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

OVERVIEW

C.H. Robinson Worldwide, Inc. (“C.H. Robinson,” “the company,” “we,” “us,” or “our”) is one of the largest third party logistics companies in the world. 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 arrange the transport of our customers’ freight. We provide freight transportation services and logistics solutions to companies of all sizes, in a wide variety of industries. We operate through a network of offices in North America, Europe, Asia, Oceania, and South America. We have developed global transportation and distribution networks to provide transportation and supply chain services worldwide. As a result, we have the capability of facilitating most aspects of the supply chain on behalf of our customers.

Our 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):

			Twelve Months Ended December 31,
			2019						2018						2017
Revenues:
Transportation			$	14,322,295					$	15,515,921					$	13,502,906
Sourcing			987,213						1,115,251						1,366,474
Total Revenues			15,309,508						16,631,172						14,869,380
Costs and expenses:
Purchased transportation and related services			11,839,433						12,922,177						11,257,290
Purchased products sourced for resale			883,765						1,003,760						1,244,040
Total direct costs			12,723,198						13,925,937						12,501,330
Net revenues			$	2,586,310					$	2,705,235					$	2,368,050

MARKET TRENDS

The North America truckload market has faced significant cyclical changes in the last year attributable to weakening demand and excess capacity resulting in pricing and volume declines during the second half of 2019. One of the metrics we use to measure market conditions is the truckload routing guide depth from our Managed Services business. Routing guide depth represents the number of carriers contacted prior to an acceptance when procuring a transportation provider. Routing guide depth is calculated as a simple average of all accepted shipments over all tender instances for any shipment facilitated by our Managed Services business. The average routing guide depth of tender was 1.2 during 2019, representing that on average, the first carrier in a shipper's routing guide was executing the shipment in most cases. This compared to an average depth of tender of 1.7 during 2018. The 2019 routing guide penetration is among the lowest levels we have experienced this decade and is a reflection of both softening demand and reduced pricing and costs over the course of 2019. The global forwarding market was negatively impacted for much of 2019 by excess capacity and reduced demand due to tariff activity and macroeconomic uncertainty especially in trade lanes between China and the United States. In addition, growth rates were negatively impacted by comparisons to 2018 which included shipments to build inventory ahead of tariffs enacted in early 2019. This reduced demand has also significantly reduced air freight volumes as there is inherently less demand for expedited and more expensive air freight.

BUSINESS TRENDS

Our 2019 results are largely consistent with the overall market trends summarized above. As a result of the softening freight environment over the course of 2019, our volumes shifted from spot-market pricing towards contractual business. In the first half of 2019, this shift resulted in margin expansion as contractual pricing decreased at a slower rate than spot-market driven carrier costs. In the second half of 2019, the continued shift to contractual business began to lead to margin compression as spot-market driven carrier pricing declines began to decelerate as compared to our contractual pricing declines. Given the soft freight environment, we continued to see competitive levels of pricing activity to reflect current market conditions which resulted in significant pricing declines in most of our transportation service lines compared to 2018. Our pricing strategies continue to reflect the current market conditions and our intention to be near the top of our customers' routing guide. In

addition, the reduced pricing in truckload has resulted in a volume shift from intermodal to truckload while our sourcing revenues declined in 2019 driven by case volume declines with large retailers.

On February 28, 2019, we acquired The Space Cargo Group (“Space Cargo”) for the purpose of expanding our presence and capabilities in Spain and Colombia. Our consolidated results include the results of Space Cargo since March 1, 2019. On May 22, 2019, we acquired Dema Service S.p.A (“Dema Service”) to strengthen our existing footprint in Italy. Our consolidated results include the results of Dema Service since May 23, 2019.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select 2019 year-over-year operating comparisons to 2018:

• Total revenues decreased 7.9 percent to $15.3 billion, driven by lower pricing and volumes across most transportation service lines and decreased sourcing revenue pricing and case volumes.

• Net revenues decreased 4.4 percent to $2.6 billion, primarily driven by margin decline in truckload services.

• Personnel expenses decreased 3.4 percent to $1.3 billion, driven primarily by declines in performance-based compensation, partially offset by a 2.3 percent increase in average headcount.

• Selling, general, and administrative (“SG&A”) expenses increased 10.7 percent to $497.8 million, due primarily to increases in purchased services, particularly commercial off-the-shelf software, and occupancy, partially offset by a reduction in bad debt expense.

• Income from operations totaled $790.0 million, down 13.4 percent due to declining net revenues and increased SG&A expense.

• Operating margin of 30.5 percent decreased 320 basis points.

• Diluted earnings per share (EPS) decreased 11.4 percent to $4.19.

• Cash flow from operations increased 5.4 percent to $835.4 million.

CONSOLIDATED RESULTS OF OPERATIONS

The following table summarizes our results of operations (dollars in thousands, except per share data):

						Twelve Months Ended December 31,
						2019						2018						% change						2017						% change
Revenues:
Transportation						$	14,322,295					$	15,515,921					(7.7)		%				$	13,502,906					14.9		%
Sourcing						987,213						1,115,251						(11.5)		%				1,366,474						(18.4)		%
Total revenues						15,309,508						16,631,172						(7.9)		%				14,869,380						11.8		%
Costs and expenses:
Purchased transportation and related services						11,839,433						12,922,177						(8.4)		%				11,257,290						14.8		%
Purchased products sourced for resale						883,765						1,003,760						(12.0)		%				1,244,040						(19.3)		%
Personnel expenses						1,298,528						1,343,542						(3.4)		%				1,179,527						13.9		%
Other selling, general, and administrative expenses						497,806						449,610						10.7		%				413,404						8.8		%
Total costs and expenses						14,519,532						15,719,089						(7.6)		%				14,094,261						11.5		%
Income from operations						789,976						912,083						(13.4)		%				775,119						17.7		%
Interest and other expense						(47,719)						(31,810)						50.0		%				(46,656)						(31.8)		%
Income before provision for income taxes						742,257						880,273						(15.7)		%				728,463						20.8		%
Provision for income taxes						165,289						215,768						(23.4)		%				223,570						(3.5)		%
Net income						$	576,968					$	664,505					(13.2)		%				$	504,893					31.6		%
Diluted net income per share						$	4.19					$	4.73					(11.4)		%				$	3.57					32.5		%
Net revenue margin percentage
Transportation						17.3		%				16.7		%				0.6 pts						16.6		%				0.1 pts
Sourcing						10.5		%				10.0		%				0.5 pts						9.0		%				1.0 pts
Total net revenue margin						16.9		%				16.3		%				0.6 pts						15.9		%				0.4 pts
Average headcount						15,551						15,204						2.3		%				14,687						3.5		%

A reconciliation of our reportable segments to our consolidated results can be found in Note 9, Segment Reporting, in Part II, Financial Information of this Annual Report on Form 10-K.

Consolidated Results of Operations—Twelve Months Ended December 31, 2019 Compared to Twelve Months Ended December 31, 2018

Total revenues and direct costs. Total transportation revenues decreased driven by lower pricing and volumes in truckload and, to a lesser extent, decreased intermodal volumes and decreased pricing in our ocean and air service lines. Total purchased transportation and related services decreased due to decreased cost of transportation in most of our transportation services resulting from softening market demand over the course of 2019 and excess carrier capacity. Our sourcing total revenues and purchased products sourced for resale decreased due to lower pricing and costs per case in addition to lower case volume.

Net revenues. Our transportation net revenue margin increased driven by margin expansion in truckload services as we benefited from a shift to contractual volume in a falling cost market for the first half of 2019. The margin expansion in the first half of 2019 was largely offset by margin compression in the second half of 2019 as discussed above. Sourcing net revenue margin increased driven by the strategic decision to exit unprofitable business.

Operating expenses. Personnel expenses decreased primarily due to declines in performance-based compensation, partially offset by an increase in average headcount. Other SG&A expenses increased driven primarily by increases in purchased services, particularly commercial off-the-shelf software and occupancy, partially offset by a reduction in bad debt expense.

Interest and other expense. Interest and other expense increased driven by a $4.2 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in 2019 compared to a $16.9 million favorable impact in 2018.

Provision for income taxes. Our effective income tax rate was 22.3 percent and 24.5 percent. The effective income tax rate for the twelve months ended December 31, 2019, was higher than the statutory federal income tax rate due to state income taxes, net of federal benefit, and foreign income taxes, but was partially offset by the tax impact of excess foreign tax credits and share-based payment awards. The effective income tax rate for the twelve months ended December 31, 2018, was higher than the statutory federal income tax rate due to state income taxes, net of federal benefit and foreign income taxes, but was partially offset by the tax impact of share-based payment awards.

Consolidated Results of Operations—Twelve Months Ended December 31, 2018 Compared to Twelve Months Ended December 31, 2017

Total revenues and direct costs. Total transportation revenues increased driven by increased pricing in most of our transportation services, most notably truckload and LTL. Total purchased transportation and related services increased due to increased truckload and LTL purchased transportation costs and higher ocean volumes, which were partially offset by the impact of decreased truckload volumes. Our sourcing total revenue and purchased products sourced for resale decreased $120.5 million as a result of our adoption of ASU 2014-09, Revenue from Contracts with Customers.

Net revenues. Our transportation net revenues increased primarily due to increases in customer pricing, including fuel. Sourcing net revenues decreased due to decreases in net revenue per case and a case volume decrease across a variety of commodities and services, most notably in our restaurant and food service customers. Sourcing net revenue margin increased 1.0 percentage point as a result of our adoption of ASU 2014-09.

Operating expenses. Personnel expenses increased primarily due to an increase in performance-based compensation due to our strong earnings growth and growth in our average headcount. Other SG&A expenses increased driven primarily by increases in occupancy and other professional services expenses, claims and the provision for bad debt.

Interest and other expense. Interest and other expense decreased driven by a $16.9 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses in 2018 compared to a $9.4 million unfavorable impact in 2017. The impact of foreign currency revaluation and realized foreign currency gains was partially offset by increased interest expense due to a higher average debt balance and higher interest rates in 2018 compared to 2017.

Provision for income taxes. Our effective income tax rate was 24.5 percent in 2018 and 30.7 percent in 2017, driven primarily by an $83.1 million benefit from the Tax Act.

NAST Segment Results of Operations

			Twelve Months Ended December 31,
(dollars in thousands)			2019						2018						% change						2017						% change
Total revenues			$	11,283,692					$	12,346,757					(8.6)		%				$	10,728,835					15.1		%
Purchased transportation and related services			9,486,323						10,440,496						(9.1)		%				9,102,661						14.7		%
Net revenues
Truckload			1,275,199						1,375,361						(7.3)		%				1,168,721						17.7		%
LTL			471,616						466,725						1.0		%				402,609						15.9		%
Intermodal			27,092						31,979						(15.3)		%				28,867						10.8		%
Other			23,462						32,196						(27.1)		%				25,977						23.9		%
Total net revenues			1,797,369						1,906,261						(5.7)		%				1,626,174						17.2		%
Personnel expenses			698,187						749,120						(6.8)		%				641,018						16.9		%
Other selling, general, and administrative expenses			376,419						335,297						12.3		%				324,048						3.5		%
Income from operations			$	722,763					$	821,844					(12.1)		%				$	661,108					24.3		%
Average headcount			7,354						7,387						(0.4)		%				7,316						1.0		%
Service line volume statistics
Truckload															(2.0)		%										(3.5)		%
LTL															3.5		%										7.5		%
Intermodal															(25.5)		%										1.0		%

Twelve Months Ended December 31, 2019 Compared to Twelve Months Ended December 31, 2018

Total revenues and direct costs. NAST revenues decreased due to lower pricing and volumes in truckload and, to a lesser extent, decreased intermodal volume. These decreases were partially offset by increased LTL volumes. NAST cost of transportation and related services decreased driven by lower cost per mile in truckload services.

Net revenues. NAST net revenues decreased driven primarily by lower net revenue per shipment and lower volumes in truckload services. Excluding the estimated impacts of the decrease in fuel costs, our average truckload rate per mile charged to our customers decreased approximately 10.0 percent due to pricing changes resulting from the marketplace conditions discussed above. Our truckload transportation costs per mile decreased approximately 10.5 percent, excluding the estimated decrease in fuel costs.

NAST LTL net revenues increased primarily due to increased volume partially offset by reduced margins.

NAST intermodal net revenues decreased primarily due to reduced volume driven by the impact of lower truckload pricing resulting in an industry volume shift from intermodal to lower priced truckload services.

Operating expenses. NAST personnel expense decreased primarily related to reduced performance-based compensation as average headcount was essentially flat. NAST SG&A expenses increased primarily due to continued investments in technology and higher occupancy costs.

Twelve Months Ended December 31, 2018 Compared to Twelve Months Ended December 31, 2017

Total revenues and direct costs. NAST revenues increased primarily due to increased pricing to our customers, including fuel, most notably in truckload and LTL services. This increase was partially offset by the impact of decreased truckload volumes. NAST cost of transportation and related services increased following the increase in total revenues.

Net revenues. NAST net revenues increased driven by double digit net revenue percentage increases from all services. NAST net revenue margin increased primarily due to transportation customer pricing growing faster than transportation costs in 2018 compared to 2017.

Truckload net revenues increased driven by higher customer pricing and the impact of moderating freight costs. This increase was partially offset by decreased truckload volumes. Excluding the estimated impacts of the change in fuel prices, our average North America truckload rate per mile charged to our customers increased approximately 21.5 percent in 2018 compared to 2017. Our truckload transportation costs per mile increased approximately 21.0 percent in 2018 compared to 2017 excluding the estimated impacts of the change in fuel prices.

NAST LTL net revenues increased primarily due to increased volume. This increase was partially offset by reduced margins resulting from transportation costs increasing at a faster rate than customer pricing.

NAST intermodal net revenues increased as a result of the elevated repositioning costs included in the 2017 period.

Operating expenses. NAST personnel expense increased primarily related to performance-based compensation and increased average headcount.

Global Forwarding Segment Results of Operations

			Twelve Months Ended December 31,
(dollars in thousands)			2019						2018						% change						2017						% change
Total revenues			$	2,327,913					$	2,487,744					(6.4)		%				$	2,140,987					16.2		%
Purchased transportation and related services			1,793,937						1,943,838						(7.7)		%				1,655,707						17.4		%
Net revenues
Ocean			308,068						312,327						(1.4)		%				290,837						7.4		%
Air			101,991						111,038						(8.1)		%				94,518						17.5		%
Customs			91,833						88,515						3.7		%				70,949						24.8		%
Other			32,084						32,026						0.2		%				28,976						10.5		%
Total net revenues			533,976						543,906						(1.8)		%				485,280						12.1		%
Personnel expenses			276,255						284,586						(2.9)		%				241,130						18.0		%
Other selling, general, and administrative expenses			177,194						167,694						5.7		%				152,308						10.1		%
Income from operations			$	80,527					$	91,626					(12.1)		%				$	91,842					15.0		%
Average headcount			4,766						4,711						1.2		%				4,310						9.3		%
Service line volume statistics
Ocean															—		%										10.0		%
Air															(7.0)		%										8.5		%
Customs															0.5		%										39.5		%

Twelve Months Ended December 31, 2019 compared to Twelve Months Ended December 31, 2018

Total revenues and direct costs. Total revenues and direct costs decreased driven by reduced pricing in our ocean and air service lines and a decline in air freight volumes. These declines were driven by the tariff and macroeconomic uncertainty discussed above, in addition to the comparisons to 2018 which included shipments to build inventory ahead of tariffs enacted in early 2019. The reduced demand due to tariff and macroeconomic uncertainty has also significantly impacted air freight volumes as there is inherently less demand for expedited and more expensive air freight.

Net revenues. Ocean and air transportation net revenues decreased driven by reduced pricing and air freight volumes discussed above. These declines were partially offset by the acquisition of Space Cargo which contributed two percentage points of ocean net revenue growth and five percentage points of air net revenue growth for the twelve-month period of 2019. Customs net revenues increased driven by increased volumes, including a modest impact from Space Cargo.

Operating expenses. Personnel expenses decreased driven by reduced performance-based compensation but was partially offset by an increase in average headcount driven by the Space Cargo acquisition. SG&A expenses increased driven by increased investments in technology, partially offset by a reduction in bad debt expense.

Twelve Months Ended December 31, 2018 compared to Twelve Months Ended December 31, 2017

Total revenues and direct costs. Total revenues and direct costs increased driven by increased volumes in all services and increased customer pricing in ocean and air.

Net revenues. Ocean transportation net revenues increased primarily due to increases in volumes, including those from acquisitions, partially offset by a decrease in net revenue margin. Air transportation net revenues increased driven by increases in volumes and an increase in net revenue margin. Customs net revenues increased primarily due to increased volumes including those from acquisitions. The acquisition of Milgram accounted for approximately 15 percentage points of customs net revenue growth.

Operating expenses. Personnel expenses increased driven by an increased average headcount, primarily due to the acquisition of Milgram. SG&A expenses increased driven by increased investments in technology, occupancy, and purchased services, including those from acquisitions.

All Other and Corporate Segment Results of Operations

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

			Twelve Months Ended December 31,
(dollars in thousands)			2019						2018						% change						2017						% change
Total revenues			$	1,697,903					$	1,796,671					(5.5)		%				$	1,999,558					(10.1)		%
Net revenues
Robinson Fresh			109,183						116,283						(6.1)		%				124,949						(6.9)		%
Managed Services			83,365						78,789						5.8		%				72,166						9.2		%
Other Surface Transportation			62,417						59,996						4.0		%				59,481						0.9		%
Total net revenues			$	254,965					$	255,068					—		%				$	256,596					(0.6)		%

Twelve Months Ended December 31, 2019 compared to Twelve Months Ended December 31, 2018

Total revenues decreased driven by Robinson Fresh due to strategic decisions to exit unprofitable business. This decrease was partially offset by an increase in total revenues in Other Surface Transportation related to the acquisition of Dema Service.

Robinson Fresh net revenues decreased driven by reduced case volumes due to strategic decisions to exit unprofitable business. Managed Services net revenues increased driven by a combination of new customer wins and selling additional services to existing customers. Other Surface Transportation net revenues increased primarily driven by the acquisition of Dema Service, which contributed six percentage points of growth in Other Surface Transportation.

Twelve Months Ended December 31, 2018 compared to Twelve Months Ended December 31, 2017

Total revenues decreased primarily due to a $120.5 million decrease in sourcing total revenue and purchased products sourced for resale as a result of our adoption of ASU 2014-09.

Robinson Fresh net revenues decreased driven by a decrease in net revenue per case and a decrease in case volumes. Managed Services net revenues increased primarily due to growth with existing customers. Other Surface Transportation net revenues were essentially flat.

LIQUIDITY AND CAPITAL RESOURCES

We have historically generated substantial cash from operations, which has enabled us to fund our organic growth while paying cash dividends and repurchasing stock. In addition, we maintain the following debt facilities as described in Note 4, Financing Arrangements (dollars in thousands):

Description						Carrying Value as of December 31, 2019						Borrowing Capacity						Maturity
Revolving credit facility						$	—					$	1,000,000					October 2023
Senior Notes, Series A						175,000						175,000						August 2023
Senior Notes, Series B						150,000						150,000						August 2028
Senior Notes, Series C						175,000						175,000						August 2033
Receivables securitization facility (1)						142,885						250,000						December 2020
Senior Notes (1)						592,448						600,000						April 2028
Total debt						$	1,235,333					$	2,350,000

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(1) Net of unamortized discounts and issuance costs.

We expect to use our current debt facilities 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 $447.9 million as of December 31, 2019, and $378.6 million as of December 31, 2018. Cash and cash equivalents held outside the United States totaled $405.1 million as of December 31, 2019, and $320.0 million as of December 31, 2018. Working capital decreased from $1.3 billion at December 31, 2018, to $1.1 billion at December 31, 2019.

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. On January 28, 2020, we entered into a definitive agreement to acquire Prime Distribution Services, a leading provider of retail consolidation services in North America for approximately $225 million in cash. The agreement is subject to certain customary closing conditions, including regulatory approval. We anticipate financing the acquisition using cash and existing financing arrangements.

The following table summarizes our major sources and uses of cash and cash equivalents (dollars in thousands):

Twelve months ended December 31,			2019						2018						% change						2017						% change
Sources of cash:
Cash provided by operating activities			$	835,419					$	792,896					5.4		%				$	384,001					106.5		%
(Uses) / sources of cash:
Capital expenditures			(70,465)						(63,871)												(57,945)
Acquisitions			(59,200)						(5,315)												(49,068)
Other investing activities			16,636						(3,622)												(521)
Cash used for investing activities			(113,029)						(72,808)						55.2		%				(107,534)						(32.3)		%
Repurchase of common stock			(309,444)						(300,991)												(185,485)
Cash dividends			(277,786)						(265,219)												(258,222)
Net (payments) / borrowings on debt			(112,000)						(118,988)												225,000
Other financing activities			47,977						30,021												16,573
Cash used for financing activities			(651,253)						(655,177)						(0.6)		%				(202,134)						224.1		%
Effect of exchange rates on cash and cash equivalents			(1,894)						(20,186)												11,891
Net change in cash and cash equivalents			$	69,243					$	44,725											$	86,224

Cash flow from operating activities. The increase in cash flow from operating activities in 2019 from 2018 was primarily driven by improved working capital performance and the impact of decreasing total transportation revenues and purchased transportation on our accounts receivable and accounts payable balances. The increase in cash flow from operations in 2018 from 2017 was primarily the result of increased earnings and improved working capital performance including improved collections of accounts receivable.

Cash used for investing activities. Our investing activities consist primarily of capital expenditures and cash paid for acquisitions. Capital expenditures consisted primarily of investments in information technology, which are intended to increase employee productivity, automate interactions with our customers and contracted carriers, and improve our internal workflows to help expand our operating margins and grow the business. During 2019, we sold a facility we owned in Chicago, Illinois for approximately $17.0 million.

In 2019, we used $45.0 million for the acquisition of Space Cargo and $14.2 million for the acquisition of Dema Service. In 2017, we used $47.3 million for the acquisition of Milgram.

We anticipate capital expenditures in 2020 to be approximately $60 million to $70 million.

Cash used for financing activities. We had net repayments on debt of $112.0 million in 2019, $119.0 million in 2018, and net borrowings of $225.0 million in 2017. The 2019 net repayments were primarily to reduce the outstanding amount on the receivables securitization facility while the 2018 net repayments primarily related to the revolving credit facility partially offset by long-term borrowings on the Senior Notes. The 2017 net borrowings were primarily related to the receivables securitization facility. There was no outstanding balance on the revolving credit facility as of December 31, 2019. As of December 31, 2018, the outstanding balance on the facility was $5.0 million. As of December 31, 2019, we were in compliance with, or have secured waivers of, all of the covenants under the Credit Agreement, Note Purchase Agreement, Receivables Securitization Facility, and Senior Notes.

The increases in cash dividends paid were the result of higher dividend rates, partially offset by fewer outstanding shares. The increase in share repurchases in 2019 was due to an increase in the number of shares repurchased, partially offset by a decrease in the average price paid per share compared to 2018. In 2018, the increase in shares repurchased was due to an increase in the number of shares repurchased and an increase in the average price paid per share compared to 2017. In May 2018, the Board of Directors increased the number of shares authorized to be repurchased by 15,000,000 shares. As of December 31, 2019, there were 9,993,683 shares remaining for future repurchases. The number of shares we repurchase, if any, during future periods will vary based on our cash position, potential alternative 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 facilities, and credit available in the market will be sufficient to satisfy our anticipated needs for working capital, capital expenditures, and cash dividends for at least the next 12 months. We also believe we could obtain funds under lines of credit or other forms of indebtedness on short notice, if needed.

Recently Issued Accounting Pronouncements. Refer to Note 13, Recently Issued Accounting Pronouncements, of the accompanying consolidated financial statements for a discussion of recently issued accounting pronouncements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. We consider the following items in our consolidated financial statements to require significant estimation or judgment.

REVENUE RECOGNITION. At contract inception, we assess the goods and services promised in our contracts with customers and identify our performance obligations to provide distinct goods and services to our customers. Our transportation and logistics service arrangements often require management to use judgment and make estimates that impact the amounts and timing of revenue recognition.

Transportation and Logistics Services - As a third party logistics provider, our primary performance obligation under our customer contracts is to utilize our relationships with a wide variety of transportation companies to efficiently and cost-effectively transport our customers’ freight. Revenue is recognized for these performance obligations as they are satisfied over the contract term, which generally represents the transit period. The transit period can vary based upon the method of transport, generally a number of days for over the road, rail, and air transportation, or several weeks in the case of an ocean shipment.

Recognizing revenue for contracts where the transit period is partially complete or completed and not yet invoiced at period end requires management to make judgments that affect the amounts and timing of revenue recognized. At December 31, 2019 we recorded revenue of $132.9 million for services we have provided while a shipment was still in-transit but for which we had not yet completed our performance obligation or had not yet invoiced our customer. We utilize our historical knowledge of shipping lanes and estimated transit times to determine the transit period in cases where our customers’ freight has not reached its intended destination. In addition, we analyze contract data for the first few days following the reporting date combined with our historical experience of trends related to partially completed contracts as of the reporting date to determine our right to consideration for the services we have provided where the transit period is partially complete or completed and not yet invoiced at period end. Disruptions such as weather events or other delays could cause the actual transit period to differ from these estimates.

Total revenues represent the total dollar value of revenue recognized from contracts with customers for the goods and services we provide. Substantially all of our revenue is attributable to contracts with 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. 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 primarily responsible for fulfilling the promise to provide the specified good or service to our customer and we have discretion in establishing the price for the specified good or service. Additionally, in our sourcing business, in some cases we take inventory risk before the specified good has been transferred to our customer. Customs brokerage, managed services, freight forwarding, and sourcing managed procurement transactions 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. See also Note 1, Summary of Significant Accounting Policies, for further information regarding our revenue recognition policies.

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.

Goodwill is tested for impairment annually on November 30, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We first perform a qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units is less than their respective carrying value (“Step Zero Analysis”). If the Step Zero Analysis indicates it is more likely than not that the fair value of our reporting units is less than their respective carrying value, an additional impairment assessment is performed (“Step One Analysis”). Based on our Step Zero Analysis, we determined that the more likely than not criteria had not been met, and therefore a Step One Analysis was not required.

When we perform a Step One Analysis, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

In the Step One Analysis, 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 when a Step One Analysis is performed.

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, 2019 (dollars in thousands):

			2020						2021						2022						2023						2024						Thereafter						Total
Borrowings under credit agreements			$	143,000					$	—					$	—					$	—					$	—					$	—					$	143,000
Senior notes (1)			25,200						25,200						25,200						25,200						25,200						682,950						808,950
Long-term notes payable(1)			21,388						21,388						21,388						196,388						14,440						423,008						698,000
Maturity of lease liabilities(2)			70,995						60,839						49,717						36,722						25,457						125,163						368,893
Purchase obligations(3)			105,420						31,278						15,718						17,833						26,133						182						196,564
Total			$	366,003					$	138,705					$	112,023					$	276,143					$	91,230					$	1,231,303					$	2,215,407

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

(2) We maintain operating leases for office space, warehouses, office equipment, and a small number of intermodal containers. See Note 11, Leases, for further information.

(3) Purchase obligations include agreements for services that are enforceable and legally binding and that specify all significant terms. As of December 31, 2019, such obligations primarily include ocean and air freight capacity, telecommunications services, maintenance contracts and information technology related capacity. In some instances our contractual commitments may be usage based or require estimates as to the timing of cash settlement.

We have no financing lease obligations. Long-term liabilities consist primarily of noncurrent income taxes payable and long-term notes payable. Due to the uncertainty with respect to the amounts or timing of future cash flows associated with our unrecognized tax benefits at December 31, 2019, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority. Therefore, $39.9 million of unrecognized tax benefits have been excluded from the contractual obligations table above. See Note 5, Income Taxes, to the consolidated financial statements for a discussion on income taxes. As of December 31, 2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.