquisition. Compensation programs are performance-based and cash incentive is directly tied to productivity and performance. Most network management compensation is dependent on the profitability of their particular office. We believe this makes our employees more service-oriented and focused on driving growth and maximizing office productivity. All of our managers and certain other employees who have significant responsibilities are eligible to receive equity awards because we believe these awards are an effective tool for creating long-term ownership and alignment between employees and our shareholders.

Our customers. In 2016, we worked with more than 113,000 active customers. We work with a wide variety of companies, ranging in size from Fortune 100 companies to small family businesses, in many different industries. Our customer base is very diverse and unconcentrated. In 2016, our top 100 customers represented approximately 30 percent of our total revenues and approximately 26 percent of our net revenues. Our largest customer was approximately two percent of our total revenues.

Our contracted carriers. Our contracted carrier base includes motor carriers, railroads (primarily intermodal service providers), air freight, and ocean carriers. In 2016, we worked with approximately 71,000 transportation providers worldwide, up from approximately 68,000 in 2015. Motor carriers that had fewer than 100 tractors transported approximately 81 percent of our truckload shipments in 2016. In our transportation business, no single contracted carrier represents more than approximately 1.6 percent of our contracted carrier capacity.

CONSOLIDATED RESULTS OF OPERATIONS

The following table summarizes our total revenues by service line (dollars in thousands):

For the years ended December 31,	2016				2015				Change			2014				Change
Transportation	$	11,704,745			$	11,989,780			(2.4	)%		$	11,936,512			0.4	%
Sourcing	1,439,668				1,486,304				(3.1	)%		1,533,555				(3.1	)%
Total	$	13,144,413			$	13,476,084			(2.5	)%		$	13,470,067			—	%

The following table illustrates our net revenue margins by service line:

For the years ended December 31,	2016			2015			2014
Transportation	18.4	%		17.9	%		15.9	%
Sourcing	8.5	%		8.1	%		7.5	%
Total	17.3	%		16.8	%		14.9	%

The following table summarizes our net revenues by service line (dollars in thousands):

For the years ended December 31,	2016				2015				Change			2014				Change
Net revenues:
Transportation
Truckload (1)	$	1,257,191			$	1,316,533			(4.5	)%		$	1,190,372			10.6	%
LTL (2)	381,817				360,706				5.9	%		258,884				39.3	%
Intermodal	33,482				41,054				(18.4	)%		40,631				1.0	%
Ocean	244,276				223,643				9.2	%		208,422				7.3	%
Air	82,167				79,096				3.9	%		79,125				—	%
Customs	50,509				43,929				15.0	%		41,575				5.7	%
Other Logistics Services	105,369				82,548				27.6	%		73,097				12.9	%
Total Transportation	2,154,811				2,147,509				0.3	%		1,892,106				13.5	%
Sourcing	122,717				120,971				1.4	%		115,546				4.7	%
Total	$	2,277,528			$	2,268,480			0.4	%		$	2,007,652			13.0	%

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(1) Prior to 2015, we reported revenues from the fees we earn from our cash advance option offered to our contract carriers separately from transportation revenues. Starting in the first quarter of 2015, on a retrospective basis, we report these payment services revenues as a part of transportation total and net revenues.

(2) Less than truckload (“LTL”).

The following table represents certain statements of operations data, shown as percentages of our net revenues:

For the years ended December 31,	2016			2015			2014
Net revenues	100.0	%		100.0	%		100.0	%
Operating expenses:
Personnel expenses	46.8	%		46.3	%		46.8	%
Other selling, general, and administrative expenses	16.4	%		15.8	%		15.9	%
Total operating expenses	63.2	%		62.2	%		62.7	%
Income from operations	36.8	%		37.8	%		37.3	%
Interest and other expense	(1.1	)%		(1.6	)%		(1.2	)%
Income before provision for income taxes	35.7	%		36.3	%		36.0	%
Provision for income taxes	13.1	%		13.8	%		13.6	%
Net income	22.5	%		22.5	%		22.4	%

The following table summarizes our results by reportable segment (dollars in thousands):

	NAST				Global Forwarding				Robinson Fresh				All Other and Corporate				Eliminations				Consolidated
Twelve months ended December 31, 2016
Revenues	$	8,737,716			$	1,574,686			$	2,344,131			$	487,880			$	—			$	13,144,413
Intersegment revenues	298,438				30,311				119,403				2,211				(450,363		)		—
Total Revenues	9,036,154				1,604,997				2,463,534				490,091				(450,363		)		13,144,413
Net Revenues	1,524,355				397,537				234,794				120,842				—				2,277,528
Operating Income	$	674,436			$	80,931			$	75,757			$	6,407			$	—			$	837,531
Twelve months ended December 31, 2015
Revenues	$	8,968,349			$	1,639,944			$	2,395,440			$	472,351			$	—			$	13,476,084
Intersegment revenues	271,557				19,102				89,033				2,107				(381,799		)		—
Total Revenues	9,239,906				1,659,046				2,484,473				474,458				(381,799		)		13,476,084
Net Revenues	1,564,917				365,467				235,334				102,762				—				2,268,480
Operating Income/(Loss)	$	718,329			$	76,081			$	81,332			$	(17,432	)		$	—			$	858,310
Twelve months ended December 31, 2014
Revenues	$	8,738,747			$	1,708,789			$	2,483,163			$	539,368			$	—			$	13,470,067
Intersegment revenues	254,821				22,492				62,575				1,294				(341,182		)		—
Total Revenues	8,993,568				1,731,281				2,545,738				540,662				(341,182		)		13,470,067
Net Revenues	1,351,335				350,193				203,591				102,533				—				2,007,652
Operating Income/(Loss)	$	644,708			$	55,591			$	62,395			$	(14,276	)		$	—			$	748,418

2016 COMPARED TO 2015

Total revenues and direct costs. Total transportation revenues decreased 2.4 percent to $11.7 billion in 2016 from $12.0 billion in 2015. This decrease in transportation revenues was driven by lower customer pricing in truckload, partially offset by volume increases in nearly all of our transportation modes. Total purchased transportation and related services decreased 3.0 percent in 2016 to $9.5 billion from $9.8 billion in 2015. This decrease was due to decreased transportation costs, partially offset by higher volumes in nearly all of our transportation modes. Total sourcing revenues decreased 3.1 percent to $1.4 billion in 2016 from $1.5 billion in 2015. Purchased products sourced for resale decreased 3.5 percent in 2016 to $1.3 billion from $1.4 billion in 2015. These decreases were primarily due to lower market pricing and change in service mix.

Net revenues. Total transportation net revenues increased 0.3 percent in 2016 to $2.2 billion from $2.1 billion in 2015. Our transportation net revenue margin increased to 18.4 percent in 2016 from 17.9 percent in 2015. This increase in net revenue margin was driven by decreases in transportation costs and customer pricing, including fuel. Total sourcing net revenues increased 1.4 percent to $122.7 million in 2016 from $121.0 million in 2015. This increase was primarily due to a case volume increase across a variety of commodities and services, partially offset by a decrease in net revenue per case. Sourcing net revenue margin increased to 8.5 percent in 2016 from 8.1 percent in 2015.

Operating expenses. Operating expenses consist of personnel and selling, general, and administrative expenses. Operating expenses increased 2.1 percent to $1.44 billion in 2016 from $1.41 billion in 2015. This was due to an increase of 1.3 percent in personnel expenses and an increase of 4.5 percent in other selling, general, and administrative expenses. As a percentage of net revenues, operating expenses increased to 63.2 percent in 2016 from 62.2 percent in 2015.

Our personnel expenses are driven primarily by headcount and earnings growth. In 2016, personnel expenses increased 1.3 percent to $1.06 billion from $1.05 billion in 2015. Personnel expenses as a percentage of net revenue increased in 2016 to 46.8 percent from 46.3 percent in 2015. The increase in personnel expense was due primarily to an increase in average headcount growth of 6.0 percent in 2016, due in part to the acquisition of APC. The headcount growth was partially offset by decreases in personnel expenses related to incentive plans that are designed to keep expenses variable with changes in net revenues and profitability.

Other selling, general, and administrative expenses increased 4.5 percent to $375.1 million in 2016 from $358.8 million in 2015. This increase in selling, general, and administrative expenses was primarily due to increases in warehousing and travel expenses, partially offset by decreases in the provision for bad debt and occupancy expenses.

Income from operations. Income from operations decreased 2.4 percent to $837.5 million in 2016 from $858.3 million in 2015. Income from operations as a percentage of net revenues decreased to 36.8 percent in 2016 from 37.8 percent in 2015. This decrease was due to our operating expenses growing more than our net revenues.

Interest and other expense. Interest and other expense was $25.6 million in 2016 compared to $35.5 million in 2015. During the fourth quarter of 2015, we wrote off an indemnification asset of $7.2 million related to the acquisition of Phoenix as the indemnification obligations of the sellers expired. The impact of this write off was partially offset within the provision for income taxes by related tax liabilities that expired under applicable statute of limitations.

Provision for income taxes. Our effective income tax rate was 36.8 percent for 2016 and 38.1 percent for 2015. During the first quarter of 2016, we asserted that we will indefinitely reinvest earnings of foreign subsidiaries to support expansion of our international businesses. During 2016, the assertion decreased deferred income taxes related to undistributed foreign earnings and reduced the effective tax rate compared to 2015. In 2016, our indefinite reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries, provided an approximate $5.1 million benefit to our provision for income taxes. If we repatriated all foreign earnings, the estimated effect on income taxes payable would be an increase of approximately $16.6 million as of December 31, 2016. Additionally, the effective income tax rate for both periods is greater than the statutory federal income tax rate, primarily due to state income taxes, net of federal benefit.

Net income. Net income increased 0.7 percent to $513.4 million in 2016 from $509.7 million in 2015. Basic net income per share increased 2.3 percent to $3.60 from $3.52 in 2015. Diluted net income per share increased 2.3 percent to $3.59 from $3.51 in 2015.

SEGMENT RESULTS OF OPERATIONS - 2016 COMPARED TO 2015

North American Surface Transportation. NAST total revenues, including intersegment revenues, decreased 2.2 percent to $9.0 billion in 2016 compared to $9.2 billion in 2015. This was primarily due to decreased pricing to our customers, partially offset by increased volumes. NAST cost of purchased transportation and related services decreased 2.1 percent to $7.5 billion in 2016 from $7.7 billion in 2015. This decrease was primarily due to lower transportation costs. Total NAST net revenues decreased 2.6 percent to $1.5 billion in 2016 from $1.6 billion in 2015. The decrease was driven by a decline in truckload and intermodal net revenues, partially offset by an increase in LTL net revenues.

NAST truckload net revenues decreased 4.7 percent in 2016 to $1.1 billion from $1.2 billion in 2015. NAST truckload volumes increased approximately 5.5 percent in 2016 compared to 2015. NAST truckload net revenue margin decreased in 2016 compared to 2015, due primarily to lower customer pricing.

NAST truckload net revenues accounted for approximately 92 percent of our total North America truckload net revenues in 2016 and approximately 92 percent in 2015. The majority of the remaining North American truckload net revenues is included in Robinson Fresh. Excluding the estimated impacts of the change in fuel prices, our average North America truckload rate per mile charged to our customers decreased approximately 5.0 percent in 2016 compared to 2015. Excluding the estimated impacts of the change in fuel prices, our average North America truckload transportation cost per mile decreased approximately 4.5 percent in 2016 compared to 2015.

NAST LTL net revenues increased 5.1 percent in 2016 to $366.1 million from $348.3 million in 2015. NAST LTL volumes increased approximately 7.5 percent in 2016 compared to 2015 and net revenue margin increased slightly.

NAST intermodal net revenues decreased 20.1 percent to $31.3 million in 2016 from $39.2 million in 2015. This was primarily due to declines in net revenue margin and volumes. During 2016, intermodal opportunities were negatively impacted by the alternative lower-cost truck market.

NAST operating expenses increased 0.4 percent in 2016 to $849.9 million from $846.6 million in 2015. This was primarily due to increases in selling, general, and administrative expenses, partially offset by a decrease in personnel expenses related to incentive plans that are designed to keep expenses variable with changes in net revenues and profitability. The operating expenses of NAST and all other segments include allocated corporate expenses.

NAST operating income decreased 6.1 percent to $674.4 million in 2016 from $718.3 million in 2015. This was primarily due to a decline in total revenues and net revenues caused by lower customer pricing.

Global Forwarding. Global Forwarding total revenues, including intersegment revenues, decreased 3.3 percent to $1.6 billion in 2016 from $1.7 billion in 2015. This decrease was primarily related to lower customer pricing across ocean and air services, partially offset by increased volumes in all services. Global Forwarding costs of transportation and related services decreased 6.7 percent to $1.2 billion in 2016 from $1.3 billion in 2015. Global Forwarding net revenues increased 8.8 percent to $397.5 million in 2016 from $365.5 million in 2015. Global Forwarding net revenue margin increased due to transportation costs declining at a faster rate than customer pricing.

Ocean transportation net revenues increased 9.4 percent to $244.2 million in 2016 from $223.3 million in 2015. This was primarily due to increases in volumes. Air net revenues increased 3.9 percent to $76.1 million in 2016 from $73.3 million in 2015. This was primarily due to increases in volumes offset by pricing declines. Customs net revenues increased 14.9 percent to $50.5 million in 2016 from $44.0 million in 2015. The increase was primarily due to increased transaction volumes.

Global Forwarding operating expenses increased 9.4 percent in 2016 to $316.6 million from $289.4 million in 2015. This increase was primarily due to an increase in claims expense, and the acquisition of APC on September 30, 2016.

Global Forwarding operating income increased 6.4 percent in 2016 to $80.9 million from $76.1 million in 2015. This was primarily due to an increase in net revenues driven by higher volumes, partially offset by increased operating expenses.

Robinson Fresh. Robinson Fresh total revenues, including intersegment revenues, decreased 0.8 percent to $2.46 billion in 2016 from $2.48 billion in 2015. Robinson Fresh costs of transportation and related services and purchased products sourced for resale decreased 0.9 percent in to $2.23 billion in 2016 from $2.25 billion in 2015. Robinson Fresh net revenues decreased 0.2 percent to $234.8 million in 2016 from $235.3 million in 2015. This decrease was due to declines in transportation net revenues, partially offset by an increase in sourcing net revenue.

Robinson Fresh net revenues from sourcing services increased 1.4 percent to $122.7 million in 2016 from $121.0 million in 2015. This increase was primarily due to a case volume increase across a variety of commodities and services, partially offset by a decrease in net revenue per case. Robinson Fresh net revenues from transportation services decreased 2.0 percent to $112.1 million in 2016 from $114.4 million in 2015. Robinson Fresh transportation net revenue margin decreased in 2016 compared to 2015, due primarily to lower customer pricing.

Robinson Fresh operating expenses increased 3.3 percent to $159.0 million in 2016 from $154.0 million in 2015. This increase was primarily due to an increase in warehousing expenses. In 2016, growth in Robinson Fresh headcount was offset by a decrease in variable compensation.

Robinson Fresh operating income decreased 6.9 percent to $75.8 million in 2016 from $81.3 million in 2015. This was primarily due to a decrease in transportation services net revenues, and an increase in operating expenses.

All Other and Corporate. All Other and Corporate includes our Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses. 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.

Managed Services net revenues increased 32.7 percent to $64.7 million in 2016 from $48.7 million in 2015. This increase was primarily due to volume growth with new and existing customers. Other Surface Transportation net revenues increased 3.9 percent to $56.1 million in 2016 from $54.0 million in 2015, primarily the result of volume growth in Europe Surface Transportation.

2015 COMPARED TO 2014

Total revenues and direct costs. Total transportation revenues increased 0.4 percent to $12.0 billion in 2015 from $11.9 billion in 2014. The increase in total transportation revenues was driven by our acquisition of Freightquote on January 1, 2015, and higher volumes in nearly all of our transportation modes. The increase was partially offset by decreased pricing to our customers primarily related to the declining cost of fuel. Total purchased transportation and related services decreased 2.0 percent in 2015 to $9.8 billion from $10.0 billion in 2014. This decrease was due to decreased transportation costs, primarily related to the declining cost of fuel, partially offset by the acquisition of Freightquote and higher volumes in nearly all of our transportation modes. Our sourcing revenue decreased 3.1 percent to $1.49 billion in 2015 from $1.53 billion in 2014. Purchased products sourced for resale decreased 3.7 percent in 2015 to $1.37 billion from $1.42 billion in 2014. These decreases were primarily due to decreased revenue and cost per case, partially offset by increased case volumes.

Net revenues. Total transportation net revenues increased 13.5 percent to $2.1 billion in 2015 from $1.9 billion in 2014. Our transportation net revenue margin increased to 17.9 percent in 2015 from 15.9 percent in 2014. This increase in net revenue margin was driven by a decrease in transportation costs, including fuel, and a change in the mix of business due to growth in shorter length of haul freight and the addition of Freightquote. Total sourcing net revenues increased 4.7 percent to $121.0 million in 2015 from $115.5 million in 2014. This increase was primarily due to an increase in case volumes, partially offset by a decrease in net revenue per case. Sourcing net revenue margin increased to 8.1 percent in 2015 from 7.5 percent in 2014.

Operating expenses. Operating expenses consist of personnel and selling, general, and administrative expenses. Operating expenses increased 12.0 percent to $1.4 billion in 2015 from $1.3 billion in 2014. This was due to an increase of 12.0 percent in personnel expenses and an increase of 12.0 percent in other selling, general, and administrative expenses. As a percentage of net revenues, operating expenses decreased to 62.2 percent in 2015 from 62.7 percent in 2014.

Our personnel expenses are driven by headcount and earnings growth. In 2015, personnel expenses increased to $1.1 billion from $0.9 billion in 2014. Our personnel expenses as a percentage of net revenue decreased in 2015 to 46.3 percent from 46.8 percent in 2014. The increase in personnel expense was due primarily to average headcount growth of approximately 14 percent in 2015. Freightquote contributed approximately eight percentage points of the growth in average headcount during 2015. In addition, we experienced growth in expenses related to incentive plans that are designed to keep expenses variable with changes in net revenues and profitability.

Other selling, general, and administrative expenses increased 12.0 percent to $358.8 million in 2015 from $320.2 million in 2014. The increase in our selling, general, and administrative expenses is primarily due to our acquisition of Freightquote, including amortization expense of $7.6 million, and an increase in travel expenses.

Income from operations. Income from operations increased 14.7 percent to $858.3 million in 2015 from $748.4 million in 2014. Income from operations as a percentage of net revenues increased to 37.8 percent in 2015 from 37.3 percent in 2014. This increase was due to our net revenues growing more than our operating expenses.

Interest and other expense. Interest and other expense was $35.5 million in 2015 compared to $25.0 million in 2014. During the fourth quarter of 2015, we wrote off an indemnification asset of $7.2 million related to the acquisition of Phoenix as the indemnification obligations of the sellers expired. The impact of this write off was partially offset within the provision for income taxes by related tax liabilities that expired under applicable statute of limitations. In addition, we had a higher average outstanding balance on our short-term borrowings throughout 2015 compared to 2014, primarily due to the acquisition of Freightquote.

Provision for income taxes. Our effective income tax rate was 38.1 percent for 2015 and 37.8 percent for 2014. The effective income tax rate for both periods is greater than the statutory federal income tax rate, primarily due to state income taxes, net of federal benefit.

Net income. Net income increased 13.3 percent to $509.7 million in 2015 from $449.7 million in 2014. Basic net income per share increased 15.0 percent to $3.52 from $3.06 in 2014. Diluted net income per share increased 15.1 percent to $3.51 from $3.05 in 2014.

SEGMENT RESULTS OF OPERATIONS - 2015 COMPARED TO 2014

North American Surface Transportation. NAST total revenues, including intersegment revenues, increased 2.7 percent to $9.2 billion in 2015 from to $9.0 billion in 2014. This increase was primarily due to our acquisition of Freightquote and higher volumes in LTL, partially offset by declines in truckload pricing to customers. NAST cost of purchased transportation and related services increased 0.4 percent to $7.7 billion in 2015 from $7.6 billion in 2014. This increase was due to our acquisition of Freightquote and higher volumes in nearly all of our transportation modes, offset by decreased transportation costs, primarily related to the declining cost of fuel. Total NAST net revenues increased 15.8 percent to $1.6 billion in 2015 from $1.4 billion in 2014. This increase was primarily driven by the Freightquote acquisition.

NAST truckload net revenues increased 11.0 percent in 2015 to $1.2 billion from $1.1 billion in 2014. Our acquisition of Freightquote contributed approximately four percentage points to NAST truckload net revenue growth in 2015. NAST truckload volumes increased approximately seven percent in 2015 compared to 2014. NAST truckload net revenue margin increased in 2015 compared to 2014, due primarily to the declining cost of fuel.

NAST truckload accounted for approximately 92 percent of our total North America truckload services net revenues in 2015 and approximately 94 percent in 2014. The majority of the remaining North American truckload services net revenues are

included in Robinson Fresh. Excluding the estimated impacts of the change in fuel prices, our average North America truckload rate per mile charged to our customers increased approximately one percent in 2015 compared to 2014. Our truckload transportation costs were relatively unchanged, excluding the estimated impacts of the change in fuel.

NAST LTL increased approximately 40 percent in 2015 to $348.3 million from $248.0 million in 2014. Freightquote contributed approximately 34 percentage points to NAST LTL net revenue growth in 2015. NAST LTL volumes increased approximately 35 percent in 2015 compared to 2014. Net revenue margin increased in 2015 as a result of a change in our freight mix with more small customers from the higher margin Freightquote business.

NAST intermodal net revenues increased 1.7 percent to $39.2 million in 2015 from $38.6 million in 2014. Freightquote contributed approximately $3.4 million to our NAST intermodal revenues in 2015. Conversion to truckload from intermodal negatively impacted intermodal volumes and net revenues throughout 2015.

NAST operating expenses increased 19.8 percent in 2015 to $846.6 million from $706.6 million in 2014. This was primarily due to an increase in both personnel and selling, general and administrative expenses related to the acquisition of Freightquote, including the amortization of acquired intangible assets. The operating expenses of NAST and all other segments include allocated corporate expenses.

NAST operating income increased 11.4 percent to $718.3 million in 2015 from $644.7 million in 2014. This was primarily due to increased truckload and LTL net revenues, partially offset by increases in operating expenses.

Global Forwarding. Global Forwarding total revenues, including intersegment revenues, decreased 4.2 percent to $1.66 billion in 2015 from $1.73 billion in 2014. This decrease was primarily related to lower customer pricing across all services, partially offset by increased volumes. Global Forwarding cost of purchased transportation and related services decreased 6.3 percent to $1.3 billion in 2015 from $1.4 billion in 2014. Global Forwarding net revenues increased 4.4 percent to $365.5 million in 2015 from $350.2 million in 2014. Global Forwarding net revenue margin increased as costs declined at a faster rate than customer pricing.

Ocean transportation net revenues increased approximately seven percent to $223.3 million in 2015 from $207.9 million in 2014. This was primarily due to increased net revenue margin and volumes. Air net revenues decreased slightly to $73.3 million in 2015 from $73.5 million in 2014. This was primarily due to lower customer pricing, partially offset by higher volumes. Customs net revenues increased six percent to $44.0 million in 2015 from $41.5 million in 2014. The increase was primarily due to increased transaction volumes.

Global Forwarding operating expenses decreased 1.8 percent in 2015 to $289.4 million from $294.6 million in 2014. Global Forwarding operating income increased 36.9 percent in 2015 to $76.1 million from $55.6 million in 2014. This was primarily a result of increased ocean and customs net revenues.

Robinson Fresh. Robinson Fresh total revenues, including intersegment revenues, decreased 2.4 percent to $2.48 billion in 2015 from $2.55 billion in 2014. Robinson Fresh costs of transportation and related services and purchased products sourced for resale decreased 4.0 percent to $2.2 billion in 2015 from $2.3 billion in 2014. Robinson Fresh net revenues increased 15.6 percent to $235.3 million in 2015 from $203.6 million in 2014. This increase was primarily due to an increase in net revenues from transportation services.

Robinson Fresh net revenues from transportation services increased 29.9 percent to $114.4 million in 2015 from $88.0 million in 2014. Robinson Fresh transportation net revenue margin decreased in 2015 compared to 2014, due primarily to lower customer pricing. Robinson Fresh net revenues from sourcing services increased 4.7 percent to $121.0 million in 2015 from $115.5 million in 2014. This increase was primarily an increase in net revenue per case and volume increases across a variety of commodities and services.

Robinson Fresh operating expenses increased 9.1 percent to $154.0 million in 2015 from $141.2 million in 2014. Robinson Fresh experienced growth in expenses related to incentive compensation plans that are designed to keep expenses variable with changes in net revenue and profitability, while other expenses were up slightly.

Robinson Fresh operating income increased 30.4 percent in 2015 to $81.3 million from $62.4 million in 2014. This increase was primarily the result of transportation and sourcing net revenue increases, partially offset by increased operating expenses.

All Other and Corporate. All Other and Corporate includes our Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses. 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.

Managed Services net revenues increased 18.8 percent to $48.7 million in 2015 from $41.0 million in 2014. This increase was primarily due to volume growth with new and existing customers. Other Surface Transportation net revenues decreased 12.1 percent to $54.0 million in 2015 from $61.5 million in 2014, primarily the result of net revenue declines in Europe Surface Transportation.

LIQUIDITY AND CAPITAL RESOURCES

We have historically generated substantial cash from operations, which has enabled us to fund our growth while paying cash dividends and repurchasing stock. In December 2014, we amended our revolving credit facility to increase the amount available from $500 million to $900 million, to extend the expiration date from October 2017 to December 2019, and to revise a covenant ratio. In 2013, we entered into a Note Purchase Agreement to fund the accelerated share repurchase agreements to repurchase $500 million worth of our common stock. The Note Purchase Agreement was amended in February 2015 to conform its financial covenants to be consistent with the amended revolving credit facility. We also expect to use the revolving credit facility, 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 $247.7 million and $168.2 million as of December 31, 2016 and 2015. Cash and cash equivalents held outside the United States totaled $172.2 million and $114.3 million as of December 31, 2016 and 2015. If we repatriated all foreign earnings, the estimated effect on income taxes payable would be an increase of approximately $16.6 million as of December 31, 2016. Working capital at December 31, 2016, was $162.4 million. Working capital at December 31, 2015, was $282.1 million.

We prioritize our investments to grow the business, as we require some working capital and a relatively small amount of capital expenditures to grow. We are continually looking for acquisitions, but those acquisitions must fit our culture and enhance our growth opportunities.

Cash flow from operating activities. We generated $529.4 million, $718.3 million, and $513.4 million of cash flow from operations in 2016, 2015, and 2014. The decrease of $188.9 million in cash flow from operations in 2016 from 2015 is primarily the result of increases in accounts receivable, partially offset by an increase in accounts payable. The increases in accounts receivable and accounts payable are primarily the result of increased volumes. Additionally, accruals for variable compensation were lower in 2016 compared to 2015.

Cash used for investing activities. We used $313.0 million, $54.4 million, and $388.9 million of cash for investing activities in 2016, 2015, and 2014. Our investing activities consist primarily of capital expenditures and cash paid for acquisitions. On September 30, 2016, we paid $220.2 million for the acquisition of APC. On December 31, 2014, we funded $359.4 million of the purchase price for the acquisition of Freightquote into escrow accounts pursuant to the purchase agreement and for completion of the acquisition in January 2015.

We used $91.4 million, $44.6 million, and $29.5 million of cash for capital expenditures in 2016, 2015, and 2014. We spent $25.0 million, $26.0 million, and $24.0 million in 2016, 2015, and 2014 primarily for annual investments in information technology equipment to support our operating systems, including the purchase and development of software. These information technology investments are intended to improve efficiencies and help grow the business. Additionally, in 2016, we completed construction of a second data recovery center. The cost of this data recovery center was $20.0 million, $19.3 million of which was spent in 2016. In 2014, we completed a new office building on our corporate campus in Eden Prairie, Minnesota. This building was completed in the first quarter of 2014 and it replaced space we previously leased in Eden Prairie. The cost of the building was approximately $18.5 million, and the majority was funded in 2013.

We anticipate capital expenditures in 2017 to be approximately $60 million to $70 million.

Cash used for financing activities. We used $127.3 million, $607.7 million, and $143.6 million of cash flow for financing activities in 2016, 2015, and 2014.

We had net short-term borrowings of $290.0 million in 2016 and net short-term repayments of $155.0 million in 2015. On October 29, 2012, we entered into a senior unsecured revolving credit facility for up to $500 million with a $500 million accordion feature. In December of 2014, we amended this facility to increase the amount available from $500 million to $900 million, extended the expiration of the facility from October 2017 to December 2019, and revised a covenant ratio. This facility had $740.0 million outstanding as of December 31, 2016. The original purpose of this facility was to partially fund an acquisition and will assist us in continuing to fund working capital, capital expenditures, possible acquisitions, dividends, and share repurchases. Advances under the facility carry an interest rate based on our total funded debt to total capitalization, as measured at the end of each quarter, and are based on a spread over LIBOR for outstanding balances. In addition, there is a commitment fee on the average daily undrawn stated amount under each letter of credit issued under the facility. The credit agreement contains certain financial covenants that require us to maintain a minimum fixed leverage ratio and minimum liquidity. We were in compliance with all of the credit facility’s debt covenants as of December 31, 2016.

On August 23, 2013, we entered into a Note Purchase Agreement for $500.0 million, of which the entire balance was outstanding as of December 31, 2016, and December 31, 2015. The primary purpose of this agreement was to fund the accelerated share repurchase agreements that were entered into on August 24, 2013. The agreement contains certain financial covenants that require us to maintain a minimum leverage ratio, an interest coverage ratio, and minimum liquidity. We were in compliance with all the covenants in the Notes as of December 31, 2016.

We used $245.4 million, $235.6 million, and $215.0 million to pay cash dividends in 2016, 2015, and 2014. The increases were primarily the result of higher dividend rates, partially offset by fewer outstanding shares.

We used $36.7 million, $11.4 million, and $12.6 million for stock tendered for payment of withholding taxes in 2016, 2015, and 2014.

We also used $172.9 million, $229.9 million, and $164.0 million on share repurchases in 2016, 2015, and 2014, as part of our Board approved repurchase program. In August 2013, the Board of Directors increased the number of shares authorized to be repurchased by 15,000,000 shares. As of December 31, 2016, there were 4,418,564 shares remaining for future repurchases. The number of shares we repurchase, if any, during future periods will vary based on our cash position, potential uses of our cash, and market conditions.

Assuming no change in our current business plan, management believes that our available cash, together with expected future cash generated from operations, the amount available under our credit facility, and credit available in the market, will be sufficient to satisfy our anticipated needs for working capital, capital expenditures, and cash dividends for the foreseeable future. We also believe we could obtain funds under lines of credit or other forms of indebtedness on short notice, if needed.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements include accounts of the company and all majority-owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing our financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Note 1 of the Notes to consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief discussion of our critical accounting policies and estimates.

Revenue recognition. Total revenues consist of the total dollar value of goods and services purchased from us by customers. Net revenues are total revenues less the direct costs of transportation, products, and handling. We act principally as the service provider for these transactions and recognize revenue as these services are rendered or goods are delivered. At that time, our obligations to the transactions are completed and collection of receivables is reasonably assured. Most transactions in our transportation and sourcing businesses are recorded at the gross amount we charge our customers for the service we provide and goods we sell. In these transactions, we are the primary obligor, we have credit risk, we have discretion to select the supplier, and we have latitude in pricing decisions.

Additionally, in our sourcing business, we take loss of inventory risk during shipment and have general inventory risk. Certain transactions in customs brokerage, managed services, freight forwarding, and sourcing 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.

Valuations for accounts receivable. Our allowance for doubtful accounts is calculated based upon the aging of our receivables, our historical experience of uncollectible accounts, and any specific customer collection issues that we have identified. The allowance of $39.5 million as of December 31, 2016, decreased compared to the allowance of $43.5 million as of December 31, 2015. This decrease was primarily due to changes in the risk level of our accounts receivable portfolio. We believe that the recorded allowance is sufficient and appropriate based on our customer aging trends, the exposures we have identified, and our historical loss experience.

Goodwill. Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.

Prior to the quarter ended December 31, 2016, we managed and reported our operations as one operating segment and also concluded we had one reporting unit consisting of our network of offices and we evaluated goodwill for impairment on an enterprise-wide basis on December 31. We continually evaluate our reporting units and during the quarter ended December 31, 2016, we concluded that we had seven reporting units. As a result of this change in reporting units, we allocated goodwill to our reporting units based on each reporting unit’s fair value using a discounted cash flow analysis and market approach. Additionally at this time, we changed our annual quantitative goodwill impairment testing date from December 31 to November 30 of each year. The change in the goodwill impairment test date better aligns the impairment testing procedures with the timing of our long-term planning process, which is a significant input to the testing. We performed a goodwill impairment assessment both prior to and after the change in reporting units at November 30. This change in testing date did not delay, accelerate, or avoid a goodwill impairment charge.

Goodwill is tested at least annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is performed using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit, there is an indication that goodwill impairment exists, and a second step must be completed to determine the amount of the goodwill impairment, if any, that should be recorded. In the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.

The fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations.

Based on our step one goodwill impairment analysis, no impairments of goodwill were deemed to have occurred, and the fair value of all of reporting units was substantially in excess of their carrying value. No events occurred from November 30, 2016, to December 31, 2016, to indicate any changes to our impairment conclusions at November 30, 2016.

Stock-based compensation. We issue stock awards, including stock options, performance shares, and restricted stock units, to key employees and outside directors. In general, the awards vest over five years, either based on the company’s earnings growth or the passage of time. The fair value of each share-based payment award is established on the date of grant. For grants of restricted shares and restricted units, the fair value is established based on the market price on the date of the grant, discounted for post-vesting holding restrictions. The discounts on outstanding grants vary from 15 percent to 22 percent and are calculated using the Black-Scholes option pricing model. Changes in the measured stock price volatility and interest rates are the primary reason for changes in the discount. For grants of options, we use the Black-Scholes option pricing model to estimate the fair value of the awards. The determination of the fair value is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate, and expected dividends.

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL CONTINGENCIES

The following table aggregates all contractual commitments and commercial obligations, due by period, that affect our financial condition and liquidity position as of December 31, 2016 (dollars in thousands):

	2017				2018				2019				2020				2021				Thereafter				Total
Borrowings under credit agreements	$	740,000			$	—			$	—			$	—			$	—			$	—			$	740,000
Long-term notes payable(1)	21,388				21,388				21,388				21,388				21,388				655,225				762,165
Operating leases(2)	47,034				38,531				32,249				29,716				24,393				113,786				285,709
Purchase obligations(3)	56,768				13,464				10,208				7,730				—				—				88,170
Total	$	865,190			$	73,383			$	63,845			$	58,834			$	45,781			$	769,011			$	1,876,044

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(1)	Amounts payable relate to the semi-annual interest due on the long-term notes and the principal amount at maturity.

(2)	We have certain facilities and equipment under operating leases.

(3)	Purchase obligations include agreements for services that are enforceable and legally binding and that specify all significant terms. As of December 31, 2016, such obligations include ocean and air freight capacity, telecommunications services, and maintenance contracts.

We have no capital lease obligations. Long-term liabilities consist of noncurrent income taxes payable, long-term notes payable, and the obligation under our non-qualified deferred compensation plan. Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2016, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority. Therefore, $18.9 million of unrecognized tax benefits have been excluded from the contractual obligations table above. See Note 5 to the consolidated financial statements for a discussion on income taxes. The obligation under our non-qualified deferred compensation plan has also been excluded from the above table as the timing of cash payment is uncertain. As of December 31, 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.