Good morning, ladies and gentlemen and welcome to the C.H. Robinson Fourth Quarter 2013 Conference Call. At this time, all participants are in a listen-only mode. Following today’s presentation, Tim Gagnon will facilitate a review of previously submitted questions. (Operator Instructions) As a reminder, this conference is being recorded, Wednesday, February 5, 2014. I would now like to turn the conference over to Tim Gagnon, the Director of Investor Relations.

Thank you and good morning everybody. On our call today will be John Wiehoff, our Chief Executive Officer; and Chad Lindbloom, our Chief Financial Officer. John and Chad will provide some prepared comments on the highlights of our fourth quarter, and we will follow that with a response to pre-submitted questions that we have received after our earnings release yesterday afternoon. Please note that there are presentation slides that accompany our call to facilitate the discussion. The slides can be accessed in the Investor Relations section of our website, which is located at chrobinson.com. John and Chad will be referring to these slides in their prepared comments. I would like to remind you that comments made by John, Chad or others representing C.H. Robinson may contain forward-looking statements, which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management’s expectations. Before I turn it over to John, I would like to mention that similar to our first three quarters earnings releases, we have provided pro forma financial measures for net revenue and income from operations to provide meaningful insight and an alternative perspective of our results of operations. We believe that these pro forma financial measures reflect an additional way of analyzing aspects of our ongoing operations, that when viewed with our actual results, provides a more complete understanding of the factors and trends affecting our business. A reconciliation of actual results to pro forma numbers is provided in Appendix A and B at the end of the slide deck. With that, I will turn it over to John to begin his prepared comments on Slide 3 with a review of our Q4 2013 results.

Alright, thanks Tim. Thanks for everybody listening into the call. I am going to start my prepared comments on Page 3 of the deck that show our GAAP reported earnings for the year and then we will have a lot of comments on this page, because as Tim said, while the 2013 results are reflective of our ongoing business, the 2012 numbers are not comparable because of the transactions that are reconciled in the appendix. Looking at Page 3, I think a couple of data points that are relevant is just for the year 2013, our total revenues of $12.7 billion does reflect a 12% increase over the prior year. That increase is about half organic growth and half acquired revenue largely from the Phoenix International acquisition and obviously scale and size do matter in our business and it is important that we continue to grow that top line and have a stronger presence in the marketplace so that we can take advantage of our scale and size in the marketplace. If you look at the EPS for the quarter of $0.62, again it’s not comparable to the prior year. In our earnings release and pro forma information, it shows $0.66 as the pro forma adjusted for the prior year. Obviously, we are not happy with the $0.62 or the $2.65 of EPS for the year. This 2013 marks the first time in 16 years as a public company, where we were not successful in growing our EPS over the previous year. In addition to the decline because of the gains and the transactions of the previous year, it also is down from the pro forma numbers on the following page that I will talk to more. So we understand it’s a disappointing finish to a challenging year and we…

Okay, thank you, John. On slide – I am on Slide 13 now. You can see while our operating cash flow is down for the year on the GAAP perspective, the timing of the tax payment from the gain on sale of T-Chek had a significant impact. We had a positive impact of about $100 million in the last quarter of 2012 because the taxes for the gain are approved, but they were paid in the first quarter of 2013. So you can see on the third row of that chart if you adjust for the timing of those tax accruals and tax payments, we actually have significant increase in our cash flow both for the fourth quarter and the year compared to 2012. Our CapEx including our investments in capitalized software, which is both internally developed software as well as purchase software. The total of the capital – of those capital expenditures for the year were slightly lower than the predicted at $48 million. In 2014, we expect to spend about $40 million to $45 million in capital expenditures including that software. Our total debt balance at the end of the quarter was $875 million, that was made up of the $500 million long-term debt that we entered into in the third quarter and the – we have $375 million outstanding on our line – on the revolving line of credit which has a maximum of $500 million. Moving on to Slide 14, we have talked about our capital structure a lot lately, but I kind of recap what our current goals and plans are. We currently have a goal of distributing at least 90% of our annual net income through ongoing share repurchases and dividends. This goal could change based on investment opportunities or other capital needs. We…

So my comments are on Page 15, the 2014 thoughts and initiatives. On the top of that chart is a recap of our Investor Day, long-term growth goal, for those of you who didn’t participate in that last year given the changes over the last three or four years and the changes in the environment through our long range planning process, we took a look at how we thought we could perform over a longer period of time given the environment over the last four years. What we did at that point is lower our long-term growth targets to something that we thought was more realistic of the types of market share gains and operating leverage that we could gain in a more competitive environment like this. We stated then and would reiterate now that, that plan assumes that margins will fluctuate, but it also assumes margin stabilization from the previous periods. When we communicated this plan last fall, we did not anticipate the more aggressive margin compression that we have experienced towards the tail end of ‘13 nor did we contemplate the lost business in the sourcing division. So, we still believe in that long-term growth target. We still believe that, that is our benchmark and a reasonable goal for the longer term next 5 to 10 years of C.H. Robinson performance, but results will fluctuate and margins will fluctuate and during periods of time where we have contraction, it will be difficult or we won’t be able to achieve those goals. So well, we still believe in that long-term growth target. The next bullet point talks about the fact that similar to the fourth quarter of 2013 our net revenues have decreased in January of 2014. We do not have our books closed yet and we do not…

Thank you, John. Let me first start by thanking all of the analysts and investors for taking the time to submit questions. We received a lot of great questions and we will do our best to get through as many as we can in the time allotted. John and Chad will kind of share in the duties to respond to the questions and I will facilitate by first asking the question and then either John or Chad will respond. So we will get right into that now. And the first question is for John and it relates to headcount. So why does headcount still need to go up at such a rapid pace relative to net revenue? How long does that continue, our employees beginning to get somewhat disgruntled with the pay for performance incentive comp structure due to recent performance? And has that lead to higher turnover? So, a lot there.

Okay. So, some of this was covered in the prepared comments with the fact that we have been doing over the last couple of years what we have done for the majority of time, which is to look at our headcounts, investments largely in correlation to volume while we have always had productivity initiatives and we have as many today as we ever have. Our historic benchmark looked at headcount and staffing additions highly correlated to volume. As I stated in the comments, we do have a different approach to that during 2014. It’s not without risk. We have to drive market share gains and productivity in the network and obviously we want to be smart about the balance of that. So the tradeoffs between market share and investing in the network and adding resources to go after it versus margin and productivity is something that we struggle with everyday, but we are taking a different approach going into 2014. To the question of employees with variable comp and incentive pay and is that causing turnover or morale issues, I don’t think our industry is unique in the standpoint that expecting more with less has put some strain on our workforce. And as I mentioned earlier the variable pay and pay for performance culture that we have does create tension in our network around the fact that people are working as hard as they ever have and in many cases making less money for it. I think that’s just a reflection of the times. Statistically, I don’t, our turnover has not accelerated, although anybody who is involved in any service business you know that it’s more about which turnover you are having and are you keeping the right people those who are still on the bus motivated with the right morale. And it’s a challenge that we have to manage just like every other business that is going through margin compression and productivity expectations. But this company has a very strong culture of pay for performance. We all understand it. We are all part of it, and its just one of the risks of the business that we will have to continue to manage.

Thanks John. Second question is for Chad. Does CHRW have any meaningful cost levers remaining to pull? Is it possible to drive further cost from the network or does further margin improvement now depend on volume increases and pricing?

As you know the bulk of our operating expenses are personnel. John, both in his prepared remarks as well as answering the last question covered a lot of the personnel expenses all focused on SG&A. We also believe we have some room to leverage our SG&A expenses in 2014. We have always aggressively managed our expenses and will continue to do so in the future. We have received some questions about Phoenix integration expenses doing away. From the time of the acquisition, we have said that people managing the integration are the leadership of the company, not external consultants or dedicated people. There are still significant ongoing integration work into 2014, both the systems as well as integrating the go to market strategy that John mentioned earlier. We believe we have a strong team that will now begin to focus more on the integration of sales and the go to market strategy and growth as the other integration efforts reduce. Our total SG&A expenses for 2013 including amortization was about $327 million or about $82 million per quarter. When you look at the pro forma Q4 2012, you will see that that was $80 million for the fourth quarter. Many of the SG&A expenses are predictable like rent, communication cost, depreciation, amortization, many others are far less predictable like claims and bad debt expense. Because of this, our SG&A expenses will continue to fluctuate quarter-to-quarter. In 2013, we had $74.3 million in the first quarter, $84.7 million in the fourth quarter. In Q1, we have low bad debt and claims expense. In Q4, we had relatively high bad debt and claims expense, so that made up – those two expense categories made up of our half the variance between the high and the low for the quarter. We feel like the average of $82 million is a good benchmark for 2014, it will fluctuate from quarter-to-quarter like it always has, I am sure and obviously the first quarter will be a relatively difficult comparison.

Thanks, Chad. The next question is for John. Your guidance assumes that gross margin stabilized. Do you think that it is – that is possible in 2014? Do you expect to meet your long-term EPS guidance of 7% to 12% this year?

I addressed this somewhat earlier, but obviously with the net revenue decline in January and continued margin compression with the run rate of increased expenses, it’s not realistic to assume that margins are going to stabilize or that we will achieve those long-term targets in the first part of 2014. So the answer would be no. We still do believe in that long-term target. And as I mentioned earlier through re-pricing efforts that can take a couple of quarters and better expense management throughout the year, we do believe that our earnings growth opportunity is much better in the second half of 2014 than it is in the first quarter.

Okay, thanks John. The next question again for John, how did weather impact your business in the fourth quarter, what impact as that had quarter-to-date?

I mentioned in the sourcing area that a number of the crops that we buy and sell and distribute were impacted by weather throughout 2013. Some of those volumes were impacted in the fourth quarter as related to weather freezes and different things that happened. So there was definitely an impact in the sourcing business. In the transportation business, there were days in December and January, where you could correlate to really cold weather and the absence or decline of transportation volumes. In the past, we have always believed that most weather activities that volume would come back after a period of time, I don’t know in some of the January whether that was true or not, it does feel like some of the worst weather days in the month of January did diminish volumes pretty significantly, where there wasn’t a corresponding rebound to it. So that’s another thing that we will study more over time, but it does feel like weather was a contributor to some of our challenges over the last couple of months.

Thanks, John. The next question is for Chad, what are your growth expectations for Phoenix, which to us means Global Forwarding in 2014? Are there additional opportunities to benefit from the company’s increasing buying scale this year that did not benefit results in 2013?

Right. We have talked about the combined marketing and the increased focus on cross-selling and going to market with Phoenix in 2014. We believe that we will continue to add market share. So obviously a lot being a major player in the Trans-Pacific lane, a lot of how well we do and how quickly we grow will be dependent on how fast the market grows and we will – we also feel comfortable that we will continue to add market share. As far as leveraging the buy scale, yes, we think we still have some room to grow. The new ocean contracts went into effect in May of 2013. So for the first four months, we are operating under the old contracts of both Phoenix and C.H. Robinson. We think that these new contracts will continue to add the efficiency and we also feel like the more we get the two companies integrated from an operational perspective, we will find even greater opportunities to consolidate volume, to increase the profitability of our LCL business, which will create greater density and also continue to leverage the progress that we have made in our air gateways.

Okay, thanks Chad. The next question again for Chad, can you discuss how CHRW did season with customers’ works namely when does it begin and end and is there a bellwether customer that sets market expectations for pricing?

Our transportation business is very fragmented or very diverse with the large number of customers. No transportation customer is greater than 3% of our business or greater than 2% actually. So there is no single bellwether customer that really signifies what we think rates are going to do. When you look at, I have read about the industry and when we look at our own contracts, 70% of contracts happened in the first half of the year or even in the first four or five months of the year. Obviously, shippers choose to bid when they feel it’s – when it’s advantageous. Sometimes shippers, even if contract expires, will continue to try to tender us rates under those old contracts. That is the point of view of the shippers. Robinson and almost all of our truckload contracts as well as the industry as a whole have the ability to raise prices during a contract. Obviously, every time you do that, you risk losing freight or creating a competitive situation, which could lead to lost freight. As John mentioned earlier, we are going to continue to focus and focus even harder on our pricing with our existing customers and we may lose some business through that, but we understand the need to address some of our lower margin business on a case-by-case basis with customers throughout 2014.

Thanks, Chad. So the next question is for John. North America truckload volume growth meaningfully decelerated in Q4 ‘14 or Q4 ‘13 to up to 6% versus 9% in Q3 despite a strong spot market, we think – we typically think of market volatility as a favorable environment for a broker to operate in as they generally benefit from additional spot market opportunities as large carrier capacity get soaked up. Were there factors that constrain CHRW’s ability to leverage the strong spot market last quarter to grow shipments? Do you think more of the spot market traffic is going to the brokerage arms of asset-based carriers?

So there is a lot of components to that question and it ties in briefly to what I talked about earlier that going into this year and currently we do have a very high volume of committed customer relationships. So when the market begins to tighten like this, it puts strain on those margins and on those commitments to serve as the customer commitments that we have out there. The transactional volume increases require a shipper that’s willing to pay more. They require available capacity to actually meet that transactional opportunity. And again, in our world, the boundaries between committed and contractual and transactional vary more than they would for an asset carrier, where it’s clear whose equipments the freight is moving on. So we do see an increase in transactional opportunities and spot bids and trades like that, that we are going after, but we are not as successful in adding significant volumes of transactional freight as we have been in periods of the past when the market begins to tighten. Whether the shippers are actually choosing to ship at a higher rate, at what degree they are doing that, we know some of it, whether we are winning as much share around that in the past or not, whether competition is the bigger factor, it’s hard to tell. If we are missing out on that freight, we don’t necessarily get informed, where it’s going whether it’s an asset-based competitor or another broker or where that freight might be going. So that’s something that we are definitely monitoring. And as our market conditions continue to change, it is a clear point of emphasis to make sure that we are pursuing transactional opportunities in addition to our committed freight.

Thanks John. And the next question again for John, in your prepared remarks, you had indicated that truckload rates to customers increased 3.5% year-over-year while costs were up 5% year-over-year, how did these two measures trend in January? What percentage of CHRW book of business is currently operating under contractual agreements? When do these contracts predominantly end?

As I mentioned earlier that in January, the sort of preliminary estimates were more around pricing up – customer pricing up 5%, cost up 7%. And remember in our business, since we are working with predominantly meeting with small carriers who like a very fluid pricing arrangement that the vast majority of our truckload capacity is sourced on a fluid or spot market type basis, where the percentage of the freight that works with the customers is much more committed. Again, the definitions vary in each account, the definition of commitment and how long that last varies by each account. Most all of the contracts have 30-day notification periods, where as Chad mentioned earlier, we can propose different pricing, but then it all comes down to the load acceptance and the volumes on how each shipper and carrier in the marketplace are balancing the changing market conditions. So as I mentioned earlier, we revisit pricing daily. It is an hourly topic around here, around monitoring where we have margin issues, where we have losses and the pricing adjustment that it takes to correct those and it is thousands of unique relationships and account managers to figure out what is the right technique and timing in terms of adjusting those margins.

Okay, thanks John. And the next one again for John, we saw some robust trucking activity in late November and for some of December and if the market tightness seems to be continuing in January. Isn’t this the type of market volatility during which you have historically enjoyed significant share gains? Do you feel that will be the case in Q1? How long does it typically take for your net revenue margin to stabilize after an inflection in truck demand?

When we look back over the last 10 or 20 years, assuming history is a relevant guide for how we will react and how we will be able to adapt these things. On average, it can take two to three quarters for pricing changes to go through. Now, it’s dependent upon the time of year, the severity of the tightening and the price increases. I don’t know if December and January is indicative of what 2014 will be like in its entirety or if things will escalate in terms of tightness, but it can take a quarter to at least to get through the more committed business and re-price some of that. And again how successful that is depends upon how well we anticipate the future market conditions. We have commented a lot over the last four years that with the increased pressure on a lot of our customers around their supply chain in the competitive factors, price increases are challenging to get through in today’s marketplace. That will continue to change as market conditions change, but if you look at the environment over the last four years, it does make for where, this is hopefully an inflection point and hopefully an opportunity to add more value to our customers, but it does take time to work through and probably two to three quarters would be the right guide from a historical standpoint.

Thanks, John. The next question is for Chad and a sourcing question. Do you expect your sourcing business to grow in 2014 at the 4% to 8% long-term rate you are expecting? Is there any other color you can give on the large customer you have lost in terms of dollars or impacts of overall net and margins as well as EPS?

Okay, I will start with the question about the overall impact of the large customer. It is our – they were our largest customer in sourcing and will likely be either customer number one or two after this. So I think it’s very important to understand that we did not lose the customer as John mentioned there are just certain commodities or that they are not going to order – that they don’t plan on ordering from us going forward. As far as quantifying that, it’s based on what we know today, it’s somewhere around 10% of the total sourcing net revenues. As John mentioned sourcing has a much more concentrated customer base for us and we did lose a significant portion of the customer, but expect that to be at least 10% of our net revenues. As far as well we grow at our long-term rate in 2014 that would be extremely difficult to achieve. Our sourcing division does have plans to return to positive growth even with this 10% headwind, but that is an admittedly aggressive plan. As far as operating margins and EPS, our sourcing division has operating margins about equal to the consolidated numbers. So really the answer to that question is how successful will they be at replacing the net revenues.

Thanks Chad. The next question is for John and an intermodal question, are you interested in intermodal acquisitions, does the XPO, Pacer deal change, how you think about expansion in the intermodal space, if you aren’t looking for intermodal M&A, are you thinking about adding to your own container count. What else can you do to increase your presence in the intermodal segment of the market?

I started to discuss this earlier, I am looking at our results and we feel very positive about our knowledge of intermodal market, the relationship between truckload and intermodal and where it makes sense to ship by which mode of transportation and our ability to execute on an intermodal shipment. The challenge that we have or the growth opportunity that we have is in the more dense freight, the larger volume commitments where asset commitments do serve those relationships better. It just creates so much more operating efficiency that it’s very difficult to be price competitive if you don’t have that. So the answer to the question is yes we are interested in both, we are interested in looking at continuing to grow our organic capabilities with either more equipment commitments or dedicated drayage type solutions that will help solve that business or if the right acquisition opportunity comes along that we think will create value and be able to be well integrated into our culture that we would pursue that as well. So we are very interested and committed to growth in the intermodal space and are looking at both whatever type of investments that we could make to move us forward in that.

Thanks John. Next question for Chad, CHRW recently lowered its long-term growth target, is the company planning on revisiting its long-term incentive compensation to reflect CHRW’s new targets to try to help employee morale retention?

We are constantly analyzing our compensation programs, balancing the variable cost model with the maintaining our employee base. So yes we spent a lot of time on this. When you look at the equity grants that were made to the leadership, so the top 350 or so people in the company basically branch managers although we have two executives and corporate directors, we did change the vesting formula for our equity. So instead of it being the average of operating income plus – the average of operating income and EPS plus 5%, we went to EPS plus 10%. Again this is just for the new awards. The vesting formula for the awards that were granted previously to December of 2013 stays at their original growth plus 5% formula. Last year so the – beginning last year so the awards done in 2012, which is the vast majority of the people, but a small amount of the total, relatively small amount of the total amount of the equity awards, we went to time-based with them as we have previously announced. So those more individual contributor and key up-and-coming leaders in the network, their equity awards are time-based. So we did adjust equity programs. We have not adjusted any of the other programs at this point.

Thanks, Chad. Unfortunately, we are out of time. I apologize that we couldn’t get to all the questions today. We appreciate you and thank you for taking a part in the call today. The call will be available for replay in the Investor Relations section of the C.H. Robinson website at www.chrobinson.com. It will also be available by dialing (800) 406-7325 and entering the passcode 4660962#. The replay will be available at approximately 7 PM Eastern Time today. If you have additional questions, please feel free to call me at (952) 683-5007 or e-mail as well. Thank you again. Have a good day.

Thank you. This concludes the C.H. Robinson’s fourth quarter 2013 conference call. Thank you for participation. You may now disconnect.